Thursday, 26 April 2018


 The BC Securities Commission has had another loss inn BC Court of Appeals. We cannot comment on the nature of the case and if the man in question Mr. Larry Davis is guilty or innocent however there will surely be implications for the BCSC and its string of court losses beyond firing of lawyers.

 See the Court Transcript below,


Davis v. British Columbia (Securities Commission),
2018 BCCA 149
Date: 20180420
Docket: CA44114
Larry Keith Davis
British Columbia Securities Commission and the Executive Director of the British Columbia Securities Commission
The Honourable Mr. Justice Frankel
The Honourable Mr. Justice Groberman
The Honourable Madam Justice Garson
On appeal from: Decisions of the British Columbia Securities Commission dated June 22, 2016 and November 7, 2016 (Re Davis, 2016 BCSECCOM 214 and
2016 BCSECCOM 375).
Counsel for the Appellant:
P.A.A. Taylor
H. Thauli
Counsel for the Respondents:
J.L. Whately
O.L. Fagbamiye
Place and Date of Hearing:
Vancouver, British Columbia
January 8, 2018
Place and Date of Judgment:
Vancouver, British Columbia
April 20, 2018
Written Reasons by:
The Honourable Mr. Justice Frankel
The Honourable Madam Justice Garson
Concurred in by:
The Honourable Mr. Justice Groberman
A hearing panel found D. committed fraud by falsely representing to an investor that he owned the company shares he was selling.  D. used the $7,000 paid by the investor for his personal expenses.  D. never received any shares and it was necessary for the investor to commence a small claims action to recover her money.  D. testified that, by reason of a non-binding arrangement with the company’s principal, he believed he would receive the shares needed to complete the transaction.  The sanctions imposed by the panel included several permanent market bans.  D. appealed both the finding of liability and the sanctions.  Held: Liability appeal dismissed; sanctions appeal allowed.  Even if D. honestly believed he would receive the shares, the elements of fraud were established.  The sanctions decision was unreasonable because the panel failed to take into consideration D.’s previously unblemished record and the principle of proportionality.
Reasons for Judgment of the Honourable Mr. Justice Frankel and the Honourable Madam Justice Garson:


[1]            Larry Keith Davis appeals from the finding of a hearing panel of the British Columbia Securities Commission that he committed fraud contrary to s. 57(b) of the Securities Act, R.S.B.C. 1996, c. 418.  If that finding is upheld, then Mr. Davis appeals from the permanent market bans the panel imposed on him.
[2]            The liability decision is based on Mr. Davis having untruthfully told an investor he owned the shares he was selling to that investor.  Mr. Davis contends his actions do not amount to fraud because he believed he would receive those shares in the future.  With respect to the permanent market bans, Mr. Davis contends the panel’s sanctions decision is unreasonable because it is predicated on such bans being generally imposed in fraud cases, without regard to the circumstances of the offence and the offender.
[3]            For the reasons that follow, we would dismiss Mr. Davis’s appeal from the liability decision but allow his appeal from the sanctions decision.

