Decisions
GILL FINANCIAL CORPORATION, et. al. [Findings]
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BCSECCOM #:
2001 BCSECCOM 331
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Document Type:
Findings
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Published Date:
2001-03-20
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Effective Date:
2001-03-20
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Details:
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2001 BCSECCOM 331
COR#01/046
IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, c. 418
AND
IN THE MATTER OF GILL FINANCIAL CORPORATION AND NIRBHIA SINGH GILL
PANEL
Adrienne R. Salvail-Lopez, Commissioner
Brent W. Aitken, Commissioner
Roy Wares, Commissioner
DATES OF HEARING
January 15, 16 and 18, 2001
DATE OF FINDINGS
March 20, 2001
APPEARING FOR COMMISSION STAFF
Chilwin Cheng
APPEARING FOR GILL FINANCIAL CORPORATION AND NIRBHIA SINGH GILL
Todd A. McKendrick
FINDINGS OF THE COMMISSION
INTRODUCTION
[para 1]
This is a hearing under sections 161(1) and 162 of the Securities Act, R.S.B.C. 1996, c. 418. A notice of hearing was issued on July 28, 2000, alleging that Nirbhia Singh Gill and his company, Gill Financial Corporation, distributed securities of Gill Financial without registration or a prospectus. The notice also alleges that Gill: perpetrated a fraud on persons in British Columbia; made misrepresentations with the intention of effecting trades in securities; and made statements that were false or misleading during an interview with Commission staff.
BACKGROUND
1. Gill
[para 2]
Gill is 35 years old and has spent most of his life in the lower mainland. After graduating from high school he spent two years in college and a year and a half at Simon Fraser University. After leaving school, he worked for four months at B.C. Central Credit Union and then joined Investors Group Financial Services Inc., a mutual fund dealer. He was employed by Investors as a salesperson from October 29, 1990.
[para 3]
On September 24, 1993, Gill incorporated Gill Financial Corporation under the B.C. Company Act. Gill is the sole shareholder, director and officer of Gill Financial. Gill testified that he incorporated the company as a tax saving measure, to receive the income earned from his activities at Investors. However, he never used Gill Financial for that purpose. In fact, he testified that he has never used Gill Financial for any purpose. Gill Financial has not filed a prospectus or offering memorandum under the Act.
[para 4]
On December 22, 1993, Gill opened an account in the name of Gill Financial at the Canadian Imperial Bank of Commerce. The application shows Gill as president of Gill Financial and describes it as an “Investment Holding Company”.
[para 5]
Gill testified that at the time he incorporated Gill Financial, he developed a form of “financial summary” that he intended to send out to his clients at Investors should Investors give him approval to do so. Once again, however, he never used the financial summary form while employed with Investors.
[para 6]
Gill left Investors on January 2, 1996, for personal reasons. He was going through a divorce and he felt limited in his work. Gill claimed that, at the time he left Investors, he had between 200 and 400 clients and approximately $20 million under administration.
[para 7]
After he left Investors, Gill travelled for a year and then resumed his education at Simon Fraser University. Over these years he amassed significant debts: $16,000 to $17,000 to Revenue Canada; $20,000 from his divorce; $20,000 to his father; approximately $10,000 for every year he remained in school; and several thousand dollars to his cousin, Gurbinder Sran.
[para 8]
Gill testified that when he returned from his year’s travelling in 1996, he began to get back in touch with his friends, the people he had gone to school and worked with and his clients from Investors.
2. Moore
[para 9]
One of those clients was Clifford Moore. Moore is 89 years old and retired, though he remains active in local religious missions. He did not complete secondary school and has taken no investment courses. However, he has had experience running his own business and is a meticulous record keeper.
[para 10]
Gill testified that he and Moore met once or twice a month for meals and conversation. Gill said that Moore became aware of Gill’s circumstances and that one or the other of them raised the idea of Moore loaning money to Gill.
[para 11]
Moore described Gill as his “friend”, though he said he did not “socialize” with Gill and did not know whether Gill had a wife or children. Moore testified that Gill had asked him for a loan to help Gill pay some debts.
[para 12]
During 1997 and 1998, Moore gave Gill a total of $97,000, of which $10,000 has been repaid. Moore was adamant in his testimony that he gave this money to Gill as a “personal loan” and not as an investment in Gill Financial or in any other company. However, there are several sets of documents respecting these payments, some of which are inconsistent with Moore’s testimony.
