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Disgorgement
[46] Clause 10 of subsection 127(1) of the Act provides that a person or company that has not complied with Ontario securities law can be ordered to disgorge to the Commission “any amounts obtained as a result of the non-compliance”. The disgorgement remedy is intended to ensure that respondents do not retain any financial benefit from their breaches of the Act and to provide specific and general deterrence.
[47] Disgorgement is not intended primarily as a means to compensate investors for their losses. However, subsection 3.4(2)(b) of the Act allows the Commission to order that amounts paid to the Commission in satisfaction of a disgorgement order or administrative penalty be allocated to or for the benefit of third parties.
[48] I have considered the following factors in determining whether to issue a disgorgement order against the Respondents:
(a) the amount obtained by the Respondents as a result of their non-compliance with the Act;
(b) the fact that the amount obtained as a result of the Respondents’ non-compliance is reasonably ascertainable;
(c) the seriousness of the misconduct and breaches of the Act;
(d) whether the individuals who suffered losses are likely to be able to obtain redress by other means; and
(e) the deterrent effect of a disgorgement order on the Respondents and other market participants.
(Re Limelight Entertainment Inc., supra, at para. 52)
[49] In my view, a disgorgement order is appropriate in these circumstances because it ensures that none of the Respondents will benefit from their breaches of the Act and because such an order will deter them and others from similar misconduct. However, while I accept the principle from Re Limelight that all monies obtained as a result of non-compliance with securities law should be disgorged, the circumstances of this case do not warrant full disgorgement. This was not a case that involved an allegation of fraud or a sham investment scheme of any kind, and therefore a 100 percent disgorgement would verge on the punitive side. In my view, it is appropriate that a disgorgement order in these circumstances relate to the amount obtained by Mr. Deng that he used for his own personal benefit.
[50] I will order that the Respondents disgorge $2,193,873 (CDN) on a joint and several basis. That amount represents the total amount in Canadian dollars that was obtained by the Respondents and used for their own personal benefit, as detailed in paragraph 9(d) and (e) of Staff’s written submissions:
(d) $678,134 and $1,387,794 (USD) was paid to Mr. Deng or for his own personal benefit;
(e) $380,044 and $108,900 (USD) was spent on credit card payments of which $127,945 was used for jewellery purchases by Mr. Deng.
I included only the $127,945 from subparagraph (e), as there was no dispute that this amount was used for a personal benefit/personal purchase. The remainder of the amount spent on credit card payments may include personal amounts but this was not explored in sufficient detail for me to include them in the disgorgement order.
[51] I impose joint and several liability on MP and Mr. Deng because, as stated in the Merits Decision, Mr. Deng was the directing and controlling mind of MP. Ultimately it was Mr. Deng who managed investors’ funds.
(v) Administrative Penalty
[52] In my view, it is appropriate to impose substantial administrative penalties against the Respondents, in addition to my disgorgement order. I have considered the submissions made by Staff as to the appropriate administrative penalty in this case. However, I find it necessary to distinguish this case from the fraud cases which Staff directed me to. In my view, the Respondents’ behaviour was not predatory or rapacious, however it is conduct of serious concern where Mr. Deng took large amounts of funds from investors and then was not forthcoming with said investors when all of their funds were lost. This is unacceptable conduct by any person but as a former registrant and someone who was familiar with the markets, there is an expectation placed on such a Respondent for them to comply with the Act. It was clear from the evidence provided by Staff during the hearing on the merits that extensive time was required to gather and analyze the financial records of MP in order to ascertain what happened to investors’ funds.
[53] In imposing the following administrative penalty, I have considered the findings in the Merits Decision, the respective roles of each Respondent in the illegal conduct involved in this matter and the extent of the involvement of each Respondent.
