In Theroux (Re), 2019 ONSEC 20 a hearing panel of the Ontario Securities Commission (OSC) was called upon to decide whether an individual convicted of five counts of fraud over $5,000 contrary to section 380(1)(a) of the Criminal Code should have the benefit of carve-outs from an order under section 127(10) of the Ontario Securities Act (Act) which would otherwise prohibit him from trading in securities and from being an officer or director of any company permanently.
Alain Theroux had pleaded guilty in the Ontario Court of Justice to five counts of fraud over $5,000. Theroux admitted that he had solicited and accepted funds from investors in excess of $1 million reflecting their investments in bonds, promissory notes and bridge financing marketed in respect of a biofuel venture with a company with which Theroux was associated. Substantial portions of the funds raised were diverted to Theroux’s personal use or to pay other investors and were not invested in the biofuel market.
At a subsequent hearing before the hearing panel of the OSC under section 127(10) of the Act, the fraudulent investments were found to constitute securities under the Act, thereby giving the hearing panel jurisdiction to impose sanctions upon Theroux in addition to the sentence imposed under the Criminal Code of 12 months’ incarceration, two years’ probation, restitution in the amount of $170,800 and a fine in lieu of forfeiture in the amount of $75,000 to be paid within 15 years of his release from prison.
Theroux requested two carve-outs from the sanctions requested by OSC Staff, which included a permanent prohibition on his ability to trade securities and on his ability to act as an officer or director of any company.
He sought to retain the ability to trade securities in certain types of accounts to provide him with the ability to accumulate investment savings and increase the likelihood that he would satisfy the restitution order made under the Criminal Code. The hearing panel agreed that it was in the public interest to permit him to trade in securities or derivatives in a registered retirement savings plan, registered education savings plan, in any registered retirement income fund, and/or a tax-free savings account in which he has a beneficial interest, provided that any trades are carried out through a registered dealer.
However, his request that he be permitted to return to his role as a director of his private company at the end of his term of parole was denied, notwithstanding Theroux’s submission that the company was not involved in the public markets. The concern was that the company could still be used to raise capital or market investment contracts through the exempt market, like the enterprise involved in the fraud that he had committed. On that basis, it was not in the public interest to make that carve-out from the permanent prohibition on him acting as an officer or director of any company.
This decision is consistent with prior decisions of the OSC relating to requests for carve-outs from sanctions. The granting of such carve-outs is not automatic, and must be justified on the basis that they are in the public interest.