On November 26, 2018, the Ontario Securities Commission (OSC) issued an order permanently prohibiting Daniel Reeve, a financial planner based in the Kitchener, Ontario area, from participation in Ontario’s capital markets, including trading in any securities and becoming or acting as a registrant.
The permanent ban came after Reeve was convicted in the Ontario Superior Court of Justice in 2017 for having defrauded at least 41 investors of nearly $10 million (see R v Reeve, 2018 ONSC 3744). Justice Skarcica found Reeve’s conduct to have “presented virtually every aggravating circumstances recognized by the Criminal Code and the case law”. Accordingly, Reeve was sentenced to 14 years in custody—the maximum sentence under the Criminal Code—and ordered to pay $10.9 million in restitution to his victims, which included “the disabled, the elderly, …close long-time friends and loyal clients”.
Mr. Reeve’s criminal conduct involved soliciting investors to make “low-to-no risk investments”, which he promised would return between 12 to 20 percent. He was later found to have diverted those investor funds for his personal use, such as making payments for his spousal support, his failing business as well as repayments to other investors. Investors lost more than $10 million.
Subsection 127(1) and 127(10) of the Ontario Securities Act work together to allow the OSC to make an order in the public interest with respect to a person who has been convicted of an offence arising from conduct related to securities. In particular, subsection 127(10) allows the OSC to impose regulatory sanctions under subsection 127(1) in respect of a person who has been convicted in any jurisdiction of an offence under a law respecting the buying or selling of securities.
The two issues the OSC panel was called upon to consider were:
- Did Mr. Reeve’s conviction involve transactions relating to the purchase or sale of “securities”; and
- If so, what sanctions should the Commission order against Mr. Reeve?
In answering the first question, the OSC applied the three-pronged test identified by the Supreme Court of Canada in Pacific Coast Coin Exchange v Ontario (Securities Commission), 1977 CanLII 37 (SCC) at para 128, and came to the conclusion that all three prongs have been satisfied. The transactions in question were investments with a view to profit, in a common enterprise between Mr. Reeve and the investors, where the profits were to be derived solely from the efforts of others.
Having found that the test under subsection 127(10) has been met, the Commission next deliberated on what sanctions, if any, should be ordered. The panel observed that orders made under subsection 127(1) are meant to be “protective and preventative”, not punitive. It is essential that the imposed sanction serves to protect Ontario investors both by specifically deterring Mr. Reeve, and by acting as a general deterrent to other like-minded individuals.
By imposing a permanent ban against Mr. Reeve, the OSC panel agreed with Justice Skarcica’s characterization that this matter was “an overwhelming case of fraud”. Not only did the fraud scheme involve a large number of victims and a high dollar value of financial losses, the fraudster showed no remorse for taking full advantage of the high regard he had in the investment and general community in addition to breaching the personal trust and faith the victims had in him.
The OSC’s decision is a reminder of the severity of penalties available for securities fraud and that perpetrators may find themselves prosecuted and sanctioned under both the Criminal Code and provincial securities legislation.
Danny would like to thank Coco Chen, articling student, for her contribution to this article.