Ontario’s Superior Court of Justice has decided that it would be appropriate to order restitution sought by the Ontario Securities Commission in an unusual case. However, the court hasn’t issued an order for restitution pending a possible appeal of the original OSC hearing, and an ongoing bankruptcy proceeding involving one of the respondents.

The OSC applied for an order against Richard Ochnik, 1464210 Ontario Inc., and Village Green Lifestyle Community Corp. seeking a declaration that they have not complied with Ontario securities law, and for an order directing Ochnik and the numbered company to make restitution to TD Waterhouse Canada Inc.

The court notes that this is a novel case in that “there have been few applications brought by the OSC [seeking restitution] and this is the first where the application by the OSC is for a compensation or restitution order in favour of a third party other than the security holders who were the complainants suffering a loss in the first instance.”

At a hearing in March 2006, the OSC found that the respondents had not complied with Ontario securities law and had not acted in the public interest by engaging in a “RRSP/locked-in funds loan scheme”. Ochnik utilized the services of TD Waterhouse in carrying out this scheme, it said. As a result, TD agreed to repay more than $1.1 million to the investors who were hurt in the scheme, under a settlement agreement with the OSC. The commission is now applying to the court for restitution of that money from Ochnik for TD.

The OSC’s original disciplinary decision was appealed to the Divisional Court. In May, the court ruled in favour of the OSC. Today’s decision notes that the respondents have also given notice that they plan to appeal that lower court’s ruling.

However, it also reports that no one has appeared for the respondents at any of these hearings. “Mr. Ochnik wrote a letter to the OSC indicating he would not appear at the present hearing. That letter was forwarded to the Court and has been filed in this proceeding. The letter does not request an adjournment and does not request a stay of the proceeding pending the outcome of the motion for leave to appeal to the Court of Appeal.” Nevertheless, the court concluded that a restitution order should be put on hold pending the outcome of the motion for leave to appeal, and a bankruptcy proceeding that the numbered company is undergoing.

In the meantime, the court granted the declaration that the respondents have not complied with Ontario securities law. “In my view, given the record before the Court, the purposes of the Act are met in the circumstances of the case at hand by granting an order that Mr. Ochnik and 146 are jointly and severally liable to compensate or make restitution to TD-W the amount of $1,128,400.00,” it said, adding, “Fairness to TD-W in the circumstances, together with objectives of general and specific deterrence in respect of persons breaching securities’ law, is achieved through this result.”

However, it adds that any restitution order, “should only be given after consideration as to whether the stay of proceedings under the [Bankruptcy and Insolvency Act] is properly to be lifted, which requires notice to the Trustee with the opportunity to make submissions as to the validity and quantification of the claim. Accordingly, no order shall be made pursuant to this Endorsement until after notice of the Endorsement has been given to the Trustee, Mr. Bell, together with the application by the OSC/TD-W for leave to lift the stay in the bankruptcy proceedings relating to 146.”

Also, it notes if an appeal of the OSC’s original case is ultimately successful, then the reason for the OSC’s application would evapourate. “In the Court’s view, any Order ultimately made consequential to this Endorsement is properly to be held in abeyance and not have force until a determination is made in respect of the leave to appeal motion,” it concludes, noting that both the OSC and TD have agreed to this stipulation.