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Investigations Investigation: White-collar thieves are repeatedly stealing millions from the unsuspecting, without fear of reprisal

INVESTIGATION

Easy money: How fraudsters can make millions off Canadian investors, get barely punished and do it again

A Globe data investigation of 30 years' worth of regulatory cases reveals a toothless system. Grant Robertson and Tom Cardoso report

Ken Fritz, an 82-year-old retired small business owner from Regina, at home with his dog, Angel. Fritz was ripped off in a stock scam more than a decade ago.

In 2014, the Ontario Securities Commission sent a stern message to Howard Rash, banning him from the capital markets – for life. It was one of the toughest sanctions the regulator could deliver.

With gold prices soaring, Mr. Rash had talked hundreds of unsuspecting investors into buying stock in his upstart company, New Gold LLP. It was a bonanza in the making, he told them. And with the market moving so quickly, there was no time to spare. But as he delivered the hard sell, he also twisted the truth: He used a fake name, lied about the company's headquarters and dramatically misrepresented its assets. Even the name New Gold was ripped off from an actual mining company with a similar name, so if investors looked it up, the firm seemed legitimate. But the shares were a fraud.

By the time the OSC caught up with him, the stunned shareholders – including elderly investors who had handed him their retirement savings – were collectively out millions of dollars after succumbing to his high-pressure tactics.

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The lifetime ban imposed on Mr. Rash might have seemed like a tough punishment – had he not been banned permanently once before. In reality, a second lifetime ban was worthless. His first ban, in 2007, for almost identical crimes, did nothing to deter Mr. Rash from wading back into the markets to reoffend.

Of course not. As a serial offender, his schemes netted more than $23-million from their victims. And even though the OSC managed – on his fourth offence – to finally sentence him to nine months in jail, none of the money has been recovered. Nor has he paid any of the $1.67-million fine he received. The short jail sentence, now over, was merely a cost of doing business.

Asked by The Globe and Mail where the money went, Mr. Rash did not answer. "Good luck with your article," he said via e-mail.

It's a question no securities regulator has been able to get him to answer. And cases such as his are far from unique.

To fully understand the white-collar crime problem that has plagued Canada's capital markets for decades – prompting some academics to wonder if Canadian stocks are unduly discounted because of the regulatory environment's poor reputation – look no further than the ease with which repeat offenders seem to take advantage of the lax securities enforcement across the country.

These cases, examined collectively for the first time in a year-long Globe investigation, show just how frequently white-collar criminals commit securities crimes in Canada, then reoffend and get away with only minimal punishment – including fines and bans that can't be enforced. Usually, the money made far exceeds the penalties.

For decades, there has been no way to track the size or scope of the problem. Most provincial securities regulators don't keep statistics on repeat offenders. Those that say they do won't make their data public, nor are they able to state what the recidivism rate is. On a national basis, there is no way to know the extent of financial recidivism, even though such data could provide key insights into the level of abuse and how deterrence efforts are failing.

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Such problems helped create what former Bank of Canada governor David Dodge has called "the widely held perception that Canadian authorities aren't tough enough."

From low-level swindlers who bilk investors out of a few million dollars to some of the biggest financial scandals in Canadian history – such as Bre-X Minerals and others – the inability of regulators to mete out serious punishment in cases of securities fraud has raised questions about how much deterrence is actually taking place.

So in late 2016, The Globe set out to create an algorithm that could do what the regulators had never done. It would analyze 30 years of regulatory cases – using the trove of online digital files from securities commissions and industry regulators across the country – in an effort to determine how often capital markets were being exploited by serial abusers and what their behaviour says about the weaknesses inherent in Canada's enforcement of financial crimes.

One in nine reoffend

Among the thousands of cases reviewed, the investigation revealed a financial system that is unwittingly set up in the criminals' favour, with little recourse for victims and the inability of regulators to enforce the sanctions they impose.

The Globe found stock-market regulators habitually choosing to handle their cases through administrative tribunals – which are faster and less costly because they have a lower bar to clear in gaining a conviction – as opposed to pursuing them through criminal courts. The administrative process is designed to sanction people or companies who want to remain in good standing with regulators. The trade-off, though, is that the penalties imposed through these tribunals are almost impossible to enforce against those who really want to evade them – as evidenced by the multiple meaningless lifetime bans handed out to Mr. Rash and others.

