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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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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~ $50 et une preuve dc sa signification;
~
IN THE COURT OF QUEEN'S BENCH OFNEW BRUNSWICK
-2-
DANS L($ 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
-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.
-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
-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
-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
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
~
.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