Todorov et al. v. Ontario Securities Commission

[Indexed as: Todorov v. Ontario Securities Commission]

Ontario Reports

Ontario Superior Court of Justice,

Divisional Court,

Harvison Young, Thorburn and Conway JJ.

July 24, 2018

142 O.R. (3d) 578 | 2018 ONSC 4503

Case Summary

Securities regulation — Administrative proceedings — Procedural fairness — Appellants representing that they had retained counsel before hearing — Counsel appearing alone on date of hearing and requesting adjournment as he was in process of being retained — Panel not breaching procedural fairness by denying adjournment.

Securities regulation — Evidence — Compelled statements — Hearing panel finding that appellants had breached Securities Act and imposing sanctions and costs — Proceedings being administrative rather than criminal or quasi-criminal despite quantum of sanctions — Charter not applying to admission and use at merits hearing of statements which appellants were compelled to make under s. 13(1) of Securities Act — Admission and use of compelled statements permissible — Securities Act, R.S.O. 1990, c. S.5.

Securities regulation — Vicarious liability — Section 129.2 of Securities Act applying to individual who is directing mind of unincorporated association such as sole proprietorship — Knowing acquiescence in another person's activities sufficient for liability under s. 129.2 — Securities Act, R.S.O. 1990, c. S.5, s. 129.2.

The appellants, who were husband and wife, were found to have breached various provisions of the Securities Act. The hearing panel found that T committed investor fraud and traded securities without being registered and without a prospectus. The panel found that N did not actively participate in the fraud or meet with investors, but she knew of T's fraudulent scheme or was wilfully blind to it and profited from it. The panel imposed an administrative penalty of $300,000 on T and ordered him to pay costs in the amount of $228,496.25. N received an administrative penalty of $25,000 and was ordered to pay costs in the amount of $15,000. T and N were jointly and severally liable to disgorge $747,323. The appellants appealed.

Held, the appeal should be dismissed.

Several times in the months before the hearing, T represented that he had retained H to act for him and N. On the day of the hearing, H appeared alone, explained that the appellants were in Vancouver and that he was in the process of [page579] being retained, and asked for an adjournment. In the circumstances, the panel did not breach procedural fairness by denying the adjournment request.

The panel did not violate the appellants' rights under the Canadian Charter of Rights and Freedoms by admitting and using statements that the appellants were compelled to make under s. 13(1) of the Securities Act. The proceedings were administrative rather than criminal or quasi-criminal, despite the quantum of the sanctions, and the Charter did not apply to the compelled statements. The admission and use of the statements were permissible.

Both the merits decision and the sanctions decision were clear and logical and did not fail to provide insight into how the panel reached its conclusions.

The panel erroneously stated that N's sole proprietorship was a corporation and that N was a corporate director for the purposes of liability under s. 129.2 of the Securities Act. However, the broad wording of s. 129.2, when read in conjunction with the definitions of "director" and "person" in the Act, should be read as extending to an individual who serves as the directing mind of an unincorporated association such as a sole proprietorship. The threshold for liability under s. 129.2 is low: mere acquiescence is sufficient. N's acquiescence was established in this case.

