CITATION: Kitmitto et al. v. Ontario Securities Commission, 2023 ONSC 1739

COURT FILE NO.: 067/232, 045/23, 075/23

DATE: 20230315

ONTARIO

SUPERIOR COURT OF JUSTICE

Divisional Court

BETWEEN:

MAJD KITMITTO, STEVEN VANNATTA, and DONALD ALEXANDER (SANDY) GOSS

Appellants/Moving Parties

– and –

CHIEF EXECUTIVE OFFICER OF THE ONTARIO SECURITIES COMMISSION

Respondent

Andrew Guaglio, for Majd Kitmitto

Peter Zaduk and Madeleine Ross, for Steven Vannatta

John M. Picone and Stephanie Voudouris, for Donald Alexander (Sandy) Goss

Katrina Gustafson and Khrystina McMillan, for the Respondent

HEARD: March 13, 2023

REASONS ON MOTION FOR A STAY

sCHABAS j.

Overview

[1] On May 26, 2022, following a 36-day hearing, a majority of a panel of the Capital Markets Tribunal found that Majd Kitmitto, Steven Vannatta and Donald Alexander (Sandy) Goss (the “moving parties”) committed, among other things, insider trading and tipping contrary to s. 76 of the Securities Act, RSO 1990, c. S.5. The market impact of the activity was approximately $1.5 million in unlawfully obtained profits.

[2] On January 20, 2023, the Tribunal imposed sanctions on Kitmitto, Vannatta and Goss as follows:

• Kitmitto is subject to market participation bans for 10 years, with certain carve- outs, and shall pay an administrative penalty of $600,000, and pay costs of $147,075;

• Vannatta is subject to market participation bans for 15 years, with certain carve- outs, and shall pay an administrative penalty of $650,000, disgorge profits of $54,435, and pay costs of $183,844; and

• Goss is subject to market participation bans for 15 years, with certain carve-outs, and shall pay an administrative penalty of $1,000,000, disgorge profits of $1,228,509, and pay costs of $183,844.

[3] As required by s. 10(2) of the Securities Act, these sanctions took effect immediately. The moving parties appealed and moved for a stay of the sanctions pending their appeals. On February 3, 2023, at a case conference, as agreed by the parties, Nishikawa J. directed an interim stay of the sanctions on a without prejudice basis pending the hearing of the stay motion, which I heard on March 13, 2023.

[4] For the reasons that follow, the motions for a stay of the sanctions pending appeal are dismissed, and the interim stay directed by Nishikawa J. is set aside.

The test for a stay

[5] To obtain a stay pending appeal, the moving parties must satisfy the well-known three-part test set out in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 S.C.R. 311, at p. 334, that: (1) there is a serious issue to be tried; (2) the moving parties will suffer irreparable harm if the stay is not granted; and (3) the balance of convenience favours granting the stay. These factors are not rigid “watertight compartments” or a series of independent hurdles, but are “interrelated in the sense that the overriding question is whether the moving party has shown that it is in the interests of justice to grant a stay.” Strength in meeting one part of the test “may compensate for the weakness of another”: Louis v. Poitras, 2020 ONCA 815 at para. 16.

Serious issue to be tried

[6] The test to establish a serious issue is not high. The appeal simply must not be frivolous or vexatious. In this case, due to the low threshold, the Ontario Securities Commission (the “respondent” or “OSC”) concedes that this test is met by the moving parties, although it does not agree that the grounds of appeal are strong.

[7] Counsel for the moving parties, nevertheless, submit that their appeals are strong. It is submitted that the dissenting decision provides a road map for the appeals, demonstrating their strength which should be given considerable weight in supporting the granting of a stay.

[8] I can draw no such conclusion at this stage of the proceedings. The Supreme Court stated in RJR, that a “prolonged examination of the merits is generally neither necessary nor desirable” on this kind of motion. In R. v. G.F., 2021 SCC 20, at para. 76, the Supreme Court cautioned against detailed parsing of reasons on appeals dealing with credibility findings.