[para 13]
The first are the cheques that Moore gave to Gill. Those in evidence total $52,500 and are payable, with one exception, to Canaccord Capital Corporation; the one exception is a cheque for $15,000 payable to Gill Financial. Moore testified that he could not remember who asked him to make out the cheques that way, but that the way the cheques were made out was irrelevant to him. Gill testified that he asked Moore to make out the cheques to others because he was afraid that his creditors could take the money out of his personal bank account if the cheques were deposited there.
[para 14]
The Canaccord cheques were deposited into the Canaccord accounts of either Gill or Sran, over whose account Gill had trading authority. The Gill Financial cheque was deposited to Gill’s personal account at Vancouver City Savings Credit Union. The membership application form for that account is dated June 13, 1997, and shows Gill’s occupation as “financial manager” and his employer as “Gill Financial”. Gill testified that by “financial manager”, he meant that he was the manager of his own affairs. He also testified that he said he was employed by Gill Financial because banks sometimes will not open chequing accounts for students and he was a student at this time.
[para 15]
The second set of documents is a package of four monthly account statements from Moore’s chequing account at the Hong Kong Bank of Canada, the account on which the cheques were written. Moore testified that, within a few days of receiving each account statement, he would write notes next to several entries on the statement. He said that he made these notes to refresh his memory as to what he had done during the past month and to help him prepare his income tax return.
[para 16]
There are several notes of a “Donation”. There are three notes referring to a “Loan” to Ben Wong next to cheques for $30, $208 and $79. Moore testified that Wong was a visually impaired young man who needed help and that Moore was assisting him by loaning him some money.
[para 17]
Five of the notes on Moore’s account statements refer to Gill:
(a) the account statement dated November 17, 1997, lists a cheque for $5000 beside which is noted “Mr. Gill’s Co –” and “Investment”;
(b) the account statement dated January 16, 1998, lists a cheque for $15,000 beside which is noted “Gill Investment”;
(c) the account statement dated June 17, 1998, lists a cheque for $2500 beside which is noted “N. Gill” and “Investment”;
(d) the account statement dated June 17, 1998, lists a cheque for $5000 beside which is noted “Gill Financial” and “Investment”; and
(e) the account statement dated September 17, 1998, lists a cheque for $15,000 beside which is noted “Gill Finance Ser.” and “3 Donation assignments”.
Moore testified that each of these five notes is incorrect and that they should refer to personal loans rather than investments.
[para 18]
The third set is a piece of paper acknowledging receipt of $10,000 from Moore on January 2, 1997. The receipt is issued by Gill Financial, whose name is printed on the receipt, and signed by Gill. It refers to “ch #869”, which corresponds to one of the cheques given by Moore to Gill: cheque 869, dated January 2, 1997, for $10,000 payable to Canaccord. Moore testified that he did not remember receiving the receipt but that it would have been given to him by Gill in respect of one of his loans to Gill. Gill corroborated Moore’s testimony on this point.
[para 19]
The fourth set of documents is a package of seven “financial summaries” dated between January 3, 1997 and October 25, 1998. Each is a printed single page noting Moore’s name, address, phone number, birth date and social insurance number. At the top right hand corner are the words “Executive: Nirbhia Gill” and “Company Office: Surrey (604) 596-6812”. At the bottom of the page is the following statement: “This statement lists all financial notes currently held with Gill Financial Corporation. Any questions regarding this statement, please call the Gill Financial Corporation office at (604) 596-6812.” The phone number is Gill’s home number.
[para 20]
Each financial summary lists anywhere from one to five “financial notes”, each “@7% per / annum”. Most are stated to be 12 month notes, but several are for six months. The maturity date of each note is also recorded. The amounts of the notes vary from $5000 to $15,000 and the “total invested” on any given statement varies from $10,000 to $35,000.
[para 21]
For example, the financial summary “as of January 3, 1997” shows one “12 month note @7% per / annum” for $10,000 maturing on January 2, 1998. This corresponds to the $10,000 cheque dated January 2, 1997, given by Moore to Gill and the receipt for $10,000 given by Gill to Moore the same day.
