One of the first fraud cases brought against a Canadian cannabis company will be argued, in part, in a room sealed to nearly everyone but staff of the Ontario Securities Commission – a move legal experts say is an unprecedented level of secrecy for a securities hearing.
In September, 2019, the regulator levelled allegations of wrongdoing against Canadian Cannabis Corp. and its three founders: Ben Ward, Peter Strang and Silvio Serrano. The regulator alleged that Mr. Strang and Mr. Serrano misused about $3-million in investor funds, either diverting cash to themselves or family members, rather than putting it toward a grow-light business they were developing. Mr. Ward, the company’s then chief executive officer, was also accused of fraud for, among other reasons, not doing more to recover $800,000 worth of lighting equipment the OSC alleges “disappeared under suspicious circumstances.”
The case took an extraordinary turn last year, when the trio were provided with what is known as disclosure – the evidence the OSC is relying on to sanction them and is required to supply to anyone whom it has accused of wrongdoing.
Normally, Canada’s securities commissions hand over every last piece of evidence to alleged offenders – a step that is taken to ensure the process is fair. In the case of Canadian Cannabis Corp., the OSC said it was required, by law, to conceal some of the evidence, along with the reasons for the confidentiality. Legal experts say the level of secrecy will make it difficult to determine whether justice has been served.
First, the OSC delayed handing over any of the transcripts of the interviews it had conducted with Mr. Ward, who was interrogated for three days in 2018. When the OSC finally provided the transcripts, it had redacted significant portions citing a “confidential order of the commission.”
When lawyers for Mr. Serrano demanded more information about the redactions, they were told the OSC was prohibited from saying anything else about the matter. This included any details about the origins of the confidential order, such as who issued it and when.
The OSC retained prominent Toronto criminal lawyer Frank Addario, who informed Mr. Serrano’s legal team, by letter, that it would be illegal for the regulator to say more.
“I regret the matter is cloaked in secrecy, but it is necessary in the circumstances,” Mr. Addario wrote to Mr. Serrano’s lawyer on May 14, 2020.
The secrecy provisions went further. This past May, an OSC Commissioner, Raymond Kindiak, ruled the “unique circumstances” of the case require him to seal the public from the hearing room for part of the planned proceeding.
This includes barring Mr. Serrano, Mr. Strang and even Mr. Ward – the very person whose evidence has been redacted – from participating during that portion. The trio are permitted to attend two non-confidential phases of the hearing. The dates for the hearing have not been set.
The only person permitted in the room for the confidential phase, besides OSC staff and the panel of adjudicators, will be an amicus curiae, a third-party lawyer whose job is to make sure the process is just and fair.
An amicus curiae, which is Latin for a friend of the court, is usually reserved for situations in which an accused person, for whatever reason, can’t or won’t access proper legal representation. In his ruling, Mr. Kindiak said it was the first time an amicus had ever been used in an OSC proceeding.
The unusual twists in the case have attracted interest from experts in securities law.
Andrew Wilson, a former enforcement lawyer for the Alberta Securities Commission who now defends clients facing sanctions, said he has never heard of this degree of secrecy imposed by a securities commission.
Typically, an administrative tribunal such as the OSC will bend over backward to provide parties with disclosure because the legitimacy of the process hinges on fairness and the ability of an accused person to defend themselves, Mr. Wilson said.
“It could be that this process has been entirely fair based on what’s happened, but when you can’t look behind the curtain, how do you know that?” he said.
“This is very bizarre.”
Simon Bieber, a lawyer for Mr. Serrano, said: “I have not seen this level of secrecy before.”
Canadian Cannabis Corp. was one of many companies that sprouted up nearly a decade ago, trying to seize on an opportunity created by the then-Conservative federal government. Ottawa had introduced regulations that permitted, for the first time, corporations to grow medical marijuana on a mass scale. Entrepreneurs poured into the business, all clamouring for coveted Health Canada licences and a foothold in the burgeoning market.
Canadian Cannabis Corp. was never granted a licence, but entered negotiations with several licensed companies to acquire their businesses. None of those talks were successful.
One company it pursued publicly was the Quebec-based grower now known as Hexo Corp., which has since become one of Canada’s 10 largest recreational cannabis companies.
By 2016, Canadian Cannabis Corp. had ceased operations, with the three founders all resigning.
Among the allegations laid by the regulator are accusations the three men created a brief for investors in 2014 that included several false claims. The brief said the company’s lighting business had sold 2,000 units, but the OSC alleges the actual number was much lower. The OSC also alleges that the investor brief wrongly touted Mr. Ward as having a PhD. None of the allegations have been proven before the tribunal.
Through his lawyers, Mr. Ward declined to comment.
In his 2018 interview with the OSC, Mr. Ward told investigators his work history included a period from 1999 to 2005 when he worked for the U.S. Central Intelligence Agency. He did not provide details of his service.
Mr. Ward also told the regulator that, since the collapse of Canadian Cannabis Corp., he has been threatened by individuals he did not identify by name over money they say he owes them from the failed business.
In 2017, there were two high-profile murders in Toronto that had ties to Canadian Cannabis Corp. It is not known if either of these incidents have anything to do with the confidential order.
In March of that year, a gunman opened fire on a BMW in a parking lot outside a lighting store owned by Mr. Serrano. The intended target, Mr. Serrano’s brother, Saverio Serrano, was wounded, but his girlfriend, 28-year-old Mila Barberi, was killed. Saverio Serrano is one of the family members who the OSC alleges improperly received investor funds.
Two weeks after Ms. Barberi’s slaying, Tony Sergi, a known Mafia figure and cannabis grower, was executed by gunfire in his driveway in the Toronto suburb of Etobicoke. Mr. Sergi had engaged in talks with Canadian Cannabis Corp. about the company possibly acquiring some of his cannabis facilities and had purchased some lighting equipment from the company.
The OSC has also alleged that $45,000 of the investor funds flowed to Silvio Serrano’s father, Diego Serrano, who has been convicted multiple times of drug-trafficking offences. In his compelled interview with the OSC, though, Silvio Serrano distanced himself from his father, explaining that his father hadn’t been present for a large portion of his life.
However, he acknowledged he acted as a surety for his father when Diego Serrano was arrested in 2015, something he felt compelled to do as his son. “I wasn’t proud of Diego and his history,” he told the investigators.
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