Robert W. Davis

The Ontario Securities Commission held a hearing to determine whether Momentas Corporation and its founders, Howard Rash and Alexander Funt, violated the Securities Act by trading securities without registration.

Momentas raised over $7.8 million from the sale of convertible debentures using an in-house sales team.

The Commission found that Momentas acted as a market intermediary and could not rely on the accredited investor exemption.

Furthermore, Rash and Funt engaged in acts in furtherance of trades and, as de facto officers and directors, authorized Momentas' breaches of Ontario securities law.

A subsequent hearing was ordered to determine appropriate sanctions.

Staff of the Ontario Securities Commission sought costs of $30,748.50 against the respondents following a hearing on the merits and sanctions.

The individual respondent, who was unrepresented, did not attend the costs hearing or file submissions.

The Commission reviewed staff's timesheets and hourly rates, finding the claimed amount to be conservative and reasonable.

The Commission ordered the respondents to pay $30,748.50 in costs on a joint and several basis.

The Ontario Securities Commission found that the respondents, Richard Ochnik and 1464210 Ontario Inc., engaged in an illegal RRSP/loan scheme.

The respondents traded securities without registration and distributed securities without a prospectus, contrary to sections 25 and 53 of the Securities Act.

Ochnik targeted financially vulnerable individuals, inducing them to collapse locked-in retirement funds to invest in his company in exchange for promised 'non-repayable loans' that many never received.

The Commission concluded the conduct was egregious and predatory, imposing permanent cease trade orders, permanent director and officer bans against Ochnik, and directing Staff to apply to the Superior Court for restitution orders.

The respondents brought a motion to dismiss the proceeding against them on the basis that it was commenced outside the six-year limitation period under section 129.1 of the Securities Act.

Staff alleged a course of conduct involving unregistered trading and illegal distributions that culminated in sales to broker dealers prior to the limitation date, but argued that subsequent receipt of proceeds and certain private share transfers brought the conduct within the limitation period.

The Commission held that the subsequent events were not integral to the alleged wrongdoing and that the Statement of Allegations contained no separate allegations of wrongdoing for events after the limitation date.

The motion was granted and the proceeding dismissed.

The Ontario Securities Commission approved a settlement agreement with a registrant who sold convertible debentures off-book without the knowledge or approval of his sponsoring dealer.

The registrant sold $171,000 worth of debentures and received $28,200 in commissions.

The Commission ordered terms and conditions on his registration, a reprimand, $5,000 in costs, and a settlement payment of $28,200 to be designated for the benefit of investors.

The Ontario Securities Commission held a settlement hearing regarding Zephyr Alternative Power Inc.'s issuance of convertible debentures.

Zephyr relied on the accredited investor exemption but failed to ensure that all investors met the criteria, as some subscription agreements lacked completed certification schedules.

Additionally, Zephyr failed to ensure that the subscription agreements accurately reflected the 20 percent sales commission paid to limited market dealers, with some agreements incorrectly stating a 10 percent commission.

The Commission approved the settlement agreement, which included a reprimand, the implementation of a compliance program, and an undertaking by Zephyr to offer rescission to affected investors.

The Ontario Securities Commission held a hearing to consider a settlement agreement between staff and the respondents regarding repeated failures to file annual and interim financial statements and related certificates on time.

The respondents admitted their conduct was contrary to the public interest and Ontario securities laws.

The Commission approved the settlement, ordering the corporate respondents to institute procedural changes and each pay a $5,000 administrative penalty, and reprimanding all respondents, including the individual respondent.

The respondent, a former principal of Eron Mortgage Corporation, was convicted of securities-related fraud and theft in British Columbia for his role in a massive scheme that caused $170 million in investor losses.

Staff of the Ontario Securities Commission sought permanent market prohibitions against him under s. 127 of the Securities Act, citing evidence that he intended to return to Ontario to promote a poker company upon his release from prison.

The Commission held that it had jurisdiction to make the order despite the conduct occurring in British Columbia, as an Ontario nexus is not a strict pre-condition but a factor to consider.

Given the egregious nature of the respondent's past conduct, his criminal convictions, and the reasonable apprehension of future harm to Ontario capital markets, the Commission ordered permanent trading and director/officer bans.

No costs were ordered due to the respondent's bankruptcy.

Staff of the Ontario Securities Commission and the respondent mining company entered into a settlement agreement regarding the respondent's failure to make timely disclosure of a material change related to a rock fall and resulting gold production shortfall.

The Commission approved the settlement, finding it to be in the public interest given the respondent's cooperation, voluntary remedial steps, and lack of prior disciplinary history.

The settlement required the respondent to fund an independent review of its disclosure practices and implement approved recommendations.

The applicants sought to vary management cease trade orders (MCTOs) under section 144 of the Securities Act to permit trading in connection with a proposed going private transaction by Hollinger Inc. The Commission found that the applicants failed to demonstrate that varying the MCTOs would not be prejudicial to the public interest.

The Commission cited concerns regarding the lack of current audited financial statements, the adequacy of the independent valuation, the potential conflicts of interest in the proposed litigation trust, and evidence of undue influence exerted by related parties on the independent committee and valuator.

The applications were denied.

The Special Committee of Financial Models Company Inc. applied for orders under sections 104(1) and 127(1) of the Securities Act to cease-trade a take-over bid by a significant shareholder, Katotakis.

The Special Committee alleged the bid did not comply with Part XX of the Act and was contrary to the public interest because it relied on locked-up shares to meet minority approval thresholds for a follow-on transaction and improperly relied on a valuation exemption.

The Ontario Securities Commission dismissed the application, finding no technical breach of Rule 61-501 and no abuse of the capital markets, as the transaction was not artificial and did not defeat the reasonable expectations of shareholders given the prior disclosure of the shareholder agreement.

Staff of the Ontario Securities Commission brought a motion for an order authorizing the disclosure of certain documents for a hearing on the merits.

The receiver of Philip Services Corp. claimed solicitor-client privilege over the documents.

The Commission found that privilege over the documents was waived when they were disclosed to the company's auditors, who were acting as third parties rather than agents for the purpose of obtaining legal advice.

The Commission also found that the company failed to take reasonable steps to protect the privilege and had put the legal opinions in issue.

The motion was granted, and the documents were ordered to be disclosed.

The Ontario Securities Commission held a hearing to consider a settlement agreement between Staff and the respondent regarding allegations of illegal insider trading.

The respondent admitted to receiving undisclosed material information from a close friend who was a managing director at a securities firm, and using that information to trade in the securities of two reporting issuers, realizing a profit of approximately $1.9 million.

The Commission approved the settlement agreement as being in the public interest, noting the respondent's cooperation with Staff, his agreement to a permanent cease trade order and director/officer ban, a voluntary payment of $1.9 million, and $25,000 in costs.

Dimethaid Research Inc. requested a hearing and review of the Director's decision objecting to the use of prospectus and registration exemptions for a proposed rights offering.

The Director objected because Dimethaid's annual financial statements did not comply with Canadian GAAP, specifically regarding the valuation of the consideration owing for the acquisition of Oxo Chemie AG.

Dimethaid argued that discounting equity was not required by Canadian GAAP and would be confusing.

The Ontario Securities Commission upheld the Director's decision, finding that the transaction was a business combination to be recorded at fair value, and that applying a proper discount to the non-interest bearing future payment obligations was the most appropriate method to determine fair value.