COURT FILE NO.: 284/06
DATE: 20070503
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
LEDERMAN, SWINTON and M.G.J. QUIGLEY, JJ.
IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c.S.5, as amended
RICHARD OCHNIK and 1464210 ONTARIO INC
Appellants
- and -
ONTARIO SECURITIES COMMISSION
Respondent
Richard Ochnik,
Self represented, and with leave, on behalf of 1464210 Ontario Inc.
Matthew H. Britton,
for the Respondent, the Ontario Securities Commission
HEARD at Toronto: April 4, 2007
REASONS FOR JUDGMENT
LEDERMAN J.:
Nature of Appeal
[1] The Appellants Richard Ochnik (“Ochnik”) and 1464210 Ontario Inc. (“146”) appeal the April 12, 2006 Order of the respondent Ontario Securities Commission (“OSC”). The OSC found that Ochnik, in establishing an RRSP/loan scheme, had violated securities law and acted contrary to the public interest. The OSC ordered that: (i) Ochnik and 146 permanently cease trading any securities; (ii) securities law exemptions permanently do not apply to Ochnik and 146; (iii) Ochnik resign all positions as director or officer of any issuer; (iv) Ochnik is permanently prohibited from becoming or acting as director or officer of any issuer; and (v) Ochnik and 146 be reprimanded. The Appellants ask that this Court set aside the order. The Appellants also brought a motion to admit fresh evidence on appeal.
Background
a) Ochnik’s Adjournment Request
[2] The OSC issued a Notice of Hearing on September 19, 2005 scheduling a hearing for October 24, 2005 to determine whether Ochnik and 146 had breached Ontario securities legislation through the RRSP/loan scheme. Ochnik sought and received an adjournment to December 5, 2005 to retain counsel. At that hearing Ochnik had not retained counsel and said he might self-represent. The OSC adjourned the hearing to March 1, 2006, but indicated that it would not look favourably on another adjournment request. Ochnik retained Groia and Co. to represent him on February 24, 2006, but that retainer was terminated on February 27, 2006. At the March 1, 2006 hearing, Ochnik sought another adjournment so he could retain counsel. His request was refused and the hearing proceeded.
b) The OSC’s Findings
[3] The OSC made the following findings:
a) Ochnik was the president of 1464210 Ontario Inc. (“146”), a private company incorporated to develop a property as a retirement complex in Listowel Ontario.
b) Between May 7, 2002 and November 18, 2002, Ochnik was the directing mind of an RRSP/loan scheme.
c) Prior to and during 2002, Ochnik placed loan advertisements across the country. Interested persons called a toll free number. Investors were led to believe that if they invested their locked-in RRSP funds into certain companies (including 146) over five or ten years, they would be immediately given a “forgivable loan” worth 40% to 60% of their investment.
d) In February 2002, Ochnik met with a representative of TD-Waterhouse (“TDW”) and told her that various individuals wanted to invest in 146, and asked TDW to establish accounts for them to arrange for the transfer of shares in 146. Ochnik did not inform TDW that there were loans associated with these investments.
e) Persons with serious financial difficulties called to obtain a loan. These people deposited $1.5 million of their RRSP monies into the TDW accounts, which was paid to 146 (minus a 7% commission to TDW). While everyone who invested received shares in 146, some people received a loan and others did not.
f) The OSC found that Ochnik’s solicitation of investors and issues of shares constituted trading and neither Ochnik nor 146 were registered to trade securities in Ontario, contrary to s. 25 of the Securities Act. The OSC also found that the issues of shares were distributions and that the requirements for distributions under s. 53 of the Securities Act were not complied with.
g) The OSC held that the closely held issuer exemption did not apply because Ochnik had more than 35 investors (there were 43 investors in 146). Ochnik failed to demonstrate that any other exemption applied. Ochnik failed to engage in due diligence to ensure that an exemption applied. The OSC found that Ochnik did not rely on TDW since TDW was not acting on his or 146’s behalf but on behalf of investors (TDW did admit to liability in this matter and paid restitution).
h) The OSC concluded that Ochnik and 146 acted contrary to the public interest because they failed to make proper disclosure, provided misinformation, and intentionally took advantage of persons with financial difficulties.
c) The Sanction Hearing
[4] The OSC held a sanction hearing on April 10, 2006. Ochnik was given notice of this hearing but failed to attend.