[9] These warnings are apt in this case. The reasons of the Tribunal on the merits of the case are very lengthy and detailed. The majority reasons span some 72 pages, and the dissent is almost 90 pages, both single-spaced. As emphasized by counsel for the moving parties, the dissenting decision was based on that member’s view of the facts which drew her to reach a different conclusion than the majority. There appear to be few differences between the majority and minority over the applicable law. There are some areas where they differ over the application of certain legal principles to the evidence, but I cannot, and should not, on this motion attempt to determine the importance of those differences. The grounds of appeal in the notices of appeal raise, largely, questions of fact and questions of mixed fact and law, which require deference.

[10] Similarly, to the extent the appeals address the severity of the sanctions, the Court should be reluctant to delve into the merits on a motion for a stay.

[11] Consequently, while I agree that the moving parties have met the test of showing that there are serious issues raised on the appeals, I cannot draw any conclusions as to the strength of the appeals. To reach any conclusions on that issue would require an in-depth look at the merits of the case, an assessment of the evidence, and a careful review of the reasons of the majority and minority, which I should not undertake on a motion of this kind. These issues cannot be easily assessed on a motion of this kind nor, quite properly, were they addressed in detail in argument, highlighting why it is undesirable for me to form any view on the merits of the appeals beyond agreeing that they are not frivolous or vexatious and therefore meet the serious issue test.

Irreparable harm

[12] Irreparable harm focuses on the impact that not granting a stay will have on the moving parties. I deal with each party separately below, but begin by stating some general principles relating to irreparable harm.

[13] Irreparable harm is the sort of harm that “either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other.” It is the nature of the harm that is to be considered, not its magnitude: RJR at p. 341. At the same time, evidence of irreparable harm must be “clear and not speculative”, and it must be supported by evidence that the moving party would suffer it. Evidence of possible, or even likely, harm is not enough. The evidence must show that the party will (not may) suffer irreparable harm: Sazant v. College of Physicians & Surgeons (Ontario), 2011 CarswellOnt 15914 (ONCA) at para. 11; Noble v. Noble, 2002 CarswellOnt 4445 (ONSC) at para. 16.

[14] Financial loss may constitute irreparable harm, but such loss is not determinative. Indeed, in the context of a regulated profession, “financial inconvenience or loss will inevitably result” from suspension or revocation of a licence, but “it will generally be far from dispositive”: Sazant at para. 12; Azeff v. Ontario Securities Commission, 2016 ONSC 1279 (Div. Ct.) at para. 13. Similarly, “emotional harm and psychological attachment to a profession will almost always exist”, but “[s]omething more…must be required otherwise irreparable harm as a consequence would always weigh in favour of granting a stay”: Sazant at para. 13; Noriega v. College of Physicians and Surgeons of Ontario, unreported, October 22, 2015 (Div. Ct.) at para. 26; Aboujamra v. College of Physicians and Surgeons of Ontario, 2023 ONSC 1136 at paras. 18-20. The same is true for reputational harm, which is remedied by a successful review or appeal: Doe v. College of Physicians and Surgeons, 2021 ONSC 7550 at para. 12.

(a) Majd Kitmitto

[15] Kitmitto argues that the financial penalty and costs order, if enforced, may require him to declare bankruptcy. As he puts it: “If I am not granted a stay and am required to satisfy the administrative penalty and costs order, I expect that I would need to declare bankruptcy.”

[16] This is not sufficient to establish irreparable harm.

[17] There is no evidence that the OSC will enforce the financial sanctions pending his appeal. Although the OSC has refused to provide assurances not to enforce the sanctions, in the absence of evidence that an appellant is dissipating their assets, the OSC’s practice is not to enforce financial sanctions until appeals are exhausted.

