A regulatory hearing panel has ordered almost $37 million in penalties and disgorgement against a group of insurance firms and their founders after finding that they illegally raised more than $47 million from investors.
A hearing panel of the British Columbia Securities Commission (BCSC) ordered $32.8 million in disgorgement from a collection of companies, known as the FS Group, along with $2 million in penalties against each of the companies’ founders, Aik Guan “Frankie” Lim and Scott Thomas Low, after finding that they violated securities laws to fund their firms.
The respondents in the case were also permanently banned from the capital markets in B.C.
According to the hearing panel’s decision, Lim and Low launched FS Strategies, which was the first company in the FS Group, in 2010, and then proceeded to undertake a rapid expansion.
By 2017, the FS Group had 12 offices in three provinces (two in Alberta and one in Ontario, along with nine in B.C.). They also employed approximately 80 advisors and advisors-in-training, and 20 independent contractors, along with back-office personnel.
“Part of their business model was to pay their insurance agents a salary rather than the industry standard of paying a commission on the sale of insurance products,” the BCSC noted.
However, the panel found that the companies’ expansion was financed by unsecured loan agreements and subscription agreements that amounted to securities, which were sold without a prospectus.
These efforts raised over $47 million from 389 investors between 2012 and 2017.
The panel found that Lim and Low illegally sold securities, misled investors and engaged in unregistered trading.
“Investors were harmed when they invested in the FS Group without knowing facts that they ought to have in order to make informed investment decisions,” the panel said, adding that Lim and Low also damaged the reputation and the integrity of the capital markets.
The panel also found that Lim and Low violated a 2014 commitment to the BCSC to file exempt distribution reports and to repay investors who didn’t qualify for exemptions.
“The seriousness of the misconduct was magnified by the significant amount of money and large number of investors involved, and the duration of the misconduct,” the panel said in its decision.
Lim, Low and the FS Group companies admitted to the misconduct in an agreed statement of facts in August 2019.
The BCSC also ruled that the companies’ former general manager, Darrell Wayne Wiebe, is banned for 10 years and ordered to pay $75,000.