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OFFENCES AND ENFORCEMENT - Penalties - Imprisonment

Thursday, May 14, 2020 @ 9:53 AM  

Lexis Advance® Quicklaw®
Appeal by the defendants from a decision of an appeal judge setting aside their acquittals on charges under the Securities Act and concluding that certain promissory notes were securities under the Act and from the sentence imposed. The appellant Tiffin and his company, while in a precarious financial situation, borrowed $700,000 from friends and clients secured by promissory notes. At the time of these loans, Tiffin was under a cease trading order issued by the Ontario Securities Commission. The appellants were charged with trading in securities without registration, distributing securities without filing a prospectus and trading in securities while prohibited. The trial judge held that the notes were not securities, applying the test set out in Reves. The appeal judge declined to apply the American family resemblance test from Reves in interpreting the term security under the Act and concluded that the trial judge erred in finding that the notes were not securities. The appeal judge concluded that a financial penalty would not be sufficient in this case, given the amount still owed in relation to previous offences, and because Tiffin had exploited a position of trust with his clients for financial gain. The appeal judge sentenced Tiffin to six months’ imprisonment, with 24 months of probation and a restitution order.

HELD: Appeal from conviction dismissed. Appeal from sentence allowed. The custodial term was set aside but the 24-month probation order and restitution order were upheld. The definition of security in the Act was sufficiently broad to capture the promissory notes. The Act contained broad definitions coupled with equally broad exemptions which relieved vast numbers of transactions involving securities from compliance with its requirements. While American law was a useful source of persuasive precedent in the securities context, the family resemblance test applied by the trial judge did not assist in the interpretation of the Act. The definition of security adopted by the appeal judge was supported both by the plain text of the Act and the logic of the regulatory scheme. Importing the family resemblance test into the interpretation of the term security would raise a risk of unintended consequences and litigation inherent when tinkering with a definition central to a complex regulatory scheme. While it was not an error in law to impose a custodial sentence per se, a custodial sentence in this case was manifestly unfit. Tiffin honestly revealed his desperate financial situation when he sought the loan, he acknowledged that he engaged in the conduct complained of, and his defence was based on a question of statutory interpretation. Tiffin, 66, would likely continue repaying his clients and had repaid $353,500 in interest and principal. A fit sentence must reflect the appellant’s reduced responsibility for the offences that flowed from the absence of deceit.

Ontario (Securities Commission) v. Tiffin, [2020] O.J. No. 1164, Ontario Court of Appeal, L.B. Roberts, A.L. Harvison Young and J.A. Thorburn JJ.A., March 16, 2020. Digest No. TLD-May112020007