[18] Even if the OSC did move to enforce the penalty and sanctions, bankruptcy is simply one of a number of options open to Kitmitto. He has significant assets, although apparently not quite enough to satisfy the financial sanctions. He receives financial and other support from his family, allowing him to save money. He also appears to have access to a line of credit from his bank. Kitmitto may be able to borrow money, if necessary, to pay for the amount that he may not be able to meet from his own assets, or he could seek to work out a payment plan with the OSC, rather than declare bankruptcy. In short, Kitmitto has choices, should he have to pay the financial sanctions, one of which may be bankruptcy protection; but it cannot be said that bankruptcy is inevitable, let alone imminent.

[19] Furthermore, while bankruptcy has been found to constitute irreparable harm in some circumstances, such as where it will destroy a commercial business (see, e.g., Visconti v. College of Physicians and Surgeons of Alberta, 2009 ABQB 742 at para. 42; Iris Technologies Inc. v. Canada (National Revenue), 2021 FC 874; A.B. McLean Ltd. v. United Steelworkers of America, Local 2251, [1990] O.J. No. 2020), that is not the case here. Kitmitto’s evidence on the effect of a bankruptcy filing speaks only to the possibility that “this could impact my ability to obtain work in the future if people in the industry were to learn of it.” [emphasis added] As noted, the mere possibility of harm, such as bankruptcy, is not enough to satisfy the irreparable harm test: see, e.g., Therriault v. United Freight Services Ltd., 2006 ABCA 350 at paras. 2 and 7.

[20] Kitmitto’s other submission, that if required to pay the sanctions now he would lose any amount he could earn from investing his savings in the interim, has no merit. First, this assumes the OSC will move to collect the money now, which it is not doing. Second, if the sanction is overturned, Kitmitto will get his money back. If it comes back without interest then he may have suffered some financial loss but, as noted above, some financial loss is not irreparable harm. Third, and finally, to the extent Kitmitto is unable to earn money from investing his funds due to the trading ban (Kitmitto was not a registrant trading for others, and so the market participation sanction only affects his ability to trade on his own behalf), any loss is speculative as playing the market can result in losses or gains. It cannot be said that Kitmitto will suffer irreparable harm from not being able to trade.

(b) Donald Alexander (Sandy) Goss

[21] Although Goss faces much larger financial sanctions, his submission is focused on the trading ban which, he argues, will cause him irreparable harm as it will destroy his client base and the business he has built over the past 30 years, and have a devastating impact on him personally, affecting his “identity, self esteem, and sense of self-worth.”

[22] I find Goss’s evidence unconvincing and conclude that it does not satisfy the test for irreparable harm.

[23] Goss is 56 years old. He has worked at a number of investment firms as an investment advisor since 1993. Many of his clients have followed him as he moved from one firm to another. He currently has over 250 clients and manages assets worth approximately $180 million. This is more than 15% of the assets managed by his current firm, Hampton Securities Limited.

[24] Goss asserts that “once my clients have signed up with new investment advisors, which they will have to do if the Sanctions Decision is not stayed pending my appeal, they are unlikely to return to me even if my appeal is granted, because they will have established new relationships with new advisors.” Goss goes on to state that he was told “by a number of clients… that they have no intention of ‘bouncing around’ and that if they have to switch to a new advisor, they will not come back to me in the future.” He says he will “have significant difficulty building up a new book of business if my appeal is successful”, observing that he is “less than 10 years from retirement age” and will never recover to his current situation.

[25] Following release of the sanctions decision on January 20, 2023, Goss and Hampton took steps to address Goss’s clients’ accounts. Hampton informed the clients that Goss was “leaving the firm” and the accounts were reassigned to Goss’s assistant and to another advisor at Hampton. However, Hampton has continued to employ Goss since he obtained the interim stay on February 3, 2023. Goss states that between January 23, 2023, when the sanctions decision became public, and when the interim stay was ordered on February 3, 2023, he “lost” four long-time clients with an overall portfolio value of $1,750,000, and he heard that one other client had been contacted by a competitor. There is no evidence that Goss lost any clients after the merits decision was released in May 2022.

