Ontario Securities Commission

Commission des valeurs mobilières de l’Ontario

22nd Floor 20 Queen Street West Toronto ON M5H 3S8

22e étage 20, rue Queen Ouest Toronto ON M5H 3S8

Citation: Daveed Zarr (Asi Lalky), 2015 ONSEC 35

Date: 2015-10-08

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5, AS AMENDED

• AND -

IN THE MATTER OF DAVEED ZARR (formerly known as ASI LALKY)

REASONS AND DECISION

Hearing: In writing

Decision: October 8, 2015

Panel: Timothy Moseley Commissioner

Submissions by: Clare Devlin Naila Ruba For Staff of the Commission

TABLE OF CONTENTS

I.......... OVERVIEW II........ THE BCSC PROCEEDING III....... PRELIMINARY MATTERS A. Notice to Zarr B. Written Hearing IV....... ISSUES V......... ANALYSIS A. Is the test prescribed by subsection 127(10) of the Act met? B. Is it in the public interest to make an order in Ontario?

1. Introduction
2. Inter-jurisdictional co-operation
3. Nexus to Ontario C. What is the appropriate order? VI....... CONCLUSION

REASONS AND DECISION

I. OVERVIEW

1On August 25, 2014, the British Columbia Securities Commission (the “BCSC”) issued a decision¹ in which it found that Daveed Zarr (“Zarr”) had engaged in an illegal distribution, had traded without proper registration, and had made misrepresentations to potential investors, all contrary to British Columbia’s Securities Act² (the “BC Act”).

2As a result, on October 31, 2014, the BCSC issued an order imposing various sanctions against Zarr (the “BC Order”).³ The BCSC ordered that Zarr resign any positions he held as director or officer of an issuer or registrant, and that he pay a $20,000 administrative penalty. In addition, it restricted his access to and participation in the British Columbia capital markets until the later of October 31, 2018, or the date upon which he paid the administrative penalty.

3Enforcement staff (“Staff”) of the Ontario Securities Commission (the “Commission”) seeks an order pursuant to subsection 127(1) of the Ontario Securities Act (the “Act”)⁴ that mirrors most of the terms of the BC Order. Staff relies upon subsection 127(10) of the Act, which provides that this Commission may make an order against a person under subsection 127(1) if that person is subject to an order made by a securities regulatory authority in another jurisdiction.

4Specifically, Staff asks the Commission to order that Zarr resign any positions he holds as director or officer of any issuer or registrant, and that until the later of October 31, 2018, or the date upon which he pays the administrative penalty ordered by the BCSC:

a. trading in, or acquisition of, any securities by Zarr cease, except that he may trade or acquire securities for his own account through a registrant if, prior to any such trade or acquisition, he gives the registrant a copy of the BC Order and a copy of the Ontario order, if granted;

b. none of the exemptions contained in Ontario securities law shall apply to Zarr; and

c. Zarr be prohibited from becoming or acting as a registrant or promoter, or an officer or director of any issuer or registrant.

5For the reasons that follow, I find that it is in the public interest to issue the order requested by Staff.

II. THE BCSC PROCEEDING

6In its decision, the BCSC found the following facts:

a. at all relevant times, Zarr was a resident of British Columbia;

b. Zarr had never been registered under the BC Act;

c. Zarr was the sole director and officer of Zarr Energy Corporation (“Zarr Energy”);

d. Zarr Energy had never filed a prospectus under the BC Act;

e. Zarr sought investors to purchase shares in Zarr Energy by, among other methods, creating a website for Zarr Energy, and publishing online advertisements through Craigslist and Alibaba.com;

f. Zarr published an advertisement through Craigslist, offering foreign exchange trading investments, which advertisement contained false or misleading representations; and

g. Zarr corresponded with a BCSC investigator posing as an investor, to whom Zarr made false or misleading representations regarding his qualifications and regarding the expected return on the investments being offered.⁵