[para 22]
Moore testified that he had asked Gill to give him some “casual record” that he could keep at home of his personal loan to Gill. Gill testified that, after receiving this request from Moore, Gill decided to use the financial summary form that he had developed while he was at Investors and that was still on his laptop. Gill also testified that he never told Moore that these statements were “official in any way” or that Moore would receive them on a monthly basis.
[para 23]
The final set of documents is a package of 25 “Personal Loan Agreements”, each signed by Moore and Gill. The earliest is dated January 2, 1997 and the latest February 24, 1999. Each provides for the payment of interest at 7% per year. The terms of the loans vary from six to 24 months and the amounts of the loans range from $1500 to $15,000. Approximately half represent extensions of earlier loans. According to these documents, Moore loaned Gill a total of $97,000. Moore testified that, while he does not specifically remember signing the agreements, each would have been signed on or within a few days of its date. Gill testified that he prepared the agreements and that each was signed at the time he took the referenced loan from Moore.
[para 24]
Gill also testified that the financial summaries referred to above were prepared after the personal loan agreements. He said that Moore put the personal loan agreements in a safety deposit box and later asked Gill to provide him with some record of the loans that he could keep at home.
[para 25]
Moore testified that he thought he had loaned Gill approximately $75,000, but had lost track of some of the early loans. Moore said that Gill has paid back about $10,000. Moore also testified that he was not afraid of Gill, that Gill had not threatened him in any way and that he did not discuss his testimony with Gill.
3. Brown
[para 26]
Another former Investors client with whom Gill re-established contact was Peter Brown. Brown is 51 years old and drives charter and school buses. He has no post secondary education and has taken no investment courses. Brown testified that he did not pay much attention to his investments.
[para 27]
Brown testified that Gill called him in early 1997 and asked to meet with him. They met at Brown’s home. Brown testified that, at that meeting, Gill told him that Gill was working for himself now and asked Brown to close out his accounts at Investors and give the money to Gill. Brown said:
“What he told me was that my money with Investors Group was basically stocks and the stock market was going to drop and I would lose money and I would be safer in investing it with him.”
[para 28]
In a handwritten letter dated March 23, 1997, Brown instructed Investors to close out his accounts and transfer the money to his chequing account at the Canadian Imperial Bank of Commerce. Brown testified that Gill wrote the letter, which Brown signed, and that Gill took the letter away with him. Investors closed out Brown’s accounts, which were RRSP accounts, and transferred the money as requested. As a result of this transaction, Brown paid a close out fee to Investors of $350 and income taxes of $2400. Brown testified that Gill had not talked to him about the financial consequences arising from this transaction and that he had been under the impression that there would be no fees or taxes because he was “rolling it over” into Gill’s corporation.
[para 29]
Gill’s testimony in regard to this transaction tells a somewhat different story. Gill testified that he re-established contact with Brown in late 1996 and that they would frequently go out for dinner, coffee or drinks. Gill said that, on one of these occasions, Brown expressed concern to Gill regarding the service he was getting at Investors and that he would rather have the money in his chequing account. Gill said that when Brown repeated his comments on another occasion, Gill told him he could do whatever he wanted with his own money and the two agreed that Gill would draft the letter to Investors for Brown.
[para 30]
Around March 29, 1997, Brown gave a cheque to Gill. The cheque was dated March 29, 1997, for $21,000 payable to Canaccord. The cheque was deposited into Sran’s account at Canaccord.
[para 31]
It appears from Brown’s testimony that he was unclear about exactly where his money was going and what was going to be done with it. Brown testified that Gill had talked about Gill Financial during the meeting at his house but had not given him any information about the company other than a business card for Gill Financial. He was asked about what information he had been given:
“Q. What kind of information did [Gill] give you regarding the money that you were giving him or how it would be invested, any actual paper materials or any documents?
A. No, he didn’t mention any of that, he just said he dealt with banks and the banks paid him and he would pay me the 7 per cent interest on my money.”
[para 32]
In his cross-examination, Brown was asked what he specifically remembered about the conversation he had had with Gill at the time he gave Gill the cheque.
“A. The conversation was that I was to give the money to him to address the cheque to Canaccord. He would invest it in Canaccord for me.
Q. Because he was working for the banks?
A. This is what he said, yes.
Q. And because he was working for Gill Financial Corporation?
A. He said the banks pay him any fees and I would invest into – into Gill Financial. I asked him why not Gill Financial on the cheque and he says: No. Canaccord, that’s who I’m dealing with.”
