Topic: Securities regulatory decisions

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

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

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

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

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

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

Re Meharchand: An affirmation of fundamental securities law principles

On October 19, 2018, the Ontario Securities Commission (OSC) issued reasons for Re Meharchand, a case confirming core concepts in securities law including the definition of an “investment contract”, registration when in the business of selling securities, and the test for fraud.

Background

The respondents, Mr. Meharchand and his company, Valt.X were in the business of cybersecurity. Valt.X purportedly developed, produced and sold cybersecurity hardware and software products. However, over the relevant time, Valt.X had very little sales ($15,000 relative to 1,600,000 contributed by investors). OSC Staff (Staff) brought an enforcement action alleging that Valt.X … Continue Reading

The Quebec Court of Appeal rules that dissident rights do not apply to trust unitholders

On January 21, 2019, the Quebec Court of Appeal ruled  in O’Leary Funds Management c. Boralex Inc., 2019 QCCA 84, that dissident rights under business corporations acts do not apply to trusts. Unitholders of a trust must therefore ensure that their rights are recognized under the trust agreement or the Civil Code of Quebec. The Court was very clear that unitholders may not invoke the rights and protections of shareholders, even by analogy.

Background

In the fall of 2010, Boralex Inc. (Boralex) decided to acquire its income trust fund, the Boralex Power Income Fund (Power FundContinue Reading

Be Careful What You Say – SEC successfully concludes enforcement proceedings against robo-advisors for false advertising and misleading disclosures

On December 21, 2018, the Securities and Exchange Commission (SEC) settled proceedings against two robo-advisors for making false statements about investment products and publishing misleading advertising. The proceedings were the SEC’s first enforcement actions against robo-advisors, providing guidance on some of the disclosure issues robo-advisors may face going forward.

Wealthfront proceedings

The first action involved Wealthfront Advisers, LLC  (Wealthfront), a robo-advisor holding approximately $11 billion USD in client assets under management. Among other things, the SEC found that Wealthfront made false statements regarding a proprietary tax loss harvesting program (the Tax Program) it applied … Continue Reading

Ontario Court of Appeal Grants Leave to Appeal Tiffin Decision: Will Determine Role of the “Family Resemblance” Test in Defining Securities under the Securities Act

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).

Background

As we’ve previously discussed, Mr. Tiffin and his company, Tiffin Financial Corporation (TFC), were charged with three offences under the Act related … Continue Reading

Stop the presses! Canadian securities regulators raise concerns about press releases and other promotional activities

The Canadian Securities Administrators (CSA) have issued a notice regarding misleading promotional activities by issuers.  The notice includes examples such as press releases, presentations, social media posts and other marketing materials that provide insufficient or unbalanced information or that include unsubstantiated claims about the issuer.

Problematic Promotional Practices

Examples of potentially misleading promotional activities identified by the CSA include:

  • describing early-stage plans with “unwarranted certainty”, or making unsupported predictions about growth of the market or future product demand;
  • issuing multiple press releases that do not disclose any new material facts;
  • compensating third parties for promotion through social media
Continue Reading

Crime Doesn’t Pay: OSC Permanently Bans Convicted Fraudster

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 … Continue Reading

When Will Referral Arrangements Constitute Trading under the BC Securities Act?

In a recent decision of the BC Securities Commission (BCSC), the BCSC provides helpful guidance concerning when referral arrangements cross the line and become trading for which registration is required.

Chien-Hua Liu (Liu) and two affiliated corporations referred BC and Hong Kong investors to two issuers, leading to the purchase of over $6.5 million in securities, and earning nearly $450,000 in commissions.

In Re Liu, 2018 BCSECCOM 372, the BCSC scrutinized the details of the referral arrangements and determined that Liu and the corporate respondents had contravened section 34(a) of the BC Securities Act (the ActContinue Reading

Divisional Court Upholds OSC Finding that Trading Software License Contracts are Securities Within Meaning of Securities Act

The Ontario Superior Court of Justice in Furtak v Ontario (Securities Commission), 2018 ONSC 6616, has upheld the Ontario Securities Commission’s (OSC) merits and sanctions decisions with respect to the Strictrade Offering, which we previously reported on here.

