Topic: Securities regulatory decisions

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The Quebec Court of Appeal provides useful guidance as to when a regulatory audit may actually be a penal investigation in disguise

Dominic DupoyBy Dominic Dupoy on Posted in Other developments, Securities regulatory decisions, Uncategorized

Introduction

If you are involved in securities litigation, you know how important it is to distinguish between regulatory audit and penal investigation.

If the regulator is conducting an audit to ascertain whether a corporation or its officers comply with securities legislation, it may usually rely on broad investigative powers to obtain documents and information upon request.

However, if the dominant purpose of the investigation is to determine whether a penal offence has been committed, then the protection afforded by the Canadian Charter of Rights and Freedoms kicks in, including the right of every person to be secure against unreasonable search … Continue Reading

Another nail in PlexCoin’s crypto-coffer: TMF decision affirmed on appeal

Caroline LaroucheSaam Pousht-MashhadBy Caroline Larouche and Saam Pousht-Mashhad on Posted in Securities regulatory decisions

As discussed in our previous post, the Financial Markets Administrative Tribunal (TMF) had provided clarity in the application of the “investment contract” criteria, first enunciated in Pacific Coast Coin Exchange v. Ontario Securities Commission and codified under article 1 of the Quebec Securities Act, CQLR c V-1.1 (QSA), by finding that PlexCorps’ project was an investment contract.

On appeal, the Court of Quebec affirmed in Lacroix c. Autorité des marchés financiers, 2020 QCCQ 1467, the TMF’s decision that PlexCorps’ project was an investment contract.

Facts

PlexCorps offered a cryptocurrency called PlexCoin along with … Continue Reading

Securities Commission Administrative Fines Are Forever

Stephen TaylorBy Stephen Taylor on Posted in Other developments, Securities regulatory decisions

As we discussed in a previous post, administrative penalties levied by securities commissions may survive a discharge in bankruptcy. A recent decision of the Supreme Court of British Columbia (Court), Poonian (Re), 2020 BCSC 547 (Re Poonian), highlights that in addition, such administrative penalties may also prevent a discharge from bankruptcy altogether.

In Re Poonian, the Court denied an attempt by Thalbinder Singh Poonian and Shailu Poonian (the Applicants) to obtain a discharge from bankruptcy under the Bankruptcy and Insolvency Act, RSC 1985, c. B-3 (BIA).

The Applicants made a … Continue Reading

Ontario Court of Appeal Rejects “Family Resemblance Test”; Sets Aside Custodial Sentence

Felix Moser-BoehmBy Felix Moser-Boehm on Posted in Other developments, Securities regulatory decisions, Uncategorized

On March 16, 2020, the Ontario Court of Appeal released its highly anticipated decision in the saga concerning the Ontario Securities Commission’s (OSC) prosecution of Daniel Tiffin (Mr. Tiffin). The Court’s decision helps clarify the analysis used to determine whether a financial instrument falls within the meaning of “security” under the Ontario Securities Act (the Act), and confirms that certain promissory notes are considered “securities” under the Act.

Background

Pursuant to a s. 127 order made under the Act in 2014, Mr. Tiffin and his company, Tiffin Financial Corporation (TFC), were prohibited from … Continue Reading

Unreasonable delay and Jordan’s presumptive ceilings – different approach from the SCC on verdict deliberation time

Charles-Antoine PeladeauSophie MelchersCaroline LaroucheBy Charles-Antoine Peladeau, Sophie Melchers and Caroline Larouche on Posted in Other developments, Securities regulatory decisions

Canadian securities regulators have jurisdiction to lay charges under provincial securities legislation, and have prosecuted serious securities offences criminally. The persons so charged have a right to be tried within a reasonable time. Questions have arisen as to whether or not a court’s deliberation time was to be factored in the timelines identified in the now seminal case R. v. Jordan, 2016 SCC 27 (“Jordan”). Despite the fact that the R. v. K.G.K., 2020 SCC 7 (“KGK”) case is a criminal case, the teachings of the Supreme Court of Canada described below are transposable … Continue Reading

The Show Must Go On: The OSC Requires Enforcement Hearing to Continue Notwithstanding COVID-19

Linda FuerstBy Linda Fuerst on Posted in Other developments, Securities regulatory decisions

In a decision released on March 23, 2020, a Hearing Panel of the Ontario Securities Commission (OSC) ruled, over the objections of the respondents, that an oral hearing that had commenced under s. 127 of the Ontario Securities Act into allegations of fraud, misleading investors, unregistered trading and the illegal distributions of securities would continue at least partly in writing due to the COVID-19 pandemic (Re Paramount, 2020 ONSEC 9).