Of the 5,774 disciplinary files The Globe examined, 4,441 involved charges brought against individuals as opposed to companies. Of those individuals, 954 people, or 21.5 per cent, had more than one sanction against them.

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However, some of those people were the subject of so-called reciprocal orders, where one Canadian regulator issues an automatic sanction against a person who has committed a serious violation in another jurisdiction.

Once those reciprocal orders are removed from the equation and the algorithm does further filtering and analysis, the picture becomes clearer: 493 people, or 11.1 per cent of the securities case files across Canada, matched the profile of a repeat offender – a person regulators tried but failed to sanction properly.

Put another way, one out of every nine people found guilty of financial crimes by a securities regulator in Canada returned to do it again.

Finding repeat offenders in the data

The Globe collected records from the Canadian

Securities Administrators and found that 493

individuals, or 11.1% of all case files relating to

people, matched the statistical profile of a

possible white collar repeat offender. Repeat

offenders are those who met The Globe’s

threshold for frequency and type of sanctions.

Here’s how the data breaks down.

10 people

Possible

repeat

offenders

493 files

People with at

least two records

954

People only

4,441

All companies

and people

5,774

Note: This is a simplified version of how the data

was filtered to arrive at a number of repeat offenders.

Read The Globe’s methodology for a full account of

the process behind the analysis.

Finding repeat offenders in the data

The Globe collected records from the Canadian Securities

Administrators and found that 493 individuals, or 11.1%

of all case files relating to people, matched the statistical

profile of a possible white collar repeat offender. Repeat

offenders are those who met The Globe’s threshold for

frequency and type of sanctions. Here’s how the data

breaks down.

10 people

Possible

repeat

offenders

493 files

People with at

least two records

954

People only

4,441

All companies

and people

5,774

Note: This is a simplified version of how the data was filtered

to arrive at a number of repeat offenders. Read The Globe’s

methodology for a full account of the process behind the analysis.

Finding repeat offenders in the data

The Globe collected records from the Canadian Securities Administrators and found that

493 individuals, or 11.1% of all case files relating to people, matched the statistical profile

of a possible white collar repeat offender. Repeat offenders are those who met The Globe’s

threshold for frequency and type of sanctions. Here’s how the database breaks down.

10 people

Possible

repeat offenders

People with at

least two records

All companies

and people

People only

493

954

5,774 files

4,441

Note: This is a simplified version of how the data was filtered to arrive at a number of repeat offenders.

Read The Globe’s methodology for a full account of the process behind the analysis.

Finding repeat offenders in the data

The Globe collected records from the Canadian Securities Administrators and found that 493

individuals, or 11.1% of all case files relating to people, matched the statistical profile of

a possible white collar repeat offender. Repeat offenders are those who met The Globe’s

threshold for frequency and type of sanctions. Here’s how the database breaks down.

10 people

Possible

repeat offenders

People with at

least two records

All companies

and people

People only

493

954

5,774 files

4,441

Note: This is a simplified version of how the data was filtered to arrive at a number of repeat offenders.

Read The Globe’s methodology for a full account of the process behind the analysis.

Finding repeat offenders in the data

The Globe collected records from the Canadian Securities Administrators and found that 493 individuals, or 11.1%

of all case files relating to people, matched the statistical profile of a possible white collar repeat offender. Repeat offenders

are those who met The Globe’s threshold for frequency and type of sanctions. Here’s how the database breaks down.

10 people

Possible repeat offenders

People with at least two records

People only

All companies and people

493

954

5,774 files

4,441

Note: This is a simplified version of how the data was filtered to arrive at a number of repeat offenders.

Read The Globe’s methodology for a full account of the process behind the analysis.

"That's a lot," said Douglas Cumming, a professor of finance at Toronto's York University who specializes in public policy and the capital markets. "It suggests something – punishment isn't really working."

Many cases represent investor losses of a few million dollars or more, and sometimes as much as $25-million, which means the toll from several hundred offenders is likely in the hundreds of millions of dollars, even by the most conservative estimates.

When prosecution times are factored in – in Ontario, where the bulk of Canadian cases are heard, the average file eats up 750 hours of investigation time – the drain on the system is also apparent, as the steady stream of smaller cases saps resources from larger files.

Of the 80 worst-offender cases examined in depth by The Globe, at least 20 showed clear signs of being serial offenders "It's significant," Prof. Cumming said of the finding.

The Globe found one repeat offender with 17 regulatory orders on his file, spanning six provinces. Another has been hit with six orders in the same province.

