Carol S. Perry

Staff of the Ontario Securities Commission sought sanctions and costs against the respondents following a merits decision finding they engaged in unregistered trading and, in the case of Lehman and Schnedl, fraud.

The respondents operated a fraudulent investment scheme targeting European investors, using a Toronto virtual office and bank accounts to create a false impression of legitimacy.

The Commission ordered permanent market bans against all respondents.

Additionally, Lehman and Schnedl were ordered on a joint and several basis to pay a $500,000 administrative penalty, disgorge $297,542 representing the funds misappropriated from investors, and pay $51,718.83 in costs.

Questrade Inc. applied for a hearing and review of a decision by the IIROC District Council, which found that Questrade failed to comply with regulatory margin requirements for its online foreign exchange trading business and that its conduct was unbecoming a Member Firm.

The Ontario Securities Commission applied a restrained approach, according deference to the District Council's expertise.

The Commission found no error in law or incorrect principle in the District Council's conclusions that Spot FX contracts are not exempt from margin requirements and that Questrade's deliberate refusal to follow IDA directions constituted conduct unbecoming.

The application was dismissed.

The applicant sought a review of a sanction imposed by the Investment Industry Regulatory Organization of Canada (IIROC).

After succeeding on the review, the applicant requested that the Ontario Securities Commission determine the appropriate sanction rather than remitting the matter.

The Commission declined, finding that an IIROC panel would have greater familiarity with its own guidelines, could hear the matter sooner, and that deference is owed to a sanctioning administrative body composed of the applicant's peers.

The matter was remitted to IIROC for a sanction hearing before a differently constituted panel.

Staff of the Ontario Securities Commission alleged that the respondents engaged in unregistered trading and an illegal distribution of MRS Sciences Inc. shares, relying improperly on the accredited investor exemption.

The Commission found that the respondents failed to exercise reasonable diligence to ensure investors qualified as accredited investors, and in some cases knew they did not.

The Commission concluded that the respondents breached the registration and prospectus requirements of the Securities Act.

Allegations of prohibited undertakings regarding future value, prohibited representations regarding future listing, and manipulative trading were dismissed due to insufficient evidence.

The individual respondents, as directors or de facto directors, were deemed to have authorized, permitted, or acquiesced in the corporate breaches.

Following a merits decision finding that the respondents engaged in a fraudulent investment scheme that raised $658,109.03 from investors, the Ontario Securities Commission held a sanctions and costs hearing.

The Commission found the respondents' conduct to be egregious, involving multiple breaches of the Securities Act, including fraud and breaching previous cease trade orders.

The Commission ordered permanent trading and director/officer bans against the individual respondents.

It also ordered administrative penalties of $750,000 against Campbell, $650,000 against Da Silva, $500,000 against O'Brien, and $200,000 against Sylvester.

The respondents were ordered to disgorge the funds obtained from investors and to pay $133,865.00 in costs.

The applicants sought a hearing and review of an IIROC sanctions decision, arguing that the reasons provided by the IIROC panel were inadequate.

The applicants had admitted to failing to properly perform gatekeeper responsibilities and failing to adequately supervise conduct.

The IIROC panel imposed sanctions that were significantly more severe than those sought by IIROC staff, including a life suspension and a $250,000 fine for the principal applicant.

The Commission found that the IIROC panel's reasons failed to address mitigating factors, appeared to sanction the applicants for unadmitted conduct such as fraud and illegal distributions, and misstated the agreed facts.

The Commission concluded that the reasons were so inadequate as to constitute an error in law, set aside the decision, and invited submissions on whether it should substitute its own decision or remit the matter for a re-hearing.

Staff of the Ontario Securities Commission brought allegations against Donald and Lisa Buchanan for their involvement in the sale of securities in Gold-Quest International and Harmoney Club Inc. Based on agreed statements of fact, the Commission found that Donald Buchanan engaged in unregistered trading, illegal distributions, and breached a temporary cease trade order, raising approximately US $4.3 million from Ontario investors in what was alleged to be a Ponzi scheme.

