Defrauded Canadian Investors Win Big in Vegas: Cross-Border Cooperation Leads to Disgorgement of Stolen Investments in the United States

A recent decision from the Nevada Supreme Court in Michael Patrick Lathigee v. British Columbia Securities Commission, 136 Nev Adv Op 79 (Nev Sup Ct 2020), recognized a disgorgement order issued by the British Columbia Securities Commission (“BCSC”) as being enforceable in Nevada. According to the BCSC, it is “probably the first time that a monetary sanction by a Canadian securities regulator has been deemed enforceable in the US.”[1]

The decision highlights the “special strength” of US-Canada cooperation in the policing of securities markets and gives meaning to the two countries’ undertaking, as captured in their Memorandum of Understanding, to “provide the fullest mutual assistance […] to facilitate the performance of securities market oversight functions the conduct of investigations, litigation or prosecution”.[2]  The decision also signals securities fraudsters that the Canadian securities authorities can and will cross the US border to recoup what has been stolen from investors.

Case History

In 2014, the BCSC found that Mike Lathigee perpetrated fraud against nearly 700 Canadian investors for $21.7 million.[3] The BCSC imposed against him a $21.7 million disgorgement order, to return the money he defrauded from investors, as well as a statutory-based administrative penalty of $15 million.[4] After Lathigee failed to appeal the decision,[5] he left Canada and relocated to Nevada.

The BCSC filed for the Nevada District Court to recognize and enforce the $21.7 million disgorgement order under Nevada law. It did not, however, seek to enforce the $15 million administrative penalty, aware of the rule in Nevada – as in most countries – “against one sovereign enforcing the criminal laws and penal judgments of another”.[6]

Lathigee opposed the application based on that same rule. His main argument was that the $21.7 million disgorgement order was unenforceable for being penal in nature and that comity should not be granted because of this penal nature.

The Nevada District Court ruled in favour of the BCSC, finding that the judgment did not constitute a penalty, but rather an award for eventual restitution of the defrauded investors. The District Court also cited that Canadian courts have recognized and enforced the US Securities Exchange Commission’s (“SEC”) disgorgement judgments, so based on comity, the order in question should be enforced.

Lathigee appealed the decision to the Supreme Court of Nevada.

Nevada Supreme Court’s Decision

The Nevada Supreme Court affirmed the district court decision and found the disgorgement order enforceable in Nevada. It confirmed that a BCSC disgorgement order was not a fine or a penalty, but “a civil monetary judgment for purpose[s] of providing restitution to […] investors […] who suffered economic harm due to fraud”.[7]

In fact, the Court found that the disgorgement order was remedial in nature, as $21.7 million was the exact amount Lathigee defrauded investors, and served to eliminate profit from wrongdoing by returning that money to investors. As Nevada Chief Justice Pickering stated: “the disgorgement award in this case deprives Lathigee and his associate of the money they obtained from the investors they defrauded.”[8] The Nevada Supreme Court rejected Lathigee’s limitation period argument as it only applied to US SEC claims and not to foreign judgments.

Then, the Nevada Supreme Court found that the principle of comity applied. Under the principle of comity, where a court gives effect to foreign laws and judicial decision out of deference and respect, the BCSC decision was found to be sound as it comes from a foreign court of appropriate jurisdiction and shows no lack of due process.

But for Chief Justice Pickering, this decision does more than satisfy the principles of comity, it reflects the strong relationship between Canada and the United States and their cooperation in overseeing the securities market, as exemplified by a Memorandum of Understanding committing to mutual assistance[9] and Canadian precedents enforcing similar US judgments.[10] As Chief Justice Pickering stated: “The policy of promoting cooperation among nations has special strength as between Canada and the United States.”[11]

Comment

The Nevada Supreme Court’s decision in favour of the BCSC raises confidence in the capacity of the Canadian securities regulators to enforce and execute their administrative decisions in the United States, at least their disgorgement orders. For Canadian wrongdoers, the lesson is, you cannot avoid paying for securities fraud simply by hiding behind the US border.

On the other hand, the case raises questions as to why the BCSC did not attempt to seek the enforcement of the $15 million administrative penalty. It could be that the BCSC was concerned of the risk, in this particular case, that the administrative penalty be found unenforceable by the Nevada courts for being penal in nature[12], given how high it was. Or it could be that the BCSC decided to prioritize recouping investors’ monies.

Finally, it remains unclear if Lathigee’s assets in Nevada will suffice to fully compensate the investors for their lost investments. Returning money to investors might still remain a long process.

 

[1] British Columbia Securities Commission, News Release, 2020/95, “Nevada Supreme Court upholds BCSC order against fraudster” (2020-12-11) https://www.bcsc.bc.ca/about/media-room/news-releases/2020/95-nevada-supreme-court-upholds-bcsc-order-against-fraudster

[2] Michael Patrick Lathigee v. British Columbia Securities Commission, 136 Nev Adv Op 79 (Nev Sup Ct 2020) [Lathigee] at 12.

[3] Lathigee (Re), 2014 BCSECCOM 264.

[4] Lathigee (Re), 2015 BCSECCOM 78.

[5] Poonian v. British Columbia Securities Commission, 2017 BCCA 207.

[6] Lathigee, supra note 2 at 5.

[7] Ibid. at 6.

[8] Ibid. at 6.

[9] The Memorandum states that "Authorities will provide the fullest mutual assistance "to facilitate the performance of securities market oversight functions and the conduct of investigations, litigation or prosecution." See: Memorandum of Understanding Concerning Consultation, Cooperation and the Exchange of Information Related to the Supervision of Cross-Border Regulated Entities (2010) https://www.sec.gov/about/offices/oia/oia_bilateral/canada_regcoop.pdf.

[10] See: United States (SEC) v. Cosby, 2000 BCSC 338; United States (SEC) v. Peever, 2013 BCSC 1090.

[11] Lathigee, supra note 2 at 12.

[12] Even though there is Canadian precedent which found that administrative proceedings are regulatory, not criminal, in nature and thus do not lead to true penal consequences. See: Guindon v. Canada, 2015 SCC 41.

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