COURT FILE NO.: CV-22-00678422-00CL
DATE: 20220704
SUPERIOR COURT OF JUSTICE – ONTARIO
COMMERCIAL LIST
RE: Ontario Securities Commission, Applicant/Moving Party
AND:
Harpreet Saini, Respondent/Responding Party
BEFORE: C. Gilmore, J.
COUNSEL: Niall Gilks, Counsel for the Applicant
James Camp, Counsel for the Respondent
HEARD: June 16, 2022
ENDORSEMENT on request for continuance
Introduction
[1] This is an application by the Ontario Securities Commission (“OSC”) pursuant to subsection 126(5) of the Securities Act, R.S.O. 1990, c. S.5, as amended (the “Act”), continuing the Freeze Directions issued by the OSC on March 8, 2022. The Freeze Directions froze five TD Direct Investing Accounts owned by the Respondent, Harpreet Saini (“Mr. Saini”). The Freeze Directions were sought on an ex-parte basis as the accounts are alleged to contain the proceeds of crime by trading on Material Non-Public Information (“MNPI”) contrary to s. 76 of the Act. There is over $1M of assets held in the trading accounts.
[2] Mr. Saini objects to any extension of the Freeze Directions. His position is that it is unjust for the OSC to continue the Freeze Directions without providing him with admissible, non-speculative evidence to establish there is a serious issue to be tried as to whether he engaged in insider trading. He submits that the OSC has not satisfactorily explained why it must freeze over $1M in assets on evidence identifying trades which resulted in profits of only $36,860. Mr. Saini asks that the Freeze Directions be dissolved.
[3] For the reasons set out below, the Freeze Directions shall continue, but with some parameters to ensure fairness to Mr. Saini.
Background Facts and the Positions of the Parties
[4] Mr. Anthony Long (“Mr. Long”) is a Senior Forensic Accountant in the Market Abuse Team with the OSC. He was assigned to investigate Mr. Saini and another individual named John Natividad (“Mr. Natividad”). Both work at Intrado, a global communications service that owns GlobeNewswire, a newswire distribution service that specializes in corporate press releases.
[5] On March 7, 2022, Mr. Saini held USD $781,189.98 in four separate U.S. trading accounts at TD Waterhouse. He also had CDN $264,004 in a fifth Canadian trading account.
[6] On March 8, 2022, the OSC Chair Vingoe issued two Freeze Directions over Mr. Saini’s assets held at TD including the trading accounts. The OSC investigations have revealed that between May 1, 2018 and July 31, 2021, Mr. Saini’s trading on the relevant TD accounts was very profitable. The investigation is ongoing. The OSC plans to lay criminal charges in September of 2022 but could not provide firm dates with respect to the length of the investigation.
[7] Mr. Saini submits he has been given no factual or legal basis for the Freeze Directions. The OSC has not filed any evidence regarding the process that culminated in the issuing of the Freeze Directions. Mr. Long refused to answer related questions at his cross examination. There are no written reasons from Chair Vingoe supporting the decision to issue the Freeze Directions. Further, the OSC did not file any evidence of the relevant press releases or headlines, nor did they file any evidence that Mr. Saini could actually view those headlines.
[8] Mr. Saini further submitted that the text message evidence is Mr. Long’s paraphrased double hearsay evidence of texts exchanged between Mr. Saini and Mr. Natividad which suggested that they were accessing MNPI by reviewing the press release headlines. The text messages themselves were not produced.
[9] The OSC submits that certain Intrado employees, including Mr. Saini and Mr. Natividad, could view drafts of press releases prior to their public release by hovering the computer cursors over the headline and thereby see the entire headline but not the entire press release.
[10] Given the above information, Mr. Long obtained search warrants against Mr. Saini and Mr. Natividad. Those search warrants revealed the following (as per the Applicant’s factum):
WhatsApp text messages between the Respondent and Mr. Natividad showed that, between May 15th, 2018, and July 28th, 2021, they discussed MNPI, anticipated price movements of securities following public dissemination of this MNPI, and planned and executed trades based on that MNPI;
An analysis of Mr. Natividad's brokerage records showed that Mr. Natividad did, in fact, trade on the MNPI, as indicated in the messages he exchanged with the Respondent. An analysis of the Respondent's brokerage accounts showed that he also traded in MNPI, as outlined in the messages with Natividad;
The analysis of the Respondent's brokerage records so far has determined that the trading conducted between May 1, 2018 and July 31, 2021 was very profitable, generating an aggregate profit of approximately US $1.1 million during that period;
Mr. Long has identified $781,180.98 USD and $264,004 in the TDI brokerage accounts as of March 7, 2022, which he believes contains funds generated from the Respondent's illegal trading on MNPI.
