The Ontario Securities Commission (OSC) has ruled that a scheme involving the sale of land agreements and solar panel agreements actually amounted to selling securities, and that the companies and people behind the scheme therefore traded without registration and illegally distributed securities.
In a decision handed down Thursday, the OSC ruled that Energy Syndications Inc., Green Syndications Inc., Syndications Canada Inc., and three men, Daniel Strumos, Michael Baum, and Douglas Chaddock, violated the Securities Act by trading without registration and distributing securities without a prospectus; and that Chaddock, as the directing mind behind the firms, acted contrary to the public interest by allowing the companies to violate securities law.
However, the commission also found that OSC enforcement staff did not prove their case that they made prohibited representations to investors. Sanctions on the allegations that were proven will be determined after a hearing slated for Sept. 4.
According to the decision, the violations arise from the sale of land agreements and solar panel agreements between October 2008 and April 2011. The OSC charged that these amounted to securities, whereas the respondents in the case argued that they were not selling securities and that they actually sold tangible goods (the solar panels, and land) in compliance with Ontario law. They also claim that they relied on legal advice.
The critical issue, according to the commission, is whether by promoting and entering into the land agreements and solar panel agreements, the respondents traded in a security. It concluded that they did. “From an objective determination of the events and conduct leading up to the purchase of plots, the advertisements and the terms of the land agreements, it can be concluded that the predominant purpose of these land agreements was, from a reasonable investors’ view point, the investment of the money with the expectation of a healthy profit to be realized within one year,” it says.
It notes that the respondents in the case argue that the investors were actually buying freehold real estate. But the commission found that account to be implausible. “It is completely unrealistic and not in accordance with common sense to believe that 69 investors bought small vacant plots near London, England with the expectation that some unspecified, unknown developer would come along, obtain planning permission, aggregate lots together and then pay them a lot of money individually to obtain their lots. There is no air of reality with respect to such a contention,” it says.
Similarly, it found that investors’ primary goal in entering into the solar panel agreement was to obtain a promised return, not to actually accept delivery of the solar panels. “I am satisfied that all the relevant tests have been made out and that the solar panel agreement was an investment contract, not a contract for the purchase of solar panels,” it found.
Additionally, the respondents argued that they relied on legal advice. However, the commission found that their lawyers were not asked to give an opinion whether the agreements they drafted constituted the sale of a security. And, it notes that reliance on legal advice does not constitute a defence to allegations of non-compliance with certain sections of the securities act.
The commission did however rule in their favour on allegations that they made misrepresentations to investors, finding that the OSC staff failed to prove that false statements were made and that investors relied on them. “While, without doubt, much material information which would normally be in a prospectus was not provided to the investors, that is a different thing than establishing that false information was given to the investors,” it says. “The lack of information is a far cry from establishing that the information given to the investors was false or misleading.”