Factual Background

[4]            Mr. Davis is a resident of British Columbia.  He has been involved in providing investor-relations services for approximately 25 years.
[5]            In 2009, using the name Bravo International Services, Mr. Davis began providing investor-relations services for FormCap Corporation, a Nevada company trading over-the-counter in the United States of America.  Mr. Davis had no formal agreement to provide services to FormCap and received no remuneration directly from FormCap.  Rather, he was compensated for his services in FormCap shares transferred to him from existing shareholders.
[6]            The transfer of FormCap shares to Mr. Davis ended in January 2011.  By April 2011, he had sold all the FormCap shares he had received.
[7]            Wendy McDonald was a friend and neighbour of Mr. Davis.  In June 2011, Mr. Davis told Ms. McDonald he had an investment opportunity for her.  At this time, FormCap was planning a 1-for-10 share consolidation.
[8]            Ms. McDonald agreed to invest $4,000.  On June 17, 2011, she gave Mr. Davis a money order in that amount.  Mr. Davis told Ms. McDonald that her investment was safe and that she could get her money back.
[9]            A few days later, Mr. Davis deposited the money order into his personal bank account, which was then overdrawn by approximately $1,900.  In the next few days, Mr. Davis used some $900 of the money he had received from Ms. McDonald to pay for his personal expenses.
[10]        On June 24, 2011, Mr. Davis issued Ms. McDonald a receipt on Bravo International letterhead for $4,000, with reference to “attached Share Exchange Agreement for, FormCap Corp.”, a document Mr. Davis drafted.  The agreement, which was for the sale of 40,000 shares of FormCap for $4,000, made several references to Mr. Davis as the “owner” or “seller” of those shares, including:
THIS AGREEMENT is made and entered into this 24 day of June, 2011 by and between Larry Davis, (“Seller”) and Wendy McDonald (“Purchaser”);
WHEREAS, the Seller is the record owner and holder of the issued and outstanding shares of the capital stock, (“FormCap Corporation”), a Nevada Corporation, which is consolidating its issued capital stock on a 1 new share for 10 old shares.
Seller hereby warrants and represents:
(b) Restrictions on Stock…ii. Seller is the lawful owner of the Stock, free and clear of all security interests, liens, encumbrances, equities and other charges…
[Emphasis added.]
[11]        With respect to the completion of the transaction, the agreement stated:
The certificates representing the Corporation’s Stock shall be delivered by the Seller to the Purchaser upon the closing of the transactions contemplated by this Agreement (“Closing”), shall be held on or about AUG/SEPT/2011, or date and time as the parties hereto may otherwise agree.
[12]        Mr. Davis’s signature on the agreement was witnessed by his wife, Diane Jane Davis.  Mr. Davis did not ask Ms. McDonald to sign the agreement as it did not have a place for her signature.
[13]        By July 14, 2011, Mr. Davis had used what remained of Ms. McDonald’s money for his personal expenses.  His bank account was overdrawn again.
[14]        On October 17, 2011, FormCap issued a report publicly disclosing its intention to abandon the planned 1-for-10 share consolidation.  Mr. Davis was aware the 1-for-10 consolidation would no longer take place but did not advise Ms. McDonald of this.
[15]        In April 2012, Mr. Davis told Ms. McDonald that another opportunity to invest in FormCap shares had come available.  He told her there was a short time-window to invest and that other investors were investing more funds.  Ms. McDonald agreed to invest a further $3,000, and gave that amount to him in cash.  Mr. Davis used that money for his personal expenses.
[16]        After making the second investment, Ms. McDonald asked Mr. Davis where her FormCap shares would go.  Mr. Davis recommended a brokerage firm and Ms. McDonald opened an account with that firm.
[17]        On August 10, 2012, FormCap issued a news release publically disclosing it proposed to proceed with a 1-for-50 share consolidation.
[18]        In late March 2013, Ms. McDonald, who had misplaced her copy of the 2011 agreement, asked Mr. Davis for documentation with respect to her $7,000 investment.  She and Mr. Davis exchanged emails through April and May.
[19]        On April 4, 2013, Ms. McDonald emailed Mr. Davis.  She stated that due to a change in her financial circumstances she would like to withdraw the $7,000 she had given him to invest.  Mr. Davis replied that day:
Your investment in FormCap resulted in you becoming a shareholder.  Your original paperwork that you misplaced reflected that fact.  Therefore, you, me and all the other shareholders are stuck and will have to wait for FormCap to get its act together.  Myself and others are keeping the pressure on, but we remain skeptical due to the majority shareholder’s declining health issues.  I have touched on that topic in my previous e-mail and telephone conversation.  I know it sucks, however, I have always guaranteed your investment so you will never loose [sic] your principal amount of $7,000.  As previously mention [sic], I was prepared to do the following for you, so when I close on any of the three projects that I am currently working on, I can switch you into that first project which would allow your position to be eligible for sale either privately or when we go public.  I hope this note serves as reassurance for you, Wendy, and your investment is still sound and intact, however, just not liquid at this time.
[20]        Over the next few weeks Ms. McDonald sent further emails to Mr. Davis asking why the shares had not be deposited into her account at the brokerage firm and requesting the return of her money.  In his responses, Mr. Davis told Ms. McDonald that neither the shares nor her money were available but her investments were fine.  For example, in an email sent on April 23, 2013, Mr. Davis stated:
As a friendly reminder… this is an investment that is in the form of shares that are tied to the stock market.  If you recall, I had you open an account with a brokerage firm in Vancouver.  This payment request you are now asking for would be considered or categorized as a favour re your situation.  This is something that you are obviously coming up now because of your circumstances, however, I’m sorry to say, my dear, that your timing for this (favour, request or demand) doesn’t work that way.  But please don’t panic.  All is fine with your investment.
[21]        On April 25, 2013, Mr. Davis responded as follows to an email in which Ms. McDonald asked him why the FormCap shares were not in her brokerage account:
As previously mentioned, you will receive your shares once the certificates are issued.  Then they can go either to you directly or to an account of your choosing.  I will notify you when this takes place.
[22]        In an email sent on May 13, 2013, Ms. McDonald advised Mr. Davis that if he did not return her money by May 17, 2013, then she would “pursue the regulatory avenues open to [her].”  Mr. Davis replied on May 15, 2013, that everything outlining the investment was in the 2011 agreement and he would go through it with her again.  He declined to return the $7,000.
[23]        On May 17, 2013, the person handling the brokerage account Ms. McDonald had opened suggested she have the 2011 agreement revised to reflect the total amount of her investment.  As a result, Ms. McDonald went to Mr. Davis’s home that day.  She took David H. Stone with her as a witness.  The 2011 agreement was revised in handwriting to reflect the sale of 70,000 shares of FormCap for $7,000.  The recital with respect to FormCap consolidating its stock on a 1-for 10 basis was not changed.  The amended agreement was signed by Mr. Davis, Ms. McDonald, and Mr. Stone.
[24]        On May 28, 2013, Ms. McDonald contacted the Commission by telephone; she advised Mr. Davis by email she had done so.  In his reply email, Mr. Davis stated (in part):
This has nothing to do with the BC Securities Commission.  This is a Nevada, USA based company.  You don’t own these shares.  I do.  You have been told that many times.
[25]        On May 29, 2013, Ms. McDonald again asked Mr. Davis to return her money.  On June 4, 2013, the money not having been returned, she filed a written complaint with the Securities Commission.
[26]        On March 13, 2015, the executive director of the Commission issued a notice of hearing to Mr. Davis alleging he had committed fraud contrary to s. 57(b) of the Act.  That section provides:
A person must not, directly or indirectly, engage in or participate in conduct relating to securities or exchange contracts if the person knows, or reasonably should know, that the conduct
(b) perpetrates a fraud on any person.
[27]        Later in 2015, Ms. McDonald commenced a small claims action against Mr. Davis to recover the $7,000.  As a result of that action, Mr. Davis returned the money to her.
[28]        The Commission’s hearing into Mr. Davis’s conduct took place in early February 2016.  The executive director called a Commission investigator and Ms. McDonald as witnesses.  It is not necessary to set out the details of their evidence.  Mr. Davis testified and called his wife as a witness.  As their evidence is pertinent to this appeal it is set out below.

