An Ontario Securities Commission (OSC) hearing panel has denied a request that it unfreeze the funds of respondents facing enforcement allegations so that they can pay legal expenses and mount a defence, the OSC announced on Wednesday.

Future Solar Developments Inc., Cenith Energy Corporation, Cenith Air Inc., Angel Immigration Inc., and Xundong Qin (also known as Sam Qin) had asked the OSC to vary freeze directions issued in February to free up $250,000 so that they can pay their current and future legal expenses.

The OSC has accused the applicants of securities law violations, including trading without registration and engaging in illegal distribution. Those allegations have not yet been proven.

In May, an Ontario court continued the freeze directions and ruled that it didn’t have jurisdiction to vary them. The applicants then turned to the OSC and brought an application to free up the funds. According to the OSC’s decision, they argued that they need legal counsel to litigate a complex case and that the assistance of counsel is important in ensuring that the OSC properly carries out its mandate.

OSC staff opposed any variation to allow payment of legal fees “on the basis that the primary purpose of obtaining freeze directions is to prevent depletion of assets and to preserve assets for potential recovery by investors,” the decision states. OSC staff argued that releasing investor funds to pay legal expenses is not in the public interest and would be detrimental to the administration of Ontario securities laws and the regulation of the capital markets.

The OSC hearing panel sided with the regulator’s staff, ruling that “[t]he hearing on the merits concerning the allegations against the applicants has not yet begun, and it would be prejudicial to the public interest at this time to vary the freeze directions for payment of legal fees incurred, and to be incurred.”

The frozen funds were obtained from investors and the personal accounts of those involved were not frozen, the OSC hearing panel noted. It also found that although it may be helpful, it’s not essential to have legal counsel to proceed with a regulatory hearing.

“While it is helpful to the applicants, and indeed the commission, to have the assistance of counsel in a proceeding, the commission is still able to carry out its mandate according to law in proceedings with unrepresented respondents,” the OSC hearing panel ruling states. “In my view, the commission is able to preserve the principles of natural justice and fairness even in proceedings with unrepresented respondents. The applicants will have an opportunity to be heard, present evidence and provide full answer and defence to staff’s allegations.”

Investor protection is one of the fundamental purposes of the securities laws, the OSC hearing panel’s decision states, and the funds in question are frozen to help investors recover their money if they were victims of misconduct.

“It would be prejudicial to the public interest in this case to vary the freeze directions to allow for payment of legal expenses incurred, and to be incurred. While there may be circumstances where a variation of a freeze direction may be warranted, this is not such a case,” the hearing panel concludes.