A proposed class action against the Financial Services Regulatory Authority of Ontario (FSRA) on behalf of investors in the failed Pace Savings and Credit Union Ltd. has been tossed out.
The Ontario Superior Court of Justice granted a motion from FSRA seeking the dismissal of a proposed class action brought by an investor alleging that the regulator failed to provide an offering statement to investors that bought securities in PACE while it was under administration by FSRA — disclosure that would have alerted investors that the securities were a “high-risk” investment.
The proposed action sought damages for investors who faced losses when PACE ultimately went into liquidation.
“The theory of [the investor’s] proposed class action is that … all putative class members, should have, but did not, receive an offering statement when they acquired PACE shares through transfers from other PACE members, and this omission constitutes a misrepresentation,” the court noted.
According to the court’s decision, the plaintiff in the proposed case used his retirement savings to acquire around $350,000 worth of shares in PACE in 2019 through share transfer transactions at his local branch, “based on representations made to him by the PACE employee.”
At the time, the firm was under the administration of regulators. In 2018, PACE was placed under administration by another regulator, DICO — which was amalgamated with FSRA in mid-2019 — amid concerns about “conflicts of interests, breaches of fiduciary duty and a number of regulatory breaches regarding PACE’s management and operations,” the court noted.
While the initial hope was that the firm could be stabilized and return to independent operations, that ultimately proved impossible. It went into liquidation and the business was sold to Alterna Savings and Credit Union Ltd. in mid-2022.
The court noted that, while investors may have a claim against PACE and its former management for misconduct that resulted in its liquidation, the firm and its employees can’t be sued under the terms of the liquidation order.
Instead, leave was granted to bring a proposed claim against FSRA.
However, FSRA sought to have the case dismissed on the basis that “there is no genuine issue for trial,” as it was not required to provide investors with an offering statement.
Among other things, it argued that an offering statement is only required for the initial issuance of the shares from the credit union to a member, but not for transfers between members.
Ultimately, the court sided with the regulator, finding that — unlike securities law, which provides for legal action for disclosure failures in the secondary market — the only basis for action under credit union law is for primary market transactions.
“In sum, based on the record, I find that none of the PACE shares acquired by … the proposed class members during the administration required an offering statement,” it said.
As a result, it determined that there was no genuine issue requiring a trial, and it dismissed the proposed class action.