Mr. Davis’s Evidence

[29]        Mr. Davis testified that, starting in the fall of 2009, he performed investor-relations services on behalf of FormCap.  FormCap’s majority and controlling shareholder, Terry Butchart, arranged for Mr. Davis to be compensated in the form of FormCap shares.  Those shares were transferred to Mr. Davis from companies Mr. Butchart either owned or over which Mr. Butchart had influence.  The last transfer took place in December 2010 or January 2011.
[30]        In January 2011, Mr. Davis and Mr. Butchart discussed Mr. Davis continuing to work on FormCap’s behalf.  In June 2011, Mr. Davis learned FormCap was planning a 1-for-10 share consolidation.  Mr. Davis and Mr. Butchart agreed that once the consolidation was completed, Mr. Davis would receive 100,000 post-consolidation shares as compensation for his services.  At the time, the consolidation was expected to occur in August/September 2011.
[31]        When Ms. McDonald approached Mr. Davis looking for an investment opportunity, he suggested FormCap once he was confident the consolidation would take place.  He told her about the consolidation and that he would get his shares after it had taken place.  Although confident he would get the shares, Mr. Davis told Ms. McDonald he would personally guarantee her investment, i.e., if he did not get his shares, then she would get her money back.
[32]        Mr. Butchart kept Mr. Davis informed as to the progress of the consolidation.  When the consolidation did not proceed, Mr. Davis so advised Ms. McDonald.
[33]        When Ms. McDonald approached Mr. Davis in May 2012, about investing more money, he believed there would be a consolidation and that he would then receive FormCap shares.  Mr. Butchart had agreed to provide him with shares regardless of the nature of the consolidation.  Mr. Davis intended to provide Ms. McDonald with her shares once he received them.  He continually updated her on what was happening with the consolidation.
[34]        When, in August 2012, FormCap announced a 1-for-50 consolidation, Mr. Butchart assured Mr. Davis he would still be receiving a substantial number of shares.  At that time, Mr. Davis was working on behalf of FormCap.  Mr. Butchart repeated those assurances to Mr. Davis later that summer, when the two met at Mr. Butchart’s home.
[35]        When Ms. McDonald and Mr. Stone came to Mr. Davis’s house on May 17, 2013, Mr. Davis believed he would be getting FormCap shares.  He explained to Mr. Stone that Ms. McDonald would not receive her shares until after the consolidation.  After hearing the explanation, Mr. Stone told Ms. McDonald everything was fine.
[36]        Mr. Davis said because he was “forward selling” shares to Ms. McDonald he could do whatever he wanted with the money she gave him.
[37]        Mr. Davis never received any FormCap shares.

Ms. Davis’s Testimony

[38]        Ms. Davis said Mr. Butchart “hired” Mr. Davis in 2009 to work for FormCap.  Mr. Davis was paid in FormCap shares.
[39]        In the summer of 2012, Ms. Davis was frustrated and upset by the fact Mr. Davis was not being paid in a timely way.  As a result, Mr. Davis asked her to come with him to Mr. Butchart’s house.  She overheard Mr. Butchart and Mr. Davis discussing when a share rollback/consolidation would take place.  Large amounts of shares were mentioned, but nothing could happen until after the rollback.  Although no timeframe for the rollback was given, she was told it would not be very long.

Liability Decision
(2016 BCSECCOM 214)

[40]        Before the panel, Mr. Davis acknowledged he did not receive any FormCap shares after January 2011.  He further acknowledged he did not own any FormCap shares at the time of Ms. McDonald’s investments, or at the time he amended the written agreement at her request.
[41]        The panel concluded Mr. Davis had perpetrated fraud in the amount of $7,000 contrary to s. 57(b) of the Act.  With respect to the elements of fraud, it relied on the following from the judgment of Justice McLachlin (as she then was) in R. v. Théroux, [1993] 2 S.C.R. 5 at 20, a case dealing with fraud under s. 380(1) of the Criminal Code, R.S.C. 1985, c. C-46:
… the actus reus of the offence of fraud will be established by proof of:
1.   the prohibited act, be it an act of deceit, a falsehood or some other fraudulent means; and
2.   deprivation caused by the prohibited act, which may consist in actual loss or the placing of the victim's pecuniary interests at risk.
Correspondingly, the mens rea of fraud is established by proof of:
1.   subjective knowledge of the prohibited act; and
2.   subjective knowledge that the prohibited act could have as a consequence the deprivation of another (which deprivation may consist in knowledge that the victim's pecuniary interests are put at risk).
[42]        The panel found Mr. Davis’s testimony about a collateral oral agreement with Ms. McDonald was not credible.  It rejected his evidence that he and Ms. McDonald had orally agreed that: (a) he was selling her his future interest in post-consolidation FormCap shares; (b) she would receive her shares only after he received his shares; and (c) he would pay her back her money if he did not receive his shares: paras. 57, 6673.
[43]        In finding the actus reus element of fraud had been proven, the panel stated:
[74]      [Mr. Davis] represented to [Ms. McDonald] that he owned the FormCap shares he was purporting to sell her when he did not.  As late as May 28, 2013 he continued to represent to [Ms. McDonald] that he owned the FormCap shares even though the 1-for-10 share consolidation had been abandoned in October 2011 and he had never received any FormCap shares following the eventual 1-for-50 share consolidation which commenced in August 2012.  This falsehood is the prohibited act.
[75]      The prohibited act caused deprivation to [Ms. McDonald’s] pecuniary interests.  The British Columbia Court of Appeal, in R. v. Abramson, [1983] B.C.J. No. 1305, confirmed that the payment of money as part of an investment was sufficient to establish deprivation for the purpose of fraud.  In Re Streamline Properties 2014 BCSECCOM 263, the Commission followed Abramson.
[76]      While [Ms. McDonald] eventually obtained the return of the monies she had invested, it was only after she had expended considerable time and effort pursuing their return by various means, finally achieving success in late 2015 through the Small Claims Court’s processes.
[44]        With respect to the mens rea of fraud, the panel said:
[77]      While [Mr. Davis] may have believed at the time of the first investment that he would acquire FormCap shares following the initially proposed 1-for-10 share consolidation through [Mr. Butchart], [Mr. Davis] knew at that time that he did not own any FormCap shares.  Yet he proceeded to sell FormCap shares he did not own to [Ms. McDonald].  Shortly, thereafter, he spent [Ms. McDonald’s] funds on personal expenditures.
[78]      By the time of the second investment, [Mr. Davis] not only knew he did not have any FormCap shares to sell to [Ms. McDonald] but also knew the previously proposed FormCap share consolidation had been abandoned and the company was having serious financial difficulties.  Yet, he proceeded to agree to sell [Ms. McDonald] another 30,000 FormCap shares which he did not own on the same terms and conditions.  When she sought the return of these funds, he rejected her request saying there were no funds available and continued his deceit by telling [Ms. McDonald] that the investment was in the form of shares tied to the stock market.
[79]      [Mr. Davis] thus knew at the time of each investment of the prohibited act and that the prohibited act could have as a consequence the deprivation of [Ms. McDonald] by putting the monies she had invested with him at risk.