7Those factual findings led the BCSC to conclude that:

a. by offering shares in Zarr Energy, Zarr engaged in an illegal distribution and thereby contravened subsection 61(1) of the BC Act;

b. by soliciting investment in foreign exchange trading, Zarr engaged in unregistered trading and thereby contravened paragraph 34(a) of the BC Act; and

c. by making false or misleading statements, Zarr contravened paragraph 50(1)(d) of the BC Act.⁶

8The BCSC ordered that:

a. Zarr pay to the BCSC an administrative penalty of $20,000;

b. Zarr resign any position he held as a director or officer of an issuer or registrant; and

c. until the later of the date upon which Zarr pays that administrative penalty, and October 31, 2018:

i. Zarr be prohibited from trading in, or purchasing, any securities or exchange contracts, except that he would be permitted to trade and purchase securities for his own account through a registrant if, prior to such trade or purchase, he gives the registrant a copy of the BC Order;

ii. none of the exemptions set out in the BC Act or regulations made under that Act applies to Zarr;

iii. Zarr be prohibited from becoming or acting as a director or officer of any issuer or registrant;

iv. Zarr be prohibited from becoming or acting as a registrant or promoter;

v. Zarr be prohibited from acting in a management or consultative capacity in connection with activities in the securities market; and

vi. Zarr be prohibited from engaging in investor relations activities.⁷

III. PRELIMINARY MATTERS

A. Notice to Zarr

9The Notice of Hearing commencing this proceeding specified that the initial hearing would take place on July 22, 2015.

10At the hearing on that date, Zarr did not appear, and no one appeared on his behalf. Staff tendered an affidavit of Lee Crann, sworn July 20, 2015, which described steps taken by Staff to serve Zarr with the Notice of Hearing, the Statement of Allegations, and disclosure.⁸

11I requested additional information regarding service upon Zarr and adjourned the proceeding to a hearing on July 24, 2015, to allow Staff an opportunity to prepare a supplementary affidavit.

12At the hearing on July 24, Zarr did not appear, and no one appeared on his behalf. Staff tendered an affidavit of Lee Crann, sworn July 23, 2015, which provided additional information regarding the steps previously taken by Staff to serve Zarr.⁹ Based upon that affidavit, I was satisfied that Zarr had been properly served with the Notice of Hearing and other materials.

13Subsection 7(1) of the Statutory Powers Procedure Act¹⁰ (the “SPPA”) and Rule 7.1 of the Commission’s Rules of Procedure¹¹ (the “OSC Rules”) provide that where notice of the hearing has been given to a party, but the party fails to appear, the tribunal may proceed in the absence of the party and the party is not entitled to further notice in the proceeding.

B. Written Hearing

14The Notice of Hearing includes a notification that at the initial oral hearing, Staff would bring an application to continue the proceeding by way of written hearing, as provided for in section 5.1 of the SPPA and Rule 11.5 of the OSC Rules.

15As noted above, on July 22, I adjourned the proceeding to an oral hearing on July 24. At the July 22 hearing, I deferred consideration of Staff’s application to proceed in writing until the July 24 hearing.

16At the July 24 hearing, I granted Staff’s application to proceed in writing. I ordered that Staff serve and file its materials by July 31, and that Zarr serve and file any responding materials by August 28.

17Staff served on Zarr¹² and filed a hearing brief¹³ containing the BC Merits Decision and the BC Sanctions Decision, along with written submissions and a brief of authorities. No materials were received from Zarr.

IV. ISSUES

18This proceeding presents three principal issues:

1. Is the test prescribed by subsection 127(10) of the Act met?

2. If so, is it in the public interest to make an order in Ontario?

3. If so, what is the appropriate order?

V. ANALYSIS

A. Is the test prescribed by subsection 127(10) of the Act met?

19In seeking an order under subsection 127(1) of the Act, Staff relies upon subsection 127(10), which provides, in part:

… an order may be made under subsection (1) … in respect of a person … if any of the following circumstances exist:

4. The person or company is subject to an order made by a securities regulatory authority … in any jurisdiction, that imposes sanctions, conditions, restrictions or requirements on the person or company.

