In Ontario Securities Commission v. DaSilva, 2017 ONSC 4576 (DaSilva), the Ontario Superior Court of Justice confirmed that the “real and substantial connection” test applies in determining whether the Ontario Securities Commission (the Commission) has jurisdiction over offences with extraterritorial elements.
Background: The Appellants’ Breaches of the No Trade Order
In an earlier proceeding, the appellants David Campbell and Carlos DaSilva (together, the Appellants), were found to have violated the Ontario Securities Act (the Act) by, inter alia, engaging in unregistered trading and illegal distribution of securities, and of having deprived investors of more than $2 million. As a result, the Commission made a final order in December 2008 permanently prohibiting each of the Appellants from trading in securities (the No Trade Order).
A subsequent and unrelated investigation by Commission Staff revealed that the Appellants were continuing to trade in securities, despite the No Trade Order. Among other things, Staff discovered that the Appellants had been using aliases to solicit and engage in trading of securities of a United Kingdom company, Equity Capital Management, earning the Appellants 80% commissions from European investors. The funds solicited by the Appellants were sent to Switzerland and eventually forwarded to an Ontario bank. Although Mr. Campbell represented to investors that he was domiciled in the United Kingdom (under an alias), both of the Appellants resided in Ontario at all material times.
At trial, the Ontario Court of Justice convicted both Appellants of breaching the No Trade Order contrary to s. 122(1)(c) of the Act, and sentenced each of them to three months in jail and eighteen months’ probation. On appeal, the Appellants did not dispute that they had traded in securities as alleged, but instead argued that the No Trade Order was made outside of the Commission’s jurisdiction on the basis that it prohibited trading of securities outside of Ontario.
The Real and Substantial Connection Test Applies
The Ontario Superior Court of Justice confirmed that provincial legislation cannot have extra-territorial effect and that, accordingly, the Act cannot confer jurisdiction over trading by individuals outside of Ontario or when the “entirety of the offence” occurs outside of Ontario. The Court thus framed the issue on appeal as whether the Act can confer jurisdiction in Ontario when the offence takes place partially, or even substantially, outside of the province.
The Court confirmed that offences related to solicitation of investment in securities occurs where the communication originated and where the communication was received. Additionally, the province has jurisdiction over the offence where there is a “sufficient connection between Ontario and the impugned activities.” In appropriate circumstances, the Court confirmed that it is possible that more than one state can have jurisdiction over the same offence.
In DaSilva, the Court agreed with the trial judge’s finding that a real and substantial connection existed between Ontario and the impugned activities for the following reasons: (i) the Appellants were prohibited from trading in securities by the No Trade Order made in Ontario, (ii) the Appellants both resided in Ontario, (iii) the Appellants engaged in trading in securities by sending and receiving emails soliciting potential investors and completing trades with investors while the Appellants were in Ontario, (iv) the Appellants established a business address in Ontario from which they conducted some of the impugned trades, and (v) a portion of the profits from the Appellants’ trading was returned to Ontario. In the circumstances, the court concluded that the fact that the investors and shares were located outside of Ontario did not lessen the real and substantial connection to Ontario.
In April 2016 we reported on the British Columbia Court of Appeal decision in McCabe v British Columbia (Securities Commission), in which that Court affirmed the jurisdiction of the British Columbia Securities Commission to sanction a British Columbia resident for making misrepresentations in documents distributed exclusively to residents of the United States. Going forward, there should be no doubt that provincial securities regulators will continue to be afforded broad reach to sanction conduct targeting non-residents.
The author would like to thank Neil Rosen, summer student, for his contribution to this article.