Sanctions Decision
(2016 BCSECCOM 375)

[45]        The panel ordered Mr. Davis to pay a $15,000 administrative penalty and permanently prohibited him from participating in the securities market, other than for his own account through a person registered under the Act.
[46]        In reaching this conclusion, the panel stated that, “While the amount involved in this case is relatively small, [Mr. Davis’s] initial and ongoing deceit is misconduct properly characterized as falling within the most serious misconduct prohibited by the Act”: para. 13.  The panel also stated that the absence of a prior regulatory history is not a mitigating factor: para. 30.
[47]        The executive director provided the panel with four sanctions decisions in which permanent market bans had been imposed, submitting they were comparable to Mr. Davis’s case.  The frauds in those decisions ranged from $6,000 to $38,250.
[48]        The panel rejected Mr. Davis’s submission that proportionality is the overarching principle in the determination of appropriate sanctions: para. 42.  It noted Mr. Davis had been unable to provide any relevant cases wherein anything less than permanent market bans had been imposed following a finding of liability based on fraud: para. 49.  The panel held that “[i]n keeping with similar circumstances in other cases of fraud”, imposing permanent market bans on Mr. Davis was appropriate: para. 52.
[49]        In the result, the panel ordered that (at para. 61):
a)      [Mr. Davis] cease trading in, and is permanently prohibited from purchasing, securities; except [Mr. Davis] may trade or purchase securities for his own account through a registrant if he gives the registrant a copy of this decision;
b)      any or all of the exemptions set out in the Act, regulations or a decision do not apply to the respondent;
c)      [Mr. Davis] resign any position he holds as, and is permanently prohibited from becoming or acting as, a director or officer of any issuer or registrant;
d)      [Mr. Davis] is permanently prohibited from becoming or acting as a registrant or promoter;
e)      [Mr. Davis] is permanently prohibited from acting in a management or consultative capacity in connection with activities in the securities market; and
f)       [Mr. Davis] is permanently prohibited from engaging in investor relations activities.


Standard of Review

[50]        The parties agree that the reasonableness standard of review applies to the panel’s findings of credibility, findings of fact, and imposition of sanctions.
[51]        In their factum, the Commission and executive director cite McLean v. British Columbia (Securities Commission), 2013 SCC 67 at paras. 1921, [2013] 3 S.C.R. 895, for the proposition that the reasonableness standard of review presumptively applies to the panel’s interpretation of its home statute.  However, in their oral submissions they accepted that the correctness standard of review applies to the panel’s determination of the elements of fraud under s. 57(b) of the Securities Act.
[52]        The elements of fraud are not in issue in this case.  Both parties accept that the elements of fraud under s. 57(b) are those under s. 380(1) of the Criminal Code, as discussed in Théroux.  The liability question here is whether those elements were proven.
[53]        Mr. Davis’s primary position is that the correctness standard applies to this question.  Applying that standard, he says the facts do not support the conclusion that he committed fraud.  In effect, Mr. Davis says that, as in the criminal law, the legal effect of undisputed or found facts is a question of law to which the correctness standard applies: see R. v. Mara, [1997] 2 S.C.R. 630 at para. 29; R. v. Greyeyes, [1997] 2 S.C.R. 825 at para. 40; R. v. J.M.H., 2011 SCC 45 at para. 28, [2011] 3 S.C.R. 197.  In the alternative, he submits the panel’s determination that he committed fraud is unreasonable.
[54]        The Commission and the executive director submit the reasonableness standard applies to the question of whether the elements of fraud were proven.
[55]        We need not determine which standard of review applies to the question of whether the elements of fraud were proven because we have concluded that the more rigorous standard of correctness is, in any event, satisfied.

