The Ontario Securities Commission (OSC) has recently reminded mortgage investment entities (MIEs) to consider whether they, in addition to registration with the Financial Services Commission of Ontario (FSCO), may also require registration with the OSC. Generally, registration may be triggered if a business involves trading in securities, such as units or common shares of a MIE. Both the and OSC and the Canadian Securities Administrators (CSA) have previously released guidance on how registration requirements affect MIEs. In addition to reviewing this guidance, the OSC is recommending that MIEs seek the advice of legal counsel.
Valt.X Holdings Inc.
A technology company relying on the accredited investor exemption was found to not be engaging in “activities similar to those of a registrant” (such as promoting or selling securities other than its own) and thus was found not to have tripped the registration business trigger. Read the full case here.
Liahona Mortgage Investment Corp, et al. was found to have engaged in the business of trading in securities without being registered or able to rely on a registration exemption. The corporation had also distributed its shares to investors who did not qualify for prospectus-exempt distributions. The business trigger finding is not surprising considering that, among other things, approximately $20 million worth of LMIC shares were sold to 95 investors. What is somewhat surprising is the statement in the Settlement Agreement that an investment comprising over 10% of each investor’s financial assets de factoresults in an investor’s portfolio being over-concentrated and hence unsuitable. It is not clear whether this statement was based on the particular risk and other attributes of the investors in this case, or is now a stand-alone Commission position. While there is Staff notice guidance that holdings over 10% in one issuer may be a suitability “concern”, we are not aware of the legal authority for a stand-alone 10% position.
The CSA recently released its 2015 Enforcement Report highlighting the year’s enforcement actions across the country. Among other enforcement actions, the report discusses several cases of misconduct by registrants in Ontario, British Columbia, Québec and Nova Scotia.