Two B.C. residents will remain on the hook to pay the B.C. Securities Commission $15.85 million for their stock market manipulation, the Court of Appeal of B.C. ruled June 21.
Garo Aram Deyrmenjian and Raffi Khorchidian had previously each been ordered to disgorge $7.14 million of ill-gotten gains after a commission hearing panel determined they participated in stock market manipulation likened to a pump and dump.
Deyrmenjian and Khorchidian were issued a hearing notice in October 2016 and by April 2018 a commission panel determined that in 2011 the pair executed “a significant, and sophisticated, market manipulation” of a Nevada-registered public company by utilizing misleading marketing campaigns paid for through a “complex web” of offshore entities.
Central to the scheme was Kunekt Corporation, a relatively worthless public company that was touted as the “next Apple” in smartphone sales and “the proverbial ‘Holy Grail’ stock that is a legitimate game changer.”
Deyrmenjian and Khorchidian first accumulated about 10.8 million cheap shares in December 2010 before the marketing began, panel records show.
The panel found the two then transferred hundreds of thousands of dollars through Swiss intermediary EHT Corporate Services S.A. to marketers whose promotional materials were found to be “grossly promotional and misleading,” according to the commission’s executive director.
The marketing campaign enabled Kunekt to reach a market capitalization (valuation) of almost $180 million in early 2011. Kunekt’s share price reached a high of $2.89 on Feb. 28, 2011 before plummeting to 0.03 at the end of the year.
EHT was directed by a British man named David Craven who was previously found guilty by the U.S. Securities and Exchange Commission (SEC) of a fraudulent pump-and-dump scheme to manipulate American Energy Development Corp.
On March 11, 2019, Khorchidian and Deyrmenjian were of $7.15 million and $7.14 million, respectively. Khorchidian is also to pay an $850,000 administrative penalty while Deyrmenjian is to pay $700,000.
The group was also issued permanent bans from the stock market. They are not to hold any position as a director or officer of an issuer, registrant or promoter; trade in or purchase securities or exchange contracts; rely on any exemptions of the Securities Act; act in a management or consultative capacity in the securities market; or engage in investor relations activities.
On Nov. 14, 2019, the group was granted leave to appeal the hearing panel’s findings of liability on grounds the panel “erred in law by making impermissible inferences based on speculation and conjecture” and, in the case of Craven and EHT, the commission had no jurisdiction over them. The appeal effectively put the monetary penalties on hold.
After more than four years the appeal was dismissed in the June 21 decision from a three-judge panel led by Justice Peter Willcock.
“The inferences the panel drew, that, in essence, each of Khorchidian, Deyrmenjian and EHT were aware of and facilitated the manipulation through their respective conduct, were supported by evidence,” wrote Willcock.
As for Craven and EHT, Willcock agreed that the commission has jurisdiction over entities with sufficient connections to B.C. In this case, Khorchidian and Deyrmenjian were partners in the marketing and Kunekt had filings with the SEC showing a Vancouver address, on account its founder, president, CEO and sole director was Mark Bruk, a resident of Vancouver during the relevant period.
Willcock cited a recent Supreme Court of Canada ruling that approves provincial securities commissions in Canada going after foreign or extra-provincial entities and persons so long as there are sufficient connections to the jurisdiction.
Glacier Media attempted to reach the lawyers for Khorchidian and Deyrmenjian to see if they intend to repay the money or proceed to an appeal at the Supreme Court of Canada.
It’s unclear where both men reside; neither appear to own property, according to BC Assessment and the Land Owner Transparency Registry.
The pair was described in hearings as being friends and business associates for years, with experience as directors and officers of many other public companies.
The commission says it has to collect money from stock market violators, including revoking driver's licences.
