Quebec's securities regulator allowed a stock promoter to operate for years even when its own investigator believed he was breaking the law, a joint CBC investigation by the fifth estate and Enquête has found.
Eric Van Nguyen was still a young business student at Concordia University in Montreal when he started promoting penny stocks online in 2008.
Then in 2014, he was indicted in New York state in a massive "pump and dump" scheme in which thousands of investors in penny stocks were defrauded of approximately $290 million US, according to allegations from the Manhattan district attorney's office
The U.S. Securities and Exchange Commission (SEC) followed suit with similar charges against Nguyen two months later.
But Quebec's securities regulator, the Autorité des marchés financiers (AMF), has not taken any formal action against Van Nguyen, even though an investigator who interviewed him three years earlier believed he was guilty of market manipulation.
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For observers, the lack of action seems unusual.
"To be able to move five penny stocks, the market capitalization of five penny stocks by $200 million is extraordinary," says Thomas Sporkin, the former head of market intelligence at the SEC.
"It's virtually unprecedented in the time I was there to see that type of movement."
Sporkin told the fifth estate he can't understand why Canadian authorities have never brought charges against Van Nguyen.
"It's curious. I don't know exactly what to make of it. I would expect whatever regulator had jurisdiction over these violations or alleged violations would have investigated and would have likely brought actions."
The AMF declined to be interviewed for this story, citing ongoing legal actions.
Not on major markets
Penny stocks are offered by small companies that don't trade on the major markets like the TSE or the NASDAQ.
Because these public companies don't have the same reporting rules and oversight as those traded on the major markets, their stocks are often used as vehicles for market manipulation schemes.
The CBC investigation focused on the AMF's protracted case against Carol McKeown and Dan Ryan, a married Montreal couple who promoted penny stocks online. Van Nguyen worked for their promotion company Downshire Capital — and promoted stocks online with them — until a falling out over the website used for the promotion.
McKeown and Ryan told the fifth estate their high-profile online penny stock promotions were generating $1 million per month in revenues in 2009.
Then in June 2010, the Quebec regulator asked the courts to freeze the assets of McKeown and Ryan, which stopped their business — alleging illegal promotions and failing to disclose the full amount of the stock they held. A prosecution against them is continuing.
The SEC brought the same charges against McKeown and Ryan and within a year had won a $4-million default judgment in a federal court in Florida.
"We haven't been found guilty in Quebec, and we only were found guilty in the States because Quebec blocked us from having an attorney" by freezing their assets, McKeown told the fifth estate.
Neal Mukherjee was the AMF investigator on the McKeown and Ryan case.
In 2011, as part of the AMF probe into McKeown and Ryan, Mukherjee interviewed Van Nguyen, who had worked for Ryan and started the online promotions website with them. But their relationship disintegrated into a legal battle after Van Nguyen left with the website in 2009.
the fifth estate and Enquête have obtained the transcript from that interview.
Mukherjee started the interview by informing Van Nguyen that the AMF believed he had violated Quebec securities law.
"We do have reason to believe that you participated in a market manipulation scheme, contrary to section 195.2 to the Quebec Securities Act," Mukherjee tells Nguyen.
"As well we have reason to believe you may have given out advice, contrary to section 200 of the Quebec Securities Act. Do you understand that anything you say can be used against you in a court of law or tribunal?"
Van Nguyen said he "understood" the allegations against him and proceeded with the interview, without a lawyer, providing information about Ryan and McKeown's stock promotion business.
"It was Dan — the brain behind the operation," Van Nguyen told the AMF.
At one point he asked the investigator, Mukherjee, if Ryan will know he is giving information to the regulator.
No evidence of AMF investigation
Despite the fact that Mukherjee suspected Van Nguyen of market manipulation, there is no evidence that his accounts were ever frozen or any kind of formal investigation focused on him was ever launched by the AMF.
When approached by the CBC, Mukherjee declined to talk about why the AMF did not stop Van Nguyen five years ago.
Last year, Mukherjee was fired by the AMF for unknown reasons and is bound by a confidentiality agreement.
"Listen, I can't talk about these things," Mukherjee told the fifth estate's Gillian Findlay.
"I'm sorry. I'm really, really sorry about that. I'd love to, I can't…. It's a big machine. I don't have the resources to fight this machine."
So what happened? Why did the AMF not stop Van Nguyen if it believed he had violated the law? Why was he apparently treated differently than McKeown and Ryan?
Now in private practice
If anyone would know, it's Fabrice Benoît — the AMF's former investigation director of insider trading and market manipulation — Mukherjee's superior in 2011.
Today, Benoît is a Montreal lawyer in private practice who has handled cases involving stock market regulators.
He declined to be interviewed on camera when the fifth estate told him in a telephone interview that we had questions about the AMF and Van Nguyen.
Here's a portion of the interview.
BENOÎT: I mean if you were not doing a report on my client I will be glad to answer all your questions about anything.
fifth estate: But because we are doing a story that will involve Mr. Nguyen …
fifth estate: … you can't talk to us.
BENOÎT: Yeah. That's right.
So does that mean Nguyen is one of his clients?
fifth estate: So you did represent Mr. Van Nguyen, you just can't talk to him because of client confidentiality?
BENOÎT: I cannot confirm nor deny that information.
Despite believing that Van Nguyen had violated Quebec law in 2011, the AMF seemingly stood by while he continued to promote penny stocks online.
This past spring, Van Nguyen's name surfaced in the Panama Papers in relation to an offshore company that was reportedly registered in 2010 and located in the British Virgin Islands.
The CBC spent months trying to track down Van Nguyen for this story. But if he is still in Canada, he has been keeping a low profile and has so far failed to show up to face the charges in New York City.
"Dan and Carol Get Busted" airs on the fifth estate on CBC-TV Friday at 9 p.m.