Decision in brief: Nvest Canada Inc, Enforcement Proceeding, Merits and Sanctions, November 1, 2024

In this enforcement proceeding, the OSC says that Shorupan Pirakaspathy, Warren Carson, and their companies, Nvest Canada Inc. and GX Technology Group Inc., traded and sold digital tokens that met the definition of securities in Ontario. They did so without being registered with the OSC and without filing a prospectus (a document that provides information about the investment). The OSC also says that the respondents sold shares without filing a prospectus.

Because of their conduct, the OSC says that the respondents should be permanently banned from participating in Ontario’s capital markets, that they each pay an administrative penalty of $500,000, that they jointly disgorge (give up) to the OSC $293,493.19 and that they jointly pay costs to the OSC of $306,487.60.

The Tribunal decided that the direct sale of the tokens, when considered together with the information given to investors about the offer and sale of tokens, met the definition of securities in Ontario. This was because the whole scheme was an “investment contract”, one type of security. Pirakaspathy and his companies had to register before trading the tokens, which they did not do. Carson was also considered responsible for the companies’ failure to register. The respondents failed to file the required prospectus before trading the tokens.

The Tribunal also decided that the respondents failed to file the required prospectus before selling shares in Nvest Canada Inc. However, a prospectus was not required for the sale of the shares in GX Technology Group Inc. because the OSC did not prove that it was the first time those shares were being sold to the public. The Tribunal went on to decide what sanctions and costs were appropriate. It had previously decided that the merits and sanctions and costs hearings should be combined because the respondents had not been participating in the proceeding.

As a result of their conduct, the Tribunal decided that the respondents should be banned from participating in Ontario’s capital markets for a period of ten years and should each pay an administrative penalty of $200,000. Although the length of the ban and the amount of the administrative penalty are less than what the OSC asked for, they are consistent with other Tribunal decisions involving failures to register and to file a prospectus and the seriousness of the conduct, which did not include fraud. The respondents should also jointly disgorge $293,493.19, which is the amount they obtained as a result of their breaches of Ontario securities law. Lastly, the respondents must jointly pay costs of $162,390.10 to the OSC, which is a fair and proportional amount in the circumstances of this proceeding.