Liability Finding

[56]        Mr. Davis does not say the panel erred in considering the elements of fraud to be those discussed in Théroux.  What he says is that even though he was untruthful in telling Ms. McDonald he owned the FormCap shares he was selling her, he did not commit fraud because he honestly believed he would receive post-consolidation shares and, thereafter, live up to his obligations under the written agreement.  He says that by reason of that belief, neither the actus reus nor mens rea elements of fraud were proven.  We do not agree.
[57]        Mr. Davis’s arguments rest on two passages in the panel’s reasons.  The first passage is in the section entitled “Background”.  In discussing Mr. Davis’s evidence concerning his conversations with Mr. Butchart in June 2011, the panel stated:
[12]      While [Mr. Davis] may have believed, based on past experience, that [Mr. Butchart] would arrange to have FormCap shares transferred to him from other shareholders for the FormCap investor relations work the [Mr. Davis] was doing in 2011 and later, there was no evidence of any enforceable agreement by [Mr. Butchart] to do so.
[Emphasis added.]
The second passage is para. 77 (which appears in the section entitled “Analysis”) which, for ease of reference, we will set out again:
[77]      While [Mr. Davis] may have believed at the time of the first investment that he would acquire FormCap shares following the initially proposed 1-for-10 share consolidation through [Mr. Butchart], [Mr. Davis] knew at that time that he did not own any FormCap shares.  Yet he proceeded to sell FormCap shares he did not own to [Ms. McDonald].  Shortly, thereafter, he spent [Ms. McDonald’s] funds on personal expenditures.
[Emphasis added.]
[58]        The parties disagree as to what the words “While [Mr. Davis] may have believed” connote.  Mr. Davis’s position is that they indicate a positive finding of fact that he honestly believed he would receive FormCap shares, i.e., that those words should be read as if the panel had said, “Mr. Davis believed”.  The position of the Commission and the executive director is that no such finding was made.  In this regard, they point to the panel’s adverse finding with respect to Mr. Davis’s credibility.
[59]        We confess it is not clear to us what finding the panel made with respect to Mr. Davis’s state of mind at the time of the first investment.  While it is true that the panel did make an adverse finding with respect to Mr. Davis’s credibility, it did so only with respect to his assertion that he and Ms. McDonald had entered into a collateral oral agreement.  After referring to Mr. Davis’s evidence that Ms. McDonald was aware of, and agreed to, his “forward selling” her shares he did not own, the panel stated:
[68]      We do not consider [Mr. Davis’s] testimony in this regard to be credible.”
[Emphasis added.]
[60]        The panel then went on to further discuss the evidence and concluded by stating:
[73]      We reject [Mr. Davis’s] testimony and argument as to the existence of a collateral “oral agreement”.  We find the terms of the agreement between [Mr. Davis] and [Ms. McDonald] as to [Ms. McDonald’s] two investments are those set out in the [share purchase agreement] as amended.
[Emphasis added.]
[61]        However, even if Mr. Davis’s interpretation of the words “may have believed” is correct, it would not affect the panel’s finding he committed fraud; a finding grounded on Mr. Davis: (a) misrepresenting to Ms. McDonald that he owned the shares he was selling; (b) using the purchase money she gave him for his own purposes; and (c) continuing to deceive her after she asked for her money back.  Those facts satisfy the elements of fraud set out in Théroux.
[62]        With respect to the actus reus, the prohibited act was the falsehood Mr. Davis told Ms. McDonald about being the owner of the FormCap shares he was selling.  Her pecuniary interests were put at risk when she provided him with money to purchase those shares.
[63]        Mr. Davis submits that despite the panel’s rejection of his evidence regarding the existence of a collateral oral agreement, the panel accepted, in para. 12 of the sanctions decision, that Ms. McDonald initially believed she would get her money back if she did not receive her shares.  He argues that, as a result, it cannot be said Ms. McDonald’s pecuniary interests were at risk.  This argument ignores, however, the fact Mr. Davis used the money Ms. McDonald gave him to pay for his personal expenses and refused to return her money when she asked for it in 2013; the mere promise of a refund cannot immunize Mr. Davis from a claim of fraud.
[64]        Mr. Davis further submits the panel’s actus reus analysis is inconsistent with the liability decision in Re Maddigan, 2016 BCSECCOM 379, which was released shortly after the sanctions decision in this case.  Maddigan, however, is distinguishable.
[65]        In Maddigan, 0902395 B.C. Ltd., a company controlled by Mr. Maddigan, entered into loan agreements with investors, promising to repay the funds advanced in cash by the maturity date, or deliver to the investors shares of an another company equal to the loan amounts.  0902395 B.C. Ltd. failed to deliver cash or shares to two of the investors, electing, instead, to satisfy its obligations to other creditors.  The hearing panel noted, with respect to the loan agreements, “[t]here is no evidence that this promise was, at the time made, in any way deceitful or false”: para. 34.
[66]        Before the Maddigan hearing panel, the executive director argued that regardless of the reason for making it, the decision to prefer one creditor over another constituted the actus reus of fraud, i.e., “other fraudulent means” as discussed in Théroux.  In rejecting that argument, the panel stated that, in circumstances where it is not possible to satisfy all legitimate creditors, a reasonable person would not consider satisfying some over others to be dishonest: paras. 3839.
[67]        In this case, the panel found Mr. Davis engaged in a “falsehood” at the time the investments were made by representing to Ms. McDonald that he owned the FormCap shares he purported to sell her.  The “other fraudulent means” analysis required to establish fraud is, therefore, inapplicable.
[68]        Turning to mens rea, when Mr. Davis told Ms. McDonald he owned FormCap shares, he knew he was being untruthful; he continued that falsehood for years.  Mr. Davis also knew that taking Ms. McDonald’s money could put her pecuniary interests at risk because his ability to deliver the shares was uncertain; he had no legal entitlement to any shares.
[69]        Further, and most importantly, even if Mr. Davis believed he would receive FormCap shares in the future, the mens rea element of fraud would still be established.  This is evinced by Théroux.
[70]        Mr. Théroux was the directing mind of a company involved in two residential construction projects.  The company falsely represented to buyers that the deposits they paid were insured.  When the company became insolvent, the projects could not be completed, and most of the depositors lost their money.  The trial judge who convicted Mr. Théroux of fraud found that he knowingly made the misrepresentations without any reasonable assurance that the projects would be completed, although he sincerely believed they would be completed.
[71]        In affirming Mr. Théroux’s conviction, McLachlin J. held that his sincere belief that the projects would be completed was not a defence.  With respect to the mens rea element of fraud generally, she stated (at pp. 2324):
A person who deprives another person of what the latter has should not escape criminal responsibility merely because, according to his moral or her personal code, he or she was doing nothing wrong or because of a sanguine belief that all will come out right in the end.  Many frauds are perpetrated by people who think there is nothing wrong in what they are doing or who sincerely believe that their act of placing other people's property at risk will not ultimately result in actual loss to those persons.  If the offence of fraud is to catch those who actually practise fraud, its mens rea cannot be cast so narrowly as this.
[Emphasis added.]
With respect to Mr. Théroux in particular, she said (at p. 27):
The mens rea too is established.  The appellant told the depositors they had insurance protection when he knew that they did not have that protection.  He knew this to be false.  He knew that by this act he was depriving the depositors of something they thought they had, insurance protection.  It may also be inferred from his possession of this knowledge that the appellant knew that he was placing the depositors’ money at risk.  That established, his mens rea is proved.  The fact that he sincerely believed that in the end the houses would be built and that the risk would not materialize cannot save him.
[Emphasis added.]
See also: R. v. Kingsbury, 2012 BCCA 462 at para. 46, 297 C.C.C. (3d) 255 (per Harris J.A.): “An honest belief that one’s conduct is not dishonest is irrelevant.  An honest belief that one’s conduct is not wrong or a hope or expectation that no deprivation will occur is equally irrelevant.”
[72]        We, therefore, would not accede to Mr. Davis’s challenge to the panel’s finding that he perpetrated a fraud on Ms. McDonald.

