CITATION: Ontario Securities Commission v. Adams, 2021 ONCJ 66
DATE: January 22, 2021
Information No. 4811-998-19-12000822-00
ONTARIO COURT OF JUSTICE
ONTARIO SECURITIES COMMISSION
v.
JAMES ADAMS
R E A S O N S F O R S E N T E N C E
REMOTELY, BEFORE THE HONOURABLE MADAM JUSTICE B. BROWN
on January 22, 2021, at TORONTO, Ontario
APPEARANCES:
D. Emami Counsel for Ontario Securities Commission
J. Naster Counsel for James Adams
Brown, J., Orally:
James Stuart Adams has entered a guilty plea to the charge, between and including March 5th of 2015 and December 11th of 2019, of contravening Ontario Securities law by becoming or being an officer and/or director of any issuer, registrant or investment fund manager, while prohibited from doing so by an order of the Ontario Securities Commission, dated March 5th, 2015, and did thereby commit an offence contrary to s.122(1)(c) of the Securities Act, R.S.O. 1990. This prohibition order was imposed following earlier administrative proceedings. The guilty plea was entered today, and the court has found Mr. Adams guilty of the offence. Mr. Adams is before the court now at this point for the imposition of sentence.
Both parties are in agreement that the sentence should be non-custodial. The Crown submits that a fine, together with a period of probation would be an appropriate penalty for this offence. The defence submits that a suspended sentence with probation would be the appropriate penalty for this offence and this offender.
The Facts:
(A) Circumstances of the offence:
Mr. Adams entered a settlement agreement with the Ontario Securities Commission in relation to breaches of the Act, relating to the sale of securities of A25 Gold Producers Corp.,(referred to as A25), between March 1st, 2007 and December 31, 2012. Over this period of time, Mr. Adams was a director and president of A25. The settlement established that Mr. Adams, along with two other parties, had - and I’m going to read from the facts that were read in earlier –
- engaged in unregistered trading and illegal distribution through the sale of A25 securities from Ontario
- made certain inaccurate, incomplete and/or misleading statements, and failed to state facts and/or concealed facts that ought to have been stated, and
- acted contrary to the public interest through the sale of securities without registration, without filing a prospectus, (and with no prospectus exemptions available to them), and engaging in or participating in a course of conduct relating to A25 securities that he knew or reasonably ought to have known perpetrated a fraud on persons purchasing A25 securities.
As a result, the Commission imposed an order on Mr. Adams that included among other things a five-year prohibition from becoming or acting as an officer or director of any issuer, registrant or investment fund manager. The order was issued on March 5th, 2015. The five-year prohibition identified expired on March 5th, 2020.
Mr. Adams is a resident of Ontario. Mr. Adams was the director and/or officer of Integral Transfer Agency Inc. (ITA) from 1997 to 2011. From 2011 to present, Mr. Adams has been identified on ITA’s corporate filings as an “officer (general manager)”. ITA is registered with CDS Clearing and Depository Services Inc. (CDS) as a transfer agent, non-participant. Audited financial statements filed by ITA with CDS, dated December 31, 2016, December 31, 2017 and December 31, 2018, indicate that ITA has issued one hundred common shares. Evidence confirmed that during the period from March 5th, 2015 and December 11th, 2019 Mr. Adams was acting as an officer and/or director of ITA, which is an issuer, in breach of the provision of the OSC order prohibiting him from becoming or acting as an officer and/or director of any issuer.
Unlike a number of offences, where courts have imposed sentences for the same offence, in this particular case there is no indication that any person or organization has lost any money as a result of Mr. Adams violating the order. This makes this case particularly unique.
(B) Circumstances of the offender:
A number of exhibits were filed by the defence, which provide relevant information regarding the circumstances of the offender. The exhibits include an affidavit of Mr. Adams, which the Crown chose not to cross-examine. In addition, the defence filed in evidence the letter of resignation of Mr. Adams as a director in Integral Transfer Agency Inc., dated September 11, 2015 and a letter of resignation of Mr. Adams as general manager for Integral Transfer Agency Inc. dated March 11th, 2020. In addition, the defence has filed a letter from Mr. Gord McLeod, registered psychotherapist, who has been meeting with Mr. Adams on a weekly basis since the first request for a consultation in January of 2020. There is further evidence with respect to hospital records, relating to Mr. Adams being taken to the hospital on January 27, 2020 in relation to an attempted suicide, which will be referred to below in greater detail.