The investigation found numerous examples of offenders who, unknown to regulators at the time, were conducting new financial crimes even as they sat in hearings to answer for past offences.

And in certain cases where securities commissions have tried to clamp down on abuse, provinces have been rebuked for overstepping their powers, letting the offenders off with lighter penalties.

In the United States, where the Securities and Exchange Commission is known for pursuing white-collar crime more aggressively in the courts, statistics on serial abuse are also hard to find. But unlike Canada, the SEC has publicly flagged repeat offenders as a problem to be fixed.

"Recidivism is an issue," former SEC commissioner Luis Aguilar warned in 2012. "That tells me that the first time that many of these defendants were prosecuted, the remedies and penalties did not effectively deter them."

In addition to tougher penalties in court, the SEC has looked at ways to more closely track egregious white-collar criminals after their first offence. Similar to parole, one proposal would see defendants "put on notice of the Commission's continuing interest in their activities."

In May, the SEC Penalties Act, bipartisan legislation designed to crack down on securities crime – including court-enforceable penalties that are three times more strict for repeat offenders – was tabled in the U.S. Senate.

In Canada, where the provinces and the federal government are both responsible for the tools securities regulators use, no significant reforms are under consideration.

Meanwhile, the lack of data and analysis is a problem. In Canada's patchwork system of provincial regulators, case information is not shared among provinces as effectively as the securities commissions like to claim. The Globe's investigation found examples where one province's file on an offender did not match that of another jurisdiction, suggesting sloppy record keeping.

Yearly filings to the Canadian Securities

Administrators related to individuals

The Canadian Securities Administrators,

an informal umbrella group for Canadian

regulators, maintains a database of companies

and individuals that have been disciplined. Orders

on this list fall into one of two categories: they’re

either “direct orders,” issued for a new offence,

or “reciprocal orders,” which mirror direct orders

issued in a different province or jurisdiction.

Direct order

Reciprocal order

MFDA (SRO)

OSC (Ont.)

BCSC (B.C.)

100

75

50

25

0

MSC (Man.)

IIROC (SRO)

ASC (Alta.)

100

75

50

25

0

FCNB (N.B.)

TMF (Que.)

CSF (SRO)

100

75

50

25

0

FCAA (Sask.)

NSSC (N.S.)

100

75

50

25

0

‘07

‘17

‘07

‘17

Yearly filings to the Canadian Securities

Administrators related to individuals

The Canadian Securities Administrators, an informal

umbrella group for Canadian regulators, maintains

a database of companies and individuals that have

been disciplined. Orders on this list fall into one of

two categories: they’re either “direct orders,” issued

for a new offence, or “reciprocal orders,” which mirror

direct orders issued in a different province or jurisdiction.

Direct order

Reciprocal order

MFDA (SRO)

OSC (Ont.)

BCSC (B.C.)

100

75

50

25

0

MSC (Man.)

IIROC (SRO)

ASC (Alta.)

100

75

50

25

0

FCNB (N.B.)

TMF (Que.)

CSF (SRO)

100

75

50

25

0

FCAA (Sask.)

NSSC (N.S.)

100

75

50

25

0

‘07

‘17

‘07

‘17

Yearly filings to the Canadian Securities Administrators related to individuals

The Canadian Securities Administrators, an informal umbrella group for Canadian

regulators, maintains a database of companies and individuals that have been disciplined.

Orders on this list fall into one of two categories: they’re either “direct orders,” issued for

a new offence, or “reciprocal orders,” which mirror direct orders issued in a different

province or jurisdiction.

Reciprocal order

Direct order

MFDA (SELF-REGULATORY)

OSC (Ontario)

BCSC (BRITISH COLUMBIA)

100

75

50

25

0

MSC (Manitoba)

IIROC (SELF-REGULATORY)

ASC (ALBERTA)

100

75

50

25

0

FCNB (New Brunswick)

TMF (Quebec)

CSF (SELF-Regulatory)

100

75

50

25

0

FCAA (Saskatchewan)

NSSC (Nova Scotia)

100

75

50

25

0

2007

2017

2007

2017

Yearly filings to the Canadian Securities Administrators related to individuals

The Canadian Securities Administrators, an informal umbrella group for Canadian regulators,

maintains a database of companies and individuals that have been disciplined. Orders on this

list fall into one of two categories: they’re either “direct orders,” issued for a new offence, or

“reciprocal orders,” which mirror direct orders issued in a different province or jurisdiction.

