Saafnet Canada Inc., Nizam Dean, and Vikash Sami

Securities Act, RSBC 1996, c. 418

Panel	Brent W. Aitken	Vice Chair
	Judith Downes	Commissioner
	Suzanne K. Wiltshire	Commissioner
Date of Hearing	February 13, 2014
Date of Decision	March 14, 2014
Appearing
Joyce Johner	For the Executive Director
Owais Ahmed	For Saafnet Canada Inc., Nizam Dean, and Vikash Sami

1. Saafnet contravened section 61(1) of the Act when it made trades to 14 investors, for proceeds of $C9,100 and US$604,479, without filing a prospectus and for which no exemptions were available, and

2. Dean and Sami contravened section 61(1) under section 168.2(1) when they authorized, permitted and acquiesced in Saafnet’s contraventions of section 61(1).

II Analysis
A Positions of the parties

• prohibiting it from trading or purchasing securities for five years,
• requiring disgorgement, and
• imposing a $50,000 administrative penalty.

• trading or purchasing securities,
• acting as directors or officers of any issuer,
• acting in management or consultative capacity in connection with activities in the securities market, and
• engaging in investor relations activities.

• not exceed one year,
• permit each of them to trade and purchase securities through a registered dealer in their own accounts, and
• permit each of them to act as directors and officers of Saafnet and of any company wholly owned by each of them and members of their respective immediate families.

“In making orders under sections 161 and 162 of the Act, the Commission must consider what is in the public interest in the context of its mandate to regulate trading in securities. The circumstances of each case are different, so it is not possible to produce an exhaustive list of all of the factors that the Commission considers in making orders under sections 161 and 162, but the following are usually relevant:

• the seriousness of respondent’s conduct,
• the harm suffered by investors as a result of the respondent’s conduct,
• the damage done to the integrity of the capital markets in British Columbia by the respondent’s conduct,
• the extent to which the respondent was enriched,
• factors that mitigate the respondent’s conduct,
• the respondent’s past conduct,
• the risk to investors and the capital markets posed by the respondent’s continued participation in the capital markets of British Columbia,
• the respondent’s fitness to be a registrant or to bear the responsibilities associated with being a director, officer or adviser to issuers,
• the need to demonstrate the consequences of inappropriate conduct to those who enjoy the benefits of access to the capital markets,
• the need to deter those who participate in the capital markets from engaging in inappropriate conduct, and
• orders made by the Commission in similar circumstances in the past.”

• Of the 46 trades involved in Solara’s illegal distribution, an exemption applied to only one, a trade to Beattie’s sister.
• Solara or Beattie “were sloppy about ensuring that the exemptions were available” and their “carelessness and demonstrated failure to ensure compliance with requirements when raising capital suggests the potential for significant risk to our capital markets”.
• Beattie showed no contrition or remorse. His acceptance that his conduct was “in breach of the Act”, was qualified by his insistence that he relied on others, which the panel observed was “consistent with his evidence at the hearing, where he appeared to consider himself largely blameless for Solara’s contraventions of the Act.”

“29 As a matter of principle, we agree that if capital is raised in contravention of the Act, it follows that it is appropriate that the amount raised be disgorged to the Commission. We have accordingly made an order to that effect against all of the respondents.”

“23 Solara provides some guidance in determining the appropriateness and degree of Mitschele's and Minor's continued participation in the capital markets, but there are relevant differences between the facts in Solara and those here. The most significant difference is that in Solara, there was no evidence that Solara or Beattie made any attempt to obtain legal advice. Here, Mitschele and Minor took considerable steps on behalf of PVT to obtain the necessary advice to ensure compliance with the Act, unfortunately, as it happened, in vain. In Solara the panel also found that the respondents made a misrepresentation, and filed false and misleading reports with the Commission.
. . .
27 We have not ordered administrative penalties against either of Mitschele and Minor. Sanctions imposed under the Act are intended to be preventative and protective, not punitive. In our opinion, an administrative penalty is not required for preventative or protective purposes here. Mitschele and Minor made good faith efforts to obtain the legal advice necessary to ensure that PVT conducted its financing activities in compliance with the Act and to sort out PVT’s problems with commission staff. They invested, and likely have lost, large sums in PVT.”