Sanctions Decision

[73]        Mr. Davis challenges only the permanent market bans.  He submits the decision to impose those bans was unreasonable because the panel failed to consider: (a) his previously unblemished record; and (b) the principle of proportionality.  We agree.
[74]        When the sanctions decision is read in its entirety, it is apparent the panel proceeded on the basis that permanent market bans are appropriate in fraud cases, regardless of the circumstances of the offence or the offender.  As we will explain, in our view that approach renders the sanctions decision unreasonable.
[75]        Sections 161 and 162 of the Securities Act provide that the Commission may make various sanction orders if it considers it in the public interest to do so:
Enforcement orders
161(1)   If the commission or the executive director considers it to be in the public interest, the commission or the executive director, after a hearing, may order one or more of the following:
(a)   that a person comply with or cease contravening, and that the directors and officers of the person cause the person to comply with or cease contravening,
(i)      a provision of this Act or the regulations,
(ii)     a decision, whether or not the decision has been filed under section 163, or
(iii)    a bylaw, rule, or other regulatory instrument or policy or a direction, decision, order or ruling made under a bylaw, rule or other regulatory instrument or policy of a self regulatory body, exchange or quotation and trade reporting system, as the case may be, that has been recognized by the commission under section 24;
(b)   that
(i)      all persons,
(ii)     the person or persons named in the order, or
(iii)    one or more classes of persons cease trading in, or be prohibited from purchasing, any securities or exchange contracts, a specified security or exchange contract or a specified class of securities or class of exchange contracts;
(c)   that any or all of the exemptions set out in this Act, the regulations or a decision do not apply to a person;
(d)   that a person
(i)      resign any position that the person holds as a director or officer of an issuer or registrant,
(ii)     is prohibited from becoming or acting as a director or officer of any issuer or registrant,
(iii)    is prohibited from becoming or acting as a registrant or promoter,
(iv)    is prohibited from acting in a management or consultative capacity in connection with activities in the securities market, or
(v)     is prohibited from engaging in investor relations activities;
(e)   that a registrant, issuer or person engaged in investor relations activities
(i)      is prohibited from disseminating to the public, or authorizing the dissemination to the public, of any information or record of any kind that is described in the order,
(ii)     is required to disseminate to the public, by the method described in the order, any information or record relating to the affairs of the registrant or issuer that the commission or the executive director considers must be disseminated, or
(iii)    is required to amend, in the manner specified in the order, any information or record of any kind described in the order before disseminating the information or record to the public or authorizing its dissemination to the public;
(f)    that a registration or recognition be suspended, cancelled or restricted or that conditions, restrictions or requirements be imposed on a registration or recognition;
(g)   if a person has not complied with this Act, the regulations or a decision of the commission or the executive director, that the person pay to the commission any amount obtained, or payment or loss avoided, directly or indirectly, as a result of the failure to comply or the contravention;
(h)   that a person referred to in subsection (7) submit to a review of its practices and procedures;
(i)    that a person referred to in subsection (7) make changes to its practices and procedures;
(j)    that a person be reprimanded.
Administrative penalty
162        If the commission, after a hearing,
(a)   determines that a person has contravened
(i)      a provision of this Act or of the regulations, or
(ii)     a decision, whether or not the decision has been filed under section 163, and
(b) considers it to be in the public interest to make the order,
the commission may order the person to pay the commission an administrative penalty of not more than $1 million for each contravention.
[76]        To summarize the above provisions, the Commission may impose a wide range of sanctions, including disgorgement, bans on trading securities, bans on holding certain positions or engaging in certain activities, and administrative penalties up to $1 million.
[77]        In Cooper v. British Columbia (Liquor Control and Licensing Branch), 2017 BCCA 451 at para. 42, 5 B.C.L.R. (6th) 44, Justice Newbury stated that “a disproportionately harsh result can render a decision unreasonable.”  She went on to discuss Stetler v. The Ontario Flue-Cured Tobacco Growers’ Marketing Board, 2009 ONCA 234, 311 D.L.R. (4th) 109, as an example of that proposition.  The reasoning in Stetler is pertinent to Mr. Davis’s appeal.
[78]        Mr. Stetler, who was 70 years old, had been a tobacco farmer for his entire life.  The marketing board found that Mr. Stetler sold small amounts of tobacco in excess of his basic production quota and cancelled his entire quota.  Mr. Stetler appealed to the Agricultural, Food and Rural Affairs Appeal Tribunal.  Being of the view that general deterrence was the primary consideration, the tribunal affirmed the board’s decision to cancel Mr. Stetler’s quota.  The tribunal said neither the number of illegal sales nor the amounts of those sales mattered.  Further, it did not consider Mr. Stetler’s lack of a prior regulatory history to be a mitigating factor.
