An Ontario court upheld the findings of the Ontario Securities Commission (OSC) and the sanctions it imposed against a father and son that, the regulator ruled, violated securities rules by selling shares to finance mortgage lending by their firm, Money Gate Investment Corp.
In 2019, an OSC hearing panel ruled that Morteza Katebian, the former president and CEO of Money Gate, and his son, Payam Katebian, who was the company’s secretary and director, breached securities laws by engaging in fraud, unregistered trading and illegal distribution when they sold preferred shares in Money Gate, raising $11 million from investors to finance mortgage investments.
In 2021, the tribunal handed down sanctions in the case — ordering permanent bans and a combined $1.375 million in penalties against them, and that they jointly pay $8.7 million in disgorgement and almost $600,000 in costs.
The Katebians appealed the rulings on liability and sanctions to the Ontario Superior Court of Justice, arguing, among other things, that they were denied procedural fairness before the commission, which refused their request to adjourn the initial hearing on liability, and in the hearing itself.
On appeal, they asked the court to set aside the commission’s decision on liability, or to order a new hearing — and, to either reduce the sanctions, or order a new hearing on sanctions.
The court rejected the appeal.
In its decision, the court ruled that the OSC “did not deny the appellants procedural fairness by refusing their request to adjourn the commencement of the merits hearing.”
It noted that the commission weighed the reasons cited by the Katebians for a proposed adjournment, including a change in their legal counsel, but concluded that the reasons for the adjournment request were not compelling.
“In summary, the commission did not accept that the appellants had established that the alleged prejudice should, in the context and circumstances of the case, outweigh the public interest in advancing the proceeding expeditiously,” the court said. It added that “the commission did not commit any error in principle in coming to that conclusion.”
It also found that the regulator’s decision on the adjournment request “did not render the merits hearing procedurally unfair.”
“The appellants have not identified any demonstrable resulting prejudice to their ability to make full answer and defence,” the court said.
At the hearing itself, the appellants argued that the commission interfered with their ability to present evidence and to cross-examine prosecution witnesses.
However, the court rejected the appeal here again, saying that there is “no merit” to their submissions on these issues, and that the appellants failed to establish “that there was any procedural unfairness” in the commission’s findings.
“Those findings disclose no error in principle and do not warrant the court’s interference on appeal,” it said.
As for sanctions, the court again upheld the regulator’s ruling.
According to the court’s decision, the appellants focused on the $8.7-million joint disgorgement order, which they argued, “was demonstrably unfit and based on an error in principle since it was made without any differentiation or analysis as to how the individual appellants benefited financially…”
The court ruled that this approach was open to the commission based on the facts of the case, and that the courts have historically declined to interfere with joint disgorgement orders.
As a result, it dismissed the sanctions appeal too.