A regulatory hearing panel ordered that a company pay $900,000 in disgorgement and penalties after finding that it illegally distributed securities to a vulnerable investor.
The British Columbia Securities Commission (BCSC) tribunal ruled that a company, Bracetek Industries Group Ltd., violated securities rules when it took a $1.75-million unregistered equity investment from a lone investor, without filing a prospectus or qualifying for an exemption.
While the company purportedly relied on the accredited investor exemption in completing the transaction, the panel said, “The investor was so far removed from qualifying as an accredited investor that any genuine effort at inquiry would have uncovered that.”
According to the panel, the investor was introduced to Bracetek by Geoffrey Rajay Sidhu, whom she met online in 2015. Sidhu advised her to remortgage her home and invest much of the proceeds in Bracetek — a company controlled by his father, Sidhu Sr.
While the investor went along with the plan, the panel found her to be vulnerable and unsophisticated.
“Texts exchanged between the investor and Sidhu revealed the investor to be a person who was extremely vulnerable financially and emotionally,” it said. “The investor lacked the financial sophistication and resources to understand or withstand the risks of making the Bracetek investment.”
It also said she needed the protection of prospectus disclosure.
“A prospectus would require financial statement disclosure and full, true and plain disclosure of material facts,” it said.
Ultimately, the entire investment was lost.
Last year, Sidhu settled with the BCSC, agreeing to pay $950,000 and be banned for seven-and-a-half years for his role in the illegal distribution.
While Sidhu Sr. died in 2021 and Bracetek didn’t participate in the BCSC proceedings against it, the hearing panel nevertheless ordered the company to disgorge $850,000, representing the amount of the investment minus the $900,000 ordered against Sidhu personally. It also imposed a $50,000 penalty on the company and banned it from the investment market for seven years.
The BCSC said any money it collects under these orders could be distributed to the victim.
According to the panel, the investor has also sued Bracetek, Sidhu and Sidhu Sr., but that case has not yet gone to court.