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OSC collects only a fraction of fines it imposes

Lobby of the Ontario Securities Commission on Tuesday, May 8, 2007.

Philip Cheung/philip cheung The Globe and Mail

The Ontario Securities Commission has collected less than 1 per cent of the millions in fines it levels against fraudsters and other securities-law violators after contested hearings.

The country's largest securities regulator revealed the statistics on Wednesday, along with a list of those with outstanding fines dating back to 2005. The agency insists that it goes to great lengths to track down or freeze assets, but that some fraudsters are skilled at hiding what they own.

Since 2005, when it was granted the power to level $1-million fines for each violation of securities law as well as order the return of ill-gotten gains, the OSC has demanded nearly $230-million in sanctions and costs.

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That total includes both penalties agreed to in settlements made with violators to avoid a full hearing before an OSC panel and those won by the OSC after such a fight. Over all, close to half the total amount has actually been collected.

Of the amount agreed to in settlements, about 70 per cent is paid up. For securities violators prosecuted in contested hearings, the OSC has won $73.36-million in fines since 2005. But it has only collected a mere $690,000 – or 0.94 per cent.

"It's a very difficult problem, and first and foremost we wanted to be transparent to the public and show them the difficulty we're having," Tom Atkinson, the OSC's director of enforcement, said in an interview.

He said the list, posted on the OSC's website, may help.

"If we have this sort of name-and-shame list, people may know some of these people, may know where they have assets, and may point them [out]to us. ... I think we should be doing everything we can to collect this money, and this is one more step."

The OSC pledged on Wednesday to get better at collecting this money by looking at how other institutions do it in both in the public and private sectors. It also promised to disclose its collection rates in its annual reports.

Lawyer Kelley McKinnon, former deputy director of OSC enforcement who is now with Gowling Lafleur Henderson LLP in Toronto, said the commission in recent years has started increasing the penalties it demands in settlement talks, without regard to what those facing allegations can afford to pay.

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That may be behind a spike in the number of fines that are agreed to in settlements going unpaid, she said.

"The real deterrent would be if they had a credible recovery system in place so that people who have monetary orders against them know there's a real chance that serious collection efforts will take place," Ms. McKinnon said.

Mr. Atkinson defended the practice of asking for larger fines in settlement talks, saying it was necessary to deter others: "You don't want to waive your penalties because someone comes before you and says 'I've stolen a million dollars from victims, but I've spent it all now, so don't fine me and I just want to walk out of here.' "

And he pointed to the OSC's recent efforts to take fraudsters who repeatedly breach OSC orders to court and impose more and longer jail sentences, which he said are an even better deterrent.

The OSC says the total length of jail sentences it obtained in 2011 was 14.5 years, compared with 195 days in 2010. But Mr. Atkinson said courts would likely not grant jail sentences for unpaid fines.

Many of the individuals and companies on the OSC's list of those with unpaid fines were found by the OSC to be involved in frauds, usually with the illegal sale of questionable securities to often financially unsophisticated victims.

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"They're stealing from church members, widows, orphans, anyone that's within their grasp," Mr. Atkinson said.

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THE NAME-AND-SHAME LIST

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The Ontario Securities Commission has released a list of violators who had failed to pay fines or costs to the securities regulator, as of Dec. 31, 2011. Several have faced and continue to face bans on trading securities, serving as director or officers of public companies, or other sanctions. A sampling of cases with large unpaid fines:

Peter Sabourin, Sabourin and Sun Inc., Sabourin and Sun (BVI) Inc., Sabourin and Sun Group of Companies Inc., Camdeton Trading Ltd. and Camdeton Trading SA.

Up to $33.9-million was invested in schemes sold without registration or a prospectus but promising high returns. But the investments were "a sham and the representations made to investors were lies," an OSC panel ruled.

Amount unpaid: $29.23-million.

Since: June, 2010.

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Sulja Bros. Building Supplies Ltd., Petar Vucicevich, Kore International Management Inc. and Andrew DeVries

The OSC ruled that this case was a "pump and dump scheme," in which the respondents profited by issuing shares inflated by "false press releases."

Amount unpaid: $5.84-million.

Since: June, 2011.

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Ernest Anderson and Golden Gate Funds LP

Settled with the OSC after engaging in the "illegal distribution" of securities and then using the money to make deposits in related companies' bank accounts or payments to other investors.

Amount unpaid: $4.66-million.

Since: October, 2009.

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Limelight Entertainment Inc., Carlos A. Da Silva, David C. Campbell

The OSC ruled that the respondents "preyed on investors with limited resources and financial experience," sold shares without proper registration or a prospectus, used "high-pressure sales tactics," "lied to and misled" OSC staff and breached OSC orders.

Amount unpaid: $2.87-million.

Since: December, 2008.

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Chartcandle Investments Corp., CCI Financial LLC, Chartcandle Inc., PSST Global Corp. and Stephen Michael Chesnowitz

The OSC ruled that Mr. Chesnowitz sought investors and promised to trade stocks with their money, but instead purchased "assets such as cars, trucks, jet skis, snowmobiles and a residential property" and paid off other investors.

Amount unpaid: $2.53-million.

Since: October, 2010.

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Basil M. Toussaint, Michael Gahunia, Global Partners Capital, Asia Pacific Energy Inc., 1666475 Ontario Inc., Kit Ching Pan, Hau Wai Cheung, Alex Pidgeon and Rafique Jiwani

An OSC panel ruled that this "fraudulent" investment scheme "had the characteristic traits of a 'boiler room' operation," with companies "falsely purporting to be engaged in legitimate business," "high-pressure sales tactics, "false and/or misleading" press releases and the transfer of money from investors "to accounts controlled by the respondents or related individuals."

Amount unpaid: $2.19-million.

Since: September, 2011.

Jeff Gray

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About the Author
Toronto City Hall Reporter

Jeff Gray is The Globe and Mail’s Toronto City Hall reporter. He has worked at The Globe since 1998. From 2010 to 2016, he was the law reporter in Report on Business, covering Bay Street law firms and white-collar crime. He won an honourable mention at the National Magazine Awards for investigative journalism in 2010. More

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