Capital Markets Tribunal

The Ontario Securities Commission sought sanctions and costs against Michael Paul Kraft and Michael Brian Stein following a merits decision that found Kraft engaged in illegal tipping and Stein in insider trading.

The Capital Markets Tribunal ordered market participation bans, administrative penalties, disgorgement, and costs against both respondents.

Kraft was ordered to pay a $200,000 administrative penalty and $150,000 in costs, and was subject to four-year director and officer bans and three-year trading bans.

Stein was ordered to pay a $150,000 administrative penalty, disgorge $29,345, and pay $50,000 in costs, and was subject to three-year director and officer bans and four-year trading bans.

The Tribunal also addressed a preliminary issue regarding the confidentiality of Stein's medical records.

The Ontario Securities Commission alleged that the respondents engaged in unregistered trading, illegal distribution, and fraud in relation to the sale of crypto tokens (Unity Ingot and Dignity tokens).

The Capital Markets Tribunal found that the sale of the tokens constituted investment contracts and therefore securities.

The Tribunal concluded that the respondents acted fraudulently by falsely representing that the tokens were backed by gold and by misappropriating investor funds for personal and unrelated corporate use.

The Tribunal also found that the respondents engaged in the business of trading securities without registration and distributed securities without a prospectus.

Hogg was deemed liable for the breaches of Arbitrade Bermuda.

Following a merits decision finding that the respondents perpetrated a Ponzi scheme fraud on investors and that the individual respondent misled investigators, the Capital Markets Tribunal held a sanctions and costs hearing.

The Tribunal denied the respondents' last-minute adjournment request, finding no exceptional circumstances.

The Tribunal ordered permanent market bans against all respondents, finding their conduct egregious and deliberate.

The Tribunal also ordered joint and several disgorgement of $661,077 and US$245,000 for the primary fraud (reducing the gross amount by principal repaid to investors) and $70,000 for a secondary fraud.

Administrative penalties of $800,000 were ordered jointly and severally for the frauds, with an additional $350,000 penalty against the individual respondent for his separate breaches.

Costs of $295,413.65 were awarded to the Commission.

The moving party, a respondent in a Capital Markets Tribunal proceeding, sought an adjournment of the closing submissions timetable due to her inability to pay outstanding legal fees resulting from a receivership asset freeze.

Her counsel alternatively sought to be removed from the record for non-payment of fees.

The Tribunal dismissed both motions.

The Tribunal found that the moving party's delay in addressing the fee issue did not constitute exceptional circumstances warranting an adjournment.

Furthermore, the Tribunal refused to remove counsel from the record, concluding that doing so at the final stage of a lengthy merits hearing would cause significant disruption and harm the administration of justice.

The moving party brought a motion to strike the Commission's statement of allegations against him, arguing it failed to set out material facts establishing he committed the alleged breaches of the Securities Act.

The Capital Markets Tribunal declined to strike the allegations but ordered the Commission to provide particulars regarding the allegation that the moving party breached s. 126.1(1)(b) of the Act.

The Tribunal found the allegations regarding false or misleading statements under s. 122(1)(a) were sufficient.

Staff of the Ontario Securities Commission alleged that the respondent breached a 2004 settlement order which permanently banned him from acting as a director or officer of an issuer and banned him from trading in securities for 15 years.

The Tribunal found that the respondent breached the director and officer ban by acting as a director and/or officer of 38 Ontario corporations.

The Tribunal also found that the respondent breached the trading ban by participating in the sale of shares in an Ontario corporation and by participating in several offshore stock secured financings where he acted in furtherance of trades.

The allegation of conduct contrary to the public interest was dismissed as no additional conduct beyond the statutory breaches was identified.

Mithaq Canada Inc. applied to the Capital Markets Tribunal to cease trade a private placement by Aimia Inc., arguing it was an abusive defensive tactic designed to thwart Mithaq's take-over bid.

Mithaq also sought to set aside a decision of the Toronto Stock Exchange (TSX) that conditionally approved the private placement without requiring shareholder approval.

Aimia brought a cross-application to deny Mithaq the use of the 5% exemption for share purchases.

The Tribunal dismissed both applications.

It found that Aimia had a serious and immediate need for financing, and the private placement was negotiated largely before Mithaq's bid became imminent.

Although the private placement altered the bid dynamics, it was not clearly abusive.

The Tribunal also found no grounds to interfere with the TSX's decision, as the TSX did not err in principle and there was no compelling new evidence.

Finally, the Tribunal declined to alter the minimum tender condition or deny Mithaq the 5% exemption, finding no exceptional circumstances or lack of good faith.

Staff of the Ontario Securities Commission and the respondent sought approval of a settlement agreement regarding allegations that the respondent, as CEO of a reporting issuer, made misleading or untrue statements in news releases and filings.

The statements concerned an intellectual property licensing agreement and failed to disclose the relationship between the issuer and the licensee.

The Capital Markets Tribunal approved the settlement, which included a $75,000 administrative penalty, $15,000 in costs, and a five-year director and officer ban, finding the terms fell within a reasonable range of outcomes and were in the public interest.

Staff of the Ontario Securities Commission applied for an interjurisdictional enforcement order against the respondent following his criminal convictions for fraud and money laundering.

The respondent had operated a $29 million Ponzi scheme involving point-of-sale debit terminals.