Brown testified that he also asked Gill whether there would be a front end load and that Gill had replied that Gill was paid by the banks.
[para 33]
Later in his cross-examination, Brown was asked what he had cared about at the time he gave his money to Gill:
“Q. When you gave this money to Mr. Gill, all you cared about was what your return was going to be, isn’t that right?
A. That’s one part of it, yes.
Q. Well, you didn’t care whether it was going to Canaccord or Gill Financial or anybody else because you didn’t know what those companies were, right?
A. True.
Q. Okay. So all you cared about was what the percentage was that you were going to get back?
A. That was the percentage I was promised, Yes.
Q. 7 per cent?
A. Yes.
Q. Yeah. And that’s what Mr. Gill said to you: I’m going to give you 7 per cent?
A. Yes.
Q. And that was the important thing for you?
A. One of the important things I presume.
Q. Well, what were the others? What do you presume were the others?
A. Well, I was hoping it was being invested in a safe situation, that I wouldn’t be end up in a situation that I’m at now.
Q. You were hoping that? You said you were hoping that?
A. Yes.
Q. You weren’t assured of that by Mr. Gill?
A. He assured me that I would get my money back, yes.
Q. Yes, but he didn’t say this is guaranteed by the Deposit Corporation or this is guaranteed by a bank or anything like that, did he?
A. No.”
[para 34]
Once again, Gill tells a different story. Gill testified that Brown complained to him about earning only 1½% interest on the money that had been transferred into Brown’s chequing account, and that Gill responded by offering to borrow the money from Brown at 7% interest. Gill denies that he told Brown anything about Gill Financial or that he was working for anyone.
[para 35]
Brown testified that, at the time he gave the cheque to Gill, Gill gave him a receipt. The form of the receipt is identical to that of the receipt given to Moore. The name and address of Gill Financial is printed on the receipt, which is signed by Gill. It is dated March 29, 1997, and acknowledges receipt of $21,000 from Brown.
[para 36]
Brown also testified that, within a week or two of giving the cheque to Gill, Gill gave him a “financial summary”. Once again, the document is identical in form to the financial summaries given to Moore. It contains Brown’s personal information, a reference to Gill as the “Executive”, a reference to the “Company Office” with a phone number and the same statements at the bottom of the page, which refer to “all financial notes currently held with Gill Financial Corporation.” The statement is dated April 3, 1997, and shows one “12 month note @7% per / annum” for $21,000, with a maturity date of March 29, 1998. Brown testified that Gill simply gave him the statement, unasked, and that it accurately reflects the nature of the transaction between them. Gill, however, testified that, like Moore, Brown asked Gill to provide him with some record of his “loan” and that Gill provided it as a “casual observation” rather than as an official statement.
[para 37]
Brown testified that, around March 29, 1998, he asked Gill where his money was. Brown testified that Gill told him that Gill had it but that he could have it back if he wanted it. Brown said that he told Gill he did want the money back. Gill, however, testified that Brown agreed to let him keep the money for another year.
[para 38]
On December 21, 1998, Commission staff contacted Brown in connection with the investigation of this matter. During that telephone conversation, Commission staff told Brown that his $21,000 had been deposited into Sran’s Canaccord account, that some of the money had been withdrawn and the balance used to buy Bre-x shares, with the result that there was little, if any, left of his $21,000.
[para 39]
Brown testified that he had been putting pressure on Gill to give back his money and that Gill had been putting pressure on him but that the situation did not really come to a head until the investigation started. Brown testified as follows:
“Q. Well, I’d like to talk about that, the pressure that you’re talking about. What – what do you mean when you say pressure?
A. He hinted to me that either go along with him as far as this transaction was supposed to be a personal loan and to avoid any conflict with the B.C. Securities Commission I was supposed to say that it was a personal loan.
Q. And when did he start – you said hinted to you. I’d like to get more details about that. When did this hint first start coming up?
A. After the investigation started.”
[para 40]
Brown sent three letters to Commission staff, on January 7 and 14, and August 18, 1999. In those letters he states that he considers Gill a friend, that he made a personal loan to Gill, that he will not make a complaint against Gill and that he does not want the Commission involved in the matter.
[para 41]
In his testimony, Brown stated that these letters were untrue. He said that Gill had advised him to write them and had actually dictated them to him.
