Section 127 of the Securities Act grants to the Capital Markets Tribunal of the Ontario Securities Commission the power to issue a broad range of remedial orders “if in its opinion it is in the public interest” to do so. In this post, we will focus on section 127(1)10, which gives the Tribunal the power to order that a person or company “disgorge” certain amounts. The Divisional Court in Katebian v. Ontario (Securities Commission) recently considered the scope of this remedy.
The appellants in Katebian were father and son who, along with a business associate, acted as directors of a company named Money Gate Mortgage Investment Corporation (“Money Gate”). Money Gate had been incorporated as “an investment vehicle for mortgage financing.” Using funds generated by sales of its preferred shares, Money Gate acted as a “private lender,” committing in its offering memoranda to invest funds in a portfolio of mortgage loans made to borrowers in specific segments of the market. It issued such shares to 150 investors over a nearly three-year period and raised about $11 million.
However, the Ontario Securities Commission alleged that Money Gate and certain other parties breached securities laws concerning the sale of the preferred shares. Ultimately, the Commission found that Money Gate and others had “perpetrated frauds” on Money Gate’s investors and had engaged in unregistered trading and illegal distributions.
After a separate hearing, the Commission imposed various sanctions. Specifically, it ordered the payment of an administrative penalty of $1 million and costs to the Commission on a joint and several basis. They also ordered the appellants to jointly and severally disgorge more than $8.7 million to the Commission.
The appellants appealed the orders of the Commission. They argued that the Commission erred by imposing “demonstrably unfit sanctions relating to the interpretation and application of the disgorgement remedy.”
Section 127(1) of the Securities Act allows for the imposition of both monetary and non-monetary sanctions if, in the opinion of the Tribunal, “it is in the public interest” to do so. The question arises of how to interpret this threshold requirement.
As the Court in Katebian noted, the Commission generally has a “very wide discretion” to “intervene in the public interest” under that section of the Securities Act. This vast discretion, of course, includes imposing sanctions. As the Court stated, the Commission’s “public interest jurisdiction” is “protective and preventive, intended to be exercised to prevent likely future harm to Ontario’s capital markets” (citing Committee for the Equal Treatment of Asbestos Minority Shareholders v. Ontario (Securities Commission)).
The Court in Katebian also discussed what the Commission considers when exercising its power to make public interest orders. Specifically, the Court observed that many factors are weighed by the Commission, with the weight given to “any individual sanctioning factor” varying from case to case and falling entirely within the purview of the Commission. In citing commentary from the Supreme Court of Canada, the Court indicated that no one factor is to be considered in isolation because doing so would alter the evaluation conducted by the Commission. It is at least partly because of this that appeal courts give decisions on sanctions in this context “considerable deference,” interfering only if an error in principle is made or the sanction imposed is “clearly unfit.”
The appellants in Katebian argued that an order for disgorgement, such as the one imposed on them, must be “consistent with the text and legislative purpose” of section 127(1)10 of the Securities Act. Specifically, they argued that such an order must be limited to amounts actually obtained by the sanctioned party “as a result of the non-compliance.” Further, they argued that the order in question had been made without consideration of how the appellants financially benefited and without evidence that any amounts were personally obtained by one of the appellants.
The Court in Katebian stated that the Commission was to be permitted a broad interpretation of section 127(1)10 to permit it “to craft regulatory disgorgement orders tailored to the complexities of each case.” It should be recalled that the Securities Act is “remedial legislation” and should generally be given a broad interpretation.
The Court noted that the disgorgement remedy found in 127(1)10 was broad enough to permit orders requiring disgorgement of amounts “beyond what a wrongdoer obtained personally.” To that end, the Court cited prior case law that supports the notion that such orders do not have to be limited to amounts obtained personally by fraudsters, either directly or indirectly (see North American Financial Group Inc. v. Ontario (Securities Commission)).
It is worth noting that, as the Court itself points out in its decision, the Court of Appeal may soon be providing additional guidance on the scope of the disgorgement remedy.
The Court in Katebian referenced the decision of the Divisional Court in Aziz v. Ontario (Securities Commission, Chief Executive Officer) as supporting the principle that the disgorgement remedy is not confined to what is obtained personally by a wrongdoer. In Aziz, the Divisional Court considered case law from British Columbia that appeared to call into question the permissibility of issuing a disgorgement order on a joint and several basis, because “such an order would require someone to pay an amount that person did not obtain as a result of that person’s contravention” (see Aziz, citing Poonian v. British Columbia Securities Commission).
The Divisional Court in Aziz ultimately rejected that approach, but the Ontario Court of Appeal has granted leave on the issue of the interpretation of the disgorgement remedy. It remains to be seen whether the Court of Appeal decision in Aziz will affect the principles set out in existing caselaw, which supports the Court’s finding in Katebian that the joint and several disgorgement order was not made in error.
Ultimately, the appeal in Katebian was dismissed.
The interpretation of the disgorgement remedy under Ontario’s Securities Act continues to evolve through significant appellate decisions. If you or your organization are facing enforcement proceedings before the Ontario Securities Commission or need guidance on compliance with securities regulations, contact Milosevic & Associates. Our experienced fraud lawyers can advise you on how recent rulings may impact your rights and obligations. To book a confidential consultation, please contact us online or call (416) 916-1387.
© 2025 Milosevic & Associates. All rights reserved. Privacy Policy / Disclaimer. Website designed and managed by Umbrella Legal Marketing