Cases referred to

Blencoe v. British Columbia (Human Rights Commission), [2000] 2 S.C.R. 307, [2000] S.C.J. No. 43, 2000 SCC 44, 190 D.L.R. (4th) 513, 260 N.R. 1, [2000] 10 W.W.R. 567, J.E. 2000-1872, 141 B.C.A.C. 161, 81 B.C.L.R. (3d) 1, 23 Admin. L.R. (3d) 175, 3 C.C.E.L. (3d) 165, [2000] CLLC Â230-040, 77 C.R.R. (2d) 189, 38 C.H.R.R. D/153, REJB 2000-20288, 99 A.C.W.S. (3d) 1024; Boock (Re), 2010 LNONOSC 90, 33 OSCB 1589; Guindon v. Canada, [2015] 3 S.C.R. 3, [2015] S.C.J. No. 41, 2015 SCC 41, 342 C.R.R. (2d) 254, 21 C.R. (7th) 23, 327 C.C.C. (3d) 308, [2015] 6 C.T.C. 1, 387 D.L.R. (4th) 228, 473 N.R. 120, 2015EXP-2269, J.E. 2015-1269, EYB 2015-254987, 256 A.C.W.S. (3d) 78; Momentas Corp. (Re), 2006 ONSEC 15, 2006 LNONOSC 778, 29 OSCB 7408; Northern Securities Inc. v. Ontario (Securities Commission), [2015] O.J. No. 2924, 2015 ONSC 3641 (Div. Ct.); Ontario (Commissioner, Provincial Police) v. MacDonald, [2009] O.J. No. 4834, 2009 ONCA 805, 255 O.A.C. 376, 3 Admin. L.R. (5th) 278, 182 A.C.W.S. (3d) 502; Ontario Inc. (Re), 2016 LNONOSC 54; Ontario Inc. (Re), 2016 ONSEC 10, 2016 LNONOSC 146, 39 OSCB 2733; R. v. M. (R.E.), [2008] 3 S.C.R. 3, [2008] S.C.J. No. 52, 2008 SCC 51, 235 C.C.C. (3d) 290, 83 B.C.L.R. (4th) 44, EYB 2008-148153, J.E. 2008-1861, [2008] 11 W.W.R. 383, 260 B.C.A.C. 40, 60 C.R. (6th) 1, 380 N.R. 47, 297 D.L.R. (4th) 577, 79 W.C.B. (2d) 321; Read Jones Christoffersen Ltd. v. Neilas Inc. (2016), 130 O.R. (3d) 792, [2016] O.J. No. 2282, 2016 ONCA 321; Senjule v. Law Society of Upper Canada, [2013] O.J. No. 2347, 2013 ONSC 2817, 309 O.A.C. 1 (Div. Ct.); Sextant Capital Management Inc. (Re) (2011), 2011 ONSEC 15, 2011 LNONOSC 973, 34 OSCB 5829; Xanthoudakis v. Ontario Securities Commission, [2011] O.J. No. 4870, 2011 ONSC 4685, 286 O.A.C. 286 (Div. Ct.)

Statutes referred to

Canadian Charter of Rights and Freedoms, ss. 7, 11, 13

Courts of Justice Act, R.S.O. 1990, c. C.43, s. 6(1) (b)

Evidence Act, R.S.O. 1990, c. E.23, s. 9(2)

Securities Act, R.S.O. 1990, c. S.5, ss. 9 [as am.], 13 [as am.], (1) [as am.], 16(2) [as am.], 17(6) [as am.], 127 [as am.], 129.2, 144 [as am.]

Statutory Powers Procedure Act, R.S.O. 1990, c. S.22, s. 15(1) [page580]

APPEAL from the decisions of the hearing panel of Ontario Securities Commission.

Eldar Babyev, for appellant Evgueni Todorov.

Daved Muttart, for appellant Sophia Nikolov.

Mathew Britton and Kai Olson, for respondent Ontario Securities Commission.

The judgment of the court was delivered by

THORBURN J.: —

Overview

[1] Evgueni Todorov ("Todorov") and Sophia Nikolov ("Nikolov") were husband and wife. In decisions dated February 3, 2016 [2016 LNONOSC 54] and March 15, 2016 2016 ONSEC 10, [2016] LNONOSC 146, 39 OSCB 2733], they were found to have breached various provisions of the Securities Act, R.S.O. 1990, c. S.5 (the "Act") and sanctions were imposed.

[2] The Ontario Securities Commission ("OSC") Hearing Panel found that Todorov perpetrated an ongoing fraud from November 2010 to June 2013, lied to investors, issued fictitious trading statements and used a Ponzi scheme to pay moneys to complaining investors from moneys advanced to him by yet unsuspecting investors. He was also found to have held himself out to be in the business of trading in securities while he was not registered to do so, and engaged in the distribution of securities without a prospectus.