[para 42]
Brown had an interview with Commission staff on September 9, 1999. He testified that, during the six weeks before that interview, Gill contacted him five or six times about the interview. Brown testified that Gill came to his house a few days before the interview and described their conversation:
“A. [Gill] was worried that the Security Commission was coming down on him and he was trying to get me to go on his side.
Q. All right.
A. That whatever the transaction between him and I was a personal loan.
Q. Now, I’m going to direct you now to tell us to the best of your memory the exact words that Mr. Gill used in describing what he wanted you to do during the interview.
A. Basically to deny anything that was said earlier and that it was a personal loan.”
[para 43]
Brown testified that, just before his interview, Gill brought three agreements to his house for him to sign. All three were “personal loan agreements” identical in form to those signed by Moore. The first is dated March 29, 1997, and states that Brown is making a personal loan to Gill of $21,000 for one year at 7% interest. The second is dated March 29, 1998, and the third is dated March 29, 1999; both are essentially extensions of the original loan. Brown testified that he signed the documents even though they were not accurate and described the circumstances:
“Q. Did [Gill] tell you why he wanted you to sign these agreements?
A. I believe he mentioned something to the effect that just to make it look good.
Q. What kind of copies did you get of these agreements?
A. I think I got one copy of each.
Q. And why did you sign these agreements.
A. I was worried I wasn’t going to get my money back.
Q. And why is that?
A. Because the way the Securities Commission stated that out of the 21,000 I had I had $9,000 left that they could account for.”
[para 44]
Brown did get his money back, with most of the interest. Gill paid him $24,000 subsequent to Brown’s interview with Commission staff.
[para 45]
Once again, Gill’s testimony in regard to these events differs from that of Brown. Gill testified that Brown always understood that the money he had given to Gill was a personal loan but was concerned because of what he was being told by Commission staff. When asked about the personal loan agreements with Brown, Gill did not deny that they had been prepared after the investigation was underway. He described the circumstances in his testimony:
“Q. So how did the documents come about?
A. Later I talked to him, and I go you know, the Securities Commission is wanting information what really transpired between us, and we should clarify that to them, and that’s why these were drafted out, because we understood between me and him the 21,000 was given to me as a loan, and he understood that and I conveyed to him and he conveyed too back to me.
Q. And so what did you tell him in terms of what he should say to the Securities Commission?
A. I never told him to say anything to the Securities Commission.”
4. The Money
[para 46]
During 1997 and 1998, Gill received $118,000 from these two men, $97,000 from Moore and $21,000 from Brown. The cheques in evidence total $73,500 and, with one exception, were payable to Canaccord and deposited to the account of Gill or Sran at Canaccord. The one exception was a cheque issued by Moore for $15,000 payable to Gill Financial, which was deposited to Gill’s personal credit union account.
[para 47]
The Moore and Brown payments appear to have funded almost all of the activity in Gill’s and Sran’s Canaccord accounts during 1997 and early 1998. During this period, securities of various companies were bought and sold, cash was transferred between the two accounts and several cheques were issued to Gill, Sran and Jody Parbhakar, a friend of Gill’s. On a number of occasions, one of the accounts was cleaned out, to a zero balance, before being replenished by a payment from Moore or Brown.
[para 48]
Gill testified that he used the money he received from Moore and Brown to pay his debts and personal expenses. He said that he deposited some of the cheques into Sran’s account to repay amounts he had borrowed from Sran.
[para 49]
By the date of the hearing, Gill had paid back approximately $10,000 to Moore and $24,000 to Brown. The latest account statements in evidence show a negligible balance in both Gill’s and Sran’s Canaccord accounts.
5. The Investigation
[para 50]
During the investigation, Commission staff interviewed Gill under oath. In that interview, Gill said that Moore and Brown had made personal loans to him.
[para 51]
On January 15, 2001, Gill signed an Agreed Statement of Facts with Commission staff. In it, he acknowledged that Gill Financial “has not applied for or claimed any exemption to the distribution requirements under the Securities Act”.
ANALYSIS
[para 52]
Commission staff allege that:
1. Gill and Gill Financial distributed securities of Gill Financial without registration or a prospectus, and without an exemption from these requirements, contrary to sections 34(1) and 61(1) of the Act;
2. Gill perpetrated a fraud on persons in British Columbia, contrary to section 57 of the Act;
3. Gill made statements with the intention of effecting a trade in securities that he knew, or ought reasonably to have known, were misrepresentations, contrary to section 50(1)(d) of the Act; and
4. Gill made statements that were false and misleading during an interview under oath with Commission staff, contrary to section 168.1 of the Act.
