OSC rebuffs application to adopt proposed rules for the exempt market

An OSC panel, consisting of commissioners Jack Geller and Robert Davis, has rejected an application by David McIntyre, a partner with Osler Hoskin & Harcourt and a director of online investment dealer Baystreetdirect.com. McIntyre was seeking an exemption from both the registration and the prospectus requirements of the Ontario Securities Act, allowing him to be treated as a “sophisticated investor”.

McIntyre sought the exemption as a “test case” to allow him, and others in similar circumstances, to be treated as sophisticated investors so they could make exempt market investments in startups through Baystreetdirect. The current test in Ontario is simply that the investment must be more than $150,000. The OSC has proposed rules that would see the exempt market overhauled, including moving the test for sophistication to $200,000 in annual income.

McIntyre argued for the exemption on the basis that he made $200,000 in each of the last two years and the assertion that the commission should apply the same test as the regulators in the United States. for determining accredited investors. As the OSC decision stated, “In effect, Mr. McIntyre asked us to craft a new general exemption from the registration and prospectus requirements of the Act, based on exemptions available in the United States.”

The OSC says that if this sort of exemption is going to be established it should be through rule making, rather than establishing precedent with the commission. It says that although rules that would have the effect of creating this new exemption have been proposed, there is no guarantee that they will be enacted.

“Mr. McIntyre has not satisfied us that, because he had income of over $200,000 in each of the last two years and expects to have similar income this year, he is such a ‘sophisticated investor’,” says the panel, adding rather wryly, “In our view, the fact that Mr. McIntyre is an experienced securities lawyer does not assist us in determining whether he is a ‘sophisticated investor’. The two are not necessarily the same thing.”