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British Columbia’s securities regulator has fined a group of companies and three former executives nearly $37-million for making misrepresentations to almost 400 investors, illegally selling securities and conducting unregistered trading.

A hearing panel at the British Columbia Securities Commission (BCSC) ordered a group of seven companies in B.C., Alberta and Ontario – collaboratively known as the FS Group – to pay a total of $32.8-million in fines.

As well, the panel ordered the companies’ founders – Aik Guan (Frankie) Lim and Scott Thomas Low – to pay an additional $2-million penalty each, and “forever banned” them from B.C.’s investment markets. In addition, the panel ordered the companies’ former general manager, Darrell Wiebe, to pay $75,000 and banned him from B.C.’s investment markets for at least 10 years.

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“Investors were harmed when they invested in FS Group without knowing facts that they ought to have in order to make informed investment decisions,” the BCSC panel wrote in its decision.

Both the founders and Mr. Wiebe admitted to raising more than $47-million from 389 investors between 2012 and 2017 without disclosing that the FS Group was “not profitable, was not earning enough money to cover its expenses and to pay investors their promised return, and was covering the shortfall by raising more money from investors.”

One of the companies – FS Strategies Services – sold securities in the form of subscription agreements for units of 3i Capital (another FS group business), promising an annual return of 8 per cent. The other companies in the FS Group persuaded investors to buy securities in the form of unsecured loan agreements, with promises of annual interest of 10 per cent to 12 per cent, payable monthly.

The companies employed about 100 agents to sell insurance products, however the BCSC found many of the employees were selling these unsecured loan agreements.

No prospectuses were filed, even though prospectus exemptions were not available for $29-million of the securities sold, while some advisers sold $32-million of those products without being registered to trade in securities. A prospectus is a formal document given to investors to explain the details of an investment and the risks involved.

“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 BCSC panel wrote.

The BCSC panel said it is unlikely that the FS Group can repay to investors what is still owed to them.

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The seven companies that make up the FS Group include: FS Financial Strategies Inc., FS Financial Strategies Services Inc., 3i Capital ClearPath Limited Partnership, FS Financial Services Inc., FS Financial Services (Alberta) Inc., Verico FS Capital Inc. and FS Financial Systems Inc.

In addition to the fines, both the founders and the seven companies are prohibited from: trading or purchasing any securities or exchange contracts, relying on exemptions in the Securities Act, becoming or acting as a registrant or promoter, acting in a management or consulting capacity in connection with the securities market, or engaging in investor relations activities.

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