Ontario woman accused in penny stock fraud calls investor losses 'horrifying'

An Ontario woman who was part of a massive penny stock fraud scheme says she thought she was just helping her boyfriend build his business and now feels terrible about the loss of investors' money.

"This is the worst conceivable thing in the whole world," Andrea McCarthy told a sanctioning hearing at the Ontario Securities Commission on Wednesday.

"People worked hard their whole lives to have money and to have it taken away from them is horrifying," she said.

McCarthy, who acted as a director and officer for BFM Industries Inc. and Liquid Gold International Inc., was found in January by the OSC to be a knowing participant in the scheme. It also said she "illegally distributed" securities and trades without registering with the OSC.

It is alleged that from November 2008 to December 2010, the two companies defrauded 32 foreign investors by selling them $445,000 of worthless stock, and said McCarthy had been responsible for handling the day-to-day operations at the companies, including communicating with investors and withdrawing money from corporate accounts.

But in her testimony on Wednesday, McCarthy, 41, suggested she was simply following instructions from her boyfriend, Sandy Winick, who now faces criminal charges in the U.S. related to a fraud scheme, and said didn't think to question his requests.

"People were constantly asking Sandy for money; he was constantly giving money to people," she said.

McCarthy said she left a job at her ex-husband's company after meeting Winick, who began supporting her financially.

She didn't know what Winick actually did for a living and found him secretive about his businesses, but she was happy to incorporate BFM and list herself as a director when he asked.

"I didn't really appreciate the inner workings of it," she said.

"I thought it was exciting that he was building something I'd be able to work at and feel valuable."

The company seemed legitimate, she added, and she didn't think it was unusual when he also asked her to put her name on a bank account for Liquid Gold.

The pair had several joint accounts as well, and McCarthy was in charge of most of Winick's banking, which she did following specific instructions from him.

Aside from day-to-day living expenses, McCarthy said she received little profits from the alleged scheme beyond an expensive handbag and jewelry, which she later sold.

McCarthy's lawyer, Naomi Lutes, argued McCarthy's limited financial means should be considered by the commission as they deliberate her penalty, as should her willingness to co-operate with investigators and her show of remorse.

McCarthy has no assets, savings or investments, and was forced to cash in her RRSPs to pay her legal fees, Lutes said. She also recently sold her home.

"She's not saying that she didn't make mistakes here and shouldn't have asked more questions," said Lutes, who described McCarthy as a "financially unsophisticated woman."

Lutes is recommending a penalty of $23,300 plus a nominal administrative fine, and says McCarthy does not dispute a proposed 15-year ban on trading in securities.

Jonathon Feasby, a lawyer for the OSC, initially suggested staff were looking for $102,000 in repayment plus $50,000 in administrative fees, but acknowledged there were mitigating circumstances in the case.

OSC commissioner James Carnwath reserved his decision Wednesday.

The OSC has already banned Winick and his business partner, Gregory Curry, from securities trading and ordered them to pay more than $1 million in penalties for breaking securities law.

Those sanctions were related to separate schemes involving securities of BFM, Liquid Gold and a third company called Nanotech Industries Inc.

Winick and Curry are accused by the U.S. Attorney's office of being the leading figures in fraud schemes involving $140 million US and spanning dozens of countries, including Canada.

The two men were arrested in Thailand last summer after a multi-year investigation involving the FBI and the RCMP that also relied on wiretaps in the U.S. and undercover agents abroad.

It is believed there are tens of thousands of victims.

American authorities have also ordered Winick to pay back roughly $3.2 million in "ill-gotten gains" obtained through what they call an "illicit trading scheme" involving another penny stock issuer.

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Mark Carney policies favoured condos over factories, CIBC says

CBC News Posted: Mar 12, 2014 4:09 PM ET Last Updated: Mar 12, 2014 5:14 PM ET

The chief economist of one of Canada's largest banks pointed the finger Wednesday at Mark Carney for a monetary policy that pumped up house prices and the loonie while hurting Canada's manufacturing output in the long run.

In a recent note, CIBC's chief economist Avery Shenfeld said monetary policy under Mark Carney's watch at the Bank of Canada left the economy in worse shape today than it could otherwise have been.

Canada's largest trading partner, the U.S., is finally showing signs of robust expansion after a lengthy recession and recovery. But Canada's economy isn't taking as much advantage of that as it normally would, because there is less production capacity available to be ramped up at factories.

One of the effects of the central bank's action under Carney's helm was a large run-up in the value of the Canadian dollar. The loonie repeatedly traded above par with the U.S. greenback, spiking above 105 cents US a number of times in 2011.

While the suddenly strong loonie had good and bad effects on many aspects of Canada's economy, one area where it was a definite negative was in manufacturing. 

A strong currency makes Canadian goods more expensive internationally, which makes it a tougher sell for a company that depends on exports to decide to expand operations here. The massive amounts of stimulus at the time were drawing money away from the U.S. dollar and pumping up the value of almost every other currency against it, the loonie included.

But Shenfeld notes that unlike other countries which took steps to offset it, Canada's central bank at the time took a hands-off approach and allowed the loonie to rise unimpeded. "Rather than intervene to neutralize the impact of hot money capital flows on the exchange rate (as the Swiss did) the Bank of Canada tried to offset the impact ... by keeping interest rates low enough to stimulate housing and domestic consumption," Shenfeld said.

The result, he said, was the ensuing real estate boom, as cheap lending gave people an incentive to borrow. Those moves also came at a time when companies were making long term decisions "on where to retain plants," Shenfeld said, "and where to shutter them for good."

"In effect, monetary and exchange rate policy traded off more condos for fewer factories," he said in the note.

It's that lack of manufacturing capacity that's now holding the economy back, as Canada is less able to expand quickly to increased demand.

In recent public statements, Carney's successor Stephen Poloz and other bank officials have speculated that part of Canada's difficulties returning to pre-recession levels in exports is that there are about 9,000 fewer Canadian exporting companies in existence than was the case in 2008, and others have ramped down production capacity.

The impact of such an exodus is that even if foreign demand for Canadian products increases, there simply aren't enough companies around to fill it.

Manufacturing woes have improved a bit lately as the dollar has dropped back to a more "appropriately valued" level, as Shenfeld puts it, around 90 cents US.

"But given how infrequently production location decisions come up, the legacy of earlier plant closures will be with us for years to come," he said.

CIBC is expecting the Canadian economy will expand by 2.1 per cent this year. That's about a half a percentage point less than what the Bank of Canada is expecting.

With files from The Canadian Press Mar 12, 2014 4:41 PM ET Mar 12, 2014 4:34 PM ET Mar 12, 2014 4:15 PM ET Mar 12, 2014 4:34 PM ET Mar 12, 2014 4:41 PM ET

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