Alberta sanctions include $125,000 in hearing costs for promoter

The Alberta Securities Commission (ASC) has sanctioned Jan Gregory Cerato, also known as Jan Strzepka, for illegally distributing securities. In addition to an eight-year ban from conducting securities-related business and a $40,000 administrative penalty, the ASC took the unusual step of imposing $125,000 in costs as well, to cover the significant research, time and resources required to address a constitutional challenge and other tactics used to delay the regulator’s proceedings that were later deemed to be disingenuous.

Cerato raised at least $200,000 from at least 16 different investors who each paid at least $10,000 or the equivalent in Bitcoin. Cerato did not file a prospectus with the ASC or obtain an exemption and his team’s trading ultimately did not generate any profits.

In a statement announcing the sanctions, the ASC says the panel considered that Cerato poses a significant risk to investors and the capital market. They add that he “accepted little or no responsibility or regret and instead blamed others and exhibited contempt towards those who were harmed by his actions.” 

That “contempt” included threats of civil litigation and physical harm against those who would testify against him in the ASC’s hearing process. In one case he texted an investor saying “I know you’re a rat and so do a lot of very dangerous people; enjoy,” while two other investors were threatened with civil litigation. 

The ASC says “Cerato’s central role in the WhaleClub caused investors to invest large sums without the benefit of a prospectus,” the ASC’s decision states. “We observed in the merits decision that the WhaleClub investors were precisely the type of individuals who need the protection of prospectus-like disclosure. Cerato promoted the WhaleClub as an investment opportunity well-suited for novice investors.” 

To investigators, meanwhile, Cerato called the WhaleClub an experiment with cryptocurrency and a casual situation. “This is not what he told WhaleClub investors and instead made extravagant promises of spectacular returns. WhaleClub members were exposed to significant financial risks that they did not fully appreciate when they invested,” the ASC writes.

As for costs, the ASC says the order to pay $125,000 was imposed to recoup costs after Cerato raised a novel issue related to private investment club exemptions which required significant research. He submitted constitutional question notice and also sought to adjourn the hearings pending a referral to the Court of the Queen’s Bench. Midway through the ASC’s merits hearing he additionally raised the prospect of examining the ASC’s Director of Enforcement to provide evidence relevant to his constitutional challenge.

“Responding to Cerato’s constitutional issues was somewhat challenging and required additional resources, in part because the constitutional notice and Cerato’s written submissions were convoluted and carelessly drafted, and required considerable time and parsing and untangling of Cerato’s arguments.” Cerato also pursued an unsuccessful stay application during the proceedings, as well.

“Staff concede that Cerato is fully entitled to defend himself,” they write, “but argued that he is responsible for the cost consequences of his defense strategy. In particular, staff pointed to Cerato’s constitutional challenge, which was described in the merits decision as a disingenuous contrivance advanced for improper purposes.”