• Of the trades to 72 investors alleged in the original notice of hearing, the respondents were able to establish that exemptions applied to 38 of them. It appears that Dean and Sami, although they failed to get right the details of the regulatory requirements, understood them enough that nearly half of the impugned trades in fact qualified for exemptions.

• Dean and Sami were personally involved and took steps to ensure compliance with the Act. Unlike Solara, where it was apparent that Beattie did not appreciate that he was ultimately responsible for ensuring compliance, Dean and Sami fully understand, and take responsibility for, their conduct.

• There is credible evidence that Dean and Sami were diligent in obtaining legal advice in an attempt to ensure compliance with the Act.

• There is no evidence of deliberate misconduct, prior orders, or other aggravating factors.

• There were no allegations or findings of misconduct beyond the illegal distribution.

1. under section 161(1)(b) of the Act, that all persons permanently cease trading in, and be permanently prohibited from purchasing, securities of Saafnet;

2. under section 161(1)(g), that Saafnet pay to the Commission any amount obtained, or payment or loss avoided, directly or indirectly as a result of its contravention of the Act, which we find to be $686,562;

3. under section 161(1)(b), that Dean cease trading securities and exchange contracts, except that Dean may trade for his own account through a registrant, if he gives the registrant a copy of this decision;

4. under section 161(1)(d)(i), that Dean resign any position he holds as a director or officer of any issuer, other than Saafnet and any issuer all the securities of which are owned beneficially by him or members of his immediate family;

5. under section 161(1)(d)(ii), that Dean is prohibited from acting as a director or officer of any issuer, other than Saafnet and any issuer all the securities of which are owned beneficially by him or members of his immediate family;

6. under section 161(1)(d)(iv), that Dean is prohibited from acting in a management or consultative capacity in connection with activities in the securities market;

7. under section 161(1)(d)(v), that Dean is prohibited from engaging in investor relations activities;

8. under section 162, that Dean pay an administrative penalty of $10,000;

9. that the orders in paragraphs 3 and 5 through 7 of these orders remain in force until the later of March 14, 2015 and the date Dean pays the amount in paragraph 8 of these orders;

10. under section 161(1)(b), that Sami cease trading securities and exchange contracts, except that Sami may trade for his own account through a registrant, if he gives the registrant a copy of this decision;

11. under section 161(1)(d)(i), that Sami resign any position he holds as a director or officer of any issuer, other than Saafnet and any issuer all the securities of which are owned beneficially by him or members of his immediate family;

12. under section 161(1)(d)(ii), that Sami is prohibited from acting as a director or officer of any issuer, other than Saafnet and any issuer all the securities of which are owned beneficially by him or members of his immediate family;

13. under section 161(1)(d)(iv), that Sami is prohibited from acting in a management or consultative capacity in connection with activities in the securities market;

14. under section 161(1)(d)(v), that Sami is prohibited from engaging in investor relations activities;

15. under section 162, that Sami pay an administrative penalty of $10,000; and

16. that the orders in paragraphs 10 and 12 through 14 of these orders remain in force until the later of March 14, 2015 and the date Sami pays the amount in paragraph 8 of these orders.

INVESTOR	AMOUNT INVESTED (US$)	DATE OF INVESTMENT	MONTHLY AVERAGE EXCHANGE RATE	AMOUNT INVESTED (CAN$)
Dhanda, B & K	$50,000	27 Feb 2006	$1.14	$57,000
Dulay, J	$135,979	08 May 2006	$1.11	$150,937
Liddar	$145,000	08 May 2006	$1.11	$160,950
Hayre, J	$10,000	15 May 2006	$1.11	$11,100
Madahar	$35,000	16 May 2006	$1.11	$38,850
Hayre, R & S	$50,000	25 Sep 2006	$1.12	$56,000
Monsma	$3,000	26 Sep 2006	$1.12	$3,360
Hayre, G & J	$5,000	27 Sep 2006	$1.12	$5,600
Dhanda, K	$100,000	27 Sep 2006	$1.12	$112,000
Bailes	$20,000	20 Feb 2007	$1.17	$23,400
Dulay, S	$30,000	28 Feb 2007	$1.17	$35,100
Sandhu, A	$10,000	15 Apr 2007	$1.13	$11,300
Sandhu, M	$7,500	18 Apr 2007	$1.13	$8,475
McEachern	$3,000	18 Apr 2007	$1.13	$3,390
Total	$604,479			$677,462