Ontario court sides with OSC on Gong evidence

An Ontario court has tossed a challenge to a Capital Markets Tribunal decision that was in favour of the Ontario Securities Commission (OSC) and against accused fraudster and fringe Toronto mayoral candidate Xiao Hua (Edward) Gong.

The Superior Court of Justice granted a motion brought by the OSC seeking to quash Gong’s appeal of a tribunal decision from Feb. 3, which found that the regulator can use evidence in its enforcement proceeding against him that was also used in a criminal case against him, because the OSC obtained that evidence through its own investigation.

Following an investigation by the OSC, Gong and his company, Edward Enterprise International Group Inc., were charged with carrying out a pyramid scheme that the regulator said ensnared 40,000 investors and hundreds of millions of dollars.

“The scheme involved the issuance of worthless and forged share certificates for a defunct corporation in exchange for the payment of approximately $1,000,” the OSC said in its allegations against Gong.

In 2021, Gong pled guilty on behalf of Edward Group, but the charges against him personally were withdrawn by the Crown. The company was convicted of using forged documents and charges related to operating a pyramid scheme.

The court fined the company $756,000, imposed a victim surcharge of $229,500, and ordered the forfeiture of certain property to the Crown and the release of $14.9 million to the Canada Revenue Agency.

In 2022 the OSC brought a regulatory enforcement case against Gong, alleging he violated securities law due to his role in the company’s pyramid scheme. Among other things, it alleged he engaged in unregistered trading and securities fraud, and that Edward Group’s convictions provide a basis for regulatory sanctions against him personally.

“Gong was the sole directing and controlling mind of the Edward Group at the time it committed serious criminal offences and is a party to those offences,” the OSC said in its allegations against him. “The nature of these offences demonstrates that Gong poses an ongoing risk to investors and the integrity of Ontario’s capital markets.”

Those allegations have not been proven.

Before the regulatory proceeding began, Gong brought a motion last November to challenge the OSC’s ability to use evidence that was also used in the criminal case against him in its regulatory action, arguing that it had to obtain a court order or consent from the attorney general before it could use the evidence.

However, the tribunal rejected that argument, finding that the need to obtain consent didn’t apply to evidence that it uncovered in its own investigation. Situations that require court approval or consent involve evidence collected by police, it found.

Gong sought to appeal that ruling to the court, and the OSC brought a motion to quash that appeal on the basis that it was premature.

The court has now sided with the OSC, ruling that it is premature to hear an appeal of a tribunal decision on the use of evidence before the regulatory proceeding has been completed.

“No merits hearing has been held,” the court said in its ruling. “The decision is not a final decision because it does not dispose of a defence or right that, if upheld, would have finally disposed of the proceeding against [Gong]. Because the decision at issue is not final, the appeal is premature and this court lacks jurisdiction to hear it.”

A hearing before the tribunal on a motion from Gong seeking a stay of the OSC’s proceeding against him was slated for May 30, but it didn’t go ahead as scheduled.

In the meantime, the mayoral election in Toronto, where Gong is running as part of a 100+ candidate field, takes place on June 26.