[11] Mr. Long’s evidence is that he has devoted several hundred hours to this investigation and believes that funds in the TD accounts on March 7, 2022 contain funds from Mr. Saini’s illegal trading on MNPI. On this basis and the further information set out above, the OSC seeks a continuance of the Freeze Direction
Law and Analysis
The Test Under Section 126(5.1) of the [Act](https://www.canlii.org/en/on/laws/stat/rso-1990-c-s5/latest/rso-1990-c-s5.html)
[12] Section 126(5) of the Act requires that once a Freeze Direction has been issued, the OSC must obtain a continuation of that Freeze Direction under s. 126(5.1) of the Act. That Section stipulates that a continuation order may be issued where such an Order is “reasonable and expedient in the circumstances” having regard to the public interest and either a) the due administration of Ontario securities law, or b) the regulation of capital markets in Ontario.
[13] The test for the “reasonable and expedient” standard is set out in OSC v. Future Solar, 2015 ONSC 2334, at para. 31. Future Solar was upheld by the Ontario Court of Appeal in Qin v. Ontario Securities Commission, 2021 ONCA 165. The test, as set out by Justice Pattillo in Future Solar, is as follows:
[31] In summary, in order for the court to continue the Freeze Directions pursuant to s. 126(5) of the Act, based on s. 126(5.1), the Commission must establish:
That there is a serious issue to be tried in respect of the Respondents' breaches of the Securities Act or securities laws in another jurisdiction;
That there is a basis to suspect, suggest or prove a connection between the frozen assets and the conduct at issue; and
That the Freeze Directions are necessary for the due administration of securities laws or the regulation of capital markets, in Ontario or elsewhere.
[14] The reasonable and expedient standard is a low one, which does not reach the threshold of a balance of probabilities. Counsel for the OSC likened it to a vexatious litigant standard.
[15] This low standard has been adopted in British Columbia as set out in Dunn v. British Columbia (Securities Commission), 2022 BCCA 132, at para. 57:
[57] For reasons similar to those articulated in Party A, I am of the view that, in order to assess the public interest, the Commission is required to consider whether there is some evidence before it that raises a serious question that the breaches of the Act alleged in the notice of hearing may lead to financial consequences against the asset owner by way of monetary claims or penalties under the Act. Here, as in Party A, the evidentiary standard remains low and flexible, and will not unduly constrain the Commission…
[16] In Qin¸ the Ontario Court of Appeal called the approach to assess the first part of the three-part test is “a preliminary assessment of the merits of the allegations” as set out below at para. 24:
[24] In considering whether there was a serious issue to be tried concerning the merits of the allegations made against the appellants, Pattillo J. indicated he would not assess the merits of the exculpatory material placed before the court on the motion: OSC v. Future Solar, 2015 ONSC 2334, at paras. 36-37. The approach taken by Pattillo J. reflects the preliminary nature of his assessment of the merits of the allegations. The matter was still in the investigative stage.
[17] Given all of the above, I find that the threshold for the test to be met to continue the Freeze Directions is a low one and that there is sufficient evidence, as set out below, to meet the three-part test set out in Future Solar.
The Nature of the Evidence Required to Meet the Test
[18] Mr. Saini has made a number of complaints about the nature of the evidence available to the Court to determine whether the Freeze Directions should be continued. They may be summarized as follows:
a. The Court has not been provided with the material that was before Chair Vingoe or the OSC with respect to the initial ex-parte Order. It is a matter of fundamental fairness to Mr. Saini that he is able to understand what was before the previous decision maker and that procedural fairness was observed in the making of the decision. It is also in the public interest to ensure such processes are fair.
b. There is no evidence as to why the investigation was commenced nor is there evidence of the method by which Mr. Saini was alleged to have been able to access headlines in order to gain MNPI. There is no evidence that the headlines contained MNPI. Further, even if the headlines contained MNPI, there is no evidence that Mr. Saini used this MNPI to trade.
c. There is no direct evidence of the texts upon which the OSC relies, only hearsay summaries from Mr. Long.
d. There is no evidence as to what funds are alleged to have been part of the MNPI trading especially since there were no Canadian funds in the accounts as of July 31, 2021.
e. Although the standard may be low, the evidence must still rise to a level above speculation and suspicion. For example, Mr. Long’s evidence was that Mr. Saini made $1.1M USD in profit but there is no specific or admissible evidence to connect this to illegal insider trading. Mr. Saini’s evidence is that the bulk of the profit was made from one trade which resulted in a profit of $32k USD.
f. Mr. Natividad was trading at the same time as Mr. Saini yet no Freeze Direction was issued against him. He had minimal amounts in his accounts as of the commencement of the investigation.