[3] The panel found [2016 LNONOSC 54, at para. 44] that Todorov's spouse, Nikolov, "permitted, authorized or acquiesced in Setenterprice's non-compliance with the Act" and benefitted from Todorov's fraudulent activities as some of the moneys were used to pay her personal expenses. Sententerprice was a sole proprietorship registered by Nikolov.

[4] Cheques were written by Nikolov to Todorov from the Setenterprice account. The panel held [at para. 55] that "Setenterprice was a central component of the fraudulent trading scheme operated by Todorov. We find that the role played by Setenterprice included engaging in the business of trading without registration and distributing securities when a prospectus had not been filed (illegal distribution) in breach of sections 25(1) and 53(1) of the Act."

[5] The appellants, Todorov and Nikolov, seek an order dismissing the proceedings or a new hearing on the merits ordered before a differently constituted panel. They claim they were denied their [page581] right to procedural fairness as their request for an adjournment to seek to retain counsel was denied, the hearing proceeded in their absence, and their compelled testimony was used against them at the hearing without regard for their Canadian Charter of Rights and Freedoms rights. Moreover, they claim the reasons for decision on penalty were insufficient, unclear and erroneous.

The OSC Decision

[6] The merits decision was released on February 3, 2016 and the sanctions decision released on March 15, 2016. In their decisions, the OSC panel found that the appellants, among others, were involved in the sale and distribution of over $1.2 million worth of securities to investors.

[7] The appellant Todorov offered investment contracts to investors, promising that he would trade their money in the foreign currency exchange ("forex") market for profit. Securities took the form of promissory notes, the terms of which included a high monthly rate of interest. Todorov told investors that he was a highly successful trader and that there was little risk in the investment.

[8] Over a two-and-one-half-year period, 11 investors provided investment amounts to Todorov totalling $1,077,500. Only $170,000 was traded in the forex market for a brief time. The majority of those moneys were deposited into a bank account in the name of "Setenterprice".

[9] Setenterprice was a sole proprietorship registered and then renewed by the appellant Nikolov. (In its decision on the merits, the OSC mistakenly referred to Setenterprice as a corporation.) A similar pattern was evidenced in all of the bank accounts controlled by Todorov.

[10] The OSC found that [2016 LNONOSC 54, at paras. 39 and 40]

. . . Todorov used various techniques to prolong his fraudulent scheme and to avoid its collapse. He obtained monies from new investors by continuing to misrepresent his success in forex trading and distributed some of those monies to those earlier investors who complained persistently and loudly. He told all investors that he had suffered a temporary loss in the Setenterprice trading account and could not withdraw monies, but that the situation would rectify itself shortly. He followed this lie up with showing investors fictitious accounts on the letterhead of Easy Forex of Cyprus . . . Easy Forex has confirmed that at no time was there ever an account with it for Todorov or Setenterprice and that the trading account statements were not from it or of its origination . . .

By June 2013, the complainants could no longer be calmed and the money to keep the Ponzi scheme rolling had dried up. [page582]

[11] During the two years that Nikolov was sole signatory for Setenterprice cheques, approximately $2.5 million was withdrawn from the Setenterprice bank account.

[12] The OSC stated that [at para. 36]

Todorov and Nikolov used the bulk of the monies from the Setenterprice bank account for purposes entirely extraneous to the purported forex trading scheme such as: personal expenses including car payments, condominium fees, credit card debt, payments to the Respondents and payments to third parties, some of whom had been investors in previous investment clubs and schemes managed by Todorov. A portion of the investor monies was paid to earlier investors in the scheme when they complained or threatened to call the Commission thus creating a Ponzi-like scheme where new investor funds were used to placate earlier investors.

[13] The OSC found that a total of $905,591 was taken from investors and not returned.

[14] The OSC found that "all the necessary elements of fraud were firmly established" against Todorov.

