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Hundreds of investors lost nearly $20 million in offshore trades, and regulators are investigating a Kelowna man for illegally running the failed investment scheme.

The Alberta Securities Commission launched its investigation into Kyle Watters and his Alberta-based business partner in 2022, ordering they stop trading eight months later. This week, the regulator filed in BC Supreme Court in an effort to ensure Watters' bankruptcy doesn't get in the way of potential penalties.

The investigation may result in harsh penalties because they weren't registered with the commission, but Watters' recent bankruptcy appears to risk derailing any efforts to sanction him.

According to the regulator, Watters and Hunter solicited $18 million in investments from 200 people and lost most of it, if not all, in foreign currency trades.

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They started pulling in funds from British Columbia, Alberta and Saskatchewan investors in February 2021. A year later, they were trading the money through an offshore Caribbean-based company called HW TradeFX LLC.

The pair represented themselves as "foreign exchange experts," taking a 35 per cent share of investment profits, according the regulator documents.

The Alberta Securities Commission filed in BC Supreme Court asking a judge to exempt the regulator from a bankruptcy provision that would block creditors from taking action against him. Without the exemption, it appears Watters' bankruptcy risks jeopardizing the investigation.

In its petition to the court, the commission argues a judge should allow the exemption so it can follow through with its mandate to protect the public.

Watters allegedly handled the investments directly, and the money had dwindled through his unsuccessful trades by February 2023. According to the commission, $4 million came from Alberta investors, but it's not clear how much of that money came from investors in BC and Saskatchewan.

Watters and Hunter had already been summoned before an investigator with the commission three months earlier.

In April 2023, the regulator said Watters hadn't cooperated with investigators, citing health issues. Despite telling them he hadn't made any trades since September 2022, he still "represented himself" as an investor with the company by the following March.

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The Alberta regulator called them a "threat to investors and the integrity of the capital market" as it successfully sought a temporary order blocking Watters and Hunter from investing other people's money. It was later extended to May 2025.

Though the investigation is led by regulators in Alberta, it spanned both provincial and national borders. The Alberta Securities Commission said it had assistance from its counterparts in BC and Saskatchewan, the Cayman Islands Monetary Authority and the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

Watters and Hunter are scheduled to appear for a two-week hearing which begins in April, but the regulator only discovered Watters was discharged through bankruptcy proceedings earlier this year, four months after he was freed from debt requirements.

Watters hasn't responded in court and the allegations of illegal trading have not been proven.

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