In Alberta Securities Commission v Felgate, 2022 ABCA 107 (Felgate), the Alberta Court of Appeal upheld the conviction of an individual for trading in securities while subject to a cease trade order, notwithstanding though the order was flawed.
The appeal turned on two issues in particular: (1) whether an interim cease trade order could be issued until the “conclusion of proceedings” where no proceedings had yet commenced; and (2) whether a flawed cease trade order provides a defence to a charge of trading in breach of the order.
The Alberta Securities Commission (the ASC) had received information that caused it to believe that Nicholas John Felgate was raising money from the public in breach of the provisions of the Securities Act, RSA c. S‑4 (the Act). The ASC issued an ex parte interim cease trade order against Felgate pursuant to s. 33(1) of the Act. This order was extended twice – first to a specified date, and then until “any proceeding initiated pursuant to the Act, including a trial in respect of an offence, is finally determined or otherwise concluded.” At the time of the second extension (the Order), no proceedings had commenced against Felgate.
Felgate was charged with breaching the Order. He did not dispute that he had traded securities after it had issued.
Felgate appealed his conviction for trading securities in breach of the Order on the basis that the Order was void. He argued that s. 33(4) of the Act did not authorize the ASC to extend a cease trade order until the conclusion of proceedings where no proceedings had been commenced.
The majority of the Court of Appeal agreed with Felgate that s. 33(4) only empowers the ASC to extend an interim cease trade order for a specified period of time, or until the conclusion of proceedings by the ASC where proceedings had already been commenced. As such, the Order was “flawed”.
However, that did not vindicate Felgate. The Court observed that Felgate had three options open to him: (1) he could have made submissions about the proper form of the Order at the hearing to extend the cease trade order for a second time; (2) he could have appealed the Order to the Court of Appeal under s. 38 of the Act; or (3) he could have applied to vary or terminate the order under s. 214 of the Act. What was not an option was to simply ignore the Order “and trade in securities as he wished”. “The Legislature could not have intended that someone subject to a flawed cease trade order could simply continue to raise funds from the public without taking steps to amend or terminate the order”. To do so would undermine the Act’s protective purpose.
Accordingly, despite the ruling that the Order as issued was flawed, Felgate’s appeal was dismissed.
This decision sends the message that persons who are subject to an order of a securities commission that may be either ambiguous in scope or potentially “flawed” ignore compliance with the order at their peril. It is incumbent upon them either to comply with the order, to seek a variation of its terms, or appeal. The technical validity of the order will not provide a defence, and to proceed as if the order does not apply is not an option.
The author would like to thank Harris Khan for his contribution to this article.