History of the Proceeding

The merits hearing began on March 10, 2020 and had been scheduled to resume on March 23.  It had proceeded for … Continue Reading

Quebec Court of Appeal confirms administrative penalties applications not subject to general rules of prescription

Caroline LaroucheBy Caroline Larouche on Posted in Other developments, Securities regulatory decisions, Uncategorized

The Quebec Court of Appeal recently dismissed the appeals launched by directors and officers of a reporting issuer, Nstein Technologies, against two judgments rendered by the Court of Quebec in a statutory appeal of a judgment by the Quebec securities tribunal, the Tribunal administratif des marchés financiers (the TMF).

The TMF had granted an application by the Quebec securities regulator, the Autorité des marchés financiers (the AMF), to impose administrative penalties against the appellants for breaches to insider trading and tipping provisions under the Québec Securities Act (the QSA). The AMF’s application essentially stemmed from a decision … Continue Reading

Directors and officers face increased liability risk due to climate change

Gerard G. PechtSeth M. KruglakLisa SchapiraBy Gerard G. Pecht, Seth M. Kruglak and Lisa Schapira on Posted in Civil claims, Class actions, Cross border issues, Securities regulatory decisions

Climate change has been a focus in the United States for quite some time now, and the US Securities and Exchange Commission (SEC) published interpretive guidance on climate change disclosures a decade ago. However, the times are changing—and the potential liability for directors and officers has never been higher. Climate change disclosures have been debated at the highest levels of the SEC, and the Plaintiffs’ bar can be expected to broaden their lawsuits beyond the usual fossil fuel producer or utility targets.

Norton Rose Fulbright has prepared a legal update that discusses the evolution of the SEC’s position with respect … Continue Reading

Alberta Court Finds that Administrative Penalty Survives Bankruptcy

Steven LeitlAaron StephensonBy Steven Leitl and Aaron Stephenson on Posted in Other developments, Securities regulatory decisions

In January 2020, Madam Justice B.E. Romaine of the Court of Queen’s Bench of Alberta (Court) ruled that an administrative penalty levied against the Respondent by the Alberta Securities Commission (ASC) survived his discharge from bankruptcy. (See Alberta Securities Commission v Hennig, 2020 ABQB 48)

The administrative penalty was levied in 2008 against the Respondent after the ASC found that he was responsible for misrepresentations in the financial statements of a public company of which he was a director and officer; that he financially benefited from the misrepresentations; that he participated in market manipulation; … Continue Reading

The Scope of “Will Say” Statements: In the Matter of BDO Canada LLP

Erika AnschuetzBy Erika Anschuetz on Posted in Other developments, Securities regulatory decisions

In BDO Canada LLP (Re), 2020 ONSEC 2, a panel (the Panel) of the Ontario Securities Commission (OSC) considered a motion brought by Staff alleging that BDO Canada LLP (BDO) failed to meet the standard imposed by the Ontario Securities Commission Rules of Procedure and Forms (Rules) in the preparation of its witness summaries. The motion is part of a larger proceeding against BDO related to alleged breaches of the Securities Act, RSO 1990, C S.5 in connection with audits conducted by BDO. As a part of pre-hearing disclosure, Staff and BDO … Continue Reading

Ding-Dong Dunsmuir is Dead: What Minister of Citizenship and Immigration v. Vavilov Means for the Ontario Securities Commission

Linda FuerstBy Linda Fuerst on Posted in Other developments, Securities regulatory decisions

The decision of the Supreme Court of Canada in Canada (Minister of Citizenship and Immigration) v. Vavilov (2019 SCC 65) and its companion decision in Bell Canada v. Canada (Attorney General) (2019 SCC 66), both released on December 19, 2019, breathe new life into the statutory right of appeal contained in section 9 of the Ontario Securities Act, R.S.O. 1990, c. S. 5.  Section 9 allows a person or company directly affected by a final decision of the Ontario Securities Commission (OSC) to appeal to the Divisional Court.  Following the decisions in … Continue Reading

Stung By Deceit: Re Natural Bee Works Apiaries Inc.

Linda FuerstTed BrookBy Linda Fuerst and Ted Brook on Posted in Other developments, Securities regulatory decisions, Uncategorized, White collar crime

On July 3, 2019 the Ontario Securities Commission (“OSC”) released its decision in Re Natural Bee Works Apiaries Inc., 2019 ONSEC 23 (“Natural Bee”).   Natural Bee provides useful guidance concerning proof of falsity and participation in a fraudulent scheme under section 126.1(1) of the Ontario Securities Act (the “Act”).

