It seems that the saga of the Ontario Securities Commission’s prosecution of Daniel Emerson Tiffin and Tiffin Financial Corporation is not over yet.  On November 28, 2018 (2018 ONCA 953), the Ontario Court of Appeal granted leave to appeal the May 15, 2018 merits decision of Charney, J which rejected the “family resemblance” test and found that certain promissory notes were “securities” within the meaning of the Securities Act (the Act).


As we’ve previously discussed, Mr. Tiffin and his company, Tiffin Financial Corporation (TFC), were charged with three offences under the Act related to TFC’s issuance of a number of promissory notes to investment clients while Mr. Tiffin and TFC were prohibited from trading in securities or relying upon any exemption under Ontario securities law.  Kenkel, J’s trial decision (2016 ONCJ 543) focused on whether the promissory notes could be considered “securities” within the meaning of the Act.

In dismissing the charges against Tiffin and TFC, Kenkel, J applied the “family resemblance” test articulated by the United States Supreme Court in Reves v Ernst & Young, 494 US 56 to determine that the promissory notes did not meet the statutory definition of a “security” under the Act.  The family resemblance test presumes that a note is a security unless it bears a strong resemblance to one of a number of categories of instruments that are not considered securities. In determining whether a strong resemblance exists, courts are required to examine the following four factors:

  • whether the borrower’s motivation is to raise money for general business use and whether the lender’s motivation is to make a profit;
  • whether the borrower’s plan or distribution of the note resembles “common trading for speculation or investment”;
  • whether the investing public reasonably expects that the note is a security; and
  • whether there is a regulatory scheme that protects the investor other than securities laws.

On appeal (2018 ONSC 3047), Charney, J rejected the family resemblance test, finding that because the term “security” is defined under the Act, and defined broadly enough to cast a wide net to protect investors, it was not necessary to import the family resemblance test.  Charney, J found that, while there were conflicting decisions from the British Columbia Court of Appeal and the Alberta Court of Appeal with respect to whether the family resemblance test applied in Canada, the Alberta Court of Appeal’s decision, which rejected the family resemblance test, ought to be followed.  Ultimately, Charney, J held that the promissory notes were “securities” within the meaning of the Act and allowed the appeal.  Read our previous analysis of Charney, J’s decision here.

In a decision released September 26, 2018, (2018 ONSC 5419) Charney, J sentenced Tiffin to six months in custody and 24 months of probation, finding that restitution and financial penalties alone were not sufficient to achieve general and specific deterrence.  Learn more about the aggravating and mitigating factors that informed Tiffin’s sentence by reading our previous post on the topic.

Leave to Appeal Granted

In its reasons for granting leave to appeal, the Ontario Court of Appeal noted that Tiffin’s conviction raises two main issues of public importance: (i) the interpretive principles to be applied in determining whether an instrument is a “security” within the meaning of the Act; and (ii) whether a loan agreement of the type issued by TFC is a “security” under the Act.  The Court noted that the determination of both issues requires a consideration of the role, if any, played by the “family resemblance” test.

Given that the British Columbia Court of Appeal and the Alberta Court of Appeal have taken different positions on the applicability of the family resemblance test in Canadian courts, the Ontario Court of Appeal’s decision on the topic is sure to be hotly anticipated.