Market Manipulation: Alberta Securities Commission Clamps Down On Pump And Dump Scheme

• Published date: 26 March 2021
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Securities
• Law Firm: Osler, Hoskin & Harcourt LLP
• Author: Mr Lawrence Ritchie, Tristram J. Mallett and Devon Luca

The Alberta Securities Commission (the "ASC") recently issued its reasons in Re Kilimanjaro Capital Ltd., 2021 ABASC 14 (the "Decision"). The ASC concluded the control person of Kilimanjaro Capital Ltd. ("Kilimanjaro"), Ashmit Patel, engaged in, among other things, market manipulating conduct intended artificially to inflate Kilimanjaro's share price so that he could profit.

The Decision highlights the extensive cross-border cooperation between the United States Security and Exchange Commission (the "SEC") and Canadian Securities Administrators ("CSAs"). The Decision also strengthens the existing legal framework relating to misleading promotional materials. As we have written previously, regulators are grappling with how to regulate an evolving market in which information posted on social media can significantly influence market valuations. The Decision lays useful groundwork that can be used to regulate legitimate trading practices used for improper purposes.

Background

Kilimanjaro is a Belizean company incorporated in 2011. In the autumn of 2012, Patel approached Zulfikar Rashid about using a shell company for a project involving future contingent oil, gas, and mineral rights in Africa ("FCAs"). Unable to find a willing investor group, Rashid decided to use his own company Kilimanjaro Capital Ltd. ("Kilimanjaro Canada"). At all material times, Kilimanjaro Canada and Rashid (its CEO) had addresses in Calgary.

Shortly after Patel and Rashid reached an understanding, Kilimanjaro Canada issued several news releases relating to Kilimanjaro Canada's acquisition of FCAs from various exiled governments in Africa (the "2012 News Releases"). The FCAs were contingent on the self-determination of the countries where the FCAs were located.

In March 2013, Kilimanjaro acquired Kilimanjaro Canada at which point Kilimanjaro assumed joint responsibility for all of Kilimanjaro Canada's contracts. On August 29, 2013, Kilimanjaro listed its shares on GXG Markets ("GXG"), a Danish-regulated microcap stock exchange. Beginning in or around October 2013, Kilimanjaro's shares were traded on the Over-the-Counter ("OTC") market. In November 2013, Rashid dissolved Kilimanjaro Canada.

In 2014, Kilimanjaro issued several news releases regarding its existing agreements with the exiled governments and additional "evolving interests" including a letter of intent to acquire certain oil and gas assets in Alberta (the "2014 News Releases"). None of the rights or assets outlined in the 2012...