[19] In response to the issues raised by Mr. Saini, I infer that the OSC would not conduct a lengthy investigation, consider criminal charges or obtain an ex-parte Freezing Direction unless there was some evidence of insider trading. Further, Mr. Long, in his affidavit material, confirms that Mr. Saini could view the headlines of the Press Releases as he discussed this with Mr. Natividad in text messages.
[20] Qin is instructive with respect to the evidentiary standard required to continue a Freeze Direction. In Qin the Court considered what Justice Pattillo decided in Future Solar to assist in its determination as to whether issue estoppel applied in relation to the Appellant’s appeal of a decision to strike their claim against the OSC.
[21] The Court in Qin referred to the decision in Future Solar, at paras. 19- 20, as follows:
[19] …Pattillo J. concluded, at para. 31, that the OSC had to establish three things to obtain an order continuing the freeze order. Only the first of those three requirements are relevant here. He framed that requirement in these terms:
There is a serious issue to be tried in respect of the respondents' breaches of the Act or other security laws in another jurisdiction.
[20] This requirement speaks to some assessment of the merits of the allegations, but only in a very limited way. Just how limited is made clear by Pattillo J., at para. 28, where he describes the "serious issue to be tried" standard as:
A lesser standard than the requirement to establish a strong prima facie case or even a prima facie case.
[22] Qin described Justice Pattillo’s approach on the test as “a relatively narrow evidentiary focus”: at para. 25 The Court went on to make it clear that Justice Pattillo correctly declined to engage in an exercise of considering the merits of the exculpatory information the appellants had provided to the OSC: at para. 26.
[23] I find that in accordance with the findings in Future Solar and Qin, it is not necessary for this Court to determine that the OSC had any form of reasonable or probable grounds to commence proceedings against Mr. Saini. The evidentiary standard is clearly a low one which does not require the establishment of a prima facie case.
[24] Therefore, at this stage of proceedings, the OSC is not required to provide full disclosure of all of the evidence it relied upon to obtain its ex-parte Order. Doing so would convert this continuance hearing to a hearing on the merits which is not the form of review contemplated by s. 125(5.1).
[25] The public must have confidence in both the markets and the system which regulates the markets. In Party A v. British Columbia (Securities Commission), 2021 BCCA 358, the Court discussed what factors were relevant in assessing the public interest mandate of the B.C. Securities Commission: at para. 180. The objectives in the B.C. Act are similar to those of the Ontario Act and are set out as: 1) protection of the investing public (as a primary goal); 2) capital market efficiency; and 3) ensuring public confidence in the system.
[26] Given that the entire matter remains at the investigative stage, I find that the investing public would be protected by the continuance of the Freeze Directions. The allegations against Mr. Saini are serious and there is some evidence that he may have engaged in the behaviour complained of by the OSC. As for public confidence in the system, it would be difficult to maintain such confidence if all the funds were unfrozen only to discover that the Mr. Saini had engaged in illegal insider trading but that his profit (no matter the amount) had been entirely dissipated.
[27] Further, there is no evidence of hardship to Mr. Saini or any third parties as a result of the Freeze Directions. Public confidence would be eroded if the OSC was unable to preserve funds from what is alleged to be illegal insider trading while investigating the allegations.
[28] In summary, therefore, I find that the low evidentiary threshold has been met in this case and that the Freezing Directions should continue. Given that the OSC had only estimates of when they will be in a position to lay criminal charges, some direction is required with respect to ensuring the matter does not languish.
Orders and Costs
[29] Given all of the above, I make the following Orders:
a. The Freezing Directions shall continue as per the directions below:
i. The Freezing Directions shall remain in place until the earlier of:
October 31, 2022;
The conclusion of any criminal proceedings including any sentencing hearing; or
A termination of the investigation by the OSC.
ii. The OSC may apply for a further extension to the Freezing Directions prior to October 31, 2022 with a clear plan to be put before the Court as to the timing of all next steps.
b. No party requested costs in relation to this hearing.
C. Gilmore, J.
Date: July 4, 2022