In March of 2019 the Director of Civil Forfeiture (the “Director”) brought a claim to seize the property of Kevin Hobbs and Lisa Cheng, directors of Vanbex Group. The Director made allegations against Vanbex, its cryptocurrency FUEL, and one of its products, Rocket. The Director has since retracted many allegations but it continues to seek the forfeiture of Hobbs’ and Cheng’s property.
The Director of Civil Forfeiture
The purpose of the Civil Forfeiture Act is to take the profit from unlawful activity and to compensate victims of crime. The Director’s role is to administer and dispose the proceeds of unlawful activity, an instrument of unlawful activity, or both. This means the Director may apply to have property forfeited to the government if it establishes that the property was either purchased with money obtained through crime or that the property was used to commit a crime.
The criminal justice system is already equipped with forfeiture procedures once a person is convicted of an offence. Civil forfeiture proceedings may commence even if the person is never charged. The Director only needs to meet the civil standard of proof on the balance of probabilities.
The Director is currently under fire in another case involving Silver International. In that case, the Director brought a claim to seize a couple’s property three years after learning of a police investigation, and after the criminal proceedings were dismissed.
There are many other cases where the Director has fallen short of its evidentiary burden. In Director of Civil Forfeiture v. Robinson and Allwright, 2014 BCSC 2083 Mr. Justice Thompson said at paragraph 24:
Regrettably, this appears to be a case where the office of the Director of Civil Forfeiture has taken zealous measures outside the proper bounds of its home statute with the unfortunate effect of depriving a citizen of lawful possession and use of her property, and putting that citizen to what I suspect is considerable expense and inconvenience to retrieve her property.
Hobbs, Cheng, and Vanbex
Despite the many examples, the case against Vanbex stands out. The Director filed a claim against the defendants’ property and made a series of allegations in order to tie them to some unlawful activity. One point of interest is that there was no evidence from any victim. No investor, or shareholder has complained or suggested that anything was wrong. Hobbs, Cheng and Vanbex filed numerous affidavits.
After facing the defendants’ evidence the Director amended its arguments. It is down to one argument: that one inference to draw is that the source of the funds Hobbs and Cheng used to purchase the property was misappropriated from Vanbex. The Director has not yet provided any evidence of this and the claim remains baseless, a made up story.
The evidence that Hobbs and Cheng submitted to the court included an email from an ex-contractor, Kipling Warner, who gloated about contacting the British Columbia Securities Commission (the “BCSC”) and the RCMP to complain about Hobbs, Cheng, and Vanbex.
In a recent article, the CBC reported on a decision by the BC Supreme Court in which the court blocked Warner’s attempt to sue the bankruptcy trustee, Bowra Group, for computer retailer Netlink. The CBC reported that Warner alleged that after he purchased an item from Netlink, the company failed to properly encrypt his personal information, including his credit card information, and that some of Netlink’s servers containing private information were auctioned off to criminals, including identity thieves. Warner has commenced a proposed class action against Netlink, its landlord and the company responsible for auctioning off Netlink’s old equipment.
The CBC described the court’s characterization of Warner’s evidence, on his application for leave to sue Bowra Group, as “inherently unreliable” and “bara allegations”, and noted that the court stated that “Mr. Warner has not satisfied even the relatively low threshold required to justify the court exercising its discretion in favour of leave”. A link to the CBC article can be found at:
In the past year and a half, Warner has sued various companies, including Microsoft and Google.
Information provided by Warner was featured in the Directors’ material. For example, the Director initially claimed that Vanbex is a shell company with only two clients and no usable product. This claim was false and unsupported. The only source known to allege this was Warner.
The Director relied on Warner to its own detriment. It ultimately had to distance itself from Warner and abandon some of its claims once the flaws in his evidence were revealed.