[26] Like Kruzick J. in Azeff, I have little doubt that some of Goss’s clients will go elsewhere and not return to him even if he is successful on his appeal, and that he will “suffer some financial difficulties”: Azeff at para 14. But the evidence does not satisfy me that Goss will lose all, or even most, of his clients while the appeal is pending. Advisors at Goss’s firm are equipped to manage his accounts and steps have been taken to do so. Clients come and go, as Goss acknowledged before the Tribunal, but he has many loyal clients, and he could only say that an unspecified number of clients said they did not wish to “bounce around.” But only four clients left him (it is not clear if they left Hampton) after the sanctions were announced, which is less than 2% of his clients with less than 1% of the assets under Goss’s management. As the Court of Appeal observed was the case with Dr. Sazant, while Goss “will suffer financial difficulties, the evidence does not support that his practice [or book of business] will be lost forever”: Sazant at para. 12.

[27] Similarly, as with Dr. Sazant, the emotional harm to Goss is not a basis to find irreparable harm – something more must be required in cases involving professionals who have a psychological attachment to their business; otherwise, as the Court stated in Sazant, a stay would always be granted.

[28] Accordingly, like Kitmitto, Goss has failed to establish that he will suffer irreparable harm if a stay is not granted pending his appeal.

(c) Steven Vannatta

[29] Vannatta did not lead any evidence on this motion. His factum states that he will suffer irreparable harm “if the stay is not continued.” His factum goes on to say that “he will be prohibited from returning to his chosen career and may well be forced into bankruptcy.” This too does not meet the test for irreparable harm; rather, these are consequences which may follow if he is unsuccessful on the appeal, not due to the absence of a stay pending appeal.

[30] Vannatta, I was told, lost his work as a portfolio manager after the allegations were made in 2018, and he has not worked in the field since that time due to the publicity linking Vannatta to this case. Unlike Goss, who may lose work due to the sanction, the impact on Vannatta’s career stems from the allegations themselves. Further, assuming bankruptcy constitutes irreparable harm in these circumstances, Vannatta’s assertion that he “may well” need to declare bankruptcy if required to pay the financial sanction, is equivocal. A similar assertion was made before the Tribunal which found that he had provided “no evidence of his financial condition over the past two years, including any bank statements.” In oral argument, Vannatta’s counsel effectively conceded that he could not establish that irreparable harm would follow if the sanctions were not stayed pending appeal. I agree.

Balance of convenience

[31] The final element of the RJR test requires the court to balance the moving parties’ interests against the public interest. As stated in Sazant at para. 15, “[t]he public interest goes beyond that of public safety and also includes public confidence in the administration of justice, and in cases such as this, confidence in the disciplinary process of the College.” See also: Yazdanfar v. College of Physicians and Surgeons of Ontario, 2012 ONSC 2422 at paras. 67-68.

[32] Sazant involved whether to grant a stay following findings of sexual misconduct by a physician. LaForme J.A. found, at para. 17, that “public confidence in the College's ability to discipline members of the medical profession” weighed against the limited financial interest of Dr. Sazant. In light of what were found to be “serious breaches of sexual conduct committed by a medical doctor”, Justice LaForme denied the stay, stating that “[t]he public has a right to feel confident that the College, in circumstances such as this, will discipline one of its members accordingly and that our courts will respect its decision.”

[33] A similar approach is required here. The public must have confidence in the integrity of the capital markets, and confidence that the laws regulating the markets will be rigorously enforced. Section 10(2) of the Securities Act, which provides that Tribunal penalties take effect immediately, is consistent with this objective.

[34] In RJR, the Supreme Court emphasized that the public interest must be given extra weight in cases that challenge the authority of a law enforcement agency, as compared to cases between private litigants. In such circumstances, harm to the public interest “will nearly always be satisfied simply upon proof that the authority is charged with the duty of promoting or protecting the public interest and upon some indication that the impugned legislation, regulation, or activity was undertaken pursuant to that responsibility.” The Court “should in most cases assume that irreparable harm to the public interest would result from the restraint of [its] action”: RJR at p. 346.

