A B.C. Securities Commission (BCSC) hearing panel has ordered almost $5 million in monetary sanctions and disgorgement as well as imposed permanent bans against Richard Lian (aka Richard Terry Ruuska) and Enna Keller.

Specifically, Lian and Keller were found to have committed fraud and breached cease-trade orders when they raised US$3.2 million from investors by selling securities in a company that was subject to a cease-trade order.

Last year, the BCSC hearing panel ruled that the pair violated securities laws when they told investors they were raising funds for a manufacturing firm, Lexicon Building Systems Ltd., to finance its operating costs and debts. Yet, the BCSC found that only about US$600,000 of the money raised was spent as promised, approximately US$180,000 was returned to investors, and Lian spent the rest.

The respondents argued that the funds raised from investors were loans, not securities, according to the BCSC hearing panel’s decision: “The respondents acknowledged that securities regulations in British Columbia had been breached but denied that the respondents had the specific intent to commit fraud.”

Yet the panel disagreed, ruling that they did commit fraud. Now, it has handed down sanctions in the case, ordering not only that Lian and Keller should be permanently banned, but they have also each been ordered to pay administrative penalties of $2.42 million and Lian has also been ordered to pay US$2.4 million in disgorgement.

According to the decision, the BCSC sought an administrative penalty of just $250,000 against Keller, noting that she had no control over the investors’ funds once they were received and that her conduct was not as serious as Lian’s. Yet, the hearing panel disagreed, ruling that she played an essential role in the scheme.

“Without her efforts, Lian would likely have been unable to recruit Lexicon shareholders and other investors to send their funds to Lian and his corporations. Keller’s continuous misleading communications … was essential to continuing and expanding the scope of the fraud,” the BCSC hearing panel’s decision said. As a result, it concluded that she should also face a $2.42 million penalty.

Read: BCSC to allow investors to sell cease-traded securities to their dealers

In imposing the permanent bans, the panel noted that “those who commit fraud represent a significant risk to British Columbia’s capital markets. That is why permanent market prohibitions are almost always imposed when a respondent is found to have committed securities fraud.”

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