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OFFENCES AND ENFORCEMENT - Commission orders in the public interest - Powers of Commission - Disgorgement

Monday, July 10, 2017 @ 11:41 AM  

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Appeals by the defendants from disgorgement orders made against them by the Securities Commission under s. 161(1)(g) of the Securities Act (Act). The Commission found that the Poonians and the Sihotas contravened the market manipulation provision of the Act and that Lathigee and Pasquill committed fraud through fraudulent offerings. The Commission found as a fact that Lathigee and Pasquill had jointly directed and controlled the relevant corporate entities that obtained the money. The Commission ordered the appellants to disgorge the profits on a joint and several basis. The appellants argued that s. 161(1)(g) of the Act did not permit the Commission to make joint and several orders and that the provision required the Commission to establish that the person against whom the order was made in fact obtained the amount ordered to be disgorged. The appellants argued they received less than the ordered amount.

HELD: Appeal by Lathigee and Pasquill dismissed. Appeals by the Poonians and the Sihotas allowed. The purpose of s. 161(1)(g) was to compel a wrongdoer to give up any ill-gotten amounts. Section 161(1)(g) was not profit-driven and did not require the amount obtained to be profit or that there be a deduction of expenses, costs, or amounts paid to the Commission by other persons. The ordinary grammatical reading of s. 161(1)(g) was that the amount obtained was the amount obtained by the person who failed to comply or committed the contravention, and the provision captured amounts so obtained, directly or indirectly. Respondents could not be held jointly and severally liable for a s. 161(1)(g) order purely on the basis they acted in concert with the common purpose of breaching the Act. Acting jointly was not synonymous with obtaining amounts, directly or indirectly. Having direction and control over another respondent or entity could, however, constitute indirect obtainment. The Commission did not err in finding that the “amount obtained” was the aggregate net trading gain in the accounts of the Poonians, the Sihotas, and certain Secondary Participants. Although the Commission made findings as to the degrees of involvement of each of the Poonians and Sihotas, it made no finding that each of these appellants obtained amounts personally. The Commission also did not make any finding as to the existence or degree of direction and control required for a finding as to whether any individual indirectly obtained an amount. The Commission was required to determine whether amounts in these other persons’ accounts were, effectively, obtained indirectly by one or more of the appellants in that one or all of the appellants had control and direction over those accounts. The disgorgement order was properly made jointly and severally against Lathigee and Pasquill as the Commission found that each of Lathigee and Pasquill had obtained the offering amount, although indirectly through certain corporate entities they directed and controlled. Lathigee and Pasquill and their corporate entities were effectively one person. On that basis, it was appropriate and within the scope of s. 161(1)(g) to make the joint and several order for the full offering amount.

Poonian v. British Columbia Securities Commission, [2017] B.C.J. No. 1029, British Columbia Court of Appeal, M.E. Saunders, A.W. MacKenzie and G.J. Fitch JJ.A., May 31, 2017. Digest No. TLD-July102017003