OCMT 2007

Staff of the Ontario Securities Commission alleged that the respondents engaged in unregistered trading and illegal distribution of securities, breached cease trade orders, and used high-pressure sales tactics.

The Commission found that the respondents traded in First Global shares without being registered and without a prospectus, contrary to sections 25(1) and 53(1) of the Securities Act.

The respondents also breached multiple Commission orders and made misrepresentations to investors.

The Commission concluded that the respondents' conduct was egregious, harmful to the integrity of Ontario's capital markets, and contrary to the public interest.

A subsequent hearing was ordered to determine sanctions.

The Ontario Securities Commission held a hearing regarding allegations that the respondents participated in an illegal distribution of shares in four private companies.

The scheme involved convincing individuals to access locked-in retirement savings plans by transferring funds to purchase shares in the private companies, after which the respondents would lend a portion of the invested amount back to the investors.

The Commission found that Cornwall, Simpson, and Xavier participated in an illegal distribution of securities without a prospectus or available exemption.

Xavier, a registrant, was also found to have failed his know-your-client and suitability obligations and failed to process trades through his sponsoring dealer.

All respondents, including Cook who provided qualification letters, were found to have engaged in conduct contrary to the public interest.

The Requesting Parties sought a hearing and review by the Ontario Securities Commission of the TSX's filing of amendments to the Universal Market Integrity Rules (UMIR) and the Director's acceptance of that filing.

Market Regulation Services Inc. (RS) brought a motion to quash the request, arguing it was moot, premature, and that the RS Hearing Panel had jurisdiction to decide the issues in the first instance.

The Commission held that there was no reviewable decision under sections 8 or 21.7 of the Securities Act, though it retained overriding supervisory jurisdiction under section 21(5).

The Commission declined to exercise its discretion to hear the matter, finding that the application was premature and would unduly fragment the ongoing RS disciplinary proceeding.

The Commission remitted the matter back to the RS Hearing Panel to determine the validity of the UMIR amendments.

The respondents brought a motion for particulars regarding allegations of illegal trading and distributions under the Securities Act.

They argued that the Statement of Allegations and the voluminous disclosure provided by Staff were insufficient to allow them to know the case to meet.

The Commission held that while Staff is not required to meet the strict standard of a criminal proceeding, the duty of procedural fairness requires sufficient particularization of the material facts.

The Commission directed Staff to provide additional specific particulars regarding the alleged illegal distributions, solicitation meetings, and representations, but dismissed the motion to enforce an alleged undertaking by Staff.

Yamana Gold Inc. brought an application to cease-trade the shareholder rights plan (poison pill) of Meridian Gold Inc. amid a hostile takeover bid.

The Ontario Securities Commission determined that Meridian's board had sufficient time to respond to the bid and assess any competing proposals.

The Commission ordered the poison pill cease-traded effective September 11, 2007, on the condition that Yamana extended its bid to the same date.

Staff of the Ontario Securities Commission and the respondent sought approval of a settlement agreement.

A parallel proceeding involving some of the same respondents and allegations was pending before the Alberta Securities Commission (ASC).

The respondent requested that the settlement agreement and hearing transcripts remain confidential to avoid prejudicing the ASC proceeding.

The Commission granted the confidentiality order, directing that the materials remain confidential until the earlier of the release of the ASC decision or the commencement of the substantive OSC hearing, subject to Staff's disclosure obligations to the other respondents.

Staff of the Ontario Securities Commission brought a motion to adjourn the respondents' Constitutional Motions until the hearing on the merits.

The respondents' motions challenged the constitutionality of section 11 of the Securities Act and the use of compelled evidence, seeking a stay of proceedings.

The Commission granted Staff's motion, holding that Charter challenges and requests for a stay of proceedings should generally not be decided in a factual vacuum.

The Commission found that a complete factual record, which could only be developed at the hearing on the merits, was necessary to properly assess whether the respondents' Charter rights were violated and what remedies might be appropriate.

Staff of the Ontario Securities Commission brought a motion to defer the hearing of Constitutional Motions brought by the respondents until the hearing on the merits.

The respondents sought to challenge the constitutionality of the investigation provisions of the Securities Act and the manner in which Staff obtained and used an investigation order.

The Commission granted Staff's motion, finding that Charter challenges should generally be decided on a complete factual record rather than in a factual vacuum.

The Commission concluded that the constitutional issues could not be fairly or completely resolved without regard to the contested facts and anticipated evidence that would be presented at the hearing on the merits.

The respondents requested that the Commission's Confidential Reasons and Decision dated May 18, 2007 be redacted to remove their names and identifying information prior to public release, relying on the confidentiality provisions in section 16 of the Securities Act.

Staff argued that subsection 17(6) permitted disclosure in connection with a proceeding and opposed a broad sealing order, but did not object to anonymizing the parties.