[79]        Mr. Stetler sought judicial review of the tribunal’s decision before the Ontario Divisional Court, which set the tribunal’s decision aside and ordered a new sanctions hearing.  The board then appealed to the Court of Appeal for Ontario.
[80]        In finding in Mr. Stetler’s favour, the Court of Appeal found error in the tribunal’s failure to consider Mr. Stetler’s unblemished record and emphasized the need for some degree of proportionality between the wrongdoing and the penalty imposed:  at paras. 34, 37.  With respect to these matters, Justice Gillese stated:
[34]      Second, it was unreasonable for the Tribunal to find that there were no mitigating factors in Mr. Stetler’s favour.  His age and health are mitigating factors.  So, too, is his unblemished record.  Apart from the incidents in question, he has never been charged with any regulatory or criminal offence.  For that matter, there is no evidence or suggestion that anyone in the Stetler family has ever been charged with any type of offence related to his farming business.
[37]      Third, it was unreasonable for the Tribunal to give no consideration to the number of times in which a person has engaged in unlawful activity or to the quantities of tobacco which have been unlawfully sold.  There can be no quarrel with the Tribunal's view that every unlawful sale of tobacco is serious.  However, just because each unlawful sale is serious, it does not mean that every such sale warrants the most serious of penalties, that is, cancellation of 100% of the tobacco grower's basic production quota.  There must be some degree of proportionality between the wrongdoing and the penalty imposed. The importance of proportionality is particularly significant where, as here, a person’s livelihood is at stake.  As the Divisional Court stated in Carruthers v. College of Nurses of Ontario (1996), 31 O.R. (3d) 377 at p. 404:
[N]ot every case is the worst case, nor every person adjudged guilty worthy of the most severe sanction.  There must be proportionality between the underlying findings and the penalty imposed.
[Emphasis added.]
See also: Walton v. Alberta (Securities Commission), 2014 ABCA 273 at para. 154, 376 D.L.R. (4th) 448: “[A]t the end of the day the sanction must be proportionate and reasonable for each appellant.  The pursuit of general deterrence does not warrant imposing a crushing or unfit sanction on any individual appellant.”
[81]        Justice Gillese went on to comment on the availability of a large range of possible penalties:
[40]         It can be seen that the Tribunal had a large range of possible penalties at its disposal.  Again, in part because it appears that the Tribunal saw its role as reviewing the penalty previously imposed rather than reconsidering penalty afresh, the Tribunal meted out the most severe punishment available, without any apparent consideration of the range of possible penalties and whether something less than full cancellation of Mr. Stetler’s basic production quota could meet the appropriate sentencing objectives.
[82]        In Rahmani (Re), 2009 BCSECCOM 279, leave to appeal ref’d, Investment Industry Regulatory Organization of Canada v. Rahmani, 2010 BCCA 93 (Chambers), 284 B.C.A.C. 122, the Commission, acting pursuant to its jurisdiction under s. 28 of the Securities Act, reviewed the decision of a hearing panel of the Investment Industry Regulatory Organization of Canada (“IIROC”) to permanently prohibit Mr. Rahmani from acting in any registered capacity with any IIROC member.  The Commission noted that permanent bans should be reserved for those cases where lesser sanctions would be ineffective in protecting investors:
30        Section 4.3 of the [IIROC’s Disciplinary Sanction] Guidelines provides specific guidance about the imposition of a permanent ban:
A permanent ban ... is a severe economic penalty and should generally be reserved for cases where:
·        the public itself has been abused
·        where it is clear that a respondent's conduct is indicative of a resistance to governance;
·        the misconduct has an element of criminal or quasi-criminal activity; or
·        there is reason to believe that the respondent could not be trusted to act in an honest and fair manner in all their dealings with the public, their clients, and the securities industry as a whole.
31        This, appropriately, appears to reserve permanent bans for cases where lesser sanctions would not be effective to protect investors and markets against future misconduct.
[83]        Rahmani is indicative of what we consider to be the correct approach; one which reserves the harshest penalties for circumstances in which the Commission considers lesser measures to be inadequate to protect the public interest.
[84]        Although no explicit guidelines like those in Rahmani exist to guide the Commission’s application of ss. 161 and 162 of the Securities Act, in Eron Mortgage Corp. (Re), 2000 LNBCSC 34, the Commission did identify a non-exhaustive list of factors to be considered when imposing sanctions.  The Commission referred to the Eron factors at para. 10 of its sanctions decision in Mr. Davis’s case.  In Eron, the Commission stated:
In making orders under sections 161 and 162 of the Act, the Commission must consider what is in the public interest in the context of its mandate to regulate trading in securities.  The circumstances of each case are different, so it is not possible to produce an exhaustive list of all of the factors that the Commission considers in making orders under sections 161 and 162, but the following are usually relevant:
