The BCSC / Jon Carnes drama and its implications

A British Columbia Securities Commission (BCSC) panel dismissed fraud allegations against Jon Richard Carnes.

While Carnes theoretically won, the panel’s written decision was very biased against short sellers.  Firstly, the BCSC failed to realize that they went after the wrong people (this is a pattern that repeats through history with many regulators… it’s nothing new).  However, the panel did not see value in creating an environment where people can expose fraud without fear of repercussions and nasty legal bills from regulators.

More importantly, one of Carnes’ researchers (Huang Kun) was wrongfully imprisoned in a Chinese jail and suffered abuse while detained.  Money is one thing.  Having your human rights violated is another.  I believe that Carnes’ lawyer(s) presented newspaper articles that describe Kun’s story.  Exhibit EX00344 (a BCSC webpage lists the hundreds of exhibits filed) seems to be a Globe and Mail article that describes what happened to Huang Kun in China.  The panel’s written decision does not seem to mention Huang Kun at all.  His name does not appear in the decision anywhere.  I am very disturbed at what appears to be the panel white washing the abuses that have occurred.

Other examples of bias

Here are some notable quotes from the BCSC panel decision:

  1. “We find Carnes’ claim that his conduct had a public benefit to be specious and selfserving.”
  2. “While we may find Carnes’ conduct unsavory […]”
  3. “It is not our role to sanction conduct we find morally unsupportable.”

(To be fair, points #2 and #3 could be in reference to some of the tactics Carnes used, and not his attempts to expose fraud.)  With #1, the panel doesn’t seem to take into consideration the value of short sellers exposing frauds.  Carnes’ arguments were simply dismissed as “selfserving”, as if making money while benefiting society is somehow wrong.  Or perhaps the regulators have a problem with people making money.  Given that the BCSC regulates securities and people generally invest in securities to make money… the panel’s argument is fairly dubious either way you interpret it.


The BCSC might as well be honest and say the following:

  1. Commit fraud, we’ll look the other way.
  2. Detain Canadian citizens and abuse their human rights, we’ll look the other way.
  3. Short sellers exposing what you’re doing?  We’ll help you out by bathing them with legal bills.

I guess the smart thing for me to do is to shut the fuck up and make money shorting all the janky Canadian stocks out there.  Given the regulatory climate, I think a lot of charlatans will figure out that Vancouver British Columbia is a great place to commit fraud because you have to be an idiot to end up in jail.  Whereas the SEC in the United States will sometimes put fraudsters and their accomplices in jail, that risk seems dramatically lower in British Columbia.  It will be the Vancouver Stock Exchange all over again.  The many abuses in the Canadian markets will likely continue and create a lot of decent short selling opportunities.

But that is not what I want the world to be.

*Disclosure:  I never had a position in Silvercorp and I never researched it because the borrow was expensive.

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