The Commission held that while it had the authority to release the reasons unredacted, it would exercise its discretion to release a redacted version until the commencement of the hearing on the merits.

The Applicant sought a hearing and review of a Director's decision refusing to grant him registration as an Advising Officer for an Investment Counsel and Portfolio Manager (ICPM) and refusing to register his company as an ICPM.

The Commission found that while the Applicant met the educational requirements, he lacked the requisite work experience in the securities industry, specifically in managing third-party discretionary investment portfolios and being mentored by a registered adviser.

The Commission declined to grant an exemption from the proficiency requirements, concluding that the Applicant's experience in economic research and credit valuation was not equivalent to the required securities industry experience.

The application for registration was denied.

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.

Staff of the Ontario Securities Commission brought a motion to remove counsel for the respondent, Deborah Weinstein, on the basis of a conflict of interest.

Counsel had previously represented six outside directors of the same company during the investigation phase, and Staff anticipated calling these directors as witnesses.

The Commission found that a potential conflict of interest existed because counsel might have to cross-examine his former clients.

However, balancing the public interest in the administration of justice with the respondent's right to counsel of choice, the Commission ordered a compromise: counsel could remain on the record provided the respondent retained independent counsel to conduct any cross-examination of the former clients, with strict screening measures in place.

Following a hearing on the merits where the respondents were found to have violated registration requirements under the Securities Act by selling convertible debentures without being registered, the Ontario Securities Commission held a sanctions and costs hearing.

The Commission found that the respondents, acting as de facto directors, raised over $7.8 million from investors and took over $2.5 million in undisclosed management draws.

To protect the public interest and deter future misconduct, the Commission ordered permanent cease trade orders, permanent bans on acting as directors or officers, disgorgement of the management draws totaling $2.56 million, administrative penalties of $50,000 each, reprimands, and costs of $38,782.

The Ontario Securities Commission convened a hearing to consider a settlement agreement between Staff and Eugene N. Melnyk regarding allegations of failing to file insider trading reports and failing to disclose his relationship with offshore trusts that traded heavily in Biovail shares.

The Commission approved the settlement, which included a $750,000 administrative penalty, $250,000 in costs, a one-year ban on acting as a director of Biovail, and a reprimand, finding the sanctions sufficient for specific and general deterrence.

The respondent was alleged to have breached a previous Commission order and settlement agreement by trading shares while subject to a cease trade order, failing to provide a copy of the order to registrants, and making false statements to Staff regarding his assets.

The Commission found that the respondent committed the alleged breaches.

In determining sanctions, the Commission considered the respondent's repeated disregard for Commission orders and attempts to conceal his actions as aggravating factors.

The Commission ordered a 10-year cease trade and director/officer ban, and ordered the respondent to pay $15,000 in costs.

Staff of the Ontario Securities Commission brought a motion to adjourn the respondents' Constitutional Motions until the hearing on the merits.

The respondents had filed motions challenging the constitutionality of section 11 of the Securities Act and the manner in which an investigation order was obtained and used, alleging violations of their Charter rights.

The Commission held that the Constitutional Motions should be dealt with in the course of the hearing on the merits because a determination in advance would deprive the Commission of the complete factual basis necessary for a proper consideration of the alleged Charter violations.

Staff's motion was granted and the Constitutional Motions were deferred to the hearing panel.

The applicant, a former registered representative, sought a hearing and review of a decision by the Investment Dealers Association (IDA) District Council.

The IDA had commenced disciplinary proceedings against the applicant after he resigned his membership.

The applicant argued that the IDA lacked jurisdiction over former members, relying on the Chalmers decision.

The Commission dismissed the application, finding that the IDA's jurisdiction is contractual, not statutory, and that its by-law extending jurisdiction over former members for five years following resignation is valid and does not contravene the Securities Act.

The Commission distinguished Chalmers, noting the IDA is an unincorporated association whose authority derives from contract rather than an enabling statute.

Counsel for two respondents brought a motion to be removed as counsel of record, citing the respondents' failure to cooperate and provide information necessary for their representation.

The respondents did not respond to communications or the notice of motion, and did not attend the hearing.

The Commission granted the motion, noting that counsel cannot properly represent clients without their cooperation and information.

The Commission also warned that future requests for adjournments by the respondents based on a lack of counsel would not be viewed favourably, as they had sufficient time to retain new counsel before the scheduled hearing.

The applicant, acting as receiver and manager of a company, applied under s. 17(1) of the Securities Act for an order permitting the use of transcripts of compelled testimony in civil proceedings against the company's former auditor.

The Commission dismissed the application, holding that the public interest under s. 17 relates to balancing the integrity of the investigative process and the privacy of those investigated, and does not include facilitating civil actions by investors.

The Commission also confirmed that the applicant could ask relevant questions in the civil proceedings provided the transcripts were not used or referenced.