The former chief executive and two past board members of CannTrust Holdings Inc. are facing charges roughly three years after the cannabis company became embroiled in unlicensed growing allegations.
The Ontario Securities Commission and Royal Canadian Mounted Police said Tuesday that former chief executive Peter Aceto, former vice-chairman Mark Litwin, and former chairman Eric Paul each face charges of fraud, making false or misleading statements to the OSC and the market and authorizing, permitting or acquiescing in the commission of an offence.
Litwin and Paul also face insider trading charges and Litwin and Aceto are charged with making a false prospectus and false preliminary prospectus.
The charges under the Securities Act come after CannTrust’s licences were suspended for growing thousands of kilograms of cannabis in unlicensed rooms in 2018 and 2019.
The OSC and RCMP allege the accused did not disclose to investors that about 50 per cent of the growing space at CannTrust’s Pelham, Ont. facility was not licensed by Health Canada and they allegedly used corporate disclosures to assert that they were compliant with regulatory approvals.
They also charge that Litwin and Aceto signed off on prospectuses used to raise money in the U.S., which stated that CannTrust was fully licensed and compliant with regulatory requirements, and Litwin and Paul traded shares of CannTrust while in possession of material, undisclosed information regarding the unlicensed growing.
The allegations have yet to be proven in court.
The court can impose a jail term of up to five years, a fine of up to $5 million or both to any defendant convicted of an Ontario Securities Act violation, the OSC said in an email to The Canadian Press.
Aceto’s lawyer Frank Addario said in a statement that he was “disappointed” his client has been charged.
“I look forward, as does Peter and his family, to a public hearing where the evidence will show that he acted with integrity at all times.”
Addario says CannTrust was subject to multiple regulatory inspections and a financial audit during Aceto’s time with the company and they resulted in no material issues being raised.
Litwin’s lawyer Scott Fenton said his client intends to “vigorously dispute” the charges.
“Mr. Litwin knows that at all times he fully complied with his legal obligations, including those under the Securities Act,” Fenton said in an email.
“He did not commit any offences, nor was he aware of others who may have committed any offences.”
Paul could not be reached for comment.
The accused are all scheduled to appear in court on July 26.
Aceto, who served as the president and chief executive of Tangerine bank, is now the president of the Mortgage Alliance. He was terminated with cause from CannTrust in July 2019.
Litwin, who resigned from CannTrust in March, is listed as president of Forum Financial Corp. on a LinkedIn profile.
The OSC and RCMP worked with the Integrated Market Enforcement Team, a RCMP-led unit focused on capital markets fraud.
“This matter demonstrates how the OSC’s quasi-criminal team, working closely with policing partners, is evolving to focus on more complex cases involving senior level market participants, in addition to fraudsters and repeat offenders,” Jeff Kehoe, the OSC’s director of enforcement, said in a release.
The charges come after CannTrust Holdings Inc. started staging a comeback in December 2020 with the reintroduction of its two recreational brands, Liiv and Synr.g, to the Canadian market.
As part of the comeback, CannTrust’s new chief executive Greg Guyatt said at the time the company would focus first on Ontario, Alberta and British Columbia. Once CannTrust establishes a consistent supply of cannabis in those provinces, he said the company will expand to other markets and introduce new products in 2021.
He also promised CannTrust’s full line of medical products will return in the near future and that it will enter the market that has focused on edibles, vapes and topicals.
He said that troubles stemming from the unlicensed growing scandal were behind CannTrust and that the company had spent 18 months on a comprehensive remediation program focused on compliance and simplifying the business.
This report by The Canadian Press was first published June 22, 2021.