David George-Cosh

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Three former senior directors at CannTrust Holdings Inc. have been charged with several offences following the company's efforts to conceal the illegal growing of cannabis at the pot producer between 2018 to 2019.

The Ontario Securities Commission (OSC) and the Royal Canadian Mounted Police's Integrated Market Enforcement Team said Tuesday it has charged Mark Litwin, Eric Paul and Peter Aceto with various violations under the Securities Act after federal regulators suspended CannTrust's licences for growing pot in unlicensed rooms in 2019.

Paul, CannTrust's former chairman, and Aceto, the company's former chief executive officer, were charged with fraud; making false or misleading statements to the OSC and to the market; and authorizing, permitting or acquiescing in the commission of an offence. Paul was also charged with insider trading, while Aceto also received a charge of making a false prospectus and false preliminary prospectus.

Litwin, a former CannTrust director, was also charged with fraud; making false or misleading statements to the OSC and to the market; authorizing, permitting or acquiescing in the commission of an offence; insider trading; and making a false prospectus and false preliminary prospectus.

CannTrust's woes began in the summer of 2019 when a former company employee alleged that CannTrust was growing thousands of kilograms of cannabis in unlicensed rooms at its Fenwick, Ont. facility.

The disclosure resulted in the termination of Aceto with cause, the resignation of Paul, an investigation by Canada's largest securities regulator and Health Canada suspending the company's licences to cultivate and sell cannabis in Canada.

All of CannTrust’s licences were reinstated by August of last year following a lengthy rehabilitation process that ensured the company was compliant with regulations.

In a statement, the OSC and RCMP stated that the three accused executives did not disclose to investors that approximately 50 per cent of the total growing space at CannTrust’s Pelham, Ont. facility was not licensed by Health Canada. They also asserted that CannTrust was compliant with regulatory requirements without stating that half was grown without a licence.

Litwin and Paul also traded shares of CannTrust while in possession of material, undisclosed information about the illicitly grown cannabis, the OSC and RCMP allege.

None of the allegations have been proven in court. The accused are scheduled to appear before a Toronto court on July 26, 2021.

In a statement to BNN Bloomberg, Aceto’s legal counsel, Frank Addario, said he was “disappointed” Aceto had been charged, and added he looks forward “to a public hearing where the evidence will show that [Aceto] acted with integrity at all times.”

In an emailed statement to BNN Bloomberg, Litwin’s legal representation, Scott Fenton of Fenton, Smith Barristers, said his client vigorously denies any wrongdoing.

“Mr. Litwin knows that at all times he fully complied with his legal obligations, including those under the Securities Act. He did not commit any offences, nor was he aware of others who may have committed any offences. Mr. Litwin intends to vigorously dispute the charges that have been made against him,” Fenton said.

A lawyer representing Paul said in a statement to BNN Bloomberg that his client is “confident that the evidence will show he did nothing wrong.”

“We look forward to vigorously defending him against the charges and answering the allegations,” Gerald Chan said.

"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," said Jeff Kehoe, director of enforcement at the OSC, in a statement. "In cases involving serious market misconduct, prosecution in provincial court allows us to seek a range of strong sanctions, including jail time."