Ontario’s Capital Markets Tribunal rejected a proposal from respondents in an enforcement proceeding who sought relief from financial sanctions imposed on them — ostensibly in the hope of pursuing a plan to recover money for investors.
In late 2023, the tribunal ordered a series of sanctions against Harry Stinson and several companies, including Buffalo Grand Hotel Inc, after finding they breached the Securities Act by conducting an illegal distribution of securities and breaching a cease trade order in connection with a hotel development project. The order imposed both financial sanctions — disgorgement, a penalty, and costs order — and conduct sanctions (permanent bans).
Two of the respondents in that case, Stinson and Buffalo Grand Hotel, applied to the tribunal to lift the $13.5-million disgorgement order, the $600,000 penalty, and the $166,000 costs order — arguing that this would allow them to renovate and sell the hotel involved in the scheme to return money to investors.
“The applicants submitted that this financing plan is the only way that investors in the hotel will recover any of their investments and that the financial sanctions are the only thing standing in the way of the financing plan,” the tribunal noted in its decision.
However, the tribunal dismissed the proposal as too speculative, concluding, “There was insufficient evidence that it was a real option for investor recovery.”
Additionally, the panel found that Stinson and the company failed to establish that removing the financial sanctions “would not be prejudicial to the public interest.”
According to its decision, they argued that “circumstances have materially changed since the tribunal imposed the financial sanctions. … The purported material change is that they now have a viable plan that would permit investors to recover their investments if the financial sanctions were removed.”
Yet the panel was not convinced, finding that their evidence “was incomplete and largely speculative.”
Among other things, it said that they failed to prove that the sanctions are the primary obstacle to redeveloping the hotel.
“We saw many more obstacles than the financial sanctions,” it said — adding that the evidence didn’t establish that the sanctions aren’t still warranted.
The panel said that lifting the sanctions would undermine the deterrent to misconduct — which is one of the primary purposes of regulatory sanctions — potentially sending the message that “financial sanctions from the tribunal may be avoided on speculative, premature or unsupported evidence, thereby undermining the general deterrent effect of tribunal sanctions decisions.”
Additionally, it stressed that sanctions are supposed to be protective and preventative, not to compensate investors.
“They have the purpose of protecting all investors by maintaining public confidence in the capital markets,” it said. “The tribunal has no jurisdiction to redress harm caused to private investors by making orders for restitution.”