|
Securities - Enforcement. Ontario Securities Commission v. Cacoeli Asset Management Inc.
In Ontario Securities Commission v. Cacoeli Asset Management Inc. (Ont CA, 2025) the Ontario Court of Appeal considered a Securities Act receivership appointment issue:[8] Section 129(2) of the Act provides that the court shall not make an order appointing a receiver unless it is satisfied that:(a) the appointment of a receiver, receiver and manager, trustee or liquidator of all or any part of the property of the person or company is in the best interests of the creditors of the person or company or of persons or companies any of whose property is in the possession or under the control of the person or company or the security holders of or subscribers to the person or company; or
(b) it is appropriate for the due administration of Ontario securities law. The OSC relied on both subparagraphs in its application for the appointment of a receiver.
(i) Evidentiary Standard
[9] According to the appellants, the appointment of a receiver under s. 129 is a final and powerful remedy that wrests control of a company’s assets and legal rights from management and delivers the power to a receiver. They concede that the OSC is not required to establish a breach of the Act on a balance of probabilities. However, they argue that the statutory scheme - read as a whole and in light of the exceptional nature of a receivership - requires the OSC to establish a strong prima facie case of alleged breaches of the Act for a receiver to be appointed. They rely on jurisprudence that holds that where an injunctive order may effectively provide all the relief sought in a proceeding, the threshold test is higher: Jorshal Enterprises Limited v. J.D.H. Holdings Limited, 2025 ONSC 3216, at para. 17.
[10] We do not accept the underlying premise of this submission. The injunctive relief found in s. 129(1) is a statutory remedy. To understand its scope and effect, it is essential to consider the subsection in the context and scheme of the Act. Subsection 129(8) provides that “[a]n order [appointing a receiver] made under this section may be varied or discharged by the court on motion.” Thus, while an order appointing a receiver is final for the purposes of determining the correct appeal route, it is not final in the sense of being a final adjudication on the merits of the request for a receiver. The Superior Court retains its ongoing supervisory jurisdiction and may vary or discharge the order.
[11] The “serious concern” standard is consonant with the language, context and purpose of s. 129. The ability to seek a receiver is consistent with the OSC’s statutory mandate to pursue timely and effective steps to protect investors and the capital markets (see e.g., ss. 1.1(a) and 2.1 of the Act). A receivership is an important tool available to the OSC while an investigation continues. As the application judge observed, “these applications are often brought while investigations are ongoing, and the Commission seeks to take protective steps in the interim.” Moreover, the appointment of a receiver affords the OSC the opportunity to understand all the circumstances of the respondent issuer. To impose an onerous evidentiary standard for a receivership would impede the public protection mandate of the OSC, as it could potentially make it impossible for the OSC to obtain a receivership at the early stages of an investigation when the facts are not fully known.
[12] The appellants also argue that s.126(5.1) of the Act, which permits the continuation of freeze directions, has specific statutory language that imposes a serious issue to be tried standard (i.e., “if the court is satisfied that the order would be reasonable and expedient in the circumstances”). Given the nature of a receivership order and the absence of specific language, they submit that the legislature intended for a higher evidentiary standard to apply to the appointment of a receiver.
[13] We are not persuaded by this submission and do not accept that the legislature’s expressed intent for a lower standard for the continuation of freeze orders means that a higher standard applies to receivership orders. In any event, s. 126 was amended to provide for a lower standard of proof in response to case law that held that a strong prima facie case was required for the continuation of freeze orders: OSC v. Future Solar, 2015 ONSC 2334, at paras. 16-17, 22. There is no basis to suggest that the legislature intended to impose a strong prima facie standard for receivership orders. . Binance Holdings Limited v. Ontario Securities Commission
In Binance Holdings Limited v. Ontario Securities Commission (Div Court, 2023) the Divisional Court considered a JR against a Capital Markets Tribunal (CMT) decision that it lacked jurisdiction to order the revocation of an "(i)nvestigation Order under s. 144(1) of the Securities Act" (which was initiated "under s. 11(1)(a) of the Securities Act, R.S.O. 1990, c. S.5").
