Colin McCabe, 30, graduated from university in 2005 or 2006 and, although he had no experience in the securities industry, he began publishing the monthly Elite Stock Report from his home in Abbotsford.
McCabe researched stocks, using publicly available information such as websites and news releases, and, if he thought they had a shot at being profitable, he would write about them in his newsletter.
The Elite Stock Report was distributed only by direct unsolicited mail in the U.S.
This information was presented at a hearing this month in which a B.C. Securities Commission (BCSC) panel found that, in five cases, McCabe published “grossly misleading reports” designed to stimulate the trading volumes in the shares of three companies “in order to artificially increase their stock prices.”
The BCSC said McCabe, in exchange, was paid more than $5 million, which was transferred to offshore and Swiss bank accounts.
These actions were contrary to the public interest and eroded confidence in the B.C. capital markets, the panel stated.
A hearing to determine McCabe’s punishment will be held at a later date.
The hearing looked into three public companies which McCabe wrote about in 2010.
One was Guinness Exploration Inc. McCabe wrote three editions of the Elite Stock Report based on the company, including claims that Guinness had purchased an 8,000-acre property in the Yukon which contained an estimated one million ounces of gold.
His report said investing in the project would hand his subscribers “monster gains inside the next 60 days … and could go 10-for-1 in the next twelve months.”
He described it as “a discovery so massive it makes Fort Knox look trivial.”
Documents from the hearing indicate that to produce the three reports, McCabe was paid a total of $2.65 million by Erwin Speckert, the managing director of a Swiss company called Everest Asset Management.
Speckert was acting as a middleman for a party that he has refused to name, and the arrangements were designed to “conceal the flow of funds” to McCabe from whomever Speckert was representing, the BCSC documents state.
In so doing, the BCSC panel found that Speckert engaged in conduct contrary to the public interest. His proceedings are being held in conjunction with McCabe’s.
The two other companies that McCabe wrote about in a misleading manner, according to the panel, were Tuffnell Exploration Ltd. and Gunpowder Gold Corp.
McCabe wrote that Tuffnell “could be our most profitable gold stock … EVER” and that he expected Gunpowder to be “a pinnacle achievement of (his) stock-picking career.”
Each company paid him $1.2 million to produce and distribute 850,000 copies of the Elite Stock Report.
Payment for the Tuffnell and Gunpowder reports was also made through parties which had no apparent connections to the companies, the BCSC documents state.
In none of the arrangements did McCabe discuss the contents of the reports with these contacts nor did the contacts review the newsletters before they were printed and distributed.
The BCSC panel said the newsletters could not be mistaken for analyst reports.
“They read more like the tabloids one might expect to see at a grocery check-out.”
McCabe’s defence was that the reports were merely paid advertisements and that a reasonable person would not rely on them, but the panel did not agree.
“We find that (McCabe’s conduct) was contrary to the public interest because it exposed investors to improper practices and eroded confidence in our markets.”
McCabe’s actions are also the subject of a complaint filed by the U.S. Securities and Exchange Commission (SEC), which alleges McCabe was paid $16 million between January 2008 and February 2011 for write-ups in his publications the Elite Stock Report, The Stock Profiteer and Resource Stock Advisor.
The SEC is seeking to have McCabe repay the funds and ban him from participating in such activity in the future.