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Some interesting news coming from Canada yesterday as James Langton of Investment Executive, Canada’s national newspaper for financial services industry professionals founded in 1989 is reporting that a British Columbia man was found to have attempted to trade other people’s money illegally in the FX market. The article states he made false statements in advertisements posted on Craigslist back in December 2011, including claims that he was a professional currency trader — before admitting that he’s actually a “terrible currency trader”.
A hearing panel of the B.C. Securities Commission (BCSC) found that Daveed Zarr (aka Asi Lalky) breached securities laws when he offered shares in his company, Zarr Energy Corp., on a website he created, and through numerous Craigslist postings; and, with Craigslist ads seeking $250,000 in seed money for foreign exchange trading, promising a 50% return. Zarr has never been registered in B.C., and Zarr Energy has never filed a prospectus.
An example ad reads as:
“I am a professional currency trader and I’m very good at what I do. Where most people lose I win; Let me win for you. If you have 250,000$ and can tolerate high risk I can grow your account to 375,000$ in one calander [sic] year (50% gain). Open a trading account with a major brokerage and let me trade the account for you, My fee is all the profit made above your gain…I currently signed 3 clients, I’m looking for one more.
Among other things, the panel found that he made misrepresentations when he told a commission investigator that responded to one of his ads, posing as a potential investor, that he was a professional currency trader. In fact, the panel noted in its decision that Zarr admitted “that he is not, and never has been, a professional currency trader. He also acknowledged that he is no good at it.”
It reports that he lost $54,700 USD of the $127,000 USD he traded the first time he tried forex trading, and that he only managed a small gain on the $10,000 USD he traded the second time. “He testified that he is a terrible currency trader,” the panel said in its decision.
In promoting the foreign exchange trading opportunity on Craigslist, the panel found that the purported investment “was an investment contract, and therefore a security”, under the securities laws in B.C. The Craigslist posting was also a trade, it said, which contravened the laws as he was not registered to trade.
The decision says that Zarr argued that there was no security offered in the Craigslist ad because investors were invited to open their own accounts. He maintained that he was just offering advice on how to trade currencies. The panel said that this argument is “unpersuasive as the Craigslist advertisement clearly called for the investors to set up the accounts and allow Zarr exclusive trading authority. This is not simply advice on how to trade currencies.”
Additionally, the decision says that Zarr claimed that he never intended to accept any money from investors. “He said all of this was a game, research, a documentary, a prank, an essay, and how he expresses himself,” it noted. However, it said that, even if this is true, these contentions “are not relevant to the issue of whether his conduct constituted trades.”
The B.C panel has not handed down penalties in the case – as of yet. However, the panel directed the commission and Zarr to make submissions on sanctions. It could be the lack of clear followup as far as penalties are concerned is due to the inefficiency of the Canadian regulatory system where each province has it’s own set of rules and regulations. Also, apparently no money was lost, the misdeeds were in the blatant false advertising and attempt to solicit.
To read the official PDF of panel findings on the case, click here.