In the fall of 2014, a British Columbia Securities Commission Panel considered whether five B.C. residents (the Respondents) had engaged in market manipulation of the shares of OSE Corp. (OSE), an Ontario company listed on the TSX Venture Exchange.
In Thalbinder Singh Poonian et al., 2014 BCSECCOM 318, the Panel found that the Respondents and certain relatives, friends and associates (Secondary Participants) acquired a dominant share position of OSE and manipulated OSE’s share prices by trading through brokerage and nominee accounts. They also sold shares to unsuspecting clients of the Phoenix Group and its affiliates, where Phoenix and its principals were paid significant commissions in return of their referral.
All of the Respondents were thus found in contravention of section 57(a) of the Securities Act, which requires:
- Participation in conduct relating to securities
- If the person knows or reasonably should know that the conduct results in or contributes to a misleading appearance of trading activity in, or an artificial price for, a security
Conduct relating to OSE securities
The BCSC Panel found “overwhelming evidence” of participation in conduct relating to OSE shares against all the Respondents, including:
- Arranging the acquisition by other Respondents or Secondary Participants of control of OSE through private purchases;
- Funding private placement purchases of OSE shares;
- Trading in OSE shares;
- Receiving from Secondary Participants transfers of OSE shares;
- Trading OSE shares in the brokerage accounts of other Respondents and Secondary Participants;
- Funding accounts in the names of Secondary Participants to cover trading in those accounts;
- Making payments to the accounts of other Respondents and receiving payments from those same accounts;
- Funding debit balances in brokerage accounts of various Secondary Participants where the debits arose, in whole or in part, from purchases of OSE shares;
- Paying commissions to the Phoenix Group for the sale of OSE shares.
Misleading appearance of trading activity
The Panel then considered the second prong of the test and found that criteria for determining whether there had been an attempt to manipulate the market, as set out in Siddiqi, were present in this case:
- Wash trades (where there is no change of beneficial ownership): the Respondents or Secondary Participants orchestrated both the buy and sell sides of trades;
- Trades that led to an artificial price of OSE shares: Share prices rose 417% during a 20-day period without any announcement of material changes in OSE’s business;
- Trading through nominee accounts: Placing of orders to trade OSE shares in accounts funded and controlled by the Respondents where the accountholders had no economic interests in the accounts;
- Pre-arranged trades: Instructions to Phoenix Group on the timing and price of purchases by Phoenix clients;
- Market domination: the Respondents and Secondary Participants held 88.33% of OSE shares and accounted, at a certain period, for 89% of the overall sale volume;
- Uptick trades (trade at a price that is higher than the price on the immediately preceding trade): Between January 10, 2008 and March 31, 2009, trades by the Respondents accounted for 208 uptick trades;
- High closing: Several purchases in the final 30 minutes of trading, which resulted in a higher closing price.
The Panel thus concluded that there was overwhelming evidence of effective market manipulation.
 Re Fatir Hassan Siddiqui, 2005 BCSCCCOM 416