[54] I will order that an administrative penalty of $250,000 be paid to the Commission by each of MP and Mr. Deng. The Respondents committed multiple violations of the Act, which caused serious harm to the investors. As noted above, Mr. Deng was the directing and controlling mind of MP and orchestrated the investment of the funds obtained and then mismanaged those funds. A very substantial administrative penalty is justified based on the amount of money that appears to have been lost by investors. Further, a substantial administrative penalty is necessary to signal to the public that you cannot neglect registration and use of a prospectus and avoid monetary penalty. That amount shall be allocated to or for the benefit of third parties in accordance with section 3.4(2)(b) of the Act in accordance with this decision (see paragraph 55 of these reasons).
(vi) Allocation of Amounts for Benefit of Third Parties
[55] Any amounts paid to the Commission in compliance with my orders for disgorgement and administrative penalties shall be allocated to or for the benefit of third parties, including investors who lost money as a result of investing with MP, in accordance with subsection 3.4(2)(b) of the Act.
[56] The terms of paragraph 55 shall not give rise to or confer upon any person, including any investor (i) any legal right or entitlement to receive, or any interest in, amounts received by the Commission under my orders for disgorgement and administrative penalties, or (ii) any right to receive notice of any application by Staff to the Commission made in connection with that paragraph or of any exercise by the Commission of any discretion granted to it under that paragraph.
VI. COSTS
[57] Section 127.1 of the Act gives the Commission discretion to order a person or company to pay the costs of an investigation and a hearing if the Commission is satisfied that the person or company has not complied with the Act or has not acted in the public interest. The panel held in the Merits Decision that the Respondents contravened subsections 25(1)(a) and 53(1), Mr. Deng contravened section 129.2 and that the Respondents have not acted in the public interest.
[58] Staff seeks an order for the payment of $317,940.92 of the costs of investigation and of the hearing in this matter against all of the Respondents, including disbursements, on a joint and several basis. Staff submitted an affidavit, a Bill of Costs and dockets supporting that amount.
[59] Staff submits that the hearing on the merits took 18 days to complete, and the Respondents did not contribute to the efficiency of the hearing. Their conduct was egregious and their primary defence was without merit.
[60] The claim for costs was calculated according to a schedule of hourly rates for various members of Staff of the Enforcement Branch of the Commission.
[61] The Respondents submit that success was relatively divided in this matter and, accordingly, there should be no award of costs made. Further, the Respondents argue that the dockets provided by Staff in support of the costs request were “grossly deficient”, and that the number of Enforcement Staff present at the hearing was unnecessary. The Respondents submit that the quantum for hours requested for Mr. Humphreys for 315.25 hours and 580 hours for Ms. Collins, respectively, are excessive. Furthermore, they submit that the amounts claimed for these hours at the rate of $185.00 per hour, for a total combined amount of $165,621.25, are inappropriate and seriously offensive to the principle of indemnification.
[62] The Respondents submit that no costs should be paid for internal litigation counsel, being the amount of 438 hours for Mr. Britton and 78.5 hours for Ms. Heydon. They submit that section 127.1 of the Act contemplates only costs which are incurred by outside counsel who are retained to provide services to the Commission. Therefore, the Respondents submit that Mr. Britton and Ms. Heydon are staff in-house members of the Commission and on top of that, have failed to provide the actual hourly wage information as part of Staff costs submissions.
[63] I do not agree with the Respondents’ submissions that certain costs such as internal litigation counsel costs are not recoverable in this matter. The language of subsection 127.1(4) of the Act is quite clear, in which it states that “the costs that the Commission may order the person or company to pay include, but are not limited to, all or any of the following:
3. Costs for time spent by the Commission or the staff of the Commission.
Therefore, I do not find that the payment of internal litigation counsel costs by the Respondents inappropriate or outside the parameters of the Act.
[64] Lastly, the Respondents submit that all of the 78.5 hours of Ms. Heydon should be disallowed. This proceeding commenced in 2009. Ms. Heydon was called to the Bar in 2008. The Respondents submit that Ms. Heydon at best fulfilled the role as junior counsel, law clerk or student during the proceeding.
[65] I agree with the Respondents that in this particular matter