Background

In Natural Bee, OSC Staff alleged that Natural Bee Works Apiaries Inc. (“NBW”), Rinaldo Landucci (“Landucci”), its sole director, and Tawlia Chickalo (“Chickalo”), an employee of NBW who was at one point identified as its President, … Continue Reading

Alberta Securities Commission secures restitution for Lutheran Church congregants

Steven LeitlPeter Tae-Min ChoiBy Steven Leitl and Peter Tae-Min Choi on Posted in Other developments, Securities regulatory decisions

Two ordained ministers are among the five named individual Respondents who have settled with the Alberta Securities Commission (the Commission) in Re Lutheran Church-Canada, the Alberta-British Columbia District, 2019 ABASC 140.  The individual Respondents were all involved in investment funds run by the Lutheran Church-Canada, Alberta-British Columbia District (the District), which became insolvent in 2015.  The individual Respondents admitted that they authorized statements in promotional literature from 2008 to 2014 about the investment funds that they knew or ought to have known were misleading contrary to section 92(4.1) of the Alberta Securities Act (the Act).… Continue Reading

Ontario Securities Commission v York Rio Resources Inc.: Enforcing OSC Orders as Court Judgments outside of Ontario

Peter Tae-Min ChoiBy Peter Tae-Min Choi on Posted in Other developments, Securities regulatory decisions

On May 21, 2019, in Ontario Securities Commission v York Rio Resources Inc., 2019 BCSC 776,  the British Columbia Supreme Court (BCSC) enforced Ontario Securities Commission (OSC) disgorgement orders as court judgments from another province.

Background

A joint investigation was conducted by the OSC and the British Columbia Securities Commission (BC Commission) into an $18.2 million fraudulent investment scheme.  On March 25, 2013, a panel of the OSC found that Mr. York, Mr. Runic, Mr. Schwartz, and the companies they controlled had committed a fraud, and on March 31, 2014, the OSC issued … Continue Reading

Sino-Forest Cont’d: Cultural Practices do not Excuse Illegal Acts

Peter Tae-Min ChoiBy Peter Tae-Min Choi on Posted in Other developments, Securities regulatory decisions, White collar crime

In Hung et al v Ontario (Securities Commission), 2019 ONSC 3423, the Divisional Court dismissed an appeal brought by four senior officers of Sino-Forest Corporation (the Appellants) in one of Canada’s largest frauds in history.  The Appellants sought to set aside the decision on the merits of a panel of the Ontario Securities Commission (OSC) dated July 13, 2017 (Merits Decision), and set aside or amend the decision of a second Panel on sanctions dated July 9, 2018 (Sanctions Decision).  In the alternative, the Appellants sought to remit the matter back … Continue Reading

The Test on a Motion to Strike Pleadings in Proceedings Before the Ontario Securities Commission

Linda FuerstBy Linda Fuerst on Posted in Other developments, Securities regulatory decisions

In (Re) El-Bouji, 2019 ONSEC 19, the Ontario Securities Commission (OSC) determined that the test on a motion to strike portions of an affidavit filed by Staff in response to the respondent’s motion challenging the Commission’s jurisdiction to adjudicate certain allegations in a Notice of Hearing and Statement of Allegations is essentially the same as the test set out in Rule 25.11 of the Ontario Rules of Civil Procedure.  Orders by the OSC to strike evidence in advance of a hearing or another motion should be made only for “special reasons”, based on the criteria set … Continue Reading

Request to Stay a Securities Regulatory Sanctions Hearing: An Uphill Battle

Linda FuerstBy Linda Fuerst on Posted in Securities regulatory decisions

In Re Mountainstar Gold Inc., 2019 BCSECCOM 123, the British Columbia Securities Commission gave short shrift to a request by the respondents for a stay of the Commission’s imposition of sanctions against them until after certain legal proceedings in Chile.

At the conclusion of the Commission’s hearing on the merits, it determined that over a 3-year period, Mountainstar Gold Inc. had repeatedly contravened section 168.1(1)(b) of the British Columbia Securities Act by making disclosure in its public filings concerning certain Chilean mining claims and related legal proceedings that was false or misleading in a material respect, and that … Continue Reading

The AMF is not the sole arbiter of what is relevant and what should be disclosed

Sophie MelchersCaroline LaroucheAndres C. GarinBy Sophie Melchers, Caroline Larouche and Andres C. Garin on Posted in Other developments, Securities regulatory decisions

In AMF v. TMF, Baazov, et al. (Court File No. 500-11-052989-171), the Quebec Superior Court confirmed that the Financial Markets Administrative Tribunal (the Tribunal) has the power to order the Autorité des marchés financiers (AMF), Quebec’s securities regulator, to disclose documents to individuals against whom the AMF is seeking freeze orders and cease-trade orders in the course of an ongoing confidential investigation.

