Garnet W. Fenn

Staff of the Ontario Securities Commission alleged that the respondents raised almost $80 million from hundreds of investors through pooled mortgage investment funds without being registered, without filing a prospectus, and by perpetrating a fraud.

The majority of the Commission found that all respondent entities and the three individual principals engaged in the business of trading without registration, contrary to s. 25(1) of the Securities Act.

The majority also found that all respondents except Trilogy engaged in illegal distributions contrary to s. 53(1).

Furthermore, the majority concluded that Paramount, the Silverfern entities, and the principals perpetrated a fraud contrary to s. 126.1(1)(b) by misrepresenting the use of investor funds, acquiring undisclosed ownership interests in mortgage projects, and misusing a pre-paid account.

One commissioner dissented in part, finding that only one principal (Ruttenberg) contravened the Act.

Staff of the Ontario Securities Commission and David Cartu sought approval of a settlement agreement regarding allegations that Cartu permitted two corporate entities to facilitate the sale of binary options to Ontario investors without registration.

Cartu admitted to the breaches and agreed to pay a $300,000 administrative penalty, $15,000 in costs, and to be subject to a seven-year market ban.

The Commission approved the settlement, finding it fell within a range of reasonable outcomes and was in the public interest.

Staff of the Ontario Securities Commission and the respondents sought approval of a settlement agreement concerning allegations of unregistered trading.

The respondents admitted that Moskowitz Capital Management Inc. distributed preferred shares in mortgage investment entities without being registered as a dealer, contrary to s. 25(1) of the Securities Act.

The Commission approved the settlement, noting the respondents' substantial cooperation, self-reporting, and remedial steps.

The settlement included a $350,000 administrative penalty, $25,000 in costs, and an undertaking to retain an exempt market dealer to complete a know-your-client and suitability review.

During a merits hearing interrupted by the COVID-19 pandemic, Staff of the Ontario Securities Commission sought to admit the expert opinion evidence of a mortgage underwriting expert in writing.

The respondents did not challenge the expert's qualifications.

The Commission admitted the expert evidence, finding it relevant and necessary to explain industry practices and assess the respondents' policies against those practices, but excluded portions of the report that went beyond the Commission's need for expert assistance, such as interpreting specific fund documents or assessing the ultimate use of funds.

The merits hearing in this proceeding was interrupted by the COVID-19 pandemic.

The Commission suspended in-person hearings and invited submissions on how to proceed.

Staff proposed submitting the remainder of its evidence in writing, while two respondents requested an adjournment.

The Commission declined to adjourn the hearing, finding that proceeding in writing was permissible, efficient, and caused no prejudice to the respondents.

The Commission ordered Staff to file its remaining evidence in writing, after which the respondents could request cross-examination by videoconference.

Staff of the Ontario Securities Commission brought a motion to amend the Amended Statement of Allegations to add a request for a disgorgement order against the individual respondents, and to adjourn the commencement of the merits hearing to allow time to serve one of the respondents.

The Commission found that Staff's inadvertent omission of the disgorgement request did not constitute exceptional circumstances justifying a lengthy adjournment.

However, because Staff committed to completing its case in six days, the Commission was able to adjust the hearing schedule to allow the required notice period for the amendment motion without delaying the conclusion of the merits hearing or disrupting the scheduled testimony of a participating respondent.

The Ontario Securities Commission approved a no-contest settlement agreement between Staff and International Capital Markets Pty.

Ltd. (ICM), an Australian over-the-counter derivatives issuer.

Staff alleged that ICM breached the registration and prospectus requirements of the Securities Act by opening accounts for Ontario investors to trade contracts for differences without being registered or filing a prospectus.

ICM agreed to cease doing business in Ontario, return funds to investors, and pay US$4 million reflecting revenue generated, plus C$650,000 to advance the Commission's mandate and C$25,000 in costs.

The Commission found the settlement to be in the public interest given ICM's exemplary cooperation and the inadvertent nature of the misconduct.

Following a merits decision finding that the respondents perpetrated a massive corporate fraud involving standing timber assets and related party transactions, the Ontario Securities Commission held a sanctions and costs hearing.

The Commission imposed permanent market participation bans on the individual respondents.

It also ordered administrative penalties totaling over $11.6 million and disgorgement of over $64.6 million, representing salaries, bonuses, and proceeds obtained through the fraudulent conduct.

The respondents were also ordered to pay over $5 million in costs.