Decision in brief: Stinson, Enforcement Proceeding, Merits, June 27, 2023
Harry Stinson and corporations which he controls and operates raised money to fund a hotel redevelopment project. In this enforcement proceeding, OSC staff says Stinson and the corporations broke Ontario securities law when they did so. OSC staff says that they were required to register with the OSC and file a prospectus (a detailed disclosure document containing information about the investment opportunity), and they did neither of those things. OSC staff also says that when Stinson and the corporations raised the money, they made misleading statements for the purpose of a “trading relationship” with investors, did not follow a Tribunal order that they stop raising money, and did not keep accurate records of the money received from investors.
Before the start of the hearing, OSC staff and the respondents agreed to the facts that the Tribunal should consider in deciding whether Stinson and the corporations broke Ontario securities law, and filed a document listing those facts (an “agreed statement of facts”). The document includes an agreement that Stinson and the corporations broke the Ontario securities laws that OSC staff says that they did. However, the Tribunal decided that this is a legal question that it must decide, whether or not the parties agree.
The Tribunal decided that Stinson and the corporations were not required to be registered with the OSC to sell securities because their purpose of selling securities was to raise money for the hotel project. Their actions showed that they were in the hotel business and not the “business of trading securities.”
The Tribunal decided that Stinson and three of the corporations should have filed a prospectus for securities they sold, and broke Ontario securities law because they did not.
The Tribunal decided that although Stinson and one of the corporations did make misleading statements about certain details of the investment, they did not do so for the purpose of having investors enter into a “trading relationship.” They were not trying to trade for investors or advise investors on their investment decisions.
The Tribunal had previously ordered Stinson and the corporations to stop trading securities related to the hotel project until this proceeding ended. Stinson and one of the corporations said they issued securities after the order but only to existing investors who had a right to the securities. The Tribunal decided that they should not have done so and that they had therefore breached the previous order.
Finally, the respondents did not keep proper and accurate records of the money raised. While this is not a breach of a specific section of Ontario securities law, the Tribunal decided that this conduct failed to meet the expected high standard of business conduct and that it engaged the Tribunal’s authority to protect the public interest.
As a result of this decision, the Tribunal will hold a hearing to decide what sanctions and costs should be ordered against the respondents because of their conduct.