The British Columbia Securities Commission (BCSC) has sanctioned a Vancouver man, and his company, for violating securities rules by referring investors to dealers without registration, or an exemption. Although the company qualified for an exemption, its principal never bothered to file the required paperwork.
Following a hearing, a regulatory panel ordered Michael Duane Onstad and his company, LOC Consultants Inc., to pay a combined $100,000 after finding that they breached securities rules by referring investors to a couple of registered dealers to purchase flow-through shares — actions that generally require registration.
Those investors bought a total of $7.6 million worth of shares through the dealers, which generated $240,000 in referral fees for Onstad and LOC, the panel noted.
According to the panel, while neither Onstad, nor his company, were registered, LOC qualified for a registration exemption (the Northwest exemption) — but, it never filed the required documentation about those referrals, despite repeated communications from the regulator about the need to make those filings.
As a result, the firm breached securities rules, and Onstad was responsible for that breach, the panel said.
“While the breach in this case involved trading without registration, the conduct could have been brought into compliance… if the respondents had filed the necessary documentation in order to take the benefit of the Northwest exemption,” it said.
The panel also noted that there is no evidence that investors were harmed by the breach, and that the investors were all referred to registered dealers, which meant they benefited from investor protections.
In addition to the monetary penalty, the pair were also banned for four years.
The panel concluded that permanent bans weren’t justified in the case, saying, “While the failure of the respondents to take steps to gain a registration exemption after having been told to do so is an aggravating factor, this case still remains less serious than those where permanent bans have been ordered.”
It also declined to order disgorgement in the case, noting that it’s significantly different from cases that involve fraud, or misleading investors. In this case, the investors were referred to regulated dealers, the investors were accredited and they didn’t lose money, and the referral fees were typically disclosed, the panel noted.
“Issuing a disgorgement order in this case where the contravention was trading without registration, where an exemption was available if the proper documentation was filed, would be disproportionate and punitive,” it said.
The company and Onstad didn’t participate in the regulator’s hearing.