Marijuana company's email mistake allows shareholder to forward fraud allegations

A judge has refused to grant a B.C. cannabis company an injunction against a man who used a list of email addresses the company accidentally sent to all shareholders against it.

The man in question is Krishansarup Kallu, who owns shares of Emerald Health Sciences Inc.

In June 2018, a legal assistant for the company's corporate counsel sent an email to all shareholders, including Kallu, that failed to use the "blind carbon copy" function, making every shareholder's email address visible to every other shareholder.

Approximately two hours later, a lawyer for the company sent a follow-up email apologizing for the error, describing the email addresses as "confidential information," and asking recipients to delete the original email.

Kallu did not delete the email, according to a B.C. Supreme Court decision by Justice Ronald A. Skolrood issued in late April and posted online Wednesday.

Instead, Kallu saved the email, and eventually used it to contact every other shareholder on the list in September 2021.

"According to Mr. Kallu, he had learned that on Aug. 5, 2021, the United States Securities and Exchange Commission (the 'SEC') had filed an action in Massachusetts against, amongst others, the then-CEO of EHS, Mr. (Avtar) Dhillon, alleging financial fraud," summarizes Skolrood in his decision.

"Other named defendants in the U.S. action included some shareholders of EHS," the decision continues. "Mr. Kallu says that this raised concerns for him about the management of EHS. He says he raised these concerns in emails sent to the CFO and the Board of EHS, but got no reply. He therefore sent his Sept. 22, 2021 email to the shareholders."

The company sued Kallu, seeking an injunction to prevent him from using the names and email addresses again, and alleging that Kallu's use of the email distribution list had caused harm to the company.

Kolrood rejected the company's petition for an injunction, saying that it had failed to establish that the email addresses were, indeed, confidential, and that it had failed to establish that Kallu had misused the allegedly confidential information in his possession.

The company argued that Kallu's motivation for sending the emails was to increase the value of his own shares, which were the subject of a separate lawsuit brought by Kallu in 2020 against the company and a number of its officers and shareholders.

In that suit, Kallu argued that "he was entitled to a certain number of shares in the company for his contributions and that the company was obligated to purchase those shares from him," according to Skolrood's decision.

That lawsuit remains before the court.

While the company argued that Kallu's email was an attempt to increase the value of those shares, Skolrood found no evidence of this beyond the company's assertion that it was so.

"Mr. Kallu’s email of September 22, 2021, which gave rise to EHS’ concerns about his use of the email distribution list, says nothing about his shares," the judge writes.

"Rather, it identifies a concern about the company CEO in light of the U.S. proceedings and it encourages other shareholders to request financial information from the company. In my view, it cannot be said that raising concerns about the management and financial status of the company with other shareholders is a misuse of the information."

Finally, Skolrood added, the company failed to establish that it would suffer "demonstrable harm" without an injunction preventing Kallu from using the email list again in the future.

"With respect, these are simply bald and speculative allegations of harm not grounded in the evidence," Skolrood writes. "Moreover, the harm alleged results from the statements made by Mr. Kallu in his communications, not from the fact that he used the email distribution list to communicate with other shareholders."