[15] The OSC found that Nikolov's conduct [at paras. 52, 53 and 54]

. . . had no significant connection to either an investor or to a trade or to a distribution . . .

Nikolov's conduct however, is reprehensible and falls far short of her obligations as a company director. For two years in the relevant period, she signed cheques on the Setenterprice bank account at the direction and under the control of her husband. . . . Given that in the relevant period, approximately $2,508,000 was withdrawn from the Setenterprice bank account, a sum far in excess of what she earned, and that some of these funds were used to pay for personal expenses, Nikolov should have questioned the source of those funds. . . . There are so many obvious significant suspicious circumstances that lead us to the conclusion that either Nikolov knew of her husband's fraudulent forex trading scheme, or was wilfully blind to it and facilitated its continued operation by assisting her husband through her company's bank account.

Absent any allegation of fraud against Nikolov, we find that Nikolov permitted, authorized or acquiesced in Setenterprice's non-compliance with the Act and in doing so, Nikolov is deemed not to have complied with Ontario securities law pursuant to section 129.2 of the Act.

[16] During the sanctions proceeding, the panel invited the appellants to file written submissions responding to staff's written submissions. The appellants chose not to do so.

[17] Sanctions and costs were imposed against Todorov and Nikolov. Todorov received a lifetime trading ban, an administrative penalty of $300,000 and was ordered to pay costs in the amount of $228,496.25. Nikolov received a ten-year trading ban, an administrative penalty of $25,000 and was ordered to pay costs in the amount of $15,000. [page583]

[18] In addition, Todorov and his wife, Nikolov, were jointly and severally responsible to disgorge $747,323.

The Issues

[19] The appellants raise the following grounds of appeal:

(1) the OSC's decision to refuse the request for adjournment was a breach of procedural fairness;

(2) the OSC's decision to admit the appellants' compelled testimony at the merits hearing was a breach of the appellants' Charter rights; and

(3) the panel's sanctions and costs orders should be overturned because the reasons are deficient, there are errors in respect of the decision on disgorgement of profit and s. 129.2 of the Act does not apply to individuals acting on behalf of entities other than corporations.

Court's Jurisdiction

[20] Section 6(1)(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43 provides that an appeal lies to the Court of Appeal from "a final order of a judge of the Superior Court of Justice, except . . . an order from which an appeal lies to the Divisional Court under another Act" (emphasis added).

[21] Section 9 of the Act states that "[a] person or company directly affected by a final decision of the Commission, other than a decision under section 74, may appeal to the Divisional Court within thirty days after the later of the making of the final decision or the issuing of the reasons for the final decision". The appellants are directly affected by the panel's decisions and the Divisional Court therefore has jurisdiction to review these decisions.

Standard of Review

[22] For questions of procedural fairness, the court is not required to conduct a standard of review analysis. Instead, the court must evaluate "whether the requirements of procedural fairness . . . have been met" (Ontario (Commissioner, Provincial Police) v. MacDonald, [2009] O.J. No. 4834, 2009 ONCA 805, at para. 37).

[23] The appeal of the decision imposing sanctions and costs is a statutory right of appeal of an administrative tribunal's decision. The standard of review applicable to OSC decisions is reasonableness as the OSC is interpreting its home statute and deference is owed [page584] (Northern Securities Inc. v. Ontario (Securities Commission), [2015] O.J. No. 2924, 2015 ONSC 3641 (Div. Ct.), at para. 4).

Analysis and Conclusion

Issue 1: Was the panel's refusal to grant the adjournment request a breach of procedural fairness?

[24] The appellants submit that it was procedurally unfair for the OSC to deny the appellants' request for an adjournment as it required them to proceed without legal counsel.

[25] The appellants submit that the adjournment should have been granted as there was limited prejudice if an adjournment were granted and by contrast, the failure to grant the adjournment request resulted in Todorov and Nikolov being the denied the right to be represented by counsel.