Mr. Adams is 63 years of age. He has been married to his wife for 34 years. They have an adult child, 24 years of age, who attends university.
Mr. Adams has no criminal record, nor any outstanding criminal charges. Prior to the proceedings which resulted in a regulatory order made on March 5th, 2015, which is the subject of the charge before the court, Mr. Adams had not been a party to any previous regulatory proceedings. This is the first occasion of Mr. Adams being charged with a regulatory offence in relation to activities monitored by the Ontario Securities Commission.
Mr. Adams has a degree from Ryerson in journalism. In 2000 he started a small consulting business, providing advice in web design, and business marketing and planning. In 2009 he formed ITA to provide transfer agency services for small businesses in the securities sector.
Following his resignation in 2020, Mr. Adams has been employed by ITA as a sales representative where he earns a modest income. In 2019 he earned approximately $22,000, and he expects that his earnings for 2020 will have been similar. His wife has started a new career and has employment where she earns an annual income of $30,000. Mr. Adams and his wife struggle to make payment for their monthly expenses, which include a mortgage on the house owned by his wife, taxes, insurance and utilities on that home, and room and board for their adult daughter at university. They also have significant medical and dental expenses, for which they have no benefits insurance coverage. He is currently carrying significant credit card debt of approximately $60,000, which has accrued as they have been unable to meet their expenses. Their monthly expenses are in the range of $4000. Mr. Adams requires additional dental surgery, estimated to cost in the range of $12,000, but he has declined this treatment because he is unable to pay for this currently. He also has weekly expenses for seeing Mr. McLeod, the psychotherapist referred to in the materials. In terms of his financial circumstances, Mr. Adams owes legal fees in connection with the subject proceeding, and will likely incur further legal fees in relation to anticipated other proceedings. He also continues to owe $75,000 to the Ontario Securities Commission as a result of a $50,000 administrative penalty and a $25,000 cost award imposed further to the OSC order.
Legal parameters:
The penalty for this offence is set out in s.122 of the Securities Act, and ranges from a fine of not more than five million dollars, or to imprisonment for a term of not more than five years less a day, or to both. As well, the court is governed by the sentencing provisions of the Provincial Offences Act.
The Crown has sought a fine, to be followed by a two-year period of probation, the defence has sought a suspended sentence, to be accompanied by a two-year probation, both of which fall within the sentence range pursuant to the Act and the Provincial Offences Act.
Mitigating and aggravating factors:
Mitigating:
Mr. Adams has entered a guilty plea, and this is clearly a mitigating factor in this case. It has always been his intention to plead guilty to this charge, according to the understanding of the court. This guilty plea is an important indication of his remorse.
Mr. Adams has rendered assistance to the Ontario Securities Commission in connection with regulatory proceedings before this court, unrelated to the case before this court. He has done so in the capacity of a witness. The court agrees with his counsel, who has made a submission that this indicates his respect for the regulatory process. However, the court also finds that it is conduct of a somewhat mitigating nature. It indicates that as an offender he is less culpable than others, and that given his respect for the regulatory process, he genuinely was motivated by shame when he tried to kill himself. He felt shame for having been mistaken in law, for acting as a general manager in breach of the prohibition order.
Aggravating:
The Ontario Securities Commission agrees that there are no aggravating factors in this case.
Review of case law and analysis:
Over the years, many courts have considered the appropriate sentence for this type of offence. However, it is important to note that the consideration by the Court of Appeal for Ontario, in the case of Ontario Securities Commission and Daniel Tiffin and Tiffin Financial Corporation, 2020 ONCA 217, which was released on March 16th, 2020, is very important for this court. This judgment will be referred to as the Tiffin case. It is a critically important sentencing case, as it relates to the subject offence of s.122(1)(c) of the Securities Act. In that case the parties were charged with three separate offences, including trading in securities while prohibited.
