In September 2022, Sidhu was ordered to pay $950,000 in a settlement with the BCSC; he has paid $50,000 so far
A Vancouver company must pay $900,000 and is banned from the investment market for illegally selling securities to an investor, a B.C. Securities Commission (BCSC) panel has ruled.
The investor became involved in Bracetek Industries Group Ltd. when she met Geoffrey Rajay Sidhu through a social networking website in 2015. She told Sidhu that she owned a home in Vancouver mortgage-free but was struggling financially. At that time, she had few assets, little money in the bank and more than $300,000 in debts.
Sidhu offered financial advice and recommended that she obtain a mortgage against her home. He helped her obtain a $2,070,000 mortgage from a private lender on a one-year term.
Sidhu then introduced her to Bracetek, whose sole officer and director was his father. He told the investor Bracetek was in the business of manufacturing braces used in construction and that his father planned to take the company public within a year.
Sidhu recommended that she invest $1.75 million of the mortgage proceeds in Bracetek, and said her investment would triple in value when it went public. The investor followed that recommendation.
The investor was given inadequate information about how her funds would be used. The company had less than $100 in its bank account and no revenue, and had not paid for the technologies used in its braces. She was not told that very little of her investment would be left for Bracetek’s future expenses after her funds were used to pay Sidhu’s father, family and his father’s girlfriend. She also was not told whether Bracetek would have sufficient funds left to finance future operations to accomplish its business objective.
Bracetek used $900,000 of the woman’s investment to preserve an option to purchase another technology from companies controlled by Sidhu, and $150,000 to buy back shares owned by Sidhu’s father’s girlfriend, who was a founding shareholder. A significant amount was spent on consulting fees for another one of Sidhu’s father’s companies, reimbursements for office furnishings and supplies, and to pay off credit card debt.
By 2017, only around $2,100 remained in Bracetek’s bank account.
The panel found Bracetek violated the Securities Act by selling $1.75 million in securities to the investor without a prospectus – a formal document providing important information a person should know before making an investment– and without a prospectus exemption.
The investor needed the protection of prospectus disclosure requirements, the panel wrote. It described her as being extremely financially and emotionally vulnerable, and lacking in the financial sophistication and resources to understand or withstand the risks of investing in Bracetek.
“The amount invested represented more than 50 per cent of the investor’s net worth,” the panel wrote. “The investor sold her home to pay off the mortgage, and is now renting. She spends thousands of dollars a month on rent. She fears that she could never afford owning a home again.”
In September 2022, Sidhu was ordered to pay $950,000 in a settlement with the BCSC; he has paid $50,000 so far. He also was prohibited from trading or purchasing securities or derivatives unrelated to his own accounts for a period of seven and a half years, and from serving as director or officer of any issuer or registrant, other than for six named issuers that he oversaw at the time.
The panel ordered Bracetek to pay the Commission $850,000, representing the amount obtained from the misconduct, minus the amount that Sidhu has already been ordered to pay through the settlement. Any money collected by the BCSC toward that amount – as well as most of the financial sanctions ordered in the settlement with Sidhu – could be distributed to the victim.
The panel also imposed a $50,000 administrative penalty on Bracetek, and banned the company from the investment market for seven years, which will remain in effect until the financial sanctions are paid in full.