[para 53]
Before we consider these allegations, we must determine whether the transactions between Gill and Moore, and Gill and Brown, involved trades in securities. “Security” is defined in section 1(1) of the Act as follows:
“1(1) ‘security’ includes
. . .
(d) a bond, debenture, note or other evidence of indebtedness . . .”
[para 54]
During 1997 and 1998, Moore and Brown gave Gill a total of $118,000. As a result, Gill was indebted to Moore and to Brown. This indebtedness was evidenced in the receipts, financial summaries and personal loan agreements that Gill gave to the two men. Some of these documents refer to a debt of Gill, while others refer to a debt of Gill Financial. As Gill Financial is Gill’s personal company, the distinction is not important. We find that these documents are evidence of Gill’s, or Gill Financial’s, indebtedness to Moore and to Brown and therefore are securities of either Gill or Gill Financial under section 1(1) of the Act.
1. Distribution of securities without registration or a prospectus
[para 55]
Section 1(1) of the Act defines “trade” and “distribution” as follows:
“‘trade’ includes
(a) a disposition of a security for valuable consideration whether the terms of payment be on margin, installment or otherwise, but does not include a purchase of a security or a transfer, pledge, mortgage or other encumbrance of a security for the purpose of giving collateral for a debt,
“‘distribution’ means, if used in relation to trading in securities,
(a) a trade in a security of an issuer that has not been previously issued,”
[para 56]
Section 34(1) of the Act provides that a person must not trade in a security unless the person is registered under the Act. Section 61(1) provides that a person must not distribute securities unless the Executive Director has issued a receipt for a prospectus respecting the security. Pursuant to section 1(1) of the Act, an issuer can be an individual.
[para 57]
Gill and Gill Financial disposed of securities to Moore and Brown for valuable consideration, $97,000 in total from Moore and $21,000 from Brown. None of the securities had been previously issued. Neither Gill nor Gill Financial were registered to trade in securities and no prospectus was filed in respect of the securities.
[para 58]
The Act provides several exemptions from the registration and prospectus requirements. However, Gill did not argue that either he or Gill Financial relied on any of these exemptions in distributing the securities to Moore and Brown. Indeed, in the Agreed Statement of Facts, Gill acknowledged that Gill Financial had “not applied for or claimed any exemption to the distribution requirements” under the Act. As a result, we accept that there were no exemptions from the registration and prospectus requirements available to Gill or Gill Financial.
[para 59]
Therefore, we find that Gill and Gill Financial distributed securities to Moore and Brown without registration and without obtaining a receipt for a prospectus, contrary to sections 34(1) and 61(1) of the Act.
2. Fraud
[para 60]
Section 57 of the Act provides as follows:
“57. A person in or outside British Columbia must not, directly or indirectly, engage in or participate in a transaction or series of transactions relating to a trade in or acquisition of a security or a trade in an exchange contract if the person knows, or ought reasonably to know, that the transaction or series of transactions
. . .
(b) perpetrates a fraud on any person in British Columbia,”
[para 61]
The test for fraud under section 57 of the Act was considered by the Commission In the Matter of Timothy James Pinchin, [1996] 41 B.C.S.C. Weekly Summary 7, In the Matter of Mindoro Corporation et al., [1997] 7 B.C.S.C. Weekly Summary 13 and In the Matter of Excel Asset Management Inc. et al., [1999] 18 B.C.S.C. Weekly Summary 29. In each of those decisions, the Commission referred to the decision of the Supreme Court of Canada in R. v. Olan, Hudson and Hartnett (1978) 41 C.C.C. (2d) 145 in which Dickson J. stated at page 150:
“Courts, for good reason, have been loath to attempt anything in the nature of an exhaustive definition of ‘defraud’ but one may safely say, upon the authorities, that two elements are essential, ‘dishonesty’ and ‘deprivation.’ To succeed, the Crown must establish dishonest deprivation.”