In Tiffin, the parties had similarly been the subject of administrative proceedings against them, culminating in an order prohibiting them from trading in securities, among other conditions. While subject to the cease trade order, Tiffin had solicited funds to keep his business operating. There was an issue in that appeal with respect to the nature of the subject financial activity, but in the end the Court of Appeal found that it was in violation of the order. A jail sentence had been imposed at the lower level, somewhat in keeping with a prior line of cases where terms of incarceration had been regularly imposed for this type of offence.
The court reviewed the principles of sentencing for regulatory offences at paragraphs 51 to 56, and noted that for regulatory offences, compliance is necessary to achieve the legislator’s public interest goal. The Court of Appeal restated that the principle of deterrence is the paramount consideration. Imprisonment for a regulatory offence may sometimes be necessary to achieve this purpose. The court stated that the potential for serious harm flowing from the breach of regulatory offences is too great to indicate that imprisonment can never be imposed as a sanction, following the Supreme Court of Canada in R. v. Wholesale Travel 1991 39 (SCC), [1991] 3 S.C.R. 154 at page 250. The court noted, following criminal law principles, that the sentence must be proportionate to the gravity of the offence and the degree of responsibility of the offender, following its earlier judgment in Ontario Labour v. New Mex Canada Inc., 2019 ONCA 30. Moral blameworthiness can be a factor. The court noted that there is generally lower moral blameworthiness than in the criminal law context.
The principle of restraint requires a measured response to determine a sentence that satisfies the purpose and principles of sentencing as in criminal law. The court observed that the application of restraint generally means that incarceration for regulatory offences is rare, given that deterrence can generally be established and achieved with fines.
The court also reviewed prior cases, including R. v. Bowman 1948 251 (ON CJ), [1949] 1 D.L.R. 671, a judgment of the Ontario Magistrates Court, which distinguished between merely careless and intentional (including designedly evasive delinquent) offenders. The court noted that moral blameworthiness, as set out in Bowman, cannot be the sole focus of the regulatory sentencing judge.
Overall, the regulatory sentencing court, according to the principles of proportionality and restraint, must impose the sentence required to optimally achieve the sentencing goals of which deterrence is paramount. Intention may be relevant in the determination as to whether a custodial sentence is necessary to achieve the stated goals of sentencing.
In Tiffin, the court found that the six-month jail sentence was demonstrably, in fact manifestly, unfit. It is noteworthy that in that case there had been a loss to the victims, wherein they were still owed a great of money, and there was an expectation that Mr. Tiffin would continue to repay the victims. There was in that case no guilty plea, although the trial had proceeded essentially on a stated issue basis related to statutory interpretation. The defendant was 66 years of age, and had expressed remorse. The court considered the case of the Ontario Securities Commission v. Da Silva, 2017 ONSC 4576, which was the summary conviction appeal judgment of Justice McWatt, one of the cases put before this court by counsel, together with other cases. The court also noted that the OSC was not able to refer to any precedent where jail was imposed for conduct lacking in deceit. Absence of deceit was a notable factor. The court would note in this case that there appears to be absence of deceit as well, as Mr. Adams was openly acting as the general manager according to corporate filings.
In the end, in Tiffin, in addition to the restitution order the court found that a probation order was sufficient to achieve the objectives of sentencing in that case.
Prior sentencing decisions of court must be viewed through the filter of Tiffin, which has clearly limited the applicability of a term of incarceration for this type of offence. The court has nonetheless extensively reviewed the case of OSC v. Webber, 2019 Carswell Ontario 18822, a judgment of the Ontario Court of Justice, of Justice McLeod, and all of the cases he cited therein. As well, as noted above, the court has considered Da Silva, and as well the lower court reasons in that case which were relied upon by the OSC counsel in this case. There is no doubt that prior to the Tiffin case the subject case might have attracted consideration of a term of incarceration. After Tiffin was released by the Court of Appeal, the court agrees with the submissions of counsel that a term of incarceration is not appropriate, nor required to achieve the objectives of sentencing in this case.
