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No. du dossier COURDU BANC DE LA REINEDU NO\NEAU- BRUNSWICK DIVISION DE PRIi\.llERF INSTANCE TRIAL DIVISION \j JUDIClAlRE DE CIRCONSCRIP' roDICLAI~ DISTRJCT OF EDMUNDSTON ENTRE: BETWEEN: DANIEL LEVASSEUR and EDWARD K~ V A,~A1JGH and the parties listed in Schedule ..A'" attached hereto, PLAINTIFFS, -and- - et NEW BRUNSWICK SECURITIES CO1\.DnSSION, ED LeBLANC, RICK HANCOX, JAKE V AN DER LAA.J\T and MARK McELMAN, 0 S MAl 1011 DEFENDANTS AVIS DE POlJ"RSl.1JTE ACCOMP AG~"t D'UN EXPOSE DE LA DF.~1A."illE (FORMLLE 16A) NOTICE OF ACTION Wn'H STATEMENT OF CLAIM ATTACHED (FORM 16A) To: Destinataire: New Brunswick Securities Commission Ed LeE lanc Rick Hancox Jake van der Laan Mark McElman 85 Charlotte Street, Saint John NB E2L 2J2 LEGAL l'ROCEEDINGS HAVE BEEN COMJ\'IENCED AGA.lNST YOU BY FIT f'""c::; TffiS NOTICF OF ACTION. PARLE f:EPOT DE PRESENT A V1S DE POURSUUE ..\.CC'Ol\fP,.\GN£ D'UN EXPOSE DE LA DE~-\NDf., lJ"NEPOL"'RSLTlTE JUDIClAIRE A tTEENGAGEE CO~lRE VOUS. If you wIsh to defend these proceedings,eithcT you or a New Brunswick lawyer acting on your behalf must prepare your Statementof Defence in the fom) prescribed by the Rul~s of Court and serve it on the plaintiff OT the plaintiff's lawyer at the addTess ;;I.1Qwn below and, with pToof of such service, fil£ it In this Lour! Ot"fice together with the filing fee $50 Si vous desirez presenter une defense dans cette instance,vous-rneme ou un avocat du Nouveau- Brunswick charg~ devous representtr devrez rediger un expose de yotl.c d6fcnsc cn la forme prescrite par Ics Rcglc5 de proc6durc:- Ic 5ignificr au demandeur ou A $00 avocat 3 i-adressc iodiquee ci-dessous et Ie deposer au greftedt: cette Cour avec un droit de depot d~ $50 et une preuve dc sa signification; ~ IN THE COURT OF QUEEN'S BENCH OF NEW BRUNSWICK

Investors vs. N.B. Securities Commission

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A group of investors is suing the N.B. Securities Commission for $5.6 million, claiming it failed to protect them from an alleged Ponzi scheme.

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Page 1: Investors vs. N.B. Securities Commission

No. du dossier

COUR DU BANC DE LA REINE DU NO\NEAU-BRUNSWICK

DIVISION DE PRIi\.llERF INSTANCETRIAL DIVISION

\j JUDIClAlRE DECIRCONSCRIP'roDICLAI~ DISTRJCT OF EDMUNDSTON

ENTRE:BETWEEN:

DANIEL LEVASSEUR and EDWARDK~ V A,~A1JGH and the parties listed in Schedule.. A'" attached hereto,

PLAINTIFFS,

-and- - et

NEW BRUNSWICK SECURITIESCO1\.DnSSION, ED LeBLANC, RICK HANCOX,JAKE V AN DER LAA.J\T and MARK McELMAN, 0 S MAl 1011

DEFENDANTS

AVIS DE POlJ"RSl.1JTE ACCOMP AG~"t D'UNEXPOSE DE LA DF.~1A."illE

(FORMLLE 16A)

NOTICE OF ACTION Wn'H STATEMENT OFCLAIM ATTACHED

(FORM 16A)

To: Destinataire:New Brunswick Securities CommissionEd LeE lancRick HancoxJake van der LaanMark McElman85 Charlotte Street, Saint John NB E2L 2J2

LEGAL l'ROCEEDINGS HAVE BEENCOMJ\'IENCED AGA.lNST YOU BY FIT f'""c::;TffiS NOTICF OF ACTION.

PARLE f:EPOT DE PRESENT A V1S DEPOURSUUE ..\.CC'Ol\fP,.\GN£ D'UN EXPOSEDE LA DE~-\NDf., lJ"NE POL"'RSLTlTEJUDIClAIRE A tTEENGAGEE CO~lREVOUS.