Lisa Buchanan admitted her conduct was contrary to the public interest.

The Commission held that Donald Buchanan's status as an undischarged bankrupt did not preclude it from ordering financial sanctions, as the Commission only becomes a creditor upon making the order.

The Commission imposed permanent market bans on both respondents, and ordered Donald Buchanan to disgorge $352,000 and pay an administrative penalty of $300,000, which was higher than the $150,000 requested by Staff, to ensure adequate deterrence.

The Executive Director of the Ontario Securities Commission applied under s. 144 of the Securities Act to vary or revoke a prior Commission decision that required notice be given to two corporate account holders of a bank before disclosing compelled documents to a foreign regulator.

Staff also sought a sealing order for fresh evidence without disclosing it to the bank.

The Commission granted the sealing order but required confidential disclosure to the bank's counsel to ensure procedural fairness.

The Commission dismissed the s. 144 application, finding that Staff was improperly using the provision as an appeal mechanism, which is contrary to the legislative intent of the Act and the public interest.

Following a merits hearing where the respondents were found to have engaged in unregistered trading and illegal distribution of securities through an investment scheme, the Ontario Securities Commission held a hearing to determine sanctions and costs.

The Commission ordered permanent market bans against all respondents, with limited exceptions for the individual respondents' RRSPs.

The Commission also ordered administrative penalties of $50,000 for each individual respondent and $40,000 for each corporate respondent, disgorgement of $500,000 on a joint and several basis, and costs of $169,651.25.

Staff of the Ontario Securities Commission alleged that the respondents solicited European investors to invest in a fraudulent investment scheme offered by Lehman Cohort Global Group Inc. The respondents used a Toronto virtual office and Toronto bank accounts to mislead investors into believing they were dealing with a legitimate Ontario company.

The Commission found that Lehman and its directing mind, Anton Schnedl, traded in securities without registration and knowingly perpetrated a fraud by misappropriating investor funds, contrary to sections 25(1)(a) and 126.1(b) of the Securities Act.

Representatives Richard Unzer and Alexander Grundmann were found to have traded without registration, but the fraud allegations against them were dismissed due to insufficient evidence of their knowledge.

All respondents were found to have acted contrary to the public interest.

The respondent pleaded guilty to criminal fraud over $5,000 for operating a massive Ponzi scheme involving over $45 million in investor funds.

Staff of the Ontario Securities Commission sought permanent market bans under the inter-jurisdictional enforcement provision in subsection 127(10) of the Securities Act.

The Commission held that subsection 127(10) can operate retrospectively because its purpose is to protect the public rather than to punish.

Finding that the respondent's criminal conviction arose from a course of conduct related to securities, the Commission concluded it was in the public interest to permanently ban the respondent from trading, acquiring securities, and acting as a director or officer.

Staff of the Ontario Securities Commission sought an order under subsection 17(1) of the Securities Act to permit a foreign securities regulator to disclose compelled documents to a foreign criminal law enforcement agency.

The documents related to two account holders and were obtained from a bank via a summons.

Staff argued that notice to the account holders was not required.

The Commission held that the account holders, who were named in the summons, were 'persons or companies named by the Commission' under subsection 17(2)(a) and were therefore entitled to reasonable notice and an opportunity to be heard.

The issue of whether their consent was required under subsection 17(3) was deferred until after notice was given.

The Ontario Securities Commission held a hearing regarding an investment scheme targeting offshore investors.

The respondents, who were located outside Canada, used a virtual office in Toronto to mislead investors into believing they were dealing with an Ontario-based financial services company.

The respondents solicited investors to pay fees for 'refundable vendors bonds' and to exercise non-existent warrants, promising to purchase their shares at a premium.

The Commission found that the establishment and use of the virtual office constituted acts in furtherance of trades in Ontario, violating the registration requirements of the Securities Act.

The Commission also found the conduct contrary to the public interest, as it undermined the integrity of Ontario's capital markets.

The respondents were permanently banned from participating in Ontario capital markets and ordered to pay $5,000 in costs.

