The Ontario Securities Commission (OSC) has settled with two Ontario men who illegally distributed securities when they raised almost $12 million from investors in the form of promissory notes to fund a business operating ATMs.
The OSC said Wednesday that it had settled with Newer Technologies Ltd. (NTL), the company’s president, Ryan Pickering, and a man who helped raise funds for the firm, Rodger Frey, amid allegations that they illegally distributed securities when they raised $11.9 million from approximately 140 investors for NTL between 2006 and 2010.
The investments took the form of promissory notes at interest rates ranging between 8% and 15%, which were primarily sold to investors that were found through family and friends. The OSC said that the sale of those notes amounted to trades in securities and distributions of unqualified securities, as there was no prospectus issued by the firm.
The respondents have never been registered with the commission, and exemptions were not available for most of the trades, it said. Indeed, the settlements note that they had no experience in the securities industry, and didn’t know that securities laws could apply to loans, or that their conduct was contrary to securities law. It says that they have fully cooperated with the OSC’s investigation, and that the firm also hasn’t raised any more money since the OSC began its investigation.
In settling the allegations, they admitted to violating securities laws and engaging in conduct contrary to the public interest.
According to the settlements, almost $6.9 million has already been repaid to investors in principal and interest. As of July 10, NTL had $5,076,000 in outstanding loans owing to 61 lenders, and it has never defaulted on a loan. To settle the OSC’s charges, the firm has agreed to repay all of the lenders who do not qualify for any registration/prospectus exemptions, which amounts to 49 lenders and $2.26 million in outstanding notes.
The remaining $2.8 million is due to 12 lenders who would qualify as accredited investors. However, the commission notes that the investments are unsuitable for 10 of those lenders. All of these investors have been offered the opportunity to be repaid, the settlement indicates; yet, despite the lack of suitability, they want to remain invested, and have signed risk acknowledgements reflecting that decision.
In addition to agreeing to repay the outstanding unqualified investments, NTL and Pickering agreed to cease trading for a year; Pickering is prohibited from acting as a director or officer and from registration for one year; they must also pay costs of $25,000. Frey was permanently banned and ordered to pay $5,000 in costs.