The Supreme Court of the Bahamas has ruled it doesn’t have the jurisdiction to enforce a $20-million sanction ordered by the Ontario Securities Commission (OSC).
The sanction in question was ordered against investment fund manager Crown Hill Capital Corp. (CHCC) and Wayne Pushka, CHCC’s directing mind and sole shareholder, by the OSC in 2014.
An OSC panel found that CHCC and Pushka breached their fiduciary duty to the Crown Hill Fund through a variety of improper transactions. Pushka was ordered to pay $18.2 million in disgorgement, $1.875 million in penalties and $300,000 in costs. He unsuccessfully appealed the decision, which was upheld by the Ontario Superior Court of Justice.
In 2015, the OSC commenced an action seeking to have its sanctions enforced in the Bahamas.
The OSC alleged that in the time between its initial finding against Pushka in 2013 and its sanction order in 2014, Pushka removed more than $13.5 million from Canada and moved more than $4.5 million to the Bahamas.
Initially, the OSC action in the Bahamas sought to enforce the collection of the $20 million — money to be utilized by the OSC as it “saw fit,” the Bahamian court noted. The court added that the OSC’s statement of claim included an intention to use the money to pay harmed investors, “but clearly no obligation existed to do so.”
In September 2018, OSC staff submitted a recommendation that all funds collected in the Bahamas — save for costs — be allocated to harmed investors.
But the Bahamian court noted that there is “no court order which obliges the OSC to pay harmed investors any of the amounts sought to be collected.”
The court added that the OSC had not alleged or suggested that Pushka engaged in any kind of fraud. The OSC also had “not identified any individuals comprising the ‘harmed investors’ to whom it has been recommended that funds be repaid.”
An expert witness for the OSC also admitted that the recommendation to allocate funds to harmed investors could be changed at a later date, the court noted.
The court added that, according to the OSC’s sanctions decision, some investors actually benefited from the “impugned transactions” for which Pushka had been sanctioned.
“In my view, losses which may or may not have been incurred to third parties were incidental to the decision-making process of the OSC,” in imposing its sanctions, the court found.
The court ultimately ruled that the OSC sanctions were penal in nature, and therefore not enforceable in the Bahamas. It concluded that collecting the sanctions would require “the direct or indirect enforcement of the penal or other public laws of Ontario, Canada.”