[5] Pursuant to s. 127 (1) of the Securities Act, the OSC made the order as described above.
Issues on the Appeal
[6] 1. Did the OSC err in refusing to grant Ochnik an adjournment?
Should the Court receive fresh evidence?
Did the OSC err in finding that Ochnik and 146 violated Ontario securities law and acted contrary to the public interest?
OSC’s Refusal to Grant an Adjournment
[7] The Appellants submit that the disclosure made by staff counsel, although within the time periods prescribed by the OSC Rules, was voluminous and was obtained by Ochnik too close to the hearing date to allow him and his newly retained counsel to absorb, analyze and put together documentation and evidence in response.
[8] Ochnik submits that his counsel had another commitment on the date set for the hearing and would not represent him unless Ochnik could first obtain an adjournment. Moreover, he stated that counsel also needed more time to analyze the disclosure and prepare for the hearing. Ochnik, on his own, without counsel, made the request for an adjournment at the opening of the hearing on March 1, 2006 but it was refused by the Panel.
[9] However, the sequence of events leading up to the March 1st hearing date and Ochnik’s request for an adjournment depicts a picture quite different than that described by Ochnik.
[10] When Ochnik indicated in December 2005 that he was now intending to act for himself he advised staff counsel that disclosure should be made directly to him as opposed to a lawyer. Staff counsel asked for an address where disclosure could be provided and indicated that the disclosure would be available in early January.
[11] On January 3, 2006 Ochnik requested disclosure but did not provide an address.
[12] On January 10th, staff counsel advised Ochnik that the disclosure was available to be picked up as he had not provided an address where the disclosure could be delivered.
[13] On or about January 17th, Ochnik advised OSC staff that he would arrange to have someone pick up the disclosure, but it was never picked up.
[14] In early February, Ochnik provided an address and the disclosure was delivered by courier to that address on February 2, 2006.
[15] On February 24, 2006, a few days before the date set for the hearing, OSC staff was contacted by Rob Brush (“Brush’), who advised staff that he had been retained by Ochnik. Staff counsel was under the impression that Brush was unaware that the matter was set for a contested hearing. Staff so advised him of the hearing date and indicated that staff would oppose a request for an adjournment. Staff counsel supplied Brush with a copy of the evidence brief and went over with him the parts that they thought were important. Brush stated that he intended to request an adjournment. Staff counsel indicated it would be opposed but staff counsel understood that Brush would continue to represent Ochnik even if an adjournment was not granted.
[16] On February 27, 2006 Brush contacted staff and advised that he was no longer retained by Ochnik.
[17] On March 1, 2006 Ochnik appeared at the hearing on his own and requested an adjournment to retain counsel. There is nothing in the record of proceedings to indicate that Ochnik advised the Panel that although he had retained Brush that Brush was unable to attend that day because of another commitment, and in any event would not be able to act for him unless there was an adjournment because of the fact that he did not have sufficient opportunity to review the disclosure and to prepare for the hearing.
[18] No affidavit has been submitted by Brush confirming Ochnik’s version of events.
[19] The only assertion made by Ochnik at the hearing was that he did not have counsel. He did not indicate when he would be retaining counsel and gave no assurance to the Commission that he would be represented by counsel within a reasonable period of time.
[20] We agree with the Panel’s reasons that:
[An] individual cannot insist that proceedings be suspended or adjourned indefinitely because he has not retained counsel. We have given Ochnik a reasonable opportunity to obtain counsel.
[21] A decision to grant or not grant an adjournment is best determined by the tribunal. Ochnik had already been granted two adjournments. He had ample time to retain counsel to represent him at the hearing. He had ample time to review disclosure. Disclosure was available as early as January 10, 2006 but Ochnik chose not to receive it until early February 2006. In any case, disclosure was given to Ochnik more than ten days before the hearing consistent with OSC Rule 3.3(2).
[22] We find that the OSC reasonably concluded that it was in the public interest to expeditiously hear the allegations of misconduct in respect of investments made by the public and that an adjournment was not warranted in the circumstances.