The Director first seized the property by making an application to the court in March without notice to Hobbs or Cheng. This is called an ex parte application which is usually reserved for urgent matters. When the Director makes an ex parte application, it is expected to disclose all information to the court, including that which is beneficial to the other side. According to Counsel, this did not occur. Instead, the Director provided the court with false and misleading information and withheld evidence that contradicts its own claims.
For example, the Director advised the court that Hobbs had a criminal record which included a 30-month sentence for marijuana-related convictions. This was false – Hobbs successfully appealed and had his conviction quashed years prior. The investigating officer who provided the Director with the false information has since apologized for the error.
Hobbs and Cheng applied to the Court in April to set aside the Director’s original application. They provided the Director with their arguments and evidence in advance. At the hearing the Director requested more time to respond.
The hearing was adjourned. The parties left to await the new date but this time the Director had the benefit Hobbs and Cheng’s responses to their original application.
By the new date, the Director had amended its original claim and submitted a new application. In the new materials the Director abandoned many of its original allegations.
The original claim pleaded that Vanbex is a shell company. After receiving evidence to the contrary, the Director amended the claim to say Vanbex subsidiaries were shell companies. In court, the Director retracted this allegation all together.
The Director also pulled away from allegations that the FUEL token became worthless, that Vanbex never launched a product, and that Hobbs, Cheng or Vanbex made misrepresentations about the value of the FUEL token.
The Director revealed that the RCMP had evidence all along that Vanbex was never a shell company. They relied on an interview of an ex-contractor who described Vanbex as a large company with many employees and departments. This interview was conducted months before the claim was brought. Another investigating officer confirmed that employees of Vanbex provided the RCMP with exculpatory evidence.
The Director acknowledged that Vanbex launched a product, Rocket. It also acknowledged that FUEL tokens can be used to operate Rocket. It now only suggests that some of the services Rocket offers are different than how it was initially described.
In court, the Director abandoned any claims that Hobbs used corporate funds to gamble. Documents previously provided to suggest Hobbs was spending money in casinos, actually depicted his winnings. Counsel for the Director agreed that Hobbs is actually a very successful gambler.
The Remaining Claim
Despite what many outlets have published, the Director’s suit no longer implicates Vanbex. As evidence came in, the Director continually narrowed its claim. Now, the entire basis for seizing Hobbs and Cheng’s property comes down to one remaining argument:
That the court should infer that large sums of money flowing to Hobbs through a cryptocurrency exchange must be misappropriated from Vanbex. No evidence has been presented to prove that the money came from Vanbex, or to suggest that it would be wrong if it had.
What happened to Vanbex has happened before. The Director took zealous measures to seize Hobbs’ and Cheng’s property without proper evidence. It has deprived lawful citizens of the possession and use of their own property. Not only has this put them through considerable expense and inconvenience, but it has seriously hurt the reputation of the Vanbex and its directors.
The Director continues to work toward lowering the standard of proof. If the Director is successful in its claim against Hobbs and Cheng, it will theoretically have abolished the standard. It would mean that anyone can make an allegation against another and the Director will proceed without adequate evidence. It would mean the Director can demand that you prove your innocence without evidence of guilt. Defendants are left to prove a negative. In the meantime, in cases like this, the reputation of a company will be dragged through the mud and may never recover.
We are now faced with decisions about how best to serve the company and everything we built. We feel that the best course of action is to move the technology our team has developed such as Rocket and CryptoTaxes, along with our team, to a new company. Their leadership will take this to the next level while removing all the negativity surrounding Vanbex and its founders. Lisa Cheng will help with the transition and become CEO of this new company while Kevin Hobbs will stay with Vanbex and the consulting arm to continue to fight the battles and clear our name and reputation.
This will remove the presence of the Director’s attack from the team and the tech, and allow it to thrive in a new company that already has complementary technology that will add major value to what we have already built. This we think will be a great message to the world showing that we are doing what is best for the company and its people. We hope this way will speed up the adoption and on-boarding of many clients, and it continues to grow.
We thank you for all your support and we hope you will continue to support us in the future.