Court says advisor who coached investor to lie didn’t obstruct justice

An insurance advisor who coached a dissatisfied client to lie to the British Columbia Securities Commission (BCSC) didn’t obstruct justice, according to an appeals court decision, because current amendments to the Securities Act made in 2020, did not apply in 2014.

The case looks closely at the placement of one word – before – in section 57.5 of the Securities Act, which used to state that a person must not destroy, conceal or withhold anything reasonably required for a hearing or review before the hearing or review commences. Hunter Wei-Shun Wang successfully argued that because the conduct occurred after the investigation had begun, his conduct was not captured in the 2014 Securities Act definition. (The Act was later amended in 2020 to remove the word ‘before.’) 

The case concerns an investment made in FS Financial Strategies Inc. by a 28-year-old man, accompanied by his mother, in March 2014. At the time, the firm’s marketing director cold-called the man promising a 10 per cent return for three years, risk free. The investor signed the agreement to invest $25,000, but immediately regretted his investment, calling the firm to request a refund.

The mother spoke to a senior representative at her own bank who advised her to contact the BCSC. April 3, 2014 she spoke with investigators who contacted Wang, the insurance representative responsible for the account, later that same day.

The investor’s mother, and the investor also met with Wang and the firm’s marketing director, Jin Zhang, that same day, during which Zhang told the pair that since the complaint was made, she could not provide a refund immediately. She added that the refund’s availability would depend on how the investor and his mother handled the matter with the commission. 

The next day, April 4, 2014, the group met again, and Zhang and Wang concocted a false story about multiple strategies being discussed, of one being discounted without telling the mother, and that the investor’s mother was simply confused. “Ms. Zhang initially coached the investor on this story in Chinese. The appellant (Wang) then took over and coached the investor in English on what he was to say to the investigator. The coaching included role-playing,” the appeals court decision states.

“After rehearsing the call numerous times with the appellant, the investor called the investigator in the presence of Ms. Zhang and the appellant.” After the client apologetically told the investigator that his mother was confused, the pair then coached the mother on what to say to investigators, and the Zhang went to the bank with the investor’s mother to return the money by having a bank draft drawn on her own account.

Wang was previously ordered by the BCSC to pay $30,000 and was suspended from market participation for two years. He did not contest the panel’s factual findings, but appealed the decision on two legal grounds, one of which stuck. Until this case, section 57.5 had not been judicially interpreted.

The one dissenting justice in the case, which was decided two-to-one in Wang’s favour, agrees that both the commission’s interpretation and Wang’s interpretation of the section are plausible. “I agree with the commission that the appellant’s proposed interpretation would lead to absurd consequences,” writes the Honourable Madam Justice Horsman.

The Honourable Madam Justice Fenlon and her colleague, the Honourable Madam Justice DeWitt-Van Oosten disagreed, saying the interpretation proposed was not one that would result in an absurdity.

“The interpretation proposed by the commission and adopted by my colleague is undoubtedly consistent with the purpose and the objects of the Securities Act, but that is but one of the principles that must be applied in interpreting a statute,” Fenlon writes. “Although statutes may be interpreted purposively, the interpretation must nevertheless be consistent with the words chosen by Parliament. The purpose of the Securities Act should not overwhelm the words of a section.” 

In allowing the appeal, the justices then remitted the matter back to the commission to determine whether it is in the public interest to issue orders against Wang on the basis that he engaged in conduct abusive to capital markets. 

The case is not the first for FS Financial Strategies. In 2021, alongside Wang, Zhang was also fined $40,000 and barred from certain securities markets activities for three years. In 2020 a BCSC panel ordered the firm’s founders to pay $2-million each and forever banned them from British Columbia’s investment markets. The firm’s former general manager was ordered to pay $75,000 and was banned for at least 10 years.

After the BCSC issued a temporary order against FS and related companies in 2017, the Insurance Council of British Columbia suspended or terminated the licenses of both founders and the general manager, along with the licenses of each company in the group that was licensed to sell insurance. The founders say the loss of those licenses effectively closed FS Group.

The founders, Aik Guan Lim and Scott Thomas Low admitted to raising more than $47-million from 389 investors between 2012 and 2017 without disclosing that the company was not profitable, was not earning enough to cover its expenses and pay investors their promised returns and was covering the shortfall by raising more money from investors.