The Ontario Securities Commission held a hearing to consider a settlement agreement between Staff and Kwok-On Aloysius Lo.

Lo admitted to executing trades that created a misleading appearance of trading activity and price, including wash trades, and to trading in the accounts of two other individuals without being registered.

The Commission approved the settlement agreement, finding it in the public interest, and ordered a 10-year registration ban, a 5-year trading ban with an RRSP carve-out, disgorgement of $18,641, and $5,000 in costs.

The Ontario Securities Commission held a hearing to consider a proposed Settlement Agreement between Staff and Brian H. Crombie, former CFO of Biovail Corporation.

Crombie admitted to acquiescing in improper accounting practices regarding revenue recognition, disseminating materially inaccurate information concerning a truck accident, and providing misleading information to Staff during a continuous disclosure review.

The Commission approved the Settlement Agreement, finding it in the public interest.

Crombie was reprimanded, banned from acting as a director or officer of a reporting issuer for eight years, ordered to pay an administrative penalty of $250,000, and ordered to pay $50,000 in costs.

In an insider trading proceeding, the respondents brought a motion for unrestricted disclosure of forensic images of a third party's computer hard drives.

Staff had withheld two images citing the third party's privacy and sensitive commercial information.

The Commission held that while respondents are entitled to a high standard of disclosure akin to Stinchcombe to make full answer and defence, this right must be balanced against the legitimate privacy interests of third parties.

The Commission ordered disclosure of the disputed images but imposed strict conditions, including that the images remain in the custody of counsel or their expert, not be electronically copied, and be used solely for the purpose of the proceeding.

Following a finding that the respondent violated the 'know-your-client' and suitability requirements by recommending an unsuitable leveraged investment strategy, the Commission held a written hearing on sanctions and costs.

The Commission accepted the joint submissions of Staff and the respondent, noting the egregious nature of the misconduct and the harm caused to vulnerable investors.

The Commission ordered the termination of the respondent's registration, a permanent ban on acting as a director or officer of any registrant, and a reprimand.

No administrative penalty or costs were ordered due to the respondent's financial status and outstanding civil litigation.

The Ontario Securities Commission held a hearing to consider whether the respondent, a mutual fund salesperson, breached the Securities Act and acted contrary to the public interest by recommending an aggressive leveraging strategy to his clients.

The Commission found that the respondent failed to comply with the know-your-client and suitability obligations under OSC Rule 31-505 and failed to deal fairly, honestly, and in good faith with his clients.

The respondent recommended excessive leveraging that was entirely unsuitable given the clients' financial circumstances, risk tolerance, and investment objectives.

However, the Commission dismissed the allegation that the respondent gave undertakings relating to the future value of the investments in breach of section 38(2) of the Act.

A sanctions hearing was ordered to follow.

The Applicant, a mutual funds salesperson, sought a hearing and review of a Director's decision refusing to transfer his registration to a new employer.

The Applicant had been terminated for cause by his previous employer, a bank, for misappropriating Air Miles coupons for his own and his wife's benefit over a five-year period.

The Commission conducted a hearing de novo and found that the Applicant's conduct demonstrated a standard of business conduct below that required of a securities industry professional.

The Commission concluded that the Applicant lacked the trustworthiness and integrity required of a registrant and denied the request to transfer his registration.

The applicants, minority shareholders of Sterling Centrecorp Inc., applied to the Ontario Securities Commission for an order under sections 104 and 127 of the Securities Act.

They sought to exclude the votes of certain shareholders who had signed support agreements from the 'majority of the minority' approval required for a going private transaction under OSC Rule 61-501, arguing these shareholders were 'joint actors' with the acquiring insiders.

The Commission found that one major shareholder, a former member of the acquisition group, was a joint actor and ordered his votes excluded.

However, the Commission concluded that the other supporting shareholders were not joint actors merely by virtue of signing the support agreements.

As the transaction still achieved the requisite majority of the minority approval even after excluding the joint actor's votes, the Commission declined to cease trade the transaction or require a new shareholder meeting.