Background

In 2015, OSC Staff brought enforcement proceedings against Edward Furtak, Axton 2010 Finance Corp., (Axton), Strict Trading Limited (STL), Strictrade Marketing Inc. (SMI), Trafalgar Associates Limited (TAL), Ronald Olsthoorn, and Lorne Allen (collectively the Strictrade Parties) arising out a scheme that involved the marketing and offering of … Continue Reading

The Hard Way – SEC announces first penalties and compliance roadmap for unregistered ICOs

On November 16, 2018, the Securities and Exchange Commission (SEC) announced consent orders settling actions in respect of two unregistered initial coin offerings (ICOs), including the first fines levied against non-compliant ICO issuers made by the SEC to date.

The consent orders demonstrate the SEC’s willingness to follow through with enforcement proceedings against issuers of ICOs not in compliance with securities laws, and provide a roadmap for how existing ICOs can bring themselves into compliance going forward.

The parties – Airfox and Paragon

The issuers charged in the two SEC enforcement actions each raised substantial amounts … Continue Reading

Re Fauth: A Primer on ss. 75(1)(a), 92(4.1) and 93(b) of Alberta’s Securities Act

The Alberta Securities Commission (ASC) recently released its decision in the matter of Re Fauth, finding the respondent, Vernon Ray Fauth (Fauth), in breach of ss. 75(1)(a), 92(4.1) and 93(b) of Alberta’s Securities Act, RSA 2000, c S-4 (the Act). The decision offers some important insight on issues regarding limitation periods, illegal dealing, misrepresentations, and fraud under the Act. The decision also discusses the use of hearsay evidence in proceedings before the Commission; specifically, the use of transcripts of witness interviews conducted by the Alberta Securities Commission Staff (Staff) in the … Continue Reading

Time is of the Essence: Public Interest Considerations on a Motion for Standing to bring a s. 127 Proceeding Before the Ontario Securities Commission

A private party cannot commence a proceeding under s. 127 of the Ontario Securities Act (the “Act”) seeking enforcement remedies as a matter of right.  In Pearson (Re), 2018 ONSEC 53 the Ontario Securities Commission provides further guidance concerning when it will permit someone other than Enforcement Staff to commence such a proceeding before it.

The Facts

In Pearson (Re), the Commission refused a motion by a disgruntled minority shareholder of LeadFX Inc. (“LeadFX”), for standing to bring a s. 127 proceeding against that company.  Pearson was seeking orders under s. 127, including an order restraining LeadFX from … Continue Reading

Supreme Court of Canada Rules that Proposed Canadian Cooperative Capital Markets Regulatory System is Constitutional

Today the Supreme Court of Canada (the Supreme Court) released its much-anticipated decision on the reference regarding the proposed Canadian Cooperative Capital Markets Regulatory System, finding that the proposed national regulatory system is constitutional.

Previous Attempts to Create National Securities Regulator

It has been suggested by the a number of governments, academic commentators and others that a national securities system in Canada would protect investors, foster fair, efficient and competitive capital markets, and contribute to the integrity and stability of Canada’s financial system.  As a result, various attempts have been made to centralize the regulation of securities in Canada … Continue Reading

The Scope of Securities Commission’s Public Interest Jurisdiction: What Constitutes Abuse of the Capital Markets?  

The Scope of Securities Commission’s Public Interest Jurisdiction: What Constitutes Abuse of the Capital Markets?

In Re Hamilton2018 BCSEECOM 290, the British Columbia Securities Commission (BCSC) was called upon, yet again, to consider the scope of its public interest jurisdiction in an enforcement proceeding pursuant to s. 161 of the British Columbia Securities Act, RSBC 1996, c. 418 (the “Act”) in the absence of allegations of specific breaches of securities law.