20The BC Order is an order of the BCSC, which is a securities regulatory authority in another jurisdiction.

21The BC Order imposes sanctions, restrictions and requirements upon Zarr.

22The BC Order therefore meets the test prescribed by subsection 127(10) of the Act, and the Commission may make an order under subsection 127(1) if it is in the public interest to do so.¹⁴

B. Is it in the public interest to make an order in Ontario?

1. Introduction

23The conclusion that the BC Order meets the test in subsection 127(10) of the Act does not necessarily lead to the conclusion that an order of this Commission should be made under subsection 127(1) of the Act. Any such order must still be “in the public interest” in the context of the Ontario capital markets.¹⁵

2. Inter-jurisdictional co-operation

24In determining what order would be in the public interest, I must be guided by the objective of co-operation among securities regulators, as set out in section 2.1 of the Act:

In pursuing the purposes of this Act, the Commission shall have regard to the following fundamental principles:

5. The integration of capital markets is supported and promoted by the sound and responsible harmonization and co-ordination of securities regulation regimes.

25By explicitly referring to orders made by securities regulatory authorities in other jurisdictions, subsection 127(10) of the Act clearly promotes this legislative objective. This goal is also well recognized in decisions of the Supreme Court of Canada¹⁶ and of this Commission.¹⁷

26As this Commission has previously held, “[t]he decision of a foreign jurisdiction stands as a determination of fact for the purpose of the Commission’s considerations under subsection 127(10) of the Act.”¹⁸

27In this case, the findings of the BCSC with respect to Zarr’s conduct are compelling reasons to conclude that it is in the public interest to restrict his participation in Ontario’s capital markets. Had Zarr engaged in the same conduct in Ontario, it is almost certain that he would have contravened corresponding provisions of Ontario securities law.

3. Nexus to Ontario

28A factual nexus to Ontario is not a necessary pre-condition to an order under subsection 127(1) of the Act. However, any such nexus may be considered.¹⁹

29In this case, there is such a nexus. Zarr placed an advertisement on Craigslist in Ottawa, which the BCSC described as follows:

The Ottawa ad was headed: “250,000$ High return investment” and the body of the ad read in part: “Do you want to make 30-50% on your money this year? I can grow your account by 30-50% a year… I also invite people to bet against me; If I don’t make you 30-50% on your money in a clander [sic] year I will give you 10,000$... Yes, I’m that sure…²⁰

30Zarr’s solicitation of potential Ontario investors in this way reinforces the conclusion that it would be in the public interest to make an order against him under subsection 127(1) of the Act.

C. What is the appropriate order?

31As noted above in paragraph [27], Zarr’s conduct, had it occurred in Ontario, would likely have attracted consequences similar to those ordered by the BCSC. Zarr’s misconduct was serious.

32The BCSC found that he engaged in an illegal distribution and in unregistered trading, and that he “repeatedly published significant misrepresentations that were blatant and egregious lies”.²¹ The BCSC also found that Zarr “displayed wanton disregard for the need for securities regulatory compliance” and that he was unwilling to take responsibility for the potential harm to investors.²²

33The BCSC concluded that Zarr “poses an ongoing and substantial risk to investors and to the capital markets” and found no mitigating factors.²³

34In determining what order would be in the public interest in Ontario, I must consider the purposes of the Act set out in section 1.1, including the protection of investors from unfair, improper or fraudulent practices, and the promotion of confidence in the capital markets.²⁴

35As the Supreme Court of Canada has held, it is also appropriate to consider general deterrence in making an order under subsection 127(1) of the Act.²⁵

36The BCSC ordered Zarr to pay an administrative penalty of $20,000, ordered him to resign any positions as director or officer of a registrant, and restricted Zarr’s access to and participation in the capital markets of British Columbia for a period of four years, or longer if he fails to pay the administrative penalty.