·        the seriousness of respondent’s conduct,
·        the harm suffered by investors as a result of the respondent’s conduct,
·        the damage done to the integrity of the capital markets in British Columbia by the respondent’s conduct,
·        the extent to which the respondent was enriched,
·        factors that mitigate the respondent’s conduct,
·        the respondent’s past conduct,
·        the risk to investors and the capital markets posed by the respondent’s continued participation in the capital markets of British Columbia,
·        the respondent’s fitness to be a registrant or to bear the responsibilities associated with being a director, officer or adviser to issuers,
·        the need to demonstrate the consequences of inappropriate conduct to those who enjoy the benefits of access to the capital markets,
·        the need to deter those who participate in the capital markets from engaging in inappropriate conduct, and
·        orders made by the Commission in similar circumstances in the past.
Applying these factors to this case, it has been clearly established, and we have found, that the conduct of Slobogian and the corporate respondents is of the most egregious nature, has devastated investors and has damaged the integrity of the capital markets of British Columbia. Slobogian and the corporate respondents were substantially enriched by their actions - we found Slobogian’s direct income alone from Eron during the relevant period to be $2.7 million.  There is no evidence of mitigating conduct.  None of these respondents is fit for participation in our capital markets.  It is important the orders we make fit these circumstances.
In cases of serious fraud, the Commission has in the past issued orders permanently cease trading issuers and permanently removing respondents from the market.  This case is the most serious fraud dealt with by the Commission in recent memory and similar orders are clearly warranted in these circumstances.
[85]        Stetler, Eron, and Rahmani show it is incumbent upon the tribunal to consider whether measures short of a permanent market ban would protect the investing public where a person’s livelihood is at stake.  Sections 161 and 162 of the Securities Act facilitate this approach by granting the Commission jurisdiction to craft a wide range of remedies tailored to a particular offence and offender.  In doing so, principles of proportionality should be considered by the Commission or, put as the Commission did in Eron, the harm suffered by the investor and the extent to which the respondent was enriched are factors pertinent to determination of the appropriate sanctions.
[86]        By virtue of the bans imposed by the panel, Mr. Davis is precluded from earning a living as he has done for many years.  In effect, he was “given ‘capital punishment’ for his transgressions”: Stetler at para. 38.  Although the Commission purported to follow the Eron factors, it failed to conduct an individualized assessment.
[87]        The Commission did not mention the evidence before it of Mr. Davis’s personal circumstances.  In particular, it did not consider Mr. Davis’s long and unblemished career in the securities industry; he testified during the liability hearing that he was 56 and had been working in the industry since his late twenties.  The Commission may well have determined that continued participation by Mr. Davis in the market is a risk that could not be ameliorated by a remedy short of a lifetime full market ban, but its reasons for doing so must demonstrate a consideration of individual circumstances and alternative sanctions.
[88]        In finding the defects in the Commission’s reasoning to be fatal to its decision, we acknowledge that courts must avoid seizing “on one or more mistakes … which do not affect the decision as a whole” when conducting judicial review on a reasonableness standard: Law Society of New Brunswick v. Ryan, 2003 SCC 20 at para. 56, [2003] 1 S.C.R. 247.  We also recognize that the outcome reached by the Commission may ultimately be justified by the seriousness of Mr. Davis’s conduct.  However, when reviewing for reasonableness, a court must look to both the outcome and the reasons: Delta Air Lines Inc. v. Lukács, 2018 SCC 2 at para. 27, 416 D.L.R. (4th) 579.  Justice Tysoe explained the proper approach to flaws in the reasoning of a tribunal in Kenyon v. British Columbia (Superintendent of Motor Vehicles), 2015 BCCA 485, 82 B.C.L.R. (5th) 266, as follows:
[53]           ... Judicial review judges should read the reasons of the adjudicator as a whole in order to assess whether the reasoning is so lacking in logic, or is otherwise flawed, that it renders the decision unreasonable despite the fact there is some evidence to support a conclusion that the decision falls within a range of acceptable outcomes.
[89]        We, therefore, would allow Mr. Davis’s appeal from the sanctions decision and remit that matter to the Commission for reconsideration in accordance with these reasons.


[90]        We would dismiss the appeal from the liability decision.
[91]        We would allow the appeal from the sanctions decision, set aside the bans listed in para. 61(1) of that decision, and remit the issue of sanctions to the Commission for reconsideration.
“The Honourable Mr. Justice Frankel”
“The Honourable Madam Justice Garson”
“The Honourable Mr. Justice Groberman


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