Direct order

Reciprocal order

MFDA (SELF-REGULATORY)

OSC (Ontario)

BCSC (BRITISH COLUMBIA)

100

75

50

25

0

MSC (Manitoba)

IIROC (SELF-REGULATORY)

TMF (Quebec)

ASC (ALBERTA)

100

75

50

25

0

FCNB (New Brunswick)

FCAA (Saskatchewan)

NSSC (Nova Scotia)

CSF (SELF-Regulatory)

100

75

50

25

0

2007

2017

2007

2017

2007

2017

2007

2017

Yearly filings to the Canadian Securities Administrators related to individuals

The Canadian Securities Administrators, an informal umbrella group for Canadian regulators,

maintains a database of companies and individuals that have been disciplined. Orders on this

list fall into one of two categories: they’re either “direct orders,” issued for a new offence, or

“reciprocal orders,” which mirror direct orders issued in a different province or jurisdiction.

Direct order

Reciprocal order

MFDA (SELF-REGULATORY)

OSC (Ontario)

BCSC (BRITISH COLUMBIA)

100

75

50

25

0

MSC (Manitoba)

IIROC (SELF-REGULATORY)

TMF (Quebec)

ASC (ALBERTA)

100

75

50

25

0

FCNB (New Brunswick)

FCAA (Saskatchewan)

NSSC (Nova Scotia)

CSF (SELF-Regulatory)

100

75

50

25

0

2007

2017

2007

2017

2007

2017

2007

2017

The Globe's data, compiled over a series of months, paints a clearer picture than the one produced by regulators of how white-collar crime is being conducted.

"We could do better as a country," said Cristie Ford, a law professor at the University of British Columbia who focuses on securities regulation.

Perhaps not surprisingly then, from province to province, financial crime is a growth business that is drawing more than its share of repeat customers.

'Punishment is beyond our realm'

At the heart of Canada's financial crime is the near-inability to punish offenders. But this lack of power is not discussed openly by regulators.

In 2007, the Alberta Securities Commission (ASC) sought to shut down George Schwartz for flagrant abuses of securities laws.

Mr. Schwartz, "the guiding mind" of Euston Capital, a financial firm operating out of Toronto, had assembled a team of aggressive stock sellers who were peddling Euston shares to unsuspecting investors across Canada. The investors – typically people thought to have considerable savings, such as retirees and professionals – were approached by Euston and led to believe they were getting in early on a private placement.

Ken Fritz of Regina was one of them. The 82-year-old remembers being contacted by Mr. Schwartz about a pharmaceutical investment that, he said, was safe and could boost Mr. Fritz's retirement income. Euston, right down to its embossed letterhead and hand-signed share certificates, seemed every bit the successful investment firm Mr. Schwartz claimed it was. "It looked like a good investment. And of course, they put a lot of icing on their cake," Mr. Fritz said, noting the well-polished sales pitch. "He said you'll really become rich through it."

Over a matter of months, Mr. Schwartz talked investors into handing over more than $1.4-million. But Euston hadn't filed a prospectus with regulators, nor was it registered to distribute shares. The whole offering was a scam, with one goal in mind.

Ken Fritz, an 82-year-old retired small business owner from Regina, looks over documents from a stock scam he got ripped off in more than a decade ago.

"Euston Capital salespersons, with little or no training, situated in self-contained office spaces, subject to little if any direct supervision" were motivated by Mr. Schwartz "to sell as many shares as they could," the ASC said when it finally caught him.

Though it was his first offence, Mr. Schwartz's actions were so egregious that the ASC, at its administrative tribunal, tried to send a strong message, banning him from the markets for 15 years and fining him $75,000.

But in a ruling that might surprise Canadians unfamiliar with the inner workings of the country's securities regulations, the ASC soon found out it wasn't allowed to punish Mr. Schwartz for his actions.

His lawyers argued the orders sought by the ASC "were so severe as to amount to a penalty, the purpose of which could only be to punish Schwartz for his actions." The regulator was going beyond the level of "specific and general deterrence" it was allowed to seek. If the ASC pursued its order, it would be "venturing into the realm of punishment" and would "exceed its jurisdiction."

So even though Mr. Schwartz had plotted to take large sums of money from investors through fraudulent stock sales, the ASC was technically not allowed to punish him. It could only try to dissuade him from repeating such behaviour.