If you wIsh to defend these proceedings, eithcTyou or a New Brunswick lawyer acting on your behalfmust prepare your Statement of Defence in the fom)prescribed by the Rul~s of Court and serve it on theplaintiff OT the plaintiff's lawyer at the addTess ;;I.1Qwnbelow and, with pToof of such service, fil£ it In thisLour! Ot"fice together with the filing fee $50

Si vous desirez presenter une defense danscette instance, vous-rneme ou un avocat du Nouveau-Brunswick charg~ de vous representtr devrez redigerun expose de yotl.c d6fcnsc cn la forme prescrite parIcs Rcglc5 de proc6durc:- Ic 5ignificr au demandeur ouA $00 avocat 3 i-adressc iodiquee ci-dessous et Iedeposer au greftedt: cette Cour avec un droit de depotd~ $50 et une preuve dc sa signification;

~

IN THE COURT OF QUEEN'S BENCH OFNEW BRUNSWICK

Page 2: Investors vs. N.B. Securities Commission

-2-

DANS L($ 20 JOt-IRS de la signification quivous ser:1 faite du pre5ent avis de poursuiteaccompdgn~ d'un expose de la demande, siellt vous est faite au Nouveau-Brunswick ou

(a)if you are served in New Brunswick, WITHrN20 DA Y$ after service on you of this Noticeof Action With Statement ofCla.im Attached,or

(a)

DAl'JS I._ES 40 lOURS de la signification, sielle VOIlS est faite dans une autre region duCanadaoudans les:Etars~Unisd' Arntriqueou

(b)if you are served elsewhere in Canada or inthe United States of America, WITHIN 40DAYS after such service, or

(hi

DANS LES 60 JOURS de la signification,si elle vous est faite ail1eurs.

if you are sel",'ed anywhere else, WITHN60 DAYS after such service.

(c)(c)

Si valIs cmettez de Ie taiTe, vous pourrez etrerepute avoir adrllis toute demandc formulee contrevous cr, sans au::J~ avis, J1JGEMENT POURRA ETRERENDU CONTRE VOUS EN VOTRE ABSENCE.

If you fail to do so, you may be deemed tohave admitted any claim made against you, andwithout further notice to you, JUDGMENT MA 'xT BEGIVEN AGAINST YOU IN YOUR ABSENCE

Sa~hezYou aTe advised that:

vous avez Ie droit dans ia presente instance,d'Cf1-;CWI' des document'; et de presentervotre p:'euve en fra.n~ai$. en anglais on dansles deux tangues;

you are entitled to issue documents andpresent evidence in the proceedings inEnglish or French or both;

(a)(a)

Ie demw1deur a I' intention d' utiliser la langue. et

the plaintiff intends to proceed in the Englishlanguage; and

(b)(b)

de votre defense doit indiquer lale VDUS avez I'intention d'utiliser.

I' ex:).:lItU1l:u

your Statement of Defence must indicate thelanguage in which you intend to proceed.

.(c) (c)

Si, clap; ;c dilai accorde pour la significationet Ie depot de l' t:xpose de yotre d~fense, vous payez audefnandeur COu it 5011 avocat Ie montant qu'il reclame,plus $J 00 pour couvrir ses frais, il y aura suspensionde l'instance Ou vous pourrez demander a. la cour derejeter !'actlon.

If you pay to thelawyer the amolU1t of thewith the sum of $100 for tthe time you are requireStatement of Defence, fustayed or you may apply todismissed-

CEICour du Bancgreffier de 1.1

2O_-

;lS est signt e:t scelle au nom de lala Reine par

THIS NOTICE is signed and sealed for tl1eCourt of Queen's Bench by c2arr:Jt:l. :;)'c~ C<.-f ( fupClerk of the Court: at Edmundston NB, on the - ~dayof_~~ .2011.

ORIGINAL SrGNED BYCAROL!= SOUCy~. (cJerk)

If a -, ce

(g?'iffier J

121 Church StreetP. O. Box 5001Fdmundsron NB E

plaintiff or the plaintiff splaintiff's claim, togetherhe plaintiffs costs, withind to serve and filc yourrther proceedings will beilie court to have the action

Page 3: Investors vs. N.B. Securities Commission

-3-

ST A TEMENT OF CLATM

The Plaintiff, DANIEL LEVASSEUR. is an indi'!idual wr~o resides at 745 rue1

Principale, in the Town of Clair, in the Province of New Bruns\IIick.