With regard to the element of dishonesty, in R. v. Zlatic, [1993] 2 S.C.R. 29, the Supreme Court of Canada considered the concept of dishonesty in the context of an allegation of fraud pursuant to section 380 of the Criminal Code. McLachlin J. observed at page 45:
“…Would the reasonable person stigmatize what was done as dishonest? Dishonesty is, of course, difficult to define with precision. It does, however, connote an underhanded design which has the effect, or which engenders the risk, of depriving others of what is theirs. J.D. Ewart, in his Criminal Fraud, (1986), defines dishonest conduct as that ‘which ordinary, decent people would feel is discreditable as being clearly at variance with straightforward or honourable dealings’ (p. 99)”.
[para 62]
Moore was adamant in his testimony that he understood from the first time he gave money to Gill that it was a personal loan. He was equally adamant that each of the personal loan agreements would have been signed on or within a few days of its date. Gill’s testimony supports Moore’s on these two points. We recognize that their testimony is contradicted by several of the documents in evidence. These documents include Moore’s own bank statements, on which Moore made notes of “investments” in connection with Gill and Gill Financial, a receipt issued to Moore by Gill Financial and a number of financial summaries referring to “financial notes currently held with Gill Financial Corporation”. However, we accept Moore’s explanation with respect to these documents and his characterization of his transactions with Gill.
[para 63]
Brown tells a story very different from that of Moore. Brown testified that Gill asked him to close out his accounts at Investors and to give the money to Gill. While Brown was unclear as to exactly what Gill was going to do with his money, he was clear that it was to be invested in some manner, whether it was with the banks, with Canaccord or with Gill Financial. In his cross-examination, Brown acknowledged that all that was important to him was that he would be getting a 7% return and that he was “hoping it was being invested in a safe situation”. He also remembers asking Gill whether there would be a front end load, a question inconsistent with the argument that he viewed his payment to Gill as a personal loan.
[para 64]
Like Moore, Brown was given a receipt from Gill Financial and a financial summary referring to “all financial notes currently held with Gill Financial Corporation”. Unlike Moore, Brown testified that these documents accurately reflected the nature of his transaction with Gill.
[para 65]
There are issues respecting Brown’s credibility in this matter. The first is that Brown admitted to lying in the three letters he sent to Commission staff in 1999, in which he stated that he had made a personal loan to Gill. The second is that Brown admitted signing three personal loan agreements after the investigation was underway, even though they were backdated and not accurate. However, we accept Brown’s explanation of these events, that he was worried about getting back his money and agreed to do what Gill told him in order to do so. In fact, it worked; Brown did get his money back, with most of the interest owing to him.
[para 66]
We also question the credibility of Gill’s testimony in regard to his transaction with Brown. Gill simply denied that he told Brown anything other than that he would borrow money from Brown at 7% interest. He provided no explanation as to how Brown might have come up with the idea that this was an investment rather than a personal loan; he simply dismissed Brown’s testimony in general as unreliable and confused. However, Gill did not challenge Brown’s testimony that Gill dictated the three letters to Commission staff or that Brown signed the backdated personal loan agreements at Gill’s request after the investigation was underway. Gill’s only explanation of these events was that he believed that Brown understood that the payment really had been a personal loan to Gill. We find Gill’s explanations unsatisfactory and are of the view that his testimony in regard to his dealings with Brown was self-serving and of little credibility.
[para 67]
We conclude that Gill took Brown’s money on the basis that he would invest it in some manner and provide Brown with a 7% return. In fact, Gill deposited the money into Sran’s account at Canaccord and used it to pay his personal expenses and debts. As a result, we are of the view that ordinary, decent people would feel that Gill’s conduct in respect of Brown was clearly at variance with straightforward and honourable dealings.
[para 68]
With regard to the element of deprivation, Dickson J. observed at page 150 of Olan that:
“The element of deprivation is satisfied on proof of detriment, prejudice, or risk of prejudice to the economic interest of the victim. It is not essential that there be actual economic loss as the outcome of the fraud.”
[para 69]
We are satisfied that Brown was at risk of prejudice to his economic interest as a result of his dealings with Gill, even though he did not suffer actual economic loss. Brown gave $21,000 to Gill in March 1997 on the basis that he would be paid back in 12 months with 7% interest. At the time, Gill was deeply in debt and had no income; he admitted that he used at least part of the money from Moore and Brown to pay off other debts. Indeed, Brown’s money went directly into Sran’s account at Canaccord. In short, Gill’s financial situation was precarious and there was little likelihood that he would be able to pay back Brown in 12 months. We also accept Brown’s testimony that he asked Gill for his money in March 1998 but did not receive it until after his interview with Commission staff in September 1999.
