Developer faces almost $9 million in fines and disgorgement for securities fraud

A real estate developer and his company have been hit with almost $9 million in sanctions after Ontario’s Capital Markets Tribunal found they defrauded investors by diverting funds to different uses than promised.

Back in March, the tribunal ruled that Jiubin Feng and his company, CIM International Group Inc. (CIM), perpetrated a securities fraud on investors when they raised $10 million to finance a specific real estate project. However, Feng and his company diverted approximately $3.4 million of that money for other purposes, including unsecured loans to CIM and investments in other real estate projects, the tribunal ruled.

The fraudulent conduct resulted in investors suffering “significant losses,” it found.

Now, the tribunal has handed down sanctions in the case, ordering permanent bans against Feng and his company along with $7.6 million in disgorgement, $500,000 penalties against both Feng and CIM, and more than $200,000 in costs.

“The fraudulent misconduct, its serious nature, and the need to send a message of deterrence, all support permanent market restrictions,” the panel said in its decision. “These restrictions are necessary to protect investors and restore confidence in the capital markets.”

On the issue of disgorgement, Ontario Securities Commission (OSC) staff asked the panel to order $7.6 million — representing the $10 million that was fraudulently raised from investors minus $2.4 million that was repaid to one investor in a settlement with Feng and CIM.

The respondents argued that the amount should be closer to $1 million, representing the $3.4 million that was diverted minus the $2.4 million that was paid back.

The tribunal sided with the OSC, finding that disgorgement should be ordered on the full amount less the settlement, since the funds were obtained “through the specific misrepresentation” about how they would be used.

It was more sympathetic in setting down penalties.

OSC enforcement staff sought $750,000 penalties against both Feng and CIM, but the panel concluded that would be excessive.

“Such amounts may reasonably be viewed as punitive when viewing all of the sanctions globally,” it said, in settling on $500,000 penalties.