Julia Dublin

The appellants appealed a merits decision and a sanctions decision of the Ontario Securities Commission.

The Commission had found that a set of contracts marketed as a tax planning vehicle constituted an 'investment contract' and therefore a 'security' under the Securities Act.

The Commission concluded that the appellants breached the Act by selling these securities without being registered and without filing a prospectus, imposing trading bans, administrative penalties, and costs.

The Divisional Court applied a reasonableness standard of review and dismissed the appeal, finding that the Commission's application of the test for an investment contract was reasonable and that the sanctions imposed were proportionate and justified.

Following a merits hearing where the respondents were found to have engaged in the illegal distribution of securities and unregistered trading through a complex trading software license scheme, the Commission held a sanctions and costs hearing.

The Commission ordered disgorgement of the net funds obtained from investors, administrative penalties, and significant market participation bans ranging from 6 to 10 years.

The majority held that the unlawful scheme must be terminated entirely, rejecting the respondents' request to continue receiving payments from existing investors.

A partial dissent would have allowed an exception for existing investors to maintain their contracts if they chose to do so.

The Ontario Securities Commission found that the respondents engaged in unregistered trading and illegal distribution of securities through the 'Strictrade Offering', a complex software licensing scheme marketed for its tax benefits.

The Commission determined the offering was an 'investment contract' under the Pacific Coast Coin test.

The respondents breached registration and prospectus requirements, and the registrant respondents failed to meet their know-your-client, know-your-product, and suitability obligations.

Allegations of misrepresentation in the contracts were dismissed.

Staff of the Commission sought an order compelling the respondents to provide witness summaries pursuant to Rule 4.5 of the Ontario Securities Commission Rules of Procedure.

The respondents argued that because they are parties to the proceeding, they are not "witnesses" within the meaning of the Rules or the Statutory Powers Procedure Act, and therefore should not be required to provide summaries of their own evidence.

The Commission rejected this argument, holding that the requirement to provide witness summaries applies to all witnesses, including parties who intend to testify.

The respondents were ordered to provide the required summaries and document references.

The moving parties, subject to enforcement proceedings by the Ontario Securities Commission, brought a motion seeking a preliminary hearing to determine whether their software licensing arrangement constituted an 'investment contract' under the Securities Act.

They argued that Staff's decision to bring enforcement proceedings after lengthy cooperative communications amounted to unfairness.

The Commission dismissed the motion, finding no legal precedent or statutory authority to grant a conditional stay or separate preliminary hearing on the merits of the allegations.

Following a trial where the plaintiffs were awarded $134,000 in damages against their investment advisors for negligence, the court determined the appropriate costs award.

The court found that the plaintiffs' subsequent settlement correspondence did not constitute valid Rule 49 offers, meaning they were only entitled to partial indemnity costs.

Applying the principle of proportionality, the court fixed the plaintiffs' costs at $195,000.

The court further held that the individual employee defendants, while proper parties, were not necessary parties, and therefore ordered the employer to bear the sole responsibility for paying the plaintiffs' costs, declining to make any costs orders against or in favour of the individual employees.

The Ontario Securities Commission held a hearing to consider whether to impose sanctions against Euston Capital Corp. and George Schwartz based on findings and orders made by securities regulatory authorities in Saskatchewan, Alberta, Manitoba, and British Columbia.

The Commission determined that it had jurisdiction to make a reciprocal order under section 127 and subsection 127(10) of the Securities Act.

The Commission held that subsection 127(10) operates retrospectively because its purpose is to protect the public, not to punish.

Finding that the Respondents' conduct in other jurisdictions would have violated Ontario securities laws and harmed investors, the Commission ordered that the Respondents cease trading in securities for ten years, be prohibited from acquiring securities for ten years, and that Schwartz be prohibited from acting as a director or officer of any issuer for ten years.