[para 70]
We are of the view that both dishonesty and deprivation were present in Gill’s transaction with Brown. We found earlier that this transaction involved the distribution of a security from Gill or Gill Financial to Brown. Therefore, we find that Gill perpetrated a fraud on Brown, contrary to section 57 of the Act.
3. Misrepresentation
[para 71]
Section 50(1)(d) of the Act provides as follows:
“50.(1) A person, while engaging in investor relations activities or with the intention of effecting a trade in a security, must not do any of the following:
. . .
(d) make a statement that the person knows, or ought reasonably to know, is a mispresentation.”
A mispresentation is defined in section 1(1) of the Act as follows:
“‘mispresentation’ means
(a) an untrue statement of a material fact, or
(b) an omission to state a material fact that is
(i) required to be stated, or
(ii) necessary to prevent a statement that is made from being false or misleading in the circumstances in which it was made;”
A material fact is defined in section 1(a) of the Act as follows:
“‘material fact’ means, where used in relation to securities issued or proposed to be issued, a fact that significantly affects, or could reasonably be expected to significantly affect, the market price or value of those securities;”
[para 72]
As we concluded earlier, Brown understood that, by giving Gill his $21,000, he was making an investment of some kind rather than a personal loan to Gill. Brown testified that Gill had promised to pay him a 7% return on his money and that Gill had “assured” him that he would get back his money. We recognize that Gill did not tell Brown that his money was actually “guaranteed” by anyone, such as a bank or the Canadian Deposit Insurance Corporation.
[para 73]
When Gill took Brown’s money, Gill was in a precarious financial state, having many debts and no income. As well, Gill intended to use Brown’s money to pay his personal expenses and debts and did, in fact, do so. We are of the view that Gill’s financial condition at the time, and his intention to use Brown’s money to pay his personal expenses and debts, were facts that could reasonably be expected to significantly affect the value of the security distributed to Brown.
[para 74]
We have already found that Gill acted fraudulently in his transaction with Brown. We also find that, by omitting to tell Brown these material facts, Gill made statements that were misrepresentations with the intention of effecting a trade in a security, contrary to section 50(1)(d) of the Act.
4. False statements to staff
[para 75]
Section 168.1(1) provides as follows:
“168.1 (1) A person must not
(a) make a statement in evidence or submit or give information under this Act or the regulations to the commission, the executive director or any person appointed under this Act or the regulations that, in a material respect and at the time and in light of circumstances under which it is made, is false or misleading, or omit facts from the statement or information necessary to make that statement or information not false or misleading, or”
[para 76]
In his interview under oath with Commission staff during the investigation, Gill told Commission staff that Moore and Brown had made personal loans to him.
[para 77]
Gill made the same assertion during his testimony at the hearing. He was supported in his version of events by Moore’s testimony and some of the documentary evidence. Brown’s testimony and most of the document evidence, however, contradicted Gill’s story.
[para 78]
Though we have found Gill’s testimony with respect to his dealings with Brown to be of little credibility, we are not prepared, given the contradictory nature of the evidence, to find that Gill contravened section 168.1(1) of the Act.
ORDERS
[para 79]
We have found that Gill and Gill Financial distributed securities to Moore and Brown without registration and without obtaining a receipt for a prospectus, contrary to sections 34(1) and 61(1) of the Act. We have also found that Gill perpetrated a fraud on Brown, contrary to section 57 of the Act, and made misrepresentations to Brown with the intention of effecting a trade in a security, contrary to section 50(1)(d) of the Act.
[para 80]
We will hear further submissions before issuing orders in respect of our findings. If the parties wish to make written submissions, we direct Commission staff to file their submissions and send a copy to Gill and Gill Financial by April 13, 2001, and Gill and Gill Financial to file their submissions and send a copy to Commission staff by May 7, 2001. If the parties wish to make oral submissions, we direct them to contact the Secretary to the Commission before April 20, 2001, to fix a date for the hearing of those submissions.
March 20, 2001.
[para 81]
FOR THE COMMISSION
Adrienne R. Salvail-Lopez, Commissioner
Brent W. Aitken, Commissioner
Roy Wares, Commissioner