Those unusual legal handcuffs were enshrined by the Supreme Court of Canada in a 2001 case involving the OSC. In that case, Justice Frank Iacobucci wrote in a unanimous decision that "the focus of regulatory law is on the protection of societal interests, not punishment of an individual's moral faults."

"So that's the approach we must take," said Cynthia Campbell, director of enforcement at the ASC.

That means securities regulators can issue orders they hope will deter people from committing financial crimes, but they can't – by law – exact punishment.

"If you were to ask most members of the public, that's what regulators do when they sanction – they punish. But in fact it's not," Ms. Campbell said. "We need to leave punishment of individuals to the courts. … Punishment is beyond our realm."

Mr. Iacobucci, now retired from the Supreme Court, said judges are not at liberty to discuss past decisions.

But the ruling has had a profound effect on the capital markets and is often cited in case files.

Mr. Schwartz appealed and won. The ASC was ordered to shorten his ban and scale back his fine. His net gain on the scam was still $1.35-million, on paper.

"It left me in the poorhouse," said Mr. Fritz, who is embarrassed to admit he lost $15,000 from his meagre savings. "We were left with nothing. It has changed my life. Maybe it made me tougher – I don't know.

"What I can't figure out is he got all this money, he lost the case, and not one of us investors got a penny back. So where did the money go? Why have a hearing then?"

In the end, the sanctions Mr. Schwartz was given barely mattered. Not only has he never paid his fine, but two months after that Alberta ruling, he got right back to work.

Starting in July, 2007, he began selling shares in U308 Resources Inc., a Toronto mining company that purported to be operating in Zambia. Again, the shares weren't registered, but dubious pitches brought in almost $2.4-million.

This time, the OSC decided to send a stronger message by setting aside the administrative tribunal and seeking criminal charges. This resulted in a 90-day jail sentence in 2012.

But even that was not enough to deter Mr. Schwartz. Just two years later, the OSC was again trying to rein him in over an illegal distribution of securities in York Rio Resources, which raised $18-million from shareholders in what the securities commission would later describe as "a complete sham.

"Their only business was to issue worthless securities," the OSC said in hearing documents.

Once more it tried to clamp down. Once more it could not.

Mr. Schwartz was fined $1-million and forced to surrender $2.75-million of his ill-gotten gains. None of that money has been paid. He was also banned permanently from the markets, though it mattered very little.

"I guess the only one that really gained out of it was Schwartz himself," Mr. Fritz said.

The 90-day jail sentence was the only concrete, enforceable punishment he faced. But it is the exception, not the rule; the Globe's analysis indicates that only 9.7 per cent of repeat offenders ever see jail time.

The way victims such as Mr. Fritz see it: "What kind of law is that? It's not."

It's why Canada has a reputation for being a place where "no one ever goes to prison … for doing white-collar crimes," Prof. Cumming said. "Other types of crime that involve equal economic magnitude can land you in jail," he added – for example, bank robbery.

Douglas Cumming, a professor of finance at York University, says The Globe’s findings are significant.

The Globe found that only about 18 per cent of white-collar repeat offenders are ordered to surrender the money they made in their schemes, though most of those never do. Regulators claim the money often can't be recovered because it has been spent, hidden or moved offshore – beyond their reach. This makes those orders merely symbolic.

"The bad guys get better at hiding the money, they get better at spending the money, they get better at moving the money offshore," said Jeff Kehoe, director of enforcement for the OSC. "The cost for us to chase money around the globe is very expensive."

According to the data, the most common sanction a repeat offender faces is a ban on trading or serving as a director. These bans average 5.6 years in length.

"They can't be flouting our rules and think they can do it with impunity," said James Sinclair, general counsel for the OSC.

But many offenders are doing just that.

How repeat offenders get

sanctioned vs. everyone else

Repeat offenders are much more likely to be

handed bans, fines, or go to prison than others

disciplined by regulators

Repeat offenders

Everyone else

Trading ban

Directors ban

Administrative fine

Registration ban

Exemption ban

“Other”

Investor relations ban

Acquisitions ban

Disgorgement

Reprimand

Imprisonment

Completion of training

Specific undertakings

Registration refusal

0%

20%

40%

60%

How repeat offenders get sanctioned

vs. everyone else

Repeat offenders are much more likely to be handed bans,

fines, or go to prison than others disciplined by regulators

Repeat offenders

Everyone else

Trading ban

Directors ban

Administrative fine

Registration ban

Exemption ban

“Other”

