Toronto-based brokerage Echelon Wealth Partners Inc. used to do very little trading in U.S. over-the-counter stocks. Then it hired Stephen Burns.
Those customers, and their clients, have been tied to multiple cases of securities fraud – some criminal – alleged by U.S. regulators and prosecutors. One of the four Echelon customers, Valor Capital Ltd., was controlled by Joseph Padilla, a California resident foreign customers “engaged in wrongful conduct.” But by the time regulators and prosecutors announced the proceedings, Echelon said, it had “long ceased trading” in OTC stocks, arguing CIRO is making its allegations “only with the benefit of hindsight.” Now, Echelon says, CIRO wants “to retroactively impose a higher standard of conduct.”
CIRO says that prior to July, 2018, Echelon’s trading in OTC securities was “infrequent, occurring at the request of an existing client.” The regulator says it was under Mr. Burns that Echelon’s OTC business expanded rapidly. entire OTC business, with nearly $5-million of that coming from the four foreign customers, CIRO says.
But in its written response to CIRO, Echelon says the company had policies and procedures for trading U.S. OTC securities, established specifically for Mr. Burns, in place for the entire alleged period. Echelon says the policies and procedures were prepared “in consultation and cooperation” with Echelon’s carrying broker, Fidelity Clearing Canada ULC, and that they were “reviewed and enhanced repeatedly over time.
There are legitimate reasons for a stock to trade OTC: Small companies that don’t meet the requirements for listing on a U.S. stock exchange can access investor capital by trading over the counter, via broker-to-broker transactions. But lack of regulation makes those stocks targets of market manipulation, such as pump-and-dump schemes.
In addition, CIRO alleges that over a three-year period, Echelon wired more than $90-million for Valor Capital to various banks located in St. Lucia, Nevis, Russia and Kyrgyzstan.the SEC said Mr. Padilla used Valor Capital to sell US$150-million worth of Oncology Pharma shares between January, 2021, and July, 2022, in one of multiple stock fraud schemes.
As part of its complaint, CIRO alleges Echelon and Mr. Burns failed to make enough inquiries to realize there were connections among Valor Capital and its three other foreign broker-dealer customers: Financials Worldwide Inc., Weiser Asset Management and Blacktower Ltd. In its response to CIRO, Echelon notes the SEC chose not to use Antevorta’s Lifequest trades described by CIRO as part of its own case.
Echelon and Mr. Burns “have consistently adhered” to strict know-your-customer and anti-money-laundering standards, Weiser said. “Information on underlying investors to a trade is always readily available amongst financial counter parties and the regulator.”
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