The Plaintiff, EDWARD KA V ANAUGH: is an individual who resides at 160

Kavanaugh Road in the Town of Grand Falls, in the Province of New Bruns~ick

Each of the Plaintiffs listed in Schedule "A" are investors (hereinafter interchangeably3.

called the "Plaintiffs" or the "Investors") and each resides at the location opposite his/her name, in

the Province of New Brunswick.

The Defendant, the New Brunswick Securities C.otTh-nission ("NBSC") is a body4

corporate established under section 3(1) of the Securities .4ct, R.S.~ .B. Ch. S-5.5 (the ;'Act"), having

its head office in Saint John. New BfW1swick. NBSC is responsible for the administration of the Act

and it is a designated Crown Corporation pursuant to the Proceedings .4gainst the Crown Act,

R.S.N.B. Ch. P-18, sec 1

The Defendant, Ed LeBlanc ("LeBlanc") is a senior investigaror\vith the Enforcement5.

Division of the NBSC, Rick Hancox ("Hancox") is the Executivo: Director of the NBSC, Jake

van cler Laan ("'van cler Laan') is the Director of the Enforcement Division, Mark McElman

is a legal coWlsel of the Enforcement Division, and at all times material these("McEJ.man '

Defendants were servants, agents and employees ofNBSC

On or about March 8, 2011, the Plaintiffs gave no {ice to NBSC of their intended6.

action in accordance with section 15(1) of the Proceedings .4gaim"( the Cro111n Act.

Page 4: Investors vs. N.B. Securities Commission

-4-

NBSC is funded directly by securities market pill1iLipants U1Iough industry, and7.

amounts collected from administrative penalties, disgorgement orders and settlements. At all times

material, its mandate was to protect investors from unfair, improper or fraudulent practices and to

foster fair and efficient capital markets and confidence jn those m::.rkt:s by the public, including the

Plaintiffs.

In the years from 2006 to 2009, Cenn-e de traitement d'information de credit8.

'Issuing Companies") issued("CTIC") and its related company, CITCAP Groupe Financier Inc.

securities to the Investors at various times and in varying amounts by way of promissory notes. The

cumulative an10tlnt invested by the Investors was in excess of$6-4 million and the investments were

governed by the provisions of and subject to the Act.

Patrick Gauthier ('"Gauthier"), a Quebec resident, was at all times material theq

president and sole directing mind of the Issuing Companies. He and the Issuing Companies are now

bankrupt.

The loans by the Investors were evidenced by promissory notes from the Issuing10.

Companies al1d were represented by Gauthier to be used for the sole purpose of factoring when that

was in fact not true. The said notes were securities within the defimtion of same tor securities law

and failed to meet the requirements of NI 45.} 06

The Defendants reviewed the: investments and actions of Gauthier wld the Issuing

Companies from the spring of2006 and it was only in 2008 that the NBSC concluded that CTIC was

not compliant with the Act. The NBSC concluded that CTIC was conducting a rami-like Scheme

by using the investments of the Investors to pay other prior investors but took no action to colTect

it. By the time action was taken by the Defendants to stop it, the total investments were estimated

to be in excess of$14 million of which $6_4 million comprised ilie investrnents oftlle mvestors

Page 5: Investors vs. N.B. Securities Commission

-5-

12 The Plaintiffs state that the Defendants were not led on several occasions, starting

in 2006, that questionable investments were being sold by CITC In July 2007, suspicion was

confiJmed and the Defendants were advised by Autorite des marches financiers .'AvfF"), being the

tlle Province of Quebec thatQuebec securities commission that regulates trading in securities

CITC was not in compliance with Quebec securities law

in 2006, the Defendants' legal staff ;.mc other clilployees of NBSC13 Initially

negligently concluded that CITC was in compliance with tJ-lt:: A~( and neglected to actively

investigate and pursue CITC despite the warnings and kno'-"1edge iliilt there was a question as to the

need to regulate the sale of loan agreemcnts by the Issuing Comp:mies. Even in 2007 when the

Defendants realized they ened they did nothing to protect the Plaintiffs

In or about July 2007, the Defendants concluded that CITC was not in compliance14.

with the Act and rather than take action and protect the Plaintiffs, the Defendants and each of them

acceded to a request by the Alv1F not to notify the Plaintiffs or any them or CITC of the breach

of the securities law in both Quebec and New Bl"l1nswick pending investigation by the AMP.

The Defendants knew or should have known the names fuid addresse:s of the Plaintiffs15

(investors) and the particulars of their investments by July 2007 and tiley had a dut)' of care to the

said investors to warn and protect them with respect to this invesLm~nt and they deliberately and

negligently refrained from advising them of the danger to their inVeSln1ent and potential for loss.

