ASC panel sanctions ex-rep, company

A former insurance rep and his company are being banned and hit with more than $700,000 in monetary sanctions — including disgorgement, penalties and costs — after a regulatory hearing panel found they defrauded investors.

In December, an Alberta Securities Commission (ASC) hearing panel found that Raymond Cawaling, a financial advisor and licensed life insurance agent, and his company RTAX Financial Corp., illegally distributed securities and perpetrated fraud when they raised approximately $675,500 from investors. The funds were ostensibly meant to finance various ventures, including projects in the energy and mining sectors, but some of the money was diverted for other uses — such as paying returns to earlier investors and covering personal bills.

Specifically, the panel found that between October 2016 and November 2019, RTAX raised funds through short-term loan agreements and partnership agreements that promised investors high returns — between 2% and 5% per month over a four-month period — which were to be generated by investing in various global projects.

While some of the money was invested as promised, the panel said much of it was used for other purposes, including transfers to Cawaling’s personal bank accounts and credit facilities, payments to other investors, transfers to unknown recipients and cash withdrawals, “including withdrawals from ATMs located in casinos, which Cawaling acknowledged were for his personal gambling.”

Now, the panel has issued sanctions in the case, including permanent bans against both Cawaling and the company. It also ordered that they jointly disgorge the $462,421 misappropriated from investors, and that they pay a $175,000 penalty and $81,755 in costs.

According to the panel’s decision, several investors provided evidence of the harm they suffered as a result of the misconduct. These went beyond financial hardship to include disruption of future plans, damaged personal relationships, stress and mental health consequences.

The panel noted that Cawaling and RTAX didn’t set out to defraud anyone and “appear to have believed” in the investment projects. They also lost money on their own schemes, the panel said.

However, it found these mitigating factors were offset by other elements of the misconduct, including the fact they continued raising money from investors even after the ventures failed to generate returns.

Ultimately, the panel concluded the misconduct was “extremely serious.”

“It caused financial loss and other harm to the investors, and harmed the reputation of our capital market. Its seriousness was exacerbated by Cawaling’s decision to ignore the warning signs about the legitimacy of the underlying investment schemes and to raise money deceitfully,” it said.

The panel also noted that Cawaling had the education and experience to “know better.”

While market bans and disgorgement serve to deter others from illegally distributing securities and committing fraud, “they are insufficient without an administrative penalty,” the panel said, in finding that a $175,000 fine was also appropriate.

“It is a sum that is neither too lenient nor ‘crushing or unfit’ for these respondents,” it said. Along with the market bans and disgorgement order, the penalty is enough to act as a deterrent without being disproportionate and “is in the public interest,” the panel concluded.