A Toronto-based lawyer has been found liable for market manipulation by a British Columbia financial regulator. Shimshon Refoel (Shimmy) Posen conducted a “wash trade” to artificially lower the stock price of a B.C.-based company that was his firm’s client, a panel of the B.C. Securities Commission ruled Monday. The decision, which is published on the BCSC’s website, deals only with liability. Posen and the commission’s executive director will now make submissions about what sanctions he should face for his conduct, and the panel will determine a penalty in a future decision. The wash trade According to the liability decision, Posen’s law firm had Waraba Gold Limited as a client in January 2024, when the company was looking to sell 10 million shares in a private placement at a price of three cents per share. A private placement is an offering of securities to investors that happens outside of the public forum of a stock exchange. Waraba was listed on the Canadian Securities Exchange, which has a requirement that companies looking to sell shares in private placements for prices below five cents per share cannot do so if the sale price is below the stock’s volume-weighted adjusted price over the preceding 20 trading days. In this case, Waraba’s 20-day volume-weighted adjusted price was 7.8 cents per share, and the CSE refused Posen’s firm’s request for the private placement, according to the decision. The exchange refused the private placement on Jan. 25, 2024. The following day, Posen placed an order in his personal investment account to buy 70,000 shares of Waraba at 0.5 cents per share, the decision explains. He then placed an order in an investment account controlled by a company he owned called Shimcity Inc. to sell 50,000 shares of Waraba at 0.5 cents per share. Posen asked the investment advisor for the Shimcity account to make the sale after 3 p.m., but the decision indicates the broker missed that note and made the sale earlier in the day. As a result of this transaction, Waraba’s 20-day volume-weighted adjusted price dropped below three cents per share. The CSE reported the unusual trading activity to the BCSC, according to the decision. “This type of transaction is known as a ‘wash trade,’” the BCSC said in a news release announcing the decision Wednesday. “In describing this type of transaction, the panel wrote that ‘the concept of a wash trade is that there is no substance to the trade.’” Posen’s defence In response to the BCSC’s allegations against him, Posen submitted that the commission lacked jurisdiction in the matter, that his conduct did not include the elements necessary to prove misconduct, and that the proceeding should be dismissed due to the “de minimus” principle. The de minimus principle is a legal concept that states courts should refuse to consider trifling matters. While the BCSC panel was unable to find an example of the concept being applied in securities law, it concluded that de minimus “can apply in the right circumstances.” Those circumstances were not at play here, the panel ruled. “Despite the limited scope of the conduct in relation to major pump and dump schemes, the conduct here was not trivial,” the decision reads. “Posen intervened in the market to create a false appearance of activity and to create an artificially low volume-weighted-average-price. He did so to avoid the application of a CSE policy. His conduct would naturally have the serious effect of diminishing the integrity of the market in the eyes of the investing public.” Regarding the jurisdictional question, the panel found ample connection to British Columbia, even though Posen himself is not a resident. As for the elements of the misconduct not being proven, the panel rejected Posen’s assertions that his broker’s timing of the trade and the fact that his wife is the beneficial owner of the Shimcity account should stop it from inferring that he was trying to manipulate the market. “The price at which Posen entered the buy and sell orders, starting with the buy order, was (0.5 cents), or one sixth of the potential private placement price,” the decision reads. “The potential private placement price was itself below the volume-weighted-average-price. Posen might have had a faint hope that another party would choose to sell at such a low price. But he had no realistic hope, based on objective circumstances, including the most recent sales at a much higher price and the absence of recent orders for sales at such a low price. On a balance of probabilities, we draw the inference that Posen was expecting and intending to have both of his orders match and create a transaction at a price of (0.5 cents).” The parties’ submissions on what penalties Posen should face for his misconduct are scheduled to be completed by Dec. 18.
