The British Columbia Securities Commission has launched a sweeping case against Pacific International Securities Inc. and its directors concerning the firm’s involvement with securities law violators.

The company disputes the commision’s claims.

The BCSC says that PI had a business strategy to encourage the development of offshore business, and that for a number of years its clients have been named in indictments filed by the U.S. Department of Justice alleging breaches of American securities laws.

Former PI broker J.C. Hauchecorne, has already been sanctioned for being caught up in this activity, including trading for suspected Mafia members.

The commission will hold a hearing to consider whether registrations should be restricted, if company directors should be made to resign any position they hold as a director or officer of any issuer, and whether they should pay an administrative penalty or hearing costs.

Max Meier, PI chairman and CEO, said PI intends to defend itself vigorously at the hearing. “Any suggestion that PI condoned improper conduct in any of its more than 30,000 client accounts is simply unfounded. We have always taken our supervisory obligations seriously. The Notice looks at past conduct and retroactively suggests new standards of supervisory responsibilities for a brokerage house,” he said.

Meier also questioned the naming of a number of PI’s board members in the Notice

The BCSC alleges that the companies’ directors failed to fulfill their roles as gatekeepers in the securities industry. Along with the firm, it names company co-founder Meier; Lawrence McQuid, the firm’s CFO and compliance officer; Jean-Paul Philippe Bachellerie, current president and CEO; Robert Blades and Germain Carrière. Carrière has been a director since May 1998, and is president and COO of National Bank Financial Ltd., which holds an equity interest in PI.

It also names John Eymann, who also co-founded PI, Alberto Quattrociocchi, former chairman Martin Reynolds, and Theresa Mary Sheehan.

In its Notice of Hearing, the BCSC states, “Pacific International knew or ought to have known of some or all of the indictments, the complaints, the citation, and some or all of the behaviour which led to them. This information ought to have led Pacific International to conduct internal reviews of the trading in U.S. markets and account opening activities and to address the compliance deficiencies which those reviews should have revealed. This did not happen and the compliance deficiencies continued.”

It states that certain client accounts “displayed activities and characteristics that would have caused a reasonable registrant to investigate the owners and operations of the accounts, because each activity, alone or in combination, is potentially a symptom of illegal conduct or conduct contrary to the public interest, including money laundering and share manipulation.”

Some of these accounts were controlled by experienced market players, and some were controlled by those with criminal and regulatory disciplinary histories. “The trading of foreign stocks in B.C. by non-residents should have prompted Pacific International to question the motivation of those clients.”

It says that the firm should have been registered in the U.S., but by not seeking registration and joining the NASD, “Pacific International avoided the scrutiny of the NASD and avoided complying with the rules and requirements of the NASD, which could have assisted it in its gatekeeper and compliance functions.”

It alleges, “Pacific International failed to learn and the directors failed to cause it to learn, the essential facts about Pacific International’s clients holding accounts, including especially, but not exclusively, their identity, reputation, and reasons for retaining Pacific International, when the respondents knew, or ought to have known, information that caused, or ought to have caused, doubt whether certain of Pacific International’s clients were of good business or financial reputation.”

Meier said the Notice ignores the prompt actions taken by the firm when problems concerning U.S. OTC-BB securities first became apparent to the brokerage industry and regulators. OTC-BB activity does not occur through the facilities of a stock exchange, but is subject to regulation by U.S. securities regulators in accordance with U.S. law. As soon as concerns arose, PI cooperated fully with regulatory authorities, dealt immediately with the industry-wide issues, and was a leader in responding to those issues.

A preliminary hearing is scheduled for September 19.