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Law society investigates firm’s possible ties to U.S. market manipulation

A compliance audit of a securities lawyer has led to a much broader investigation by the Law Society of B.C.
Rob Kruyt/BIV files

The Law Society of B.C. (LSBC) has launched an expansive investigation of a law firm specializing in securities, after possible connections were discovered to market manipulation schemes in the United States following a routine compliance audit.

The case highlights the heightened public awareness around self-regulation of legal practices in light of pressure to clamp down on trust fund abuse and money laundering in the province.

The lawyer and his firm became subject of a broad LSBC investigation in 2019, after auditors conducted a compliance audit in May 2019, months before he was suspended for two months for professional misconduct.

The investigation has not been made public by the LSBC and the lawyer is not subject to a citation or a hearing notice. Rather, the existence of the investigation was made public in a BC Supreme Court ruling after the lawyer unsuccessfully attempted to have the probe quashed on constitutional grounds.

The May 13 court ruling does not name the lawyer, who was granted anonymity in the ruling, but notes his July 29, 2019 LSBC suspension resulting from misappropriation of $1,977 from client trust accounts.

The LSBC tribunal panel “reiterated that misappropriation, regardless of whether it involves small amounts of money or is done for administrative convenience, is never acceptable,” according to a LSBC news release.

Gurprit Bains, deputy chief legal officer of the Law Society, then went to the discipline committee to get an investigation order on September 8, 2019.
On October 7, 2019, a week after the lawyer's suspension expired, LSBC ordered the law firm to open up all of its books.

According to the court ruling, Anneke Driessen, a LSBC staff lawyer in the Investigations, Monitoring & Enforcement Group, wrote to the lawyer on Feb. 11, 2020, to explain why the society launched the investigation:

“The auditor identified, among other things, that you may have allowed clients to use your trust accounts for the flow of funds in the absence of substantial legal services related to those funds and/or in the absence of making reasonable inquiries.

“In addition, there are concerns arising from your having acted for or engaged with entities and individuals who were apparently involved in market manipulations as determined by the Securities and Exchange Commission (the “US SEC”).”

The lawyer opposed the collection of the firm’s records and claimed the investigation “of all electronic and physical books, records, and accounts of the petitioner and the Firm” was unconstitutional.

But the society argued it has the authority to investigate the whole legal practice of a member and not just records related to the concerns that triggered the investigation.
“I do not agree that the Law Society’s actions constitute an abuse of process in the circumstances,” ruled Justice Andrew Majawa.

In his ruling, Majawa noted “the Supreme Court of Canada has determined that lawyers and their firms are not subject to the Financial Transactions and Reports Analysis Centre of Canada’s (FINTRAC) rules that required them to report on trust account activity.”

However, the society plays a key role in enforcement of law practice standards and “there is, undoubtedly, a pressing public interest in it being able to do so effectively.”

Majawa said “a lawyer’s trust account must only be used for legitimate commercial purposes related to the provision of legal services and it is in the public interest to ensure that trust accounts are not used for other purposes such as the laundering of money.”

This matter was discussed at the Commission of Inquiry into Money Laundering in B.C.

Because of the Supreme Court of Canada ruling – wherein solicitor-client privilege supersedes a lawyer’s requirement to be a reporting entity to FINTRAC – lawyers are left to regulate themselves, raising questions about whether they are doing so effectively and ethically.

The society asserted at the commission it has robust rules in place to curb money laundering and other financial crime.

The commission did not call upon the BC Securities Commission to discuss the role of stocks in money laundering schemes.

Glacier Media contacted the lawyer for comment on Tuesday but he did not reply.