Investor relations ban

Acquisitions ban

Disgorgement

Reprimand

Imprisonment

Completion of training

Specific undertakings

Registration refusal

0%

20%

40%

60%

How repeat offenders get sanctioned compared to everyone else

Repeat offenders are much more likely to be handed bans, fines,

or go to prison than others disciplined by regulators

Everyone else

Repeat offenders

Trading ban

Directors and officers ban

Administrative fine

Registration ban

Exemption ban

“Other”

Investor relations ban

Acquisitions ban

Disgorgement

Reprimand

Imprisonment

Completion of training

Specific undertakings

Registration refusal

0%

10%

20%

30%

40%

50%

60%

70%

'What we did … was not right'

When Canada's securities regulators decide to go after a suspected white-collar criminal, the choice between pursuing an administrative investigation and a criminal one has a profound effect on what ultimately happens. It comes down to the powers – or lack thereof – available in each process.

Regulators have the most power when they try a case in front of an administrative tribunal, because their investigators can force the accused to answer questions, explain their actions and produce documents that can be used as evidence.

Those powers are not available to investigators should they decide to go through the courts, which makes criminal cases much harder to win. Defendants can refuse to testify and can't be compelled to produce documents or financial records without a warrant.

"You could maybe get a search warrant to go in, and maybe search a place for some information, but you have to have other information to do that," such as a reason to suspect certain records exist, said Douglas Muir, director of enforcement at the B.C. Securities Commission. "My criminal investigators have no powers to compel anyone to do anything."

To be successful, criminal cases must be proven beyond a reasonable doubt, while an administrative case must only achieve reasonable probability that the crime occurred.

"You have, historically, more wins in the tribunal than you do in provincial court," said Anita Anand, a law professor at the University of Toronto. "The burden of proof is much higher in the provincial court context."

But that doesn't mean tribunals are the better option for curbing white-collar crime. Though convictions are more easily won there, tribunals can't order jail time. The penalties they do give out, from trading bans to administrative fines, often go ignored. This is evident in the low collection rates that several of Canada's securities regulators list in their annual reports – often well below 10 per cent for the biggest fines.

So when regulators approach a new case, they ultimately have to choose between obtaining a conviction they can't enforce and rolling the dice on tougher sanctions in a case they may well lose.

And even a successful criminal hearing doesn't mean white-collar criminals won't prosper.

In the spring of 2004, Carlos Da Silva and David Campbell were high flyers in the Canadian entertainment industry – or at least that was the story they were selling investors.

Their Toronto-based company, Limelight Entertainment, claimed to be working on a major deal with Canadian-born country superstar Shania Twain, who had just come off a multiplatinum album that made her one of the most bankable stars in the business.

Limelight Entertainment, investors were told, held the rights to her early work and was set to release a new album. It was, at best, a clever play on words: Ms. Twain had issued an early collection of songs titled The Complete Limelight Sessions, but that had nothing to do with the company Mr. Da Silva and Mr. Campbell were peddling.

Nevertheless, it was a story they took confidently to the capital markets, raising almost $3-million in Ontario and another $800,000 in Alberta. Eventually the scheme was floated in all 10 provinces and internationally.

A passage from an Alberta Securities Commission decision in 2007 on Limelight Entertainment.

That didn't impress the OSC much. Limelight was slapped with a temporary cease trade order for selling shares without a prospectus. But Mr. Da Silva and Mr. Campbell kept selling, backdating their trade orders to make it appear as though the sales were executed before the order was issued.

The ASC also investigated and determined there was no actual business inside the company. "The only funds going into Limelight's bank account were investors' funds," the ASC said. "Investors have been left with worthless, illiquid securities."

Mr. Da Silva knew they were breaking the law. "I realized that what we did … was not right," he later told the regulator during its investigation. "In hindsight, [Campbell] and I are not the smartest guys."

But they were smart enough to know how to make money and get away with it.

Together, the ASC and the OSC hit them with administrative fines of more than $3.1-million, along with a trading ban, "to send a clear deterrent message."

Yet both men walked away without paying a cent.

Nor were they deterred.

Last year, after the OSC discovered that Mr. Da Silva and Mr. Campbell had breached the orders against them by getting involved in new illegal trading schemes, it decided to pursue their cases in court. With a mountain of evidence against them, they were sentenced to three months in jail and 125 hours of community service.