The Allegations

Commission Staff alleged that the respondents created a publicly traded shell company for use in a securities manipulation by deceiving foreign … Continue Reading

Motions for Further Disclosure in OSC Proceedings: Privilege, Relevance and Proportionality

In a recent decision of the OSC in Re Caldwell Investment Management Ltd. (October 12, 2018), a hearing panel (the “Panel”) denied a motion by Caldwell Investment Management Inc. (“Caldwell”) for further pre-hearing disclosure from OSC Staff. The motion was made in the context of an upcoming enforcement proceeding alleging, among other things, that Caldwell had breached its best execution obligation under s. 4.2 of NI 23-101 by placing most of its trades for execution through a related dealer, without having adequate policies and procedures in place to ensure that Caldwell’s best execution obligation was being met.

Caldwell brought … Continue Reading

Even “Small Frauds” May Warrant the Imposition of Significant Sanctions by Securities Regulators

In Re Davis, 2018 BCSECCOM 284, the British Columbia Securities Commission upheld permanent market prohibitions against Mr. Davis who committed fraud on one investor in the aggregate amount of (only) $7,000.

Background

Mr. Davis, who was never registered under the Securities Act (B.C.), purported to sell shares that he did not own to an investor over a period of two years. Throughout that time, Davis continued to deceive the investor by providing false assurances regarding the status of the shares. Although the investor was successful in obtaining repayment of her $7,000 through court proceedings, the Commission, in its … Continue Reading

From boom to busted: TMF deems PlexCoins as investment contracts

The legal noose is tightening around the necks of rogue cryptocurrency issuers in Quebec. PlexCorps’s legal troubles, as covered in our previous post, have deepened.

In Autorité des marchés financiers c. PlexCorps, 2018 QCTMF 91, the Tribunal des Marchés Financier (TMF) qualified PlexCoin as an investment contract within the meaning of Quebec’s Securities Act. This should come as no surprise as all TMF decisions to date have qualified cryptocurrency products as investment contracts.[1]

Background: a Burgeoning Crypto-Fraud Business

PlexCorps offered a cryptocurrency called PlexCoin along with financial services such as the PlexCard, PlexWallet and PlexBank. It … Continue Reading

Ontario Court Imposes Custodial Sentence for Securities Act Offences

The Ontario Superior Court of Justice has released what appears to be the final chapter in the Ontario Securities Commission’s (OSC) prosecution of Daniel Emerson Tiffin and Tiffin Financial Corporation.

Background

In July 2014, the Ontario Securities Commission’s administrative proceedings against Rezwealth Financial Services Inc., Pamela Ramoutar, Justin Ramoutar, Tiffin Financial Corporation, Daniel Tiffin, 2150129 Ontario Inc., Sylvan Blackett, 1778445 Ontario Inc. and Willoughby Smith, resulted in an order under s. 127 of the Securities Act (the Act) prohibiting Daniel Emerson Tiffin (Mr. Tiffin) and TFC from trading in securities or relying upon any exemption … Continue Reading

When do inferences become unreasonable and contrary to the rules of procedural fairness?

As there is almost never direct, ‘smoking gun’ type evidence of insider trading, securities regulators often rely on circumstantial evidence in enforcement proceedings, from which they invite the specialized securities tribunals to draw inferences.

What is the line not to cross for these inferences to become unreasonable and contrary to rules of procedural fairness?

Referring to the Alberta Court of Appeal judgment in Walton v Alberta (Securities Commission), 2014 ABCA 273 (CanLII), the Court of Quebec, sitting in judicial review of the Financial Markets Administrative Tribunal’s decision in Dionne-Bourassa v. Autorité des marchés financiers, 2018 QCCQ 5749 (CanLII) … Continue Reading

Targets of investigations by Quebec’s security regulator not protected by Charter

The creator of a new cryptocurrency made headlines last year for all the wrong reasons as the target of an investigation by the Autorité des marchés financiers (AMF), Quebec’s securities regulator, and of various court orders.

Dominic Lacroix fought back against the AMF and the judgment in Autorité des marchés financiers v. Lacroix2018 QCCS 3894 is compelling for two reasons.

First, it provides an insight into the powers of the receiver appointed at the request of the AMF.  Second, it holds that the target of an ongoing AMF investigation cannot avail itself of Charter rights such … Continue Reading

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