Swiss bank pays $850,000 penalty in BCSC crackdown on offshore accounts

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A Swiss bank has agreed to pay $850,000 to settle accusations that it allowed B.C. residents to open accounts and trade more than $300-million worth of securities without being registered in the province.

The case comes amid a British Columbia Securities Commission crackdown on suspicious trading activity from offshore bank accounts in "secrecy" jurisdictions. The regulator says in many cases the accounts are opened by B.C. residents who want to do manipulative trading while hiding their identities by using brokerage accounts in other countries.

Under the latest settlement announced Wednesday by the BCSC, Bank Gutenberg AG, a small private bank based in Zurich, has admitted it traded securities on behalf of B.C. residents without registration. The bank admits it marketed its services to B.C. investors through its website and directly through Vancouver-based employees who promoted the company's trading services through offshore securities trading accounts.

The BCSC said it identified 16 Bank Gutenberg accounts at six brokerage firms in B.C. that accounted for $328-million in trades since January, 2010. The accounts were registered in the bank's name, so the BCSC said it is difficult to know how many different clients' trades were executed through them.

While the regulator identified the names of two B.C. clients who had accounts with Bank Gutenberg through offshore corporations they controlled, the BCSC said it could not confirm who else was a client because it could not obtain access to Bank Gutenberg's records. The settlement agreement says Bank Gutenberg acknowledged there were more than two B.C. clients.

BCSC special investigations manager Lang Evans said the case should send a clear signal to other institutions that "if you trade for residents in B.C., you've got to be registered in this province."

Mr. Evans heads a small investigative team at the BCSC focusing on cases of suspicious trading in B.C. through accounts at offshore firms in countries with bank secrecy laws that makes it hard for regulators to identify the source of the trading.

"We've got a strategic initiative to identify and disrupt questionable or abusive trading from offshore jurisdictions," he said in an interview. "The goal is to raise the cost for institutions or individuals who facilitate this type of trading, and this settlement is an example of the results of that initiative."

The BCSC has previously announced allegations of insider trading by a former broker who used an account at Bank Gutenberg to buy shares of Highland Resources Inc. Mr. Evans said the case suggests that some of the trading occurring through the bank was not appropriate.

The Swiss bank agreed to pay $850,000, including $50,000 to cover investigation costs. The bank has also been permanently banned from trading securities in the province.

Bank Gutenberg announced late last year that it would cease operating as a bank in Switzerland, citing "difficult market conditions and increasing regulatory constraints." Mr. Evans said he does not know if the Gutenberg group intends to keep operating in other non-bank capacities.

"I don't know what their future business plan is but it's not going to include this market," he said.