An Ontario court has denied an appeal of an enforcement decision and sanctions that were handed down by the Ontario Securities Commission (OSC) against the individuals behind a multi-million dollar hedge fund fraud involving investments in Icelandic glaciers.

In its decision dated May 5, the Ontario Superior Court of Justice Divisional Court upheld the commission’s rulings in the case involving Toronto-based hedge fund company Sextant Capital Management Inc. and denied the appeal by three of its former officers, Otto Spork, Konstantinos Ekonomidis, and Natalie Spork.

The three individuals had appealed the decision handed down against them by the OSC in 2011, and the sanctions it ordered in June 2012; and, sought to set aside the OSC’s sanctions order. (See Investment Executive, Glacier fund fraud fines total $1.3 million, June 4, 2012.)

In the decisions under appeal, the OSC found that all three violated securities rules; that Otto Spork perpetrated a fraud; and, that they all breached their duties as investment fund managers, and failed to deal fairly, honestly, and in good faith, contrary to the public interest.

The OSC permanently banned Otto Spork, ordered a 10-year ban on Ekonomidis, imposed a three-year trading and registration ban and a five-year director and officer ban on Natalie Spork; and ordered a total of $1.3 million in administrative penalties, $6.74 million in disgorgement, and $435,000 in costs in the case.

According to the divisional court’s decision, the three appellants in the case sought to question whether the OSC applied the appropriate test for fraud, questioned whether its findings against them were reasonable, and whether the sanctions the OSC imposed were reasonable; among other things.

On appeal, the commission argued that its reasons for finding that Otto Spork perpetrated fraud were justifiable, transparent, and intelligible; and that the intent required to prove fraud was established by the evidence.

The divisional court agreed with the OSC, indicating that, “The appellants’ argument essentially invited this court to re-weigh the evidence and to re-assess the findings of the panel. That is not the function of this court, particularly where the commission has specific expertise it was called upon to apply during the course of its deliberations.”

“I am satisfied that the reasons of the panel provide an adequate explanation of the basis on which the decision was reached,” said Judge Patricia C. Hennessy, in the court’s decision.

The court also ruled that the OSC’s finding of fraud in this case was reasonable. “The evidence supports that Otto Spork knew of his wrongful acts and knew that those acts could have as a consequence the deprivation or risk of deprivation to the investors,” the court said.

On the issue of sanctions, the court says that all of the appellants argued that the sanctions are harsh and excessive; that the disgorgement order was unreasonable; and that the sanctions imposed on Ekonomidis and Natalie Spork are disproportionate to their conduct.

However, the court sided with the commission here again. The court noted that the OSC has a very broad discretion in determining what is in the public interest, and has the power to order sanctions that it deems to be in the public interest. It found that the commission acted reasonably in levelling sanctions in this case, and that its decision on sanctions merits considerable deference. “There is no basis for the appeal of the decision of the commission on sanctions,” the court said.