Ontario’s Capital Markets Tribunal permanently banned real estate developers and ordered more than $14 million in sanctions for illegally distributing securities to raise financing for a hotel project.
Previously, the regulatory hearing panel found that developer Harry Stinson and five other companies breached securities law when they raised millions from investors to invest in a hotel development project, Buffalo Grand Hotel, without issuing a prospectus. It also found that they failed to segregate investor funds, didn’t keep proper track of that money, and breached a cease-trade order.
However, the panel also dismissed other allegations brought by staff of the Ontario Securities Commission (OSC).
Now, the tribunal has issued sanctions in the case, including permanent bans against Stinson and the companies (with a carve-out for Stinson to remain as an officer and director of his real estate brokerage).
It also ordered that they disgorge the amounts illegally raised from investors ($13.2 million and US$364,000), a $600,000 penalty, and that they pay costs of $166,000.
OSC staff sought a $1-million penalty and $316,000 in costs, along with the disgorgement and market bans. The respondents argued for a $100,000 penalty and much lower costs.
The tribunal partly agreed with the respondents, imposing lesser penalties and cost orders.
The panel noted that OSC staff failed to prove some of its initial allegations and that the respondents cooperated, avoiding lengthier and more expensive proceedings.
According to the decision, the respondents sought lesser sanctions, arguing that their misconduct amounted to negligence: investors weren’t defrauded, they raised the money for a legitimate project, and there was no intent to deceive investors.
However, the panel concluded that the misconduct went beyond negligence, particularly given a previous run-in with regulators that should have alerted Stinson to the need to adhere to securities laws when raising money for a project.
The panel said it agreed with OSC staff that Stinson and the corporate respondents “simply should have known better, given Stinson’s previous settlement with the commission involving a breach of the prospectus requirements.”
The ruling said Stinson “was certainly aware of the prospectus requirements” and the breach was “the result of either a clear disregard for, or a reckless indifference to” those requirements.
As a result, the panel ordered that the full amounts raised from investors be disgorged.
However, it set penalties below the $1-million sought by OSC staff because investors weren’t defrauded, Stinson didn’t benefit from the misconduct and he was cooperative and remorseful.