[35] Insider tipping and trading violations, such as those found to have been committed by the moving parties, raise specific public concerns due to the harm they cause and the difficulty in detecting this type of unlawful conduct. As the Court of Appeal observed in Finkelstein v. Ontario Securities Commission, 2018 ONCA 61 at para. 22, “[t]he prohibition in s. 76(1) against insider trading ‘is a significant component of the schemes of investor protection and of the fostering of fair and efficient capital markets and confidence in them’: Re Woods (1995), 18 OSCB 4625.”

[36] The moving parties submit that they pose no risk to the public and that the market participation bans should be limited. The offences occurred over eight years ago over a relatively short period of time. None of the moving parties have been accused of any other violations of securities laws, and they were not subject to market participation bans since 2018, while the case was proceeding before the Tribunal. Goss has been subject to strict supervision by Hampton since the proceedings commenced five years ago. Kitmitto and Vannatta are not trading for others; only Kitmitto seeks to trade on his own behalf.

[37] What has changed now, however, is that Kitmitto, Goss and Vannatta have been found to have committed serious violations of the Securities Act by the Tribunal following a lengthy hearing. The market participation bans on Kitmitto and Vannatta will have a very limited impact on them. Goss, on whom the ban will have a significant impact, has argued that the public interest can continue to be protected by maintaining the supervisory conditions currently in place. However, Goss was under similar supervision when the offences were committed. There are limits to the effectiveness of such supervision, which did not detect the illegal actions in 2014, and does not include personal communications. As observed in Azeff at para. 17: “Supervision, while laudable, does not cover the whole day. Tipping can occur by various, difficult to-detect, means and may not always occur at the workplace.”

[38] In my view, the balance of convenience favours the public interest over the private interests of the moving parties in not staying the market participation bans pending the appeals. To continue the interim stay would ignore the fundamental change in circumstances brought about by the Tribunal’s findings about each of the moving parties, the legislative direction that sanctions are not to be delayed absent meeting the test for a stay, the limits on supervision of Goss, and the need to preserve public confidence in the administration and enforcement of the Securities Act.

[39] The existence of the financial sanctions has little impact on the balance of convenience test, as the OSC has not taken steps to enforce them pending the appeals. The financial sanctions may be an issue for Kitmitto and Vannatta, but neither has persuaded me that they would suffer irreparable harm if the sanctions were enforced. Further, if the financial sanctions were paid and the appeals are successful, the financial penalties would be paid back. In the absence of irreparable harm to the moving parties and the current lack of enforcement of the financial sanctions, the balance of convenience does not favour staying them either.

Conclusion

[40] The moving parties have not met the second and third prongs of the RJR test – they will not suffer irreparable harm and the balance of convenience does not favour a stay of the sanctions imposed by the Tribunal. Although the appeals raise serious issues, to assess the strength of those issues requires an in-depth examination of the merits which should generally not be undertaken on a motion to stay. As the other factors favour the OSC and the public interest, treating the test holistically I conclude that it is not in the interests of justice to grant a stay of the sanctions pending the appeals.

[41] The motions are dismissed. The interim stay granted by Nishikawa J. on February 3, 2023 is set aside, effective immediately upon release of these Reasons and without the need for a formal order. The OSC may nevertheless, if it wishes, provide for my signature an order reflecting this result.

[42] The OSC shall be awarded costs of $10,000, of which Kitmitto shall pay $3,500, Goss, $4,500 and Vannatta $2,000.

Paul B. Schabas J.

Released: March 15, 2023

CITATION: Kitmitto et al. v. Ontario Securities Commission, 2023 ONSC 1739

COURT FILE NO.: 067/232, 045/23, 075/23

DATE: 20230315

ONTARIO

SUPERIOR COURT OF JUSTICE

Divisional Court

MAJD KITMITTO, STEVEN VANNATTA, and DONALD ALEXANDER (SANDY) GOSS

Appellants/Moving Parties

– and –

CHIEF EXECUTIVE OFFICER OF THE ONTARIO SECURITIES COMMISSION

Respondent

REASONS ON MOTION FOR A STAY

Schabas J.

Released: March 15, 2023