A regulatory disgorgement order will survive a fraudster’s bankruptcy, a court in British Columbia confirmed — a ruling that comes in the wake of a recent Supreme Court of Canada decision which found that regulatory penalties can be wiped out by bankruptcy proceedings.
Back in 2016, the B.C. Securities Commission (BCSC) ordered sanctions against a former mutual fund rep, Thomas Arthur Williams, after finding that he defrauded investors in an alleged Ponzi scheme, which took in $11.7 million from investors between 2007 and 2010. Among other things, the regulator imposed a $15 million penalty and ordered $6.8 million in disgorgement against him.
Those sanctions have not been paid.
In 2021, Williams filed for bankruptcy, and he applied for a discharge in 2023 — that application was adjourned indefinitely, in the face of opposition from both the BCSC and the bankruptcy trustee.
In May, the BCSC applied to the Supreme Court of B.C. for a declaration that the disgorgement order will survive William’s bankruptcy. In its decision, the court noted that Williams opposed the application, but didn’t provide any substantive arguments for his position.
“The most he could do was to advise that he is on a pension and cannot afford to make the payments,” the court noted.
Ultimately, the court granted the order sought by the BCSC, ruling that the disgorgement order against Williams will survive his bankruptcy. In its decision, the B.C. court concluded that the disgorgement order against Williams was created by his fraud.
“The disgorgement order in this case represents the value of Mr. Williams’ liability caused by his fraudulent conduct. … There is a direct link between the disgorgement order debt and Mr. Williams’ deceitful conduct,” it said.
According to the BCSC, the ruling was, “the first to use the Supreme Court of Canada’s (SCC) legal test for determining whether a financial sanction should survive discharge from bankruptcy.”
In that decision, which also arose from a BCSC case, the SCC found that while debts arising from fraud do survive bankruptcy, that regulatory penalties levied in connection with that misconduct do not.