37Appropriately, Staff does not seek an order in Ontario that would require Zarr to pay an additional administrative penalty. The order that Staff seeks would restrict Zarr’s access to and participation in Ontario’s capital markets in the same way that was done in British Columbia.

38In my view, the order requested by Staff is proportionate to the conduct as found by the BCSC, would serve to protect Ontario’s investors and capital markets, would further the objective of inter-jurisdictional co-operation, and would have an appropriate general deterrence effect in Ontario.

VI. CONCLUSION

39For the reasons set out above, I find that it is in the public interest to impose the sanctions requested by Staff.

40I will therefore issue an order, pursuant to paragraphs 7 and 8.1 of subsection 127(1) of the Act, that Zarr resign any positions that he holds as director or officer of any issuer or registrant.

41The order will contain the following additional provisions, each of which is effective until the later of October 31, 2018, and the date upon which Zarr makes the payment required by the BC Order:

a. pursuant to paragraphs 2 and 2.1 of subsection 127(1) of the Act, trading in or acquisition of any securities by Zarr shall cease, except that he may trade or acquire securities for his own account through a registrant if, prior to such trade or acquisition, he gives the registrant a copy of the BC Order and a copy of the order resulting from this decision;

b. pursuant to paragraph 3 of subsection 127(1) of the Act, none of the exemptions contained in Ontario securities law shall apply to Zarr;

c. pursuant to paragraphs 8 and 8.2 of subsection 127(1) of the Act, Zarr is prohibited from becoming or acting as an officer or director of any issuer or registrant; and

d. pursuant to paragraph 8.5 of subsection 127(1) of the Act, Zarr is prohibited from becoming or acting as a registrant or promoter.

Footnotes

1. 1Re Daveed Zarr (formerly known as Asi Lalky) and Zarr Energy Corporation, 2014 BCSECCOM 317 (“BC Merits Decision”).
2. 2RSBC 1996, c 418.
3. 3Re Daveed Zarr (formerly known as Asi Lalky) and Zarr Energy Corporation, 2014 BCSECCOM 454 (“BC Sanctions Decision”).
4. 4RSO 1990, c S.5.
5. 5BC Merits Decision at paras 6-18, 48, 53 and 58.
6. 6BC Merits Decision at para 59.
7. 7BC Sanctions Decision at para 35.
8. 8Marked as Exhibit 1 at the oral hearing on July 22.
9. 9Marked as Exhibit 2 at the oral hearing on July 24.
10. 10RSO 1990, c S.22.
11. 11(2014), 37 OSCB 4168.
12. 12Affidavit of service of Naila Ruba sworn August 14, 2015, marked as Exhibit 4 in this proceeding.
13. 13Marked as Exhibit 5 in this proceeding.
14. 14Re Euston Capital Corp (2009), 2009 ONSEC 23, 32 OSCB 6313 at para 46.
15. 15Re Elliott (2009), 2009 ONSEC 26, 32 OSCB 6931 at para 27.
16. 16McLean v British Columbia (Securities Commission), 2013 SCC 67 at para 51; Global Securities Corp. v. British Columbia (Securities Commission), 2000 SCC 21 at para 27.
17. 17Re JV Raleigh Superior Holdings Inc. (2013), 2013 ONSEC 18, 36 OSCB 4639 at para 21; New Futures Trading International Corp. (Re) (2013), 36 OSCB 5713 at para 27.
18. 18Re JV Raleigh Superior Holdings Inc., supra note 17 at para 16.
19. 19Re Marlatt (2014), 37 OSCB 5428 at para 25; Re Biller (2005), 2005 ONSEC 15, 28 OSCB 10131 at para 35.
20. 20BC Merits Decision at para 14.
21. 21BC Sanctions Decision at para 14.
22. 22Ibid at para 13.
23. 23Ibid at paras 19-20.
24. 24Committee for Equal Treatment of Asbestos Minority Shareholders v. Ontario (Securities Commission) 2001 SCC 37 at para 45.
25. 25Cartaway Resources Corp., 2004 SCC 26 at para 60.