[23] The Panel adapted the hearing to recognize that Ochnik was unrepresented and provided him with pertinent information to assist him.
Motion to Adduce Fresh Evidence
[24] The Appellants move for an order allowing them to adduce multiple documents of new evidence that were not previously put before the OSC Panel.
[25] In argument, Ochnik indicated that the new evidence he seeks to adduce would have been the evidence that he would have put forth before the Commission had he been given the adjournment and the time and the opportunity to collect the material. He submitted that the documentation that he would now like to introduce relates to the nature of the transactions in question (as to whether they were swaps or trades) and the roles played by the various parties in the transaction. He stated that the new evidence would clarify the evidence adduced by staff counsel and would show that some of the documentation relied on by the Commission was fraudulently prepared. Ochnik submitted that the new evidence will also show that TDW knew about the loans associated with the purchase of shares and TDW was, in fact, working for the Appellants and not for the investors.
[26] The test for the admission of new evidence on an appeal is as follows:
(a) the tendered evidence is credible;
(b) it could not have been obtained, by the exercise of reasonable diligence, prior to the hearing; and
(c) the evidence, if admitted, will likely be conclusive of an issue in the appeal.
(See Ontario Federation of Anglers & Hunters v. Ontario (Ministry of Natural Resources), [2002] O.J. No. 1445 (C.A.)).
[27] It is clear that the evidence that the Appellants want to introduce pre-existed the hearing and was in the possession of the Appellants or could have been obtained by them by the exercise of reasonable diligence. For that reason alone, the test is not met and the Appellants’ motion is denied.
Did the Commission Err in Finding That the Appellants Failed to Comply with Ontario Securities Law and Acted Contrary to the Public Interest?
[28] The appropriate standard of review for an order of the OSC under s. 127(1) of the Securities Act is reasonableness. The court should not reassess findings made by the Commission in the course of its Reasons “unless it can be determined that there is no reasonable way in which the facts as presented could establish the conclusion drawn by the tribunal”: Donnini v. Ontario Securities Commission (2005), 250 D.L.R. (4th) 195 at 204 (Ont. C.A.).
[29] Robert Brown’s (“Brown”) evidence regarding the scheme was uncontradicted and his evidence was corroborated by documentation and by the evidence of Hattice Pakdil (“Pakdil”), a registered representative at TDW. Ochnik chose not to testify.
Brown’s and Pakdil’s Evidence
[30] Brown was a mortgage broker who assisted people to obtain loans or mortgages. He began to refer clients to Ochnik to obtain loans in exchange for investing in Ochnik’s companies. 146 was not the first company through which the scheme was operated. Brown testified that at a prior time, Ochnik used the same scheme using six other companies. Brown placed advertisements for persons with locked in funds who needed loans and invited them to contact him. Brown obtained a loan application and gave the investors’ names to Ochnik. Investors were then referred to the institution chosen by Ochnik to facilitate the trade in securities. Once the trade was facilitated and the locked in funds were released, the money came back in the normal course and the investors received their loans.
[31] Brown testified that the same scheme was used in the case of 146. In this case, however, a number of the investors did not receive their loans and Brown had to deal with a number of unhappy investors.
[32] Brown’s evidence was corroborated by documentary evidence including documents that he received from Ochnik which explained the investment loan program from the Evangelical Missionary Church of the Americas ( the “ EMCA”). The loan agreements between the EMCA and investors were identified by Ochnik to Brown.
[33] Pakdil corroborated Brown’s evidence confirming that Ochnik had contacted her in February 2002 to set up the accounts with TDW to facilitate the transfer of funds for shares.
[34] The Appellants submit that the Commission erred in failing to find that the Appellants exercised due diligence and reasonably relied on the advice that they received from TDW to ensure that investors met the exemption requirements of Ontario securities law.
[35] The uncontradicted evidence of Pakdil was that TDW was not acting on behalf of the Appellants. TDW was acting for the investors, although in a limited capacity. TDW accepted the instructions of the investors to transfer funds to 146 in exchange for shares. It did not give advice to investors nor was it undertaking due diligence on behalf of the investors.
[36] The Appellants had the burden to demonstrate that they qualified for an exemption under the Securities Act but did not satisfy this burden.
