On September 2, 2014, the Ontario Securities Commission commenced its high-profile hearing in the case of the Sino-Forest Corporation (“SFC“). SFC is alleged to have engaged in widespread fraud relating to its public financial disclosure. The specific allegations involve the fabrication or overestimation of revenue and assets, falsified evidence of ownership, backdated contracts, and undisclosed control over particular customers and suppliers.
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On May 30, 2014, Mr. Justice Richard Danyliuk of the Saskatchewan Queen’s Bench sentenced Ronald Fast to seven years in prison for fraud and ordered him to pay restitution of $16.7 million. Fast’s daughter, Danielle Fast-Carlson, was sentenced to 30 months in prison and ordered to pay $1 million in restitution arising out of the same circumstances.
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Our team has been monitoring some key developments that could soon impact US and Canadian companies that list shares on US exchanges. One of 2014’s most important legal developments is likely to flow from the US Supreme Court’s ruling on “fraud on the market” theory, to be rendered in Halliburton Co. v. Erica P. John Fund Inc. (“Haliburton”). Oral argument in Halliburton took place on March 5, 2014.

In Halliburton, the US Supreme Court has been asked whether “it should overrule or substantially modify the holding in Basic v. Levinson, 485 U.S. 224 (1988) … to the extent that it recognizes a presumption of class-wide reliance derived from the fraud on the market theory.”  The decision in Halliburton is expected to be of importance given that in Amgen Inc. v. Connecticut Retirement Plans, a case decided in early 2013, members of the Supreme Court expressed concern with respect to the fraud on the market theory. 
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The RCMP’s Greater Toronto Area Financial Crime team has arrested and charged six people in an alleged fraudulent investment scheme. The RCMP has reported that the alleged fraud worked by enticing investors to purchase business tax losses valued far in excess of their investments. The companies used by the accused included: Integrated Business Concepts (IBC), Synergy Group 2000, Cason Global Wealth Association (CGWA) and IBCA 2009.
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When a Ponzi scheme collapses, as with musical chairs, there will be some investors with a place to sit, while others are bereft of such comfort. Unlike musical chairs, the first time the music stops for most Ponzi schemes, the majority of the participants are on the losing end.  A recent British Columbia decision in the Bankruptcy of Rashida Abdulrasul Samji explored what happens when some of the fortunate few “winners” in an alleged Ponzi scheme negotiate a resolution with a bankruptcy trustee responsible for making decisions in the best interests of all the creditors of the bankrupt entity at the centre of the alleged scheme. 
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SA Capital Growth Corp. v. Mander Estate dealt with the thorny issue of whether a court-appointed officer, in this case a Receiver appointed to sell the assets of an insolvent entity, had a legal obligation to disclose information that it had obtained to an individual who was facing serious allegations under Ontario’s Securities Act. Justice Pattillo of the Ontario Superior Court decided that a receiver is generally not required to produce the details of its investigations or the documents in its possession to parties that are inside or outside of the receivership. However, since the accused has the right under s. 7 of the Charter of Rights and Freedoms, to make full answer and defence to a criminal allegation, this right entitled him solely to information that is “likely relevant” to the criminal charges against him.

The Ontario Court of Appeal found that it was inappropriate for the Superior Court to make what amounted to an interim procedural order in relation to a proceeding pending before the Ontario Securities Commission (OSC). As a result, it was left for the OSC to decide whether third party production was appropriate.
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In Century Services Inc. v. New World Engineering Corp., the Ontario Superior Court of Justice held that defendants – found liable for having bilked investors out of $20 million – could not claim contribution and indemnity from their lawyers and the lenders in their scheme.  This, despite the fact that the Court concluded that the lenders – and at least a few of the solicitors involved – failed to carry out their due diligence responsibilities.
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