Decision in brief: Solar Income Fund Inc., Enforcement Proceeding, Sanctions and Costs Hearing, January 11, 2023
In an earlier decision, the Tribunal decided that Solar Income Fund Inc., and three people who ran that business, Allan Grossman, Charles Mazzacato and Kenneth Kadonoff, had committed fraud totaling $234,864.04. Money that investors had put into one fund had been improperly used to pay returns to investors in a different fund, and to pay fees charged by dealers who were selling units of the second fund. These two uses of the invested funds were not allowed by the offering memorandum, which was the document that was given or available to investors in the fund to tell them how their money would be used.
In this decision, the Tribunal decided what sanctions and costs should be ordered against the company and the three individuals because of their conduct.
The Tribunal ordered that the company and Grossman share responsibility to disgorge, pay to the Commission, the full amount of the fraud. Kadonoff shared responsibility for just under one quarter of that amount, because he was involved for a shorter time. Mazzacato would have shared responsibility with the company and Grossman, but the Tribunal made an exception because of Mazzacato’s financial situation, and his financial and other obligations to a dependent. As a result, he did not have to pay back any part of the fraud.
The Tribunal decided that lower administrative penalties than those that OSC staff requested were appropriate given the circumstances of the fraud. While fraud is always serious, the size of the fraud in this case was not large, relatively speaking. Also, the fraud was one part of a legitimate business, and was not large compared to the size of the business. The company and the individuals benefited indirectly but not directly, and they co-operated fully with OSC staff’s investigation. However, they were experienced and senior businesspeople, and they should have known better than to commit the fraud. The Tribunal ordered the company and Grossman to pay $175,000 each, Kadonoff to pay $125,000, and Mazzacato to pay $1,000.
The company and individuals agreed with OSC staff’s request that they be banned permanently from participating in the capital markets, but the individuals asked for limited exceptions so that they could continue to be involved with their family companies. The Tribunal gave Mazzacato the exception he requested. The Tribunal delayed Kadonoff’s bans for thirty days to let him make arrangements for his family company. After that, and after he pays the financial sanctions mentioned above and the costs mentioned below, he is allowed to continue his positions in his family companies. Grossman did not provide enough information to support the Tribunal making an exception for him.
The Tribunal allowed Mazzacato, Grossman and Kadonoff to conduct limited trading in registered accounts for themselves or their families. In the case of Grossman and Kadonoff, that exception would apply only after they had paid their financial sanctions and costs.
Finally, the Tribunal dealt with costs. Primarily because OSC staff was successful in proving only part of its case, the Tribunal disagreed with OSC staff’s request for more than $367,000, to go towards the costs of the OSC’s investigation and this proceeding. Instead, the Tribunal ordered that Solar Income Fund Inc. pay $37,500, and that Grossman and Kadonoff share responsibility for payment of that amount. Each of Grossman and Kadonoff is also responsible to pay an additional $37,500. The Tribunal made no costs order against Mazzacato.