Cassels Brock securities partner guilty of professional misconduct over share-purchase advice
Vancouver-based Sam Cole denied telling client to have girlfriend take part in private placement to get around TSX-V’s ban on insiders
A Vancouver partner in the securities team at Cassels Brock & Blackwell LLP committed professional misconduct when he advised a client at a previous firm to indirectly purchase shares in contravention of a TSX Venture Exchange directive, according to a Law Society of British Columbia hearing panel.
Sam Cole strenuously denied advising his client – identified in the reasons by the initials KR – to get his girlfriend to take part in a private placement financing for KR’s publicly-listed company after the TSX-V banned insiders like KR from taking part.
In fact, Cole claimed KR was never his client at all, explaining to the panel that he saw his role as counsel to the company exclusively. However, the panel preferred the evidence of KR, finding that Cole had made the suggestion to circumvent the regulator’s directive.
“The Respondent knowingly counselled and then facilitated his client to indirectly participate in a private placement financing contrary to the TSX-V regulator’s directive. Such conduct is dishonest and falls far below the standard that the Law Society expects of lawyers. The Panel finds that the Respondent has committed professional misconduct with respect to Allegation 1,” the decision reads.
The lawyer was cleared of two further allegations in the citation. A penalty hearing has yet to be scheduled in the case, according to the LSBC.
The events at issue occurred just over a year before Cole joined Cassels Brock in August 2015 as an associate, when he arrived along with his boss – hailed as a boost for the firm’s burgeoning Vancouver office after he was convinced to move from local firm Anfield Sujir Kennedy & Durno LLP. Cole was subsequently promoted to partner in 2018.
According to the LSBC decision, it was in early 2014 that KR approached Cole for help buying and taking a privately-owned luggage business public. After KR identified a TSX-V shell company suitable for a reverse takeover, he was added to the board of directors and Cole became solicitor for the publicly listed corporation.
KR’s corporation then announced its intention to raise $700,000 via a private placement, but when Cole sought approval, a TSX-V analyst gave permission only “as long there will be no insiders participating.”
When it came to what happened after Cole forwarded the TSX-V directive to KR, the two men’s evidence to the hearing diverged: KR claimed that he immediately called the lawyer, who suggested he use his girlfriend as a nominee to purchase shares, while Cole insisted the call never happened and testified that there was never any conversation where he counselled KR to circumvent the TSX-V directive.
The panel found that KR provided the funds for his girlfriend’s $70,000 share purchase, while Cole helped KR’s girlfriend to fill out a personal information form required by the TSX-V because her holding was over 10 per cent of the company.
However, after the reverse takeover was completed and KR split up with his girlfriend, the panel found that Cole helped KR negotiate the transfer of her shares to him.
After hearing from KR and Cole, the panel called their accounts “incompatible,” but ultimately concluded that Cole’s claim that KR did not contact him after receiving the TSX-V email was “unbelievable,” based on their previous behaviour.
Commenting on the lawyer’s evidence as a whole, the panel wrote that they did not find him a credible witness.
“The Respondent was evasive and selective in his answers. He gave the impression that he was using his knowledge and experience as a lawyer to tailor his evidence rather than answer honestly and completely,” they wrote in the decision.
The panel wrote that KR presented as a “credible witness,” but said they treated his evidence with caution after he resiled from facts previously agreed in a settlement with the B.C. Securities Commission.
The settlement agreement showed KR paid $15,000 and received a three-year ban from acting as a director or officer after admitting to insider trading. But at the hearing, he suggested he had not actually committed insider trading.
“The Panel finds that KR’s claims that [his girlfriend’s] participation was in some way legitimate to be inaccurate, after-the-fact excuses,” they wrote.
Despite those concerns, the panel was convinced that the LSBC had proven the factual elements of their case against Cole alleging he counselled and or facilitated KR’s indirect participation in the private placement financing.
Two other allegations relating to Cole’s alleged failure to make reasonable enquiries about the possible existence of undisclosed material facts were dismissed by the panel.
Although they wrote that Cole was aware of a number of potentially material undisclosed facts – rejecting his explanation that they were not material because the reverse takeover had not been finalized during the period at issue – they took issue with the wording of the LSBC’s citation in finding that the allegations were not proven.
“The Citation does not allege that the Respondent filed false information; rather, it alleges that he failed to make reasonable inquiries. The panel is bound by the allegations in the Citation,” they wrote. “At all times the Respondent was fully informed of the acquisition and the filings he made with the TSX-V. The panel is unable to conclude that he failed to make reasonable inquiries. He knew exactly what he was doing and did it anyway.”
Neither Cole nor his counsel responded to requests for comment.
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