Fraud charges have been laid against CannTrust Holdings Inc.’s former chief executive Peter Aceto and two former directors, all of whom face possible jail time of up to five years if found guilty in a sweeping quasi-criminal case led by the Ontario Securities Commission.
Company co-founder and former board chair Eric Paul and former director Mark Litwin are also charged with insider trading following a months-long investigation by Canada’s largest capital markets regulator. The OSC moved in following blockbuster revelations in the summer of 2019 that a Health Canada inspection of the publicly traded company uncovered unlicensed cannabis growing at its Pelham, Ont. facility.
The three men are facing a total of more than a dozen counts that include allegations of making misleading disclosure to investors in a case that will be prosecuted in the Ontario Court of Justice due to its quasi-criminal nature, rather than before an OSC tribunal as a civil matter. This marks the first time the commission has gone after a public company over disclosure using its quasi-criminal powers.
Quasi-criminal offences such as fraud and insider trading carry penalties including jail terms of up to five years less a day and fines of up to $5 million for each conviction.
In a statement Tuesday laying out the charges, the OSC said the allegations “relate to efforts to conceal the illegal growing of cannabis at CannTrust over a 10-month period in 2018 and 2019.”
During this time, the regulator said, the three accused “did not disclose to investors that approximately 50 per cent of the total growing space at CannTrust’s facility in Pelham, Ontario, was not licensed by Health Canada.”
Furthermore, the regulator alleges, the trio asserted in press releases, corporate disclosures, analyst calls, and prospectuses that CannTrust “was compliant with regulatory requirements, and they included all cannabis production in the company’s financial statements, without stating that half was grown without a license.”
In addition, Litwin and Aceto signed off on prospectuses used to raise capital in the United States, which declared that CannTrust was fully licensed and compliant with regulatory requirements, the OSC said.
“Litwin and Paul also traded shares of CannTrust while in possession of the material, undisclosed information regarding the unlicensed growing,” the statement says.
None of the allegations have been proven in court and a first appearance is scheduled for July 26 at 11 a.m. in the Ontario Court of Justice at Old City Hall Courthouse in Toronto
CannTrust, which at the time of the revelations of unlicensed growing was one of Canada’s most prominent cannabis companies — with a market cap that exceeded $1 billion at its peak — entered creditor protection as the probe grew.
The swift downfall was a significant bump in the road for a burgeoning industry after recreational marijuana was legalized in October of 2018.
Aceto joined CannTrust as chief executive in 2018 after serving as chief executive of ING DIRECT Canada — a financial services company now owned by Bank of Nova Scotia and rebranded as Tangerine Bank. He was terminated by CannTrust for cause in July 2019 after the revelations of unlicensed growing were made public. Paul, the company’s chair, was asked to resign at the…
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