The Tribunal found that the arrangement constituted an investment contract and therefore a security, satisfying the requirement that the criminal conviction relate to securities.

Given the severity of the fraud and the need for specific and general deterrence, the Tribunal concluded it was in the public interest to permanently ban the respondent from participating in Ontario's capital markets.

Two motions were brought by respondents to adjourn the start of a merits hearing.

The Tribunal granted the motion brought by a newly self-represented respondent, finding that his involuntary change in representation status and exclusion from a joint defence group constituted exceptional circumstances.

The Tribunal dismissed the adjournment motion brought by the remaining respondents, who failed to provide evidence supporting their claim that they needed time to retain new counsel.

The Tribunal also extended filing deadlines but declined to order a premature settlement conference.

The respondents entered into a settlement agreement with Staff of the Ontario Securities Commission regarding allegations of unregistered trading, illegal distribution, and making misleading statements in connection with the promotion and sale of cryptocurrency tokens (Axia Coin).

The respondents admitted to breaching multiple provisions of the Securities Act and agreed to pay administrative penalties, disgorgement, and costs, as well as to permanent market bans.

The Capital Markets Tribunal approved the settlement agreement, finding it to be in the public interest and within a range of reasonable outcomes.

The applicant sought a review of sanctions imposed by the Canadian Investment Regulatory Organization (CIRO) after the Capital Markets Tribunal previously set aside one finding of misappropriation.

The applicant sought to introduce new affidavit evidence regarding his ability to pay and the remaining misappropriation finding.

The Tribunal declined to admit the new evidence, finding it was not new or compelling and amounted to an inappropriate collateral challenge.

The Tribunal reduced the fine for misappropriation from $50,000 to $40,000 to reflect the set-aside finding, but upheld the remaining sanctions, including a permanent ban and $25,000 in costs, noting the severity of the remaining misconduct.

The applicant brought an application for review of a decision by the Canadian Investment Regulatory Organization (CIRO) finding she had misappropriated client funds.

The applicant ceased participating in the proceeding in June 2021 and failed to attend the scheduled hearing despite receiving notice.

The Capital Markets Tribunal treated the application as abandoned and dismissed it.

Staff of the Ontario Securities Commission brought an inter-jurisdictional enforcement proceeding against the respondent following his criminal conviction for unregistered trading, illegal distribution of securities, and securities fraud.

The respondent had been sentenced to three and a half years of incarceration and ordered to pay over $4.8 million in restitution.

The Capital Markets Tribunal found that the respondent's conduct, which involved defrauding investors of approximately $5.5 million over three years, warranted severe regulatory sanctions.

The Tribunal permanently banned the respondent from participating in Ontario's capital markets, including permanent prohibitions on trading, acquiring securities, and acting as a director, officer, registrant, or promoter.

The applicant, Oscar Furtado, brought a motion to adjourn the merits hearing due to ongoing health issues, supported by an independent medical examination from a psychiatrist.

Staff of the Ontario Securities Commission did not oppose the adjournment.

The Capital Markets Tribunal found that the medical evidence established exceptional circumstances, as the applicant required time to stabilize and meaningfully participate in the hearing.

The Tribunal granted the adjournment to July 2024.

The Tribunal also ordered that specific portions of the medical report detailing symptoms and diagnosis be redacted to protect the applicant's privacy, while general context and conclusions remain public.

Staff of the Ontario Securities Commission brought a motion in writing to waive service of the Notice of Hearing and Statement of Allegations on the individual respondent, who had evaded service.

The Capital Markets Tribunal granted the motion, finding that Staff had exhausted all reasonable efforts to serve the respondent.

The Tribunal also relieved Staff of future service and disclosure obligations and ordered that the merits hearing proceed in the respondents' absence.

The applicant sought a review of a decision by the Canadian Investment Regulatory Organization (CIRO) finding that he breached CIRO rules and imposing a registration ban, a $50,000 fine, and $10,000 in costs.

The applicant argued that the CIRO Panel denied him procedural fairness by refusing to admit his treating psychiatrist's medical opinion, denying his motion for an indefinite adjournment, and demonstrating bias.

The Capital Markets Tribunal dismissed the application, finding that the CIRO Panel did not err in law.

The Tribunal held that the psychiatrist's evidence was properly excluded as partisan advocacy, the applicant was fit to participate in the hearing, and there was no reasonable apprehension of bias.

The Tribunal also upheld the CIRO Panel's findings on the merits and the sanctions imposed.

Following a merits decision finding that the respondents illegally distributed securities and breached a temporary cease trade order in relation to a hotel development project, the Capital Markets Tribunal held a sanctions and costs hearing.

The Tribunal ordered permanent market bans against the respondents, with a limited carve-out allowing the individual respondent to remain a director and officer of his registered real estate brokerage.

The Tribunal also ordered the respondents to jointly and severally pay an administrative penalty of $600,000, disgorge $13.177 million and US$364,000, and pay $166,000 in costs.

The moving party requested that the Tribunal reconsider its prior reasons and order to redact additional personal medical information, arguing that the redactions were inconsistent.

Staff opposed the request, arguing that the Tribunal lacked the authority to reconsider its decision via a letter request.

The Tribunal agreed with Staff, finding that it did not have the authority to reconsider its decision.

However, pursuant to section 21.1 of the Statutory Powers Procedure Act, the Tribunal corrected a typographical error regarding the spelling of the moving party's primary care physician.