Accordingly, the OSC is seeking a fine and probation as indicated. The defence is seeking only a period of probation, noting the mitigating factors in this case and the financial and personal situation of Mr. Adams.
Mr. Adams is 63 years of age, heading to the end of his earning years, and is carrying considerable debt, including a $75,000 award he has yet to pay the OSC. It seems somewhat folly for this court to consider as denunciation, general deterrence and specific deterrence, to impose a further financial obligation on Mr. Adams that he may never be able to pay. And the court notes this, given what has been a very severe and drastic sentence which Mr. Adams almost succeeded in imposing on himself, just one year ago when he tried to kill himself. He tried one way. When that did not accomplish the task, he tried to stab himself. And when that did not work, he drove his vehicle into an object. This succeeded in him being found by a passerby, and fortunately taken to the hospital where he was treated and thankfully survived. He had hit absolute rock bottom when he learned that the OSC was pursuing him in the subject investigation. He has stated that he did not realize that the job he had as general manager was in breach of the prohibition order. He did not intend to act in defiance of the order. He simply did not realize that being a general manager would run afoul of this order. The court would note that those statements by Mr. Adams have not been challenged in any way by the Ontario Securities Commission. This is clearly, as characterized by his counsel, a situation of mistake of law. Unfortunately that does not provide him with a defence to this charge.
The court applies the principles of proportionality and restraint. The court applies the sentencing principles as commented upon by the Court of Appeal for Ontario in Tiffin. Clearly, deterrence is a paramount factor and sentencing goal. However, addressing restraint in the context of the behaviour of Mr. Adams in this case, the court would note the following important factors. And I’m going to do a series of bullet points, and after each one I’m going to say next. First one.
- There is considerable remorse, including the entry of the guilty plea at an early opportunity.
- There is no financial loss to anyone as a result of the conduct of Mr. Adams.
- Mr. Adams did not realize that acting as a general manager of the organization would run afoul of the prohibition order. His conduct consists of a mistake of law which is unfortunately not a defence for him in this case.
- Mr. Adams is respectful of the regulatory role of the OSC, and has cooperated with it in other cases, where he has provided evidence and acted as a witness in those cases.
- Mr. Adams openly disclosed his role as a general manager, by revealing it in annual filings. His conduct was in the open and in no way deceitful.
- Mr. Adams was so remorseful and ashamed, once he realized that being a general manager was conduct that was contrary to the prohibition order, that he became despondent. After the investigation began, he tried to commit suicide, and it was a very real attempt that ended up with him being taken to the hospital. He continues to obtain weekly counselling to address concerns which arose at this time.
- Mr. Adams has outstanding financial obligations to pay the Ontario Securities Commission $75,000, and it is not at all clear how he could ever be able to pay that financial obligation, given his limited income, outstanding debt, including his credit card debt, and his future prospects.
- Mr. Adams is 63 years of age.
- Mr. Adams does not have a great deal of assets. While he has shares in a corporation that are currently valued on paper in the range of $150,000, they are potentially subject to any collection proceedings by the Ontario Securities Commission, to recover the outstanding $75,000 award, as a result of the $50,000 administrative penalty and $25,000 cost award. This was in relation to the proceedings which were the basis of the prohibition order, which is the subject of the offence before the court. The court has also been advised that in relation to those earlier proceedings, unlike the case for many parties and defendants who have obtained the benefit of financial gains arising from such conduct, many of which were subsequently subject to orders to engorge those funds by the Ontario Securities Commission order, Mr. Adams received no financial benefit arising from his conduct, which was the subject of those prior administrative proceedings. Further, it is uncontested that Mr. Adams has medical issues currently, makes a very modest income, and has no pension, no retirement savings, and no funds on which to live, other than the balance of the value of these shares, and potentially up to $11,000 in net value for real estate outside of the country. This is all subject as well to outstanding debt. The real estate which the court has referred to is clearly a bad investment as disclosed on the record, where he is potentially losing money from tenants who are not paying rent. All of which is to say, for a 63-year-old man, approaching his senior years and eventual retirement, Mr. Adams is not a man of much financial worth.
- Mr. Adams is unable to pay for dental treatment he requires.