Mr. Da Silva fled the country this summer but later surrendered, which means his sentence will likely be extended. Reached for comment, his lawyer said she no longer represents him. Mr. Campbell's lawyer said he was "still in touch with [him] from time to time" but did not return e-mails asking to reach his client.

After Mr. Da Silva turns himself in next month to serve his sentence, there is little else the regulators can do. He'll go free after that, and the money both men made from the Limelight scam remains unaccounted for.

Canada's worst offenders

Few people in Canada have been more prolific when it comes to flouting regulatory orders than Al Grossman. Not many cases demonstrate the failure of regulatory deterrence as thoroughly as his does.

Mr. Grossman, who sometimes goes by Abraham or Allan but usually answers to Al, has an exceedingly long rap sheet. Between direct and reciprocal orders, he has been sanctioned 21 times in Canada and has run at least five different investment scams – some of them conducted while he was in hearings for previous infractions. Five provinces have banned him from trading at some point.

In 2007, the ASC went after him for improperly selling more than $2.7-million in unregistered shares in Maitland Capital to investors in Alberta, misleading them about the company's holdings. It was not his first offence, so the ASC banned him for 20 years and fined him $250,000.

Around the same time, the OSC caught him selling shares in another firm, First Global Ventures, violating his cease trade order from the ASC, which the OSC had also enforced.

But while Mr. Grossman was in talks with the ASC and OSC on those violations, he was quietly operating another stock swindle on the side, away from the hearings, selling unregistered shares in Shallow Oil and Gas without a prospectus.

By 2011, when he was once more caught violating orders against him, the OSC decided to pursue a criminal case against him.

He was sentenced to 21 months in jail for the Maitland Capital violations and, one month later, was sentenced to an additional three years for fraud. It is among the toughest sanctions ever issued in Canada. To this day, though, he has paid none of his fines, nor have his gains been recovered. His whereabouts are unknown.

Mr. Grossman's offences were by no means unique. The Globe's analysis of the thousands of regulatory cases on file indicates the country's problem with repeat offenders generally involves the same kinds of offences being committed over and over.

The crime committed most often by repeat offenders is the illegal or unregistered distribution of shares, with more than 57 per cent of them being guilty of this. Roughly 39 per cent of repeat-offender cases involve citations for improper trading, while about 34.2 per cent carry sanctions for "acting contrary to the public interest." However, these violations are often issued together, so it's not uncommon for the worst offenders to be simultaneously found guilty of all three.

Mr. Grossman committed his crimes in numerous provinces, from B.C. to New Brunswick, highlighting another key problem that shows up in The Globe's analysis: jurisdiction hopping.

The data show that 49.5 per cent of recidivists reoffend in at least one other province, suggesting some are taking advantage of Canada's patchwork of securities regulators. Long suspected but never quantified, this trend has been a major criticism of enforcement in Canada, fuelling talk about the need for a national regulator akin to the SEC.

UBC's Prof. Ford calls it a data problem between regulators. "It's a failure of being able to track these recidivists across time and across provinces," she said. "The commission may sanction John Smith, but then John Smith can go on to do the same bad things in multiple different ways without being necessarily tracked."

For the past 20 years, regulators, police and governments have been looking for ways to clamp down on cases such as Mr. Grossman's, particularly as Canada gained its reputation for being weak on enforcement. But those efforts have had limited success.

In 2003, the Integrated Market Enforcement Teams (IMET), a collection of dedicated RCMP investigators focusing on financial crimes, were launched with much fanfare. But over the years, the units have struggled to land convictions for some of their most high-profile cases – including the fraud charges laid against former executives of Nortel Networks for inflating the books, which ended in acquittals. In the case of Bre-X, which involved fabricated tales of a massive gold mine in Indonesia, the RCMP laid no charges.

Access to Information documents obtained by the Globe indicate the IMET program was never used to its full capacity. Though it was allocated more than $19-million for potential prosecutions between 2005 and 2017, it spent just $514,649 of that money. In recent years, the RCMP has been dealing with staffing shortages and a shifting focus towards terrorism investigations, which critics suggest has pushed white-collar crime down the priorities list.

Richard Powers, a business professor at the University of Toronto, called IMET "woefully inadequate" for the job. "While there was a clear mission to [go after white-collar crime], after their first couple of cases they really faded into the woodwork."

Beginning in 2013, securities regulators have looked to a new tool, Joint Serious Offence Teams (JSOT), to confront the worst offenders. These are comprised of securities investigators, forensic accountants, legal professionals, police and RCMP officers.

