Tribunal allows Gong to seek stay of OSC case

Former Toronto mayoral candidate Xiao Hua (Edward) Gong will be allowed to pursue a motion seeking to stay the Ontario Securities Commission’s (OSC) enforcement proceeding against him, after Ontario’s Capital Markets Tribunal ruled the regulator’s staff failed to establish that his motion is doomed.

Back in 2017, Gong and his company Edward Enterprise International Group Inc. were criminally charged with fraud and other offences in connection with an alleged pyramid scheme. In 2021, the company pleaded guilty to certain offences but the charges against Gong were withdrawn as part of that resolution.

In June 2022, the OSC brought its own securities fraud allegations against Gong for his role in the company’s misconduct.

Gong then filed a motion at the tribunal alleging abuse of process by the regulator, and seeking a stay of the OSC’s proceedings against him.

According to the panel’s ruling, Gong’s basis for a stay include his claim that OSC staff failed to adequately protect privileged documents that were obtained during the criminal investigation; that it was seeking to circumvent the outcome of the criminal case to punish Gong directly; and that it breached his privacy rights by sharing information obtained from authorities in New Zealand with Chinese authorities and cooperating with Chinese authorities.

“This collaboration included notifying Chinese authorities that Gong was potentially in China when he was subject to the death penalty, providing incriminating information to China about uninvolved third parties thereby placing them at risk, and collecting evidence in a manner that, if obtained in Canada by similar means, would be rejected under the Charter of Rights and Freedoms,” the tribunal noted.

None of those claims have been proven.

OSC staff brought its own motion seeking a summary dismissal of Gong’s bid for a stay.

However, the tribunal rejected the regulator’s motion, finding that OSC staff did not meet its burden of establishing Gong’s motion for a stay “has no reasonable prospect of success.”

In particular, the tribunal said the regulator’s alleged breach of privilege may enable Gong to make a “tenable case” for a stay.

“Staff has failed to satisfy us there is no reasonable prospect that a stay is warranted in this case even though the privilege breach may not create unfairness in this enforcement proceeding against Gong,” the tribunal said in its decision.

“The argument that the tribunal must dissociate itself from the significant breach of privilege that occurred in this case to avoid the impression that the justice system condones such breaches has a reasonable prospect of success,” it found.

As a result, the tribunal dismissed the OSC’s motion to quash Gong’s stay motion, clearing the way for his motion to be considered at a future tribunal hearing.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.