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Re Rustulka: Registrants’ Suitability Obligations Under Securities Law

In Re Rustulka, 2020 ABASC 93, a hearing panel of the Alberta Securities Commission (the Commission) determined that a former exempt market dealing representative breached his “know your client” (KYC) and suitability obligations under Alberta securities law by failing to properly identify his clients’ investment needs, objectives, financial circumstances and risk tolerances and by reporting false and misleading information about the clients on KYC documentation.  Misrepresentations made by the dealing representative concerning the risks of investing in the exempt market securities that he was selling induced his clients, many of whom were seniors or close to … Continue Reading

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

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

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

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

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

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

Stung By Deceit: Re Natural Bee Works Apiaries Inc.

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

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

A Cautionary Tale for Defendants Opposing Certification

Perhaps in tongue and cheek, perhaps not, Perell J. begins his decision in Berg v. Canadian Hockey League, 2017 ONSC 5382, by quoting Winston Churchill’s famous World War II speech :

We shall defend our island, whatever the cost may be, we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender.

The quote sets upon the razor sharp line between zealous advocacy and over pleading – dubbed “Churchillian resistance”[1] –  in certification motions.

In … Continue Reading

“Substance over form” in defining a security

What constitutes a “security” under the Ontario Securities Act? In Ontario (Securities Commission) v Tiffin, 2016 ONCJ 543, the accused was charged with three offences under the Act for issuing a number of promissory notes while prohibited from trading in securities. Under the Act, security is defined to include “a bond, debenture, note or other evidence of indebtedness.” The primary issue before the Ontario Court of Justice was whether the promissory notes issued fell within that definition, or were instead private loan agreements not subject to its application.

The court applied the United States Supreme Court decision in … Continue Reading

A house divided: The Canadian Securities Administrators’ “best interest” standard proposal

On April 28, 2016, the Canadian Securities Administrators (CSA) released its long-awaited Consultation Paper 33-404: Proposals to Enhance the Obligations of Advisers, Dealers and Representatives Toward Their Clients.   Consultation Paper 33-404 is the continuation of a four-year project to consider the introduction of a best interest standard for investment advisers and dealers in Canada.  The end is not in sight – the paper reflects the lack of unanimity within the CSA on creating an overarching best interest standard.

The paper describes:

(1) specific reforms to NI 31-103 under consideration by all CSA jurisdictions designed “to better align the interests of … Continue Reading

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