Regulator alleges B.C. man committed fraud

By Staff | June 7, 2013 | Last updated on June 7, 2013
3 min read

The executive director of the British Columbia Securities Commission has issued a notice of hearing alleging that a resident of Mill Bay, B.C. advised hundreds of people to purchase securities without being registered and perpetrated a fraud.

The notice alleges that between June 2007 and December 2010, David Michael Michaels, a former mutual funds salesperson, advised 484 clients to purchase over $65 million of “exempt” market securities (also known as “private placement” securities). Michaels was paid approximately $5.8 million in commissions and marketing fees by the issuing companies. The notice states that virtually all of the roughly $65 million invested by Michaels’ clients is now worthless, leaving many of them financially destitute while their home equity loans remain.

Michaels is a director of 509802 BC Ltd., a B.C. company doing business as Michaels Wealth Management Group. He was registered for ten years as a salesperson restricted to mutual fund securities. In February 2004, Michaels’ employment as a mutual fund salesperson was terminated after his employer, a member of the Investment Dealers Association of Canada(IDA), discovered he conducted a number of off-book transactions with clients.

This triggered an investigation into his conduct by the IDA, during which he repeatedly attempted to conceal information. Faced with the end of his membership in the IDA or a severely limited one, Michaels resigned from his subsequent employer in May 2006 and has not been registered to sell securities in any capacity since.

The notice alleges that Michaels operated a financial advising business through Michaels Wealth Management Group that provided clients with advice purportedly tailored to their financial needs. In addition to exempt market securities, Michaels also advised clients about purchasing insurance products and tax reduction strategies. He was licensed as a life insurance agent nominee by the Insurance Council of British Columbia from 1996 to 2011, and obtained the designation of Certified Senior Advisor (CSA) sometime around 2003. Neither designation entitled Michaels to advise anyone about purchasing securities.

The promotion of Michaels’ financial advising business targeted retired investors as potential clients. His promotional activities included weekly infomercials on CFAX 1070 radio in Victoria (entitled ‘Creating Wealth with David Michaels’), during which he repeatedly claimed that he gave up his registration to sell stocks, bonds and mutual funds because he saw that there was going to be a stock market crash (he claimed to have proactively moved his clients’ money and his own money into exempt market securities to avoid this). He also conducted monthly seminars and one-on-one meetings with investors, during which he advised potential new clients to purchase various exempt market securities.

After people became his clients and purchased exempt market securities, Michaels continued to advise them to purchase additional exempt market securities, which many did.

BCSC staff contends that by repeatedly and falsely claiming that he gave up his registration in 2006 because he foresaw the stock market crash and wanted his clients’ money out of the stock market, and omitting to tell the truth that he resigned in the face of an ongoing IDA investigation, Michaels perpetrated a fraud on his clients. Additionally, staff alleges that Michaels breached securities laws by advising his clients to purchase exempt market securities without being registered to do so.

These allegations have not been proven. Counsel for the executive director will apply to set dates for a hearing into the allegations before a panel of commissioners on July 9, 2013 at 9:00am. staff


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