[26] Todorov participated in four preliminary hearings held between March and December 2015. He says he repeatedly explained that he was trying to retain Mr. Hosseini as his counsel and it should have been clear to the panel that he was having difficulty retaining counsel.

[27] In September 2015, Todorov participated in a preliminary hearing where the January 11, 2016 date was set for the hearing. No request was made to adjourn the proceeding before the date the hearing was set to begin. On the contrary, Todorov advised that Hosseini had been retained to represent the appellants.

[28] On December 9, 2015, counsel staff reported that the appellants' counsel still had not written to confirm that he was acting for Todorov. Todorov told the chair of the panel that he had retained Hosseini to act on his behalf at the hearing. The chair and Todorov had the following exchange:

CHAIR: Just so that you make it clear to him [Hosseini], there are no adjournments.

Todorov: Yes, I understand.

CHAIR: We are going ahead in January.

Todorov: Yes. I understand.

[29] At the outset of the hearing on January 11, 2016, Mr. Hosseini (the appellants' agent) appeared and advised that he was in the process of being retained, and expected to be retained by the end of the week. He explained that the appellants were in Vancouver and that he required 90 days of additional time to prepare. No explanation was offered as to why he could not or was not retained earlier. [page585]

[30] The request for an adjournment was denied. The panel determined that it was in the public interest that the hearing date be maintained and noted that the hearing date had been selected in September 2015, in Todorov's presence, without any objection by him.

[31] Moreover, as noted by the commission, when counsel arrived without Todorov or Nikolov on the first day of the hearing, Hosseini advised that the appellants were not even in the jurisdiction but were in Vancouver. Counsel simply said, "They are coming back to town this Friday to retain me. I have just received all the materials on Friday from the Commission. And they have asked me to come in and submit a request for a possible adjournment."

[32] The OSC determined that [at para. 16]:

Although Todorov attended pre-hearing conferences, was provided with full disclosure of documents by Staff and was provided the hearing brief, he did not attend the hearing, Nikolov and her company, Setenterprice, also did not attend the hearing. At the opening of the hearing, an agent appeared on behalf of Todorov and Nikolov, requesting a one-week adjournment. The only submission he made was that Todorov and Nikolov were in Vancouver. The Panel determined that it was in the public interest to maintain the scheduled hearing date[.]

[33] The hearing proceeded and the OSC heard testimony from six witnesses. Mr. Hosseini left shortly after the merits hearing began, and the appellants chose not to attend or make written submissions.

[34] The decision to permit or deny an adjournment is a discretionary power which is usually accorded deference. Accordingly, "the standard of review [for this issue] is akin to one of reasonableness". The adjournment decision will only be procedurally unfair if "the panel exercised its discretion in an unreasonable or non-judicious fashion" (Senjule v. Law Society of Upper Canada, [2013] O.J. No. 2347, 2013 ONSC 2817 (Div. Ct.), at paras. 21-22).

[35] In refusing the request for an adjournment that the appellants had known about for four months, the commission panel reasonably exercised its discretion and followed the OSC's Rules of Procedure, which govern how the panel should approach requests for an adjournment. The appropriate factors were considered by the panel including the public interest in a timely decision, the number of attendances prior to the hearing, the appellants' knowledge long in advance of the hearing date and failure to take any action to seek an adjournment or explain the request, and their failure to even attend the hearing. [page586]

[36] Moreover, this is the first time that the appellants have expressed any concern about the decision to decline the adjournment. The court in Xanthoudakis v. Ontario Securities Commission, [2011] O.J. No. 4870, 2011 ONSC 4685 (Div. Ct.) provides that the failure to object to the fairness of a hearing as soon as is reasonable may be sufficient to refuse to set aside a decision of the panel.

[37] For these reasons, we find that the appellants were not denied natural justice or procedural fairness. This ground of appeal fails.

Issue 2: Was the admission and use of compelled testimony in the merits hearing against the appellants permissible?