At various times after July 2007 and prior to February 2008 the Defendants or one16.

or more of them contacted the AMF to obtain information on the orlgoulg investigation ofCITC but

they negligently allowed themselves to be put-offby the AMF without receiving details of what the

AMF had found or what steps had been taken to deal with ( TC \\'hile at tile same timp thpv

Page 6: Investors vs. N.B. Securities Commission

-6.

f\ct investors ";0 that the AMFcontinued to accede to the repeated requests of the AMF not to cont

investigation would not be compromised.

17,

was threatening to \\-ithdraw all of the funds then on hand, which at that time were in excess of

$8,000,000.00. The said LeBlanc and the other Defendants failed tc. take any or adequate steps to

freeze the funds and preserve them for the benefit of the Investors and in the premises the funds were

the Plaintiffs suffered loss and damage.

In or about the month of March 2009 the Defendfuits filed a motion with the NBSC18.

to require the Issuing Companies to produce audited financial statements which they had promised

to do in late 2008 but had failed to do

On or about Apri13, 2009, the Defendants were adv::sed by Counsel for the Isslung19.

Companies that they would sig)1 a Consent Order with respect to the motion giving them six months

to file the audited financial statements and the Defendants agreed to same.

Shortly after receipt of the Consent Order in April 2009, the Defendants were advised20,

that Gauthier was boasting that he had no intention of pro'7iding the promised financial statements

in 6 months or at all; that he believed the NBSC was stupid and the i\MF were all idiots and that the

6 months he had been given to file frnancial statements would give him plenty of time to clean out

the assets and accounts of the Issuing Companies. As well, the Defendants were infomled that

Gauthier claimed to have a private account in Ottawa and that some $3,000,000 had been taken from

the accounts of the Issuing Companies since October 2008 and tl1at Gauthier planned to stop making

interest payments to the Investors and would only redeem the investments over a period of 4 to 5

Page 7: Investors vs. N.B. Securities Commission

7.

years and the said Defendants were urged to act quickly and in1Il1ediatel)T to freeze or cause to be

frozen the assets and accounts of the Issuing Companies but they t"aiJc.-d to do so by reason of which

the Plaintiffs suffered loss and damage.

21 On or about the 27th day of May, 2009 Gauthier and the Issuing Companic:s filed a

voluntary proposal to creditors under the Bat1kruptcy and Insol,,-eI)cy Act, R.S. C, 985, c. B-3

("BIA ") and on Or about the 2nd day of July 2009 the proposal t'ailed and Uley \\'ere petitioned into

Bankruptcy

22 The warnings to NBSC~ and the Defendants and other agents and employees unknown

to the Plaintiffs at this time, were timely and had they been acted upon with reasonable diligence,

funds would have been available to pay the I11vestors in full. Instead the DefendaIlts failed to exercise

reasonable care and diligence in carrying out 111eir duties of care tow~d the Plaintiffs and made the

decision to do nothing to protect investors from unfair, improper or fraudulen! practices.

23. The Plaintiffs plead that the Defendants owed a duty of care to the Investors to protect

them. The Defendants knew of potential violations of the Act and wilfully failed to take any action

against the Issuing Companies or their officers or directors when the); knew or should have known

of the resultant loss and damage to the Investors if timely and coITecrive action was not taken,

24 The Plaintiffs say the Defendants and each of them demof!strated a complete

25 The Dcfendants and each of them owed the PlaIntiffs and each of them a duty

to act in good faith and the Defendants failed to perform said dut), and bj- reason thereof the

Plaintiffs suffered loss arId damage in an aggregate amoUlIt of approxjmately $5.600.000.00

Page 8: Investors vs. N.B. Securities Commission

~

.8-

26

as follows

Damages in the amount of $5,600,000.00;(a)Interest at the rate of7% per annwn compo~mdvd monthly from the 1 st day of

May 2007 until payment;(b)

just to The Court; andCosts of this action on such basis as may see!(c)

Such further and other relief as to this Honot:.rabl~ Court seems just.(d)

FAIT a Ie 20DA TED at Fredericton, NB, thisday of May, 2011.

- - - ~~ "'1 ~ Eugene J. Mockler, Q.C.

Solicitor for the Plaintjff~

Nom dr: ]'avocat du demandeur:Name of lawyer for Plaintiffs

Eugene J. Mockler, Q.C.

Raison socia!e (s'il y a lieu)Name of firm:

E. J. Mockler, Professional Corporation

Business address Adres~ PfvfessionIielle

495C Prospect StreetFredericton NB E3B 9M4Telephone: (506) 454-8200Facsimile: (506) 454-7300