Three former Officers and directors at Vaughan-based CannTrust Holdings Inc. are being charged with multiple offenses under Ontario’s Securities Act.
Last week, the Ontario Securities Commission (OSC) revealed charges against former Director Mark Litwin, former Board Chair Eric Paul, and former CEO Peter Aceto.
The charges stem from a joint investigation by the OSC, the Royal Canadian Mounted Police (RCMP), and the Integrated Market Enforcement Team (IMET).
The OSC alleges that Paul, Litwin, and Aceto tried to hide illegally-grown cannabis at CannTrust during a ten-month period in 2018 and 2019.
According to the OSC, Aceto, Paul, and Litwin did not disclose to investors that approximately 50 percent of the company’s growing space was not licensed by Health Canada.
The OSC says that CannTrust press releases, corporate disclosures, analyst calls, and prospectuses claimed that the company was compliant with regulatory requirements and had included all its cannabis production in financial statements without stating that half was grown without a license.
“This matter demonstrates how the OSC’s quasi-criminal team, working closely with policing partners, is evolving to focus on more complex cases involving senior level market participants, in addition to repeat offenders,” says OSC Director of Enforcement Jeff Kehoe. “In cases involving serious market misconduct, prosecution in provincial court allows us to seek a range of strong sanctions, including jail time.”
According to the OSC, Litwin and Aceto signed off on prospectuses to raise capital in the United States, stating that Canntrust was fully licensed and compliant.
Litwin and Paul also allegedly traded CannTrust shares while in possession of the “material, undisclosed information regarding the unlicensed growing.”
Officer in Charge of the RCMP Toronto IMET Section says the investigation is a good example of working with regulatory partners to investigate serious market offenses that threaten investor confidence and economic stability in Canada.
Litwin is charged with fraud, insider trading, making a false prospectus and false preliminary prospectus, making false statements to the OSC and the market, and authorizing, permitting, or acquiescing in the commission of an offense.
Paul is charged with fraud, insider trading, making false statements to the OSC and the market, and authorizing, permitting, or acquiescing in the commission of an offense.
Aceto is charged with fraud, making a false prospectus and false preliminary prospectus, making false statements to the OSC and the market, and authorizing, permitting, or acquiescing in the commission of an offense.
Litwin, Paul, and Aceto are scheduled to appear at the Ontario Court of Justice, Old City Hall Courthouse in Toronto on July 26, 2021.
According to BNN Bloomberg, attorneys representing Litwin, Paul, and Aceto say they plan to defend their clients in court and deny any wrongdoing.
Currently, no charges have been issued against CannTrust Holdings, Inc., its subsidiaries, or any current directors, officers, or employees.
CannTrust says that it it focused on resolving civil litigation claims and “fully restoring its operations as a leading Canadian recreational and medical cannabis producer.”:
Last week, CannTrust announced the engagement of a replacement independent auditor and initiated preliminary discussions with the OSC.
The focus of the discussions is to propose a plan and timetable for “curing CannTrust’s historical disclosure defaults, with a view towards later applying to the OSC for a discretionary order revoking the OSC’s cease-trade order” from April 13, 2020.
CannTrust says that curing its historical disclosure defaults will require considerable management of time and expense with no assurance of success.