Skip to main content

On Wednesday, Sino-Forest disclosed it had received a second enforcement notice from the OSC.Peter Power/The Globe and Mail

The founder of FactorCorp Financial Inc. made "misleading or untrue statements" while raising $58-million from investors between 2004 and 2007, an Ontario Securities Commission panel has ruled.

Mark Twerdun sold debentures to 700 Ontario investors while wrongly claiming the money would be used to provide short-term financing to low-risk commercial clients. Instead, the OSC said many loans were not short-term, and they were unsecured or had unenforceable security, which meant the loans were far riskier than investors realized.

Marketing materials and company reports provided to investors promised FactorCorp would invest in asset-backed lending, factoring, leasing and similar types of secured, short-term loans with tangible security, the OSC panel said.

But commission staff presented numerous examples during Mr. Twerdun's hearing of investments by FactorCorp that met none of the criteria investors thought were being followed.

In a decision released Monday, OSC commissioner Christopher Portner said one of Mr. Twerdun's financing schemes involved a "shocking dereliction" of duties to investors when FactorCorp loaned a firm $1.7-million to construct two gas stations, even though the loan was "entirely inappropriate, given the loan criteria represented to investors."

The loan was also "totally unsecured and largely undocumented," Mr. Portner said.

During the hearing in 2011, Mr. Twerdun told the OSC it was not his intention to mislead investors and he relied on sublenders to do proper due diligence. Mr. Twerdun also said it was unfair he was being held solely responsible for the lending failures and none of his firm's borrowers have faced regulatory action.

The OSC issued a temporary cease order against the firm in July, 2007, to halt it from raising new funds. A receiver was appointed in October, 2007, to oversee the company and the firm was placed into bankruptcy in 2008.

No penalty has been imposed yet, and the OSC will hold a hearing April 18 to determine sanctions in the case.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe