A B.C. Securities Commission panel has ruled that a former Victoria mutual fund salesman from Mill Bay committed a $65-million fraud, and could seek to ban him from the markets for life.
In a ruling released last month, a commission panel found that David Michael Michaels inflicted a fraud on 484 clients, many of them seniors, between June 2007 and December 2010, by acting as an adviser without being registered as one.
Michaels sought clients through a weekly infomercial, Creating Wealth with David Michaels, that was broadcast Saturdays on CFAX 1070 radio at a cost of $2,000 for each episode, the panel found.
The panel’s ruling said Michaels "advised his clients to sell their stocks, bonds and mutual funds, and purchase high-risk exempt market securities instead. He also advised his clients to borrow against their homes to purchase these risky investments."
In giving that advice, the panel ruled, Michaels – who was paid $5.8 million in fees and commissions for the sales – made misrepresentations to his clients, deceived them and betrayed their trust.
At least $40 million of the $65 million invested has been lost, the panel said.
"[Michaels] was found to have had a fraudulent practice, the most serious offence that we have, so we will be seeking a very substantial penalty," said Teresa Mitchell-Banks, the commission’s director of enforcement.
Mitchell-Banks said that in addition to a ban from operating in the markets, the commission will also seek to fine Michaels and issue a demand that he give up earnings from the scheme.
In his testimony, Michaels denied that he advised clients with respect to investments or the purchase of securities, and characterized his business simply as a sales operation.
The securities commission panel, however, saw it differently.
"In fact, what Michaels was running was not a legitimate sales business but a massive fraud," the panel said.
"Through dishonesty and misrepresentation, he put his clients’ money at risk. As a result, they have lost millions of dollars."
The panel made its submissions on sanctions by Aug. 29. Michaels had until Sept. 5 to deliver a response, and the panel has until Sept. 12 to reply to that if necessary.
Penalties are expected to be handed down within three months.
Michaels was also disciplined in late 2007 when the securities commission ruled that he had to pay a fine of $45,000 and be suspended for two months after it upheld a decision by the Investment Dealers Association of Canada.
The association determined Michaels facilitated and solicited participation in the sales of shares of a public company in which transactions were conducted off the books. It also found he advised clients on the purchase of shares of a public company when his registration was restricted, entered into personal financial dealings with clients and attempted to conceal information and mislead association staff during the investigation.