In all of the circumstances the court notes that the principles of proportionality and restraint apply overall, not just as to whether an offender should be incarcerated. The court makes the determination as to a fit sentence for this offence and this offender in light of the paramount factor being deterrence. As well, the court would note that this offence is certainly, on the spectrum of offences, at the very lowest end of the spectrum. While the court considers deterrence, there is no doubt that at least as it relates to specific deterrence, Mr. Adams has already demonstrated by his attempted suicide that he has been deterred as a result of these proceedings. He has punished himself in a way where his life was almost tragically taken. This is a very high price indeed imposed by him, even before he came before the court for consideration of penalty.
Applying those important principles in this case, the court finds that a fine would be unfit. A fine would be harsh in the financial context of this case, and not called for, given the nature of this offence and outstanding financial obligations, including arising from the prior Ontario Securities Commission order. The fine sought by the Crown is in excess of his annual income. While the court could also impose a lesser fine, bearing in mind all of the relevant principles and the facts in this case, and the sentence in Tiffin by the Court of Appeal, the court finds that a fine would be excessive.
Accordingly, the court imposes a suspended sentence with a period of two years probation. The terms of that probation order shall be as follows. (1) Not to commit the same or any related or similar offence, or any offence under a statute of Canada or Ontario, or any other province of Canada that is punishable by imprisonment.
(2) Appear before the court as and when required.
(3) Notify the court of any change in their address.
(4) Report to a probation officer if and when directed to do so by the probation officer.
(5) Not trade in any securities as that term is defined in the Securities Act.
(6) Any exemptions contained in Ontario securities law do not apply.
(7) Not to act as an officer and/or director of any issuer, registrant, or investment fund manager.
Now I did some work on these terms earlier today, prior to discussions of counsel with respect to redemption of shares. I wonder if I could just, first of all, call on Mr. Emami with respect to whether there should be an exception or a term specific to that in the two-year probation order, should he be of the view he would like to redeem or trade those shares that he personally owns. Which of those terms do you think should be amended to canvass that – or perhaps you, Mr. Naster, I’ll call on you – either one of you.
MR. EMAMI: Perhaps I’ll let the more senior counsel, Mr. Naster, take the lead on this one, and I’ll jump in after.
THE COURT: Number five seems to be most particularly implicated as a term that might be involved, because it speaks to not trading in any securities. However, I don’t know if he could have someone on his behalf trade in those securities. I’m looking at the fact that we have potentially a private corporation involved in this series of shares. Again, I don’t know about the exemptions under paragraph six. I don’t know that he’d necessarily be acting as an officer and/or director of any issuer, registrant or investment fund manager, as far as clause seven, but what do you think?
MR. NASTER: What I can advise is that if you are inclined to make an exemption for the purposes of the capacity to sell these shares, that to do so you could prescribe that the clause five, “Not trade in any securities” with the exception of the securities as defined – and I’ve described that in the affidavit.
THE COURT: Paragraph five.
MR. NASTER: Correct.
THE COURT: Just a minute. Do you want me to say, in paragraph five, with the exception of trading in shares of BizTools, which holds shares in Excelsior?
MR. EMAMI: His own personal shares of BizTools, which holds shares of Excelsior. If we can specify it, Your Honour, to his own personal – in light of the fact that his order expired in March 2020, and the OSC has not sought any further prohibition in relation to that matter, I’m not going to oppose a carve-out for him to be able to deal with those shares. My only concern is it should be very specific to just those shares and only in his personal capacity, Your Honour.
MR. NASTER: Just if I may, Your Honour, to clarify, the shares are in the name of Excelsior, that is the issue...
THE COURT: Reverse, okay.
MR. NASTER: BizTools is the private company which – so ultimately what Mr. Adams holds are shares in Excelsior.
THE COURT: All right. So if we amended condition five in the probation order to say – even though it’s a mandatory condition – not to trade in any “securities” as that term is defined in the Securities Act, with the exception of his own personal shares in Excelsior Solutions Corporation, would that do it?
MR. EMAMI: I believe for my purposes it would, Your Honour. It specifies to his own personal shares, it specifies to Excelsior. I have no further issues with that.