Freeze orders essentially prohibit a person from spending a single penny in his/her possession while cease-trade orders prohibit a person from trading on any and all securities he/she holds. These draconian orders are typically … Continue Reading

Large and generous interpretation of “investment contract” and “distribution” under the Quebec Securities Act: AMF v. Desmarais, 2019 QCCA 898

Sophie MelchersBy Sophie Melchers on Posted in Other developments, Securities regulatory decisions

In its recent decision (AMF v. Desmarais), the Court of Appeal upheld the conviction of a Montreal lawyer who played a central role in the distribution of investment contracts without a prospectus and who acted as a dealer without being registered as such, while reducing his prison sentence and fine.

Facts of the case

Jean-Pierre Desmarais, a partner at a Montreal law firm, assisted Fondation Fer de Lance (FFDL) – a private not-for-profit foundation co-founded by Messrs. Desmarais and Gélinas – in recruiting and convincing 23 “sponsors” to sign a contract requiring them to make sums … Continue Reading

Imposition of OSC Sanctions Following a Conviction for an Offence Relating to Securities: The Availability of Carve-Outs in the Public Interest

Linda FuerstBy Linda Fuerst on Posted in Securities regulatory decisions, White collar crime

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.

Facts

Alain Theroux had pleaded guilty in the Ontario Court of Justice to five counts of fraud over … Continue Reading

Harrington v IIROC: No Equitable Duty Owed by Public Sector Regulators to Disclose Information to Victims of Wrongdoing

Linda FuerstPeter Tae-Min ChoiBy Linda Fuerst and Peter Tae-Min Choi on Posted in Other developments, Securities regulatory decisions

On December 31, 2018, the Ontario Superior Court of Justice dismissed an application by Harrington Global Opportunities Fund (Harrington) for a Norwich order against the Investment Industry Regulatory Organization of Canada (IIROC). Harrington sought the order to compel IIROC to provide information that would identify parties which had allegedly been involved in manipulating the market price of shares of a reporting issuer, to permit it to determine the viability of a civil action against them.

Justice Perell’s decision highlights the fact that the issuance of a Norwich order is “a rarely exercised extraordinary discretion”.  “[T]he protection … Continue Reading

Not ready yet: OSC rejects bitcoin fund prospectus

Andrew McCoombBy Andrew McCoomb on Posted in Securities regulatory decisions

On February 15, 2019, the Ontario Securities Commission issued a decision in which it refused to issue a receipt for a prospectus filing made by 3iQ Corp. (3iQ) in respect of The Bitcoin Fund (the Fund).  The decision highlights the challenges faced by issuers seeking to do business in cryptocurrency markets, which regulators continue to view as highly problematic.

Background

3iQ designed the Fund as a non-redeemable investment fund (NRIF) that would expose investors to bitcoin and daily price movements of bitcoin relative to the US dollar.  3iQ filed a non-offering prospectus on behalf of … Continue Reading

Alberta Securities Commission Declines to Stay Enforcement Proceedings In Face of Parallel Class Actions

Steven LeitlBy Steven Leitl on Posted in Class actions, Securities regulatory decisions

In February 2019, the Alberta Securities Commission (ASC) declined to stay the hearing of pending ASC enforcement proceedings on the basis of the existence of parallel, pending class action proceedings.

Background

In June 2018, Staff of the ASC issued a notice of hearing against Alberta divisions of the Lutheran Church-Canada and several of their former officers and directors (the Respondents), alleging that the Respondents had made misrepresentations contrary to s. 92(4.1) of the Alberta Securities Act (material misleading statements) in connection with securities offered to members of the Lutheran Church.

The allegations followed the financial collapse of … Continue Reading

Ontario Securities Commission awards whistleblowers $7.5 million in first ever payout

Peter Tae-Min ChoiBy Peter Tae-Min Choi on Posted in Other developments, Securities regulatory decisions

On July 14, 2016, the Ontario Securities Commission (OSC) launched the Whistleblower Program (the Program). Under the Program, individuals that provide information on violations of Ontario’s securities law to the OSC are eligible for awards of between 5% and 15% of total monetary sanctions or voluntary payments. The maximum amount a whistleblower can collect is $1.5 million when sanctions and/or payments are not collected and $5 million when sanctions and/or payments are collected. By June 2018, the Program had generated 200 tips. Tips may be submitted anonymously through counsel and the OSC makes all reasonable efforts … Continue Reading

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