JSOTs, which are now in use in a few provinces, including Alberta and Ontario, have a mandate to focus on repeat offenders, those who breach orders and those who commit serious fraud. One approach has been to build cases around seemingly lesser transgressions such as trading while banned, which can be prosecuted more quickly than trying to prove fraud.

Still, Ontario's JSOT has laid charges in just 38 matters since 2013, according to the OSC, and only 26 cases have been concluded. Alberta, which introduced the program last year, has so far laid just one charge through JSOT.

Wasting no time before reoffending

Once caught, most repeat offenders waste little time before getting back to work.

The Globe's investigation found that the average time between regulatory orders for repeat offenders is just 2.7 years, meaning the new violation and any investigation took place within that span.

William Raymond Malone is one such case. In the summer of 2010, Mr. Malone, of Richmond, B.C., was busy selling investors on the story of a mining operation in Chile that, he claimed, held massive prospects. The site was called Ramadilla and it boasted huge iron ore potential.

But talk is cheap in the mining sector – Mark Twain famously declared that a gold mine is simply a hole in the ground with a liar standing on top. And Canada's role as a country where somewhat speculative mining and energy ventures can go to get financed has only made the markets more susceptible to tall tales. Mr. Malone knew words would take him only so far, so he came to investor meetings prepared, bringing more than just bold proclamations. He brought props.

He would place a bag of sand on the table, urging prospective investors to get in on the ground floor of the stock. Inside the bag, mixed among the grains of sand, were "specks of iron ore from the property" – hard proof, he said, of the opportunity at hand.

But there were a few things about his company, Lion King Resources, that Mr. Malone wasn't being honest about. Though he conducted himself as the director of the company, running all of its operations, his son was listed on the regulatory documents as the actual director.

There was a good reason for this: At the time he was attempting to lure investors, he was subject to a 2009 sanction by the BC Securities Commission for making false statements about another stock.

The BCSC had fined him $50,000 and banned him for three years from serving as a director of any company, including working in an investor-relations capacity, unless he completed an educational course "concerning the duties and responsibilities of directors and officers."

He never paid the fine and never completed the course. Instead, he returned to the capital markets just more than a year later, in breach of those orders, and began selling unregistered shares once more.

In October, 2016, the BCSC sanctioned him again, this time with a fine of $60,000 and another ban – until 2023. That fine also remains unpaid.

More deterrence, more jail time

In a 2006 report on the need to modernize securities legislation in Canada, retired Supreme Court justice Peter Cory and Osgoode Hall law professor Marilyn Pilkington said: "The penalties imposed for white-collar crime have not reflected the seriousness of these crimes and their impact."

Those words still ring true today. But even when regulators make a concerted effort to clamp down on repeat offenders, they are sometimes blocked, which only exposes more weaknesses in the system.

Last spring, Kevin Loman was facing OSC charges that he was a repeat offender who deserved a harsher sentence. He had been caught selling unregistered securities in Alberta in 2007 and was fined $50,000 by the ASC, which also banned him for three years, starting in 2009.

When Mr. Loman found himself back in front of regulators in 2013, in Ontario, for improperly trading in shares of Majestic Supply Co. Inc., the commission sought a stiffer sanction. The OSC banned him for 10 years and fined him $105,000. He was also ordered to surrender more than $145,000 he had made from the illegal trades.

But three months later, he and the OSC were back in court on appeal. His lawyer argued he wasn't a recidivist and that the punishment was out of line: Because his ban in Alberta wasn't issued until 2009, after his trades in Majestic took place, his lawyer argued the regulator could not treat him as a repeat offender – even if both incidents were, in fact, separate and illegal.

An Ontario judge agreed. Mr. Loman had broken the rules twice, but the regulator had no right to ask for a tougher penalty. The effort blew up in the OSC's face.

It was a technicality, but it helped Mr. Loman considerably: Not only did he get a shorter ban, his fine was reduced to $60,000, which he never paid. He has also not surrendered the $145,000.

Asked about the case by The Globe, the OSC's Mr. Sinclair said, "I know that doesn't make sense, but that's how the law works."

Read the background on our data-reporting process at tgam.ca/money-methodology

Are you a victim of securities fraud, or have a tip you'd like to pass on? Share your story: grobertson@globeandmail.com and tcardoso@globeandmail.com

Easy Money is the first of a three-part investigative series on white-collar crime and abuse in the Canadian capital markets.

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