Ontario’s Capital Markets Tribunal found that a series of real estate development projects involved several instances of securities fraud, but it rejected other allegations brought by the Ontario Securities Commission (OSC).
The tribunal handed down its decision in the OSC’s enforcement proceeding against a trio of companies — Go-To Developments Holdings Inc., Go-To Spadina Adelaide Square Inc. and Furtado Holdings Inc. — and their sole director and officer, Oscar Furtado, which alleged that they breached securities laws when raising capital to finance real estate limited partnerships.
Specifically, the OSC alleged that they defrauded investors, traded securities without registration, made misrepresentations to investors and misled the regulator in its investigation.
In its decision, the tribunal reached a mixed verdict, ruling that the respondents did carry out securities fraud in connection with various projects.
Among other things, it found that investors were defrauded when Furtado failed to tell them about benefits that he received in connection with capital raising activity.
“As a fiduciary of the LP, his failure to disclose this conflict of interest was objectively dishonest and hid a fundamental and essential element of the purchase transaction,” the panel said.
It also found that other instances of securities fraud occurred, including when one of the LPs borrowed money to redeem a particular investor’s units early and when assets from a couple of LPs were used to secure a different project’s obligations.
Additionally, the panel concluded that Furtado made misleading statements to the regulator.
However, the panel dismissed the allegations that they traded securities without registration, that they made prohibited representations to investors and that they acted contrary to the public interest.
“We find the respondents were not in the business of trading in securities,” the tribunal said in its decision — which noted that they were primarily engaged in raising capital for their real estate development projects.
Since they weren’t in the business of trading securities, the respondents didn’t need to be registered and didn’t make prohibited statements to investors about the use of invested funds, the panel concluded.
It also dismissed the separate allegation that they engaged in conduct contrary to the public interest.
The panel ordered that a hearing on sanctions should be held by June 16.