Ochnik’s Position at 146
[37] The Appellants argued that the Commission erred in describing Ochnik as president of 1464210 Ontario Inc. However, the Securities Act defines “officer” as “the chair, any vice-chair of the Board of Directors, the president, any vice-president and any individual acting in a similar capacity on behalf of the issuer or registrant” (emphasis added). Accordingly, there is evidence that even if Ochnik was not the nominal president of 146, he was an individual who acted in a similar capacity and therefore was a de facto officer of the company.
Hearsay Evidence
[38] The Appellants complain that the Commission failed to properly weigh the hearsay evidence that was introduced. Section 15 of the Statutory Powers Procedure Act R.S.O. 1990, c.S.22 allows for the admission of hearsay in administrative hearings. Nevertheless, where hearsay evidence is admitted, the tribunal must treat it with caution and look for other indicators of reliability. In this case, the hearsay included statements made by investors to staff, questionnaires completed by investors and returned to staff and complaint letters sent by investors to the OSC. This evidence, although hearsay, was particularly compelling as it confirmed that other investors who were unrelated to one another indicated that they had received loans or had been promised loans for investing in 146 which they have not received.
[39] Although the Panel admitted the hearsay, it was cautious about its use of such evidence and looked to other evidence to confirm reliability.
Appellants’ Documentary Evidence
[40] The Appellants allege that the Commission refused to permit the Appellants to adduce the documentary evidence which they sought to file.
[41] In this case, Ochnik produced a number of documents at the hearing which had not been provided to staff in compliance with the time periods set out in OSC Rule 3.3. However, OSC staff indicated that it would not object to those documents if a witness was called to identify them. Ochnik could have called a witness to identify the documents and introduce the documents into evidence but he chose not to do so.
Other Issues
[42] There are two further matters raised by the Appellants in argument that require comment. First, they allege bias against Paul Moore, the member of the Commission who presided at the Ochnik hearing. Ochnik claims bias on the basis that it was the same member who presided over the hearing that recognized and implemented the settlement reached between OSC staff and TDW. In our view, however, this assertion lacks any merit. In the course of presiding at the settlement hearing, the member made no findings of fact which could have affected his impartiality in the Ochnik hearing. Staff of the Commission had reached a settlement with TDW on consent based on a statement of agreed facts. As such, the role of Mr. Moore on the hearing that gave official recognition to that settlement did not involve the member reaching any conclusions which would or could have affected his ability to impartially consider the evidence presented in the Ochnik hearing, and to reach findings of fact solely on the basis of that evidence. There was no evidence before us that would in any way substantiate this assertion of bias.
[43] The other issue raised by the Appellants was their submission that because 146 was under bankruptcy protection and Ochnik was an undischarged bankrupt at the time of the proceeding, there was a statutory stay of all proceedings and the OSC failed to obtain permission from the bankruptcy court to hold the hearing. It is our view, however, that leave of the bankruptcy court is not required where a regulatory body such as the OSC is seeking the type of sanctions as in this case against the Appellants in the public interest pursuant to its powers under the Securities Act, which do not relate to the Appellants’ property or affect their creditors.
Conclusion
[44] On a review of the evidence before the Commission, we find that it was reasonable for the Commission to conclude that the Appellants engaged in an RRSP/loan scheme and traded while unregistered and without a prospectus and that the sanction orders were reasonable.
[45] The appeal is, therefore, dismissed. If there is no agreement concerning costs of the appeal, they should be addressed by way of written submissions. The OSC should deliver its submissions within 15 days; Ochnik to deliver his submissions 15 days thereafter; and the OSC to deliver reply, if any, 5 days thereafter.
Lederman J.
Swinton J.
M.G.J. Quigley J.
Released: May 3, 2007
COURT FILE NO.: 284/06
DATE: 20070503
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
LEDERMAN, SWINTON and M.G.J. QUIGLEY JJ.
B E T W E E N:
RICHARD OCHNIK and 1464210 ONTARIO INC.
Appellants
- and -
ONTARIO SECURITIES COMMISSION
Respondent
REASONS FOR JUDGMENT
LEDERMAN J.
Released: May 3, 2007