In these quotes, the court considers whether an enforcement 'undertaking', negotiated between the OSC and the JR applicant (and entered into before the CMT investigation order) operated to bar such an order. Under the specific terms of the undertaking in this case it didn't bar statutory orders, but these passages are an interesting illustration of how 'undertakings' in this situation are essentially treated as a settlement contract as an enforcement technique:(1) Whether the Investigation Order and Summons are foreclosed by the Undertaking
[34] Binance describes the Undertaking as a settlement and submits that, due to its terms, the OSC cannot pursue the investigation. In turn, Binance submits as follows:(i) that the Investigation Order is an abuse of process and is also precluded by issue estoppel; and,
(ii) that the monitoring terms of the Undertaking do not permit the investigation. [35] If the Investigation Order should be quashed, as submitted by Binance, the Summons issued under it must also be quashed.
....
[39] Binance submits that it would be manifestly unfair and contrary to the interests of justice to permit the investigation to proceed given the agreement made in the Undertaking. An ample record has been put forward regarding the events surrounding the making of the Undertaking and steps taken under it.
[40] The issues raised by Binance relate to the wording of the Undertaking, and whether or not it precludes the Investigation Order. Binance’s characterization of the Undertaking as a “settlement” does not materially change the analysis. If the Undertaking precludes the Investigation Order, the Order should be quashed in this case.
[41] The Undertaking has an express reservation of rights. In the Undertaking, the OSC and OSC Staff expressly retained “the right to bring enforcement proceedings or seek temporary orders” “for any past, present or future conduct contrary to the Act or the public interest”, with an exception. This reservation of rights is obviously broad. Binance must show that the Investigation Order falls within the exception.
[42] The exception precludes enforcement proceedings or temporary orders “arising from the facts set out …in the ‘Facts’ section” of the Undertaking so long as Binance “remains in compliance with the Undertaking and, has not made any misrepresentations to Staff in respect of the Undertaking”. In addition, the Undertaking provides “for certainty” that the OSC and OSC Staff may bring enforcement proceedings or seek temporary orders for “any breach” of the Undertaking or “any misrepresentation made to OSC Staff” in respect of the Undertaking.
[43] Binance submits that the Investigation Order does arise from the facts set out in the “Facts” section of the Undertaking. Paragraph 1 of the Investigation Order sets out a lengthy series of statements. There is an overlap between those statements and the “Facts” in the Undertaking. However, paragraph 1 must be read in its entirety. It set out a chronology of events and went well beyond the overlap include material matters. Paragraph 1 included, for example, these statements of fact that do not form part of the “Facts” section of the Undertaking:(i) that Binance operated and continues to operate the crypto currency trading platform [website] through which it offers clients the ability to trade in products that include crypto assets, instruments and contracts, described as Security Tokens and Crypto Contracts;
(ii) that Ontarians traded Security Tokens and Crypto Contracts on the Binance trading platform and, since the Undertaking was given, the Binance trading platform continued to have a significant presence in Ontario;
(iii) that Binance had never been registered with the OSC, had no exemption from registration, had not filed a prospectus, and had no exemption from the prospectus requirement; and,
(iv) that on March 27, 2023, the CFTC Complaint was filed again Binance and others, including allegations that Binance and others had taken steps to circumvent U.S. regulatory requirements and relevant compliance controls. [44] Reading the entirety of paragraph 1, along with the entirety of the Undertaking, we do not conclude that the Undertaking precludes the Investigation Order because of the overlap relied upon by Binance. The statements of fact in the Investigation Order go well beyond and include that above serious factual statements, giving rise the investigation.
[45] Further, even that part of the exception to the reservation of rights in the Undertaking did apply, it must be read along with the rest of the exception to the reservation of rights. The exception also does not apply where Binance has made a misrepresentation to Staff in relation to the Undertaking. The Investigation Order includes an allegation that Binance has made misleading statements to the OSC.
[46] Binance submits that this Court should have regard for evidence about the circumstances surrounding the Undertaking in interpreting the Undertaking. That evidence includes, for example, the draft notice of application for a cease trading order and dialogue with OSC Staff. The OSC disagrees. We find, as submitted by the OSC, that the Undertaking is clear and that, in any event, the surrounding circumstances support the OSC’s position on interpretation.
[47] Binance further submits that the reporting requirements in the Undertaking were intended to be comprehensive, precluding any additional monitoring mechanisms such as the Investigation Order or the Summons. Again, the words of Undertaking and its reservation of rights do not support this submission.
[48] The Undertaking contains an express, broad, reservation of rights, under which the OSC retained the right to bring enforcement proceedings for any past, present or future conduct contrary to the Act or the public interest. The exception to that reservation does not apply here. Binance has not shown that the Investigation Order is precluded by the Undertaking, let alone that it is an abuse of process.
....
[50] The Investigation Order will therefore not be quashed. ...
|
