August 27, 2021
Disgorgement of ill-gotten gains or fraudulently acquired profits is a remedy available to victims of investment fraud.
Investment Fraudster, Michael Lathigee, was found liable for investor fraud in Canada back in 2014. Per the ruling, Lathigee was found to have raised $21.7 million (CAD) fraudulently from 698 Canadian Investors in violation of BC Securities Act 57(b). Specifically, Lathigee failed to disclose the financial condition of the entities he and his associates owned; and further utilized the funds to make loans to related companies, instead of investing in foreclosures of residential properties as represented to the investors. Following this finding the British Columbia Securities Commission (BCSC) ordered Lathigee to disgorge the ill-gotten gains to the BCSC and further imposed a $15 million (CAD) administrative penalty. Following this decision Lathigee left Canada and relocated to Nevada. Upon his move the BCSC filed for the Nevada District Court to recognize and enforce the $21.7 million disgorgement order under Nevada Law, and most recently the Nevada Supreme Court recognized the disgorgement order.
As a financial advisor soliciting funds from investors, the soliciting party creates a fiduciary relationship when that party begins to advise on investment opportunities and even more so when acquiring the funds. During the course of this process the advisor has an obligation to make certain disclosures, not misleading investors or potential investors. In California the legal liability for fraud by concealment or non-disclosure is addressed in California Civil Code Section 1710(3) which encapsulates legal liability for fraud via concealment fraud or fraudulently concealment as follows: “[a] deceit, within the meaning of the last section, is … [t]he suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact.”
“Fraud (Fraudulent or Defraud) A trick to induce another to act to the other’s harm for one’s own benefit. Fraud includes any act intended to deceive another person or to encourage the other person to do anything that the actor believes will be to the other’s harm but to the benefit of the actor or a third party. Fraud encompasses a wide range of conduct that conceals the true facts of a situation or creates a false impression upon which the actor seeks a victim to rely to the victim’s harm. The two broad forms of fraud are the knowing misrepresentation of facts and the intentional concealment of a material fact in order to create a false impression, either done with the intent to induce another person to rely on the facts or impression to the harm of the other person and the advantage of the actor or a confederate of the actor.” Bouvier Law Dictionary Fraud (Fraudulent or Defraud) BY: Stephen Michael Sheppard
Disgorgement of ill-gotten gains is a remedy available and recognized both in the US and Canada. Specifically financial advisors whom advise investors and owe a fiduciary duty to third parties have an obligation to act with good faith and fair dealing which encompasses an obligation to be transparent, make certain disclosures and includes the duty of undivided loyalty and duty to use reasonable care when investing on behalf of a client.