B.C. regulators have accused a former financial adviser of improperly advising clients to buy $65-million of securities without being registered to do so, and allege he committed fraud in misleading his clients about why he gave up his registration to work in the securities industry.
The British Columbia Securities Commission alleges David Michael Michaels told clients he resigned his registration with Canada’s brokerage industry regulator in 2006 because he foresaw a stock market crash and wanted to get his clients’ money out of the market, but in fact resigned because he was facing a hearing into allegations of wrongdoing.
The BCSC said that by making false claims about his reason for resigning his registration, “Michaels perpetrated a fraud on his clients.”
The BCSC also accused Mr. Michaels of acting as an investment adviser without being registered to do so. He is accused of improperly recommending that 484 investors buy $65-million of investments between 2007 and 2010 while earning $5.8-million in commissions and marketing fees for himself.
“Almost all of the roughly $65-million invested by Michaels’ clients is now worthless, leaving many of them financially destitute while their home equity loans remain,” the BCSC said in a statement of allegations Thursday.
Mr. Michaels ran Michaels Wealth Management Group until 2010 and did a weekly radio infomercial on CFAX 1070 radio in Victoria called “Creating Wealth with David Michaels.” Mr. Michaels’ firm was shut down and assigned into bankruptcy in 2011.
The BCSC said he repeatedly said during his radio broadcasts that he gave up his registration in 2006 with the Investment Dealers Association of Canada (IDA) – since renamed the Investment Industry Regulatory Organization of Canada – because he expected a market crash.
At the time, however, Mr. Michaels was under investigation by the IDA, which subsequently accused him of improperly conducting off-book transactions with clients and improperly advising clients to buy shares when he was only registered as a mutual fund salesman.
In 2007, an IDA hearing panel ruled he had broken industry rules and ordered that he could not apply for registration for two months and had to pay a penalty of $60,000 – which he did not do. He did not seek registration again.