Penalties for fraud cannot be overturned by bankruptcy: court

Thalbinder Singh Poonian and Shailu Poonian had appealed a British Columbia Supreme Court ruling that penalties stemming from fraud cannot be reversed in bankruptcy proceedings.

A BC couple who manipulated stocks to the detriment of people’s retirement savings will still have to pay back defrauded investors regardless of bankruptcy proceedings, BC Court of Appeal has ruled .

Thalbinder Singh Poonian and Shailu Poonian are permanently banned from working in the financial markets after a British Columbia Securities Commission (BCSC) panel ruled in 2014 that they had embezzled around $7 million from investors for their own gain .

The Poonians were ordered to repay $5.5 million to investors and an additional $13.5 million in administrative penalties to the commission. Since then, their case has dragged through the court system over several issues.

The commission had been successful in obtaining an order from the Supreme Court of British Columbia declaring that the amounts owed by the Poonians could not be discharged by an order of discharge under the Bankruptcy and Insolvency Act, because such penalties are exempt from bankruptcy proceedings. The Poonians appealed the case; however, the appeals court dismissed them, according to a ruling issued Aug. 5.

This means that the penalties will remain in effect until the Poonians pay them off. So far, the couple have not refunded anything to investors, according to an August 11 commission statement. It is possible that they will reach a refund agreement in the future.

Judges Hon. Peter Willcock wrote the August 5 decision, accepted by the Hon. David Harris and the Hon. Lauri Ann Fenlon.

“In my view,” said Willcock, “the chambers judge committed no error either in his description of the principles or in concluding that the fines and restitution orders in this case fell within the exemption. defined by [a section of the Bankruptcy and Insolvency Act].

“Debts result from the obtaining of goods or services by false pretenses or fraudulent misrepresentations. The evidence supported the conclusion that the judgment against the Poonians was based on the fact that they had engaged in false fraudulent statements and had obtained property as a result.

Last year, the Poonians lost an appeal to have their debt forgiven, including an additional $6 million in unpaid taxes to the Minister of National Revenue.

Generally, people can have their debts repaid under ‘fresh start’ principles and if they are ‘honest but unhappy debtors’.

But neither court found that to be the case for the Poonians, who continued to deny misconduct.

The Supreme Court found that the Poonians’ tax liabilities could not be attributed to any economic factor beyond their control.

The Poonians manipulated the stock price of OSE Corp., an Ontario company whose shares traded on the TSX Venture Exchange.

The Poonians had sold overpriced shares to “unsophisticated investors” in 2008, according to the Supreme Court ruling. “They had done this with the help of an entity whose business was to advise people in debt on how to access funds from their RRSPs and retirement accounts.

“Essentially, the commission found that the Poonians had inflated the price of shares of a publicly traded company and then sold those shares at inflated prices to unsophisticated investors with financial problems.”

Thalbinder Poonian led the trading of OSE shares in the brokerage accounts of Perminder Sihota – who was also sanctioned for violating securities law – as well as in the accounts of nine secondary participants.

The Supreme Court said that “the actions of the Poonians were morally wrong and harmful to society, so they should not be rewarded with a forgiveness of these debts.”

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