Tribunal stays OSC fraud case

By James Langton | November 14, 2023 | Last updated on November 14, 2023
3 min read

Ontario’s Capital Markets Tribunal has stayed an enforcement action alleging fraud in the cannabis sector after finding that one of the respondents in the case couldn’t get a fair hearing without access to evidence that was ordered to remain confidential in an earlier ruling from the Ontario Securities Commission (OSC).

In 2019, the OSC brought an enforcement action against three men — Silvio Serrano, Benjamin Ward and Peter Strang — and their companies, Canada Cannabis Corp. and Canadian Cannabis Corp. (CCC). The regulator alleged that they violated securities law by raising $3.2 million and US$8.8 million from investors, ostensibly to develop CCC’s operations, but that they allegedly “siphoned off more than $3 million” from the company.

Their conduct amounted to fraud and violated the public interest, the regulator alleged.

In 2022, the allegations against Ward and the corporate respondents in the case were settled. In that settlement, the companies agreed to be permanently cease-traded, while Ward was banned for six years and agreed to pay $10,000 in costs.

Now, the case against Serrano has been stayed after the regulatory tribunal held hearings on a motion from Serrano seeking an order that the OSC be required to disclose unredacted transcripts of a compelled interview with Ward that took place in 2018.

Those transcripts were ordered to be redacted in 2020 by an order from then-OSC vice chair Grant Vingoe, who is now CEO of the OSC.

At the time, Vingoe ruled that certain portions of the transcripts should be redacted — and that the order itself, its reasons and all of the materials filed in connection with the order should also be kept confidential.

When the OSC disclosed its evidence to the defence in the case, Serrano was provided with a redacted version of the transcripts of Ward’s interview. He then brought a motion seeking the unredacted transcripts.

However, the tribunal has now concluded that the information covered in those redactions must be kept secret. At the same time, that information would be important to Serrano in mounting a defence of the allegations against him.

As a result, it ruled that it would be an abuse of process to proceed with the hearing against Serrano without the prohibited disclosure, so it ordered the case stayed.

“In this case, we are satisfied there is a reasonable possibility that the non-disclosure of many of the redactions in the Ward transcripts will significantly impair the right of the respondents to make full answer and defence,” the panel said in its reasons.

“The respondents could reasonably use the redacted information in making important decisions that would affect the conduct of their defence,” it said.

Yet, the earlier order clearly prohibits disclosure of the redacted portions of the transcripts, and the tribunal found that the original reasons for ordering the redactions haven’t changed.

“No new material facts have come to light that would undermine the vice-chair’s reasoning or the conclusion he reached,” the panel said.

While OSC staff could have dropped the case, given the evidence disclosure problem, the tribunal noted that it “remains steadfast in its intention to proceed against the remaining respondents.”

As a result, it concluded that it had to take the extraordinary step of staying the proceedings against Serrano.

“We appreciate that a stay of a proceeding is a most drastic remedy of last resort and that the public has a great interest in having serious allegations determined on the merits. However, requiring Serrano to proceed without disclosure of the redacted material would cause him actual prejudice,” it said.

“The ongoing unfairness to Serrano justifies a stay of the proceeding against him,” it concluded.

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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.