[38] Prior to the hearing, the appellants were compelled to be interviewed by OSC investigators pursuant to s. 13(1) of the Act. The appellants claim the information obtained during the compelled interviews played a significant part of the OSC's case against them and the evidence obtained was central to its findings of fact.

[39] The appellants submit that compelling them to give evidence and then using that evidence against the appellants at the hearing was unfair and contrary to the Charter. Moreover, they claim that without the information obtained from the compelled interviews, it would not have been possible to find the appellants guilty of one or more of the offences of which they were convicted.

[40] We do not agree.

[41] Section 15(1) of the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22 provides that

a tribunal may admit as evidence at a hearing, whether or not given or proven under oath or affirmation or admissible as evidence in a court,

(a) any oral testimony[.]

[42] Section 13(1) of the Act specifically authorizes an OSC investigator to "summon and enforce the attendance of any person and to compel him or her to testify on oath or otherwise" (emphasis added). Summonses were sent to the appellants to compel them to testify. The appellants were advised that their statements were under oath or affirmation, they were cautioned against providing misleading information and the appellants confirmed that they understood the caution, each was advised of their right to counsel and a court reporter transcribed the evidence.

[43] Sections 16(2) and 17(6) of the Act provide that compelled testimony may be used in any proceeding commenced by the [page587] OSC. OSC staff sought permission from the panel to file the transcripts of the appellants who failed to attend the hearing and to allow certain admissions in those transcripts as evidence. The Hearing Panel granted this request.

[44] Such use of the transcripts of testimony given pursuant to s. 13 of the Act is specifically envisaged by s. 127 of the Act, which is the provision regarding administrative proceedings.

[45] The only expressly prohibited use of compelled testimony obtained pursuant to a summons issued under s. 13 is that it cannot be admitted in quasi-criminal prosecutions brought by OSC staff. In such instances, the protections afforded by ss. 7, 11 and 13 of the Charter apply (Blencoe v. British Columbia (Human Rights Commission), [2000] 2 S.C.R. 307, [2000] S.C.J. No. 43, 2000 SCC 44, at para. 97).

[46] The appellants submit that because the amount of the sanction is "out of proportion to the amount required to achieve regulatory purposes", this may constitute a quasi-criminal proceeding that attracts the protection afforded by s. 11 of the Charter (Guindon v. Canada, 2015 SCC 41, [2015] 3 S.C.R. 3, [2015] S.C.J. No. 41, at para. 77).

[47] We note, however, that [Guindon, supra, at para. 77],

. . . very large penalties cannot be imposed under administrative monetary penalty regimes. Sometimes significant penalties are necessary in order to deter non-compliance with an administrative scheme.

[48] In this case, compelled testimony is not prohibited by s. 9(2) of the [Ontario ]Evidence Act, R.S.O. 1990, c. E.23 nor did the appellants ever claim the protection of s. 9(2) during their interviews (Sextant Capital Management Inc. (Re) (2011), 2011 ONSEC 15, 2011 LNONOSC 973, 34 OSCB 5829, at para. 9).

[49] These proceedings were neither criminal nor quasi-criminal but rather administrative and regulatory. The only "penalties" envisaged were monetary and reputational. The predominant purpose was not to incriminate; rather, it was to impose an administrative penalty that was not criminal in nature (Boock (Re), 2010 LNONOSC 90, 33 OSCB 1589).

[50] The proceeding was commenced under s. 127 of the Act, which does not give the panel the authority to order imprisonment or other penal consequences. The fact that fines and costs could be imposed does not render the proceeding punitive or penal in nature.

[51] Moreover, although some large penalties were imposed, this was deemed necessary to deter non-compliance with an administrative scheme. The panel made it clear that the purpose of the sanctions imposed was "the prevention of future harm to investors and to the capital markets". The panel considered [page588] a number of factors, including but not limited to the scope and seriousness of the impugned conduct and harm to investors. That evidence was uncontradicted.

[52] For these reasons, we find this was an administrative proceeding and the admission and use of compelled testimony in the merits hearing against the appellants was permissible and the Charter did not apply in this case.

[53] We therefore reject this ground of appeal.

Issue 3: Are the panel's reasons insufficient?

[54] The appellants submit that the reasons are insufficient because

(a) they fail to provide practical insight into how the panel's conclusions were reached and there was no logical connection between the ultimate decision and the basis for that decision (Read Jones Christoffersen Ltd. v. Neilas Inc. (2016), 130 O.R. (3d) 792, [2016] O.J. No. 2282, 2016 ONCA 321);

(b) the disgorgement and administrative penalties imposed were disproportionately high and the amount owing is incorrect; and

(c) the panel improperly imposed liability on Nikolov pursuant to s. 129.2 of the Act, which applies only to corporate directors.

A. Sufficiency of reasons generally

[55] A decision maker does not have to refer to all of the evidence or answer every submission; it must simply set out the findings of fact and the principal evidence it relied on in making those findings. The reasons must be read holistically and in context. Moreover, reasons are sufficient if they allow the public and a reviewing court to know whether the applicable legal principles and evidence were properly considered. Reasons should be read as a whole and are sufficient if they show why the adjudicator decided as he or she did. The failure to explain all arguments does not mean the reasons are deficient as long as they generally demonstrate why certain evidence was accepted and other evidence was not (R. v. M. (R.E.), 2008 SCC 51, [2008] 3 S.C.R. 3, [2008] S.C.J. No. 52).

[56] The merits decision explains what provisions of the Act were contravened, the actions and level of involvement of each of the two appellants in the scheme, and their knowledge of the fraud on investors such that the factual basis for its determination of the respective level of responsibility of each appellant is justified. The decision also describes how much money was raised [page589] by Todorov, over what period, how much money was repaid to investors and how much remains owing.

[57] The merits decision clearly states that Todorov committed investor fraud, traded securities without being registered and without a prospectus, and otherwise contravened the Act. He did so knowingly and over a prolonged period. He deceived 12 investors who lost money.

[58] It notes that Todorov was much more implicated than Nikolov as he actively deceived investors.

[59] The reasons explain that Nikolov did not actively participate in the fraud or meet with investors. However, there are [at para. 53] "many, obvious significant suspicious circumstances that lead us to the conclusion that either Nikolov knew of her husband's fraudulent forex scheme or was wilfully blind to it". She allowed her husband Todorov to sign cheques and operate the account, approximately $2.5 million was withdrawn from the Sententerprice bank account, an amount far in excess of what she earned, and some of those funds were used to pay her expenses and that of her husband Todorov. The panel also noted that the appellants were spouses.

[60] The panel found that she should have questioned what was going on and refused to take part.

[61] The much higher penalties imposed on Todorov reflect the panel's conclusion that Todorov bore a much greater level of responsibility. The amounts are comparable to those imposed on others in similar circumstances.

[62] The panel held that $905,591 had not been returned to investors. Amounts were attributed to other participants and after subtracting those sums, the panel ordered that Todorov and Nikolov were jointly and severally responsible to disgorge the sum of $747,323.

[63] Read as a whole, the merit and sanction decisions are clear, logical and consistent; they indicate how the amount to be disgorged was reached and why a much larger penalty and costs award was imposed on Todorov than on Nikolov. The fact that some of the funds were used to pay expenses common to the appellants and that they were a married couple explains why the disgorgement order made against them was joint and several.

[64] Lastly, we note that deference should be afforded to sanctions imposed as this is an exercise of the panel's discretion, bearing in mind its expertise and the public interest. The panel provided reasons for its decision and considered the conduct of the parties and the proportionality of the sanctions. [page590]

[65] We find the panel's decisions are sufficiently detailed and supported by evidence to satisfy the "justification, transparency and intelligibility" criteria.

B. Disgorgement and costs of the hearing

[66] Todorov claims that the OSC staff failed to account for all moneys repaid by Todorov and therefore the amount to be disgorged is too high. The panel relied on OSC staff's summaries of creditor fund accounting, but this accounting only extended until August 2013, three years prior to the January 2016 hearing date.

[67] Todorov claims he continued paying down his debts after August 2013, but this would not have been reflected in those summaries. Accordingly, the OSC's inquiry was incomplete and led to inaccurate accounting.

[68] Disgorgement is an equitable remedy. The purpose behind a disgorgement order to is to prevent a party from benefitting from ill-gotten gains. On the evidence adduced at the hearings, $747,323 was the net amount illegally raised that had not been repaid.

[69] Todorov contends that the amounts disgorged do not reflect the post-August 2013 moneys he paid toward disgorgement.

[70] Todorov could have presented evidence at the sanctions hearing but chose not to file any evidence. Moreover, if Mr. Todorov has evidence of further payments made in respect of the disgorgement order and or there is an arithmetic error in the order, that issue can be referred to the OSC pursuant to s. 144 of the Act, for redetermination of the amounts to be disgorged.

[71] The appellants also challenged the costs award. A costs award is not a sanction; it is a means to recover the costs of an investigation and/or hearing from those who have breached Ontario securities law or acted contrary to the public interest.

[72] The panel ordered costs after considering the relevant factors outlined in the OSC's Rules of Procedure, and the apportionment of costs was based on each of the appellants' degree of culpability, their co-operation and the effort required to reach a result with respect to each of them. The amount of the costs order is reflective of the time accorded to each appellant and their respective conduct.

[73] This ground of appeal also fails.

C. The application of s. 129.2 of the Act

[74] Nikolov asserts that she cannot be liable pursuant to s. 129.2 of the Act, because the panel mistakenly held that she was the director of the company Setenterprice. Setenterprice is not a corporation; it is a sole proprietorship and she cannot therefore be considered a corporate director within the meaning [page591] of s. 129.2 of the Act. As an individual who registered a sole proprietorship (not a corporation), she is not covered by the provisions of s. 129.2 of the Act that apply to corporate directors.

[75] Section 129.2 provides as follows:

129.2 For the purposes of this Act, if a company or a person other than an individual has not complied with Ontario securities law, a director or officer of the company or person who authorized, permitted or acquiesced in the non-compliance shall be deemed to also have not complied with Ontario securities law, whether or not any proceeding has been commenced against the company or person under Ontario securities law or any order has been made against the company or person under section 127.

[76] Nikolov correctly notes that the panel erred in holding that Setenterprice was a corporation and Nikolov a corporate director. However, the broad wording of s. 129.2 of the Act, when read in conjunction with the definitions of "director" and "person" in the Act, should be read as extending to an individual serving as the directing mind of an unincorporated association such as a sole proprietorship like Setenterprice.

[77] The threshold for liability under s. 129.2 is a low one. Mere "acquiescence" or quietly consenting without protest, which the OSC found appropriately described Nikolov's conduct and involvement, is sufficient (Momentas Corp. (Re), 2006 ONSEC 15, 2006 LNONOSC 778, 29 OSCB 7408, at para. 118).

[78] Nikolov registered the sole proprietorship, renewed the registration and opened a bank account in the name of Setenterprice. She had sole signing authority. At some point, she granted Todorov a power of attorney. The panel described Nikolov's knowledge that $2.5 million was going through the account, she wrote some of the cheques, saw the money coming in and was responsible for knowing what was going on with the account. There was evidence to support the panel's determination that she failed to meet her obligation as a sole proprietor.

[79] Acquiescence was thereby established in this case. The panel's decision that Nikolov permitted or acquiesced in the breaches of the Act by Setenterprice, contrary to s. 129.2 of the Act was therefore reasonable.

[80] This ground of appeal fails also.

[81] For these reasons, the appeal is dismissed.

Costs

[82] In accordance with the submissions of the parties, given the result on this appeal, partial indemnity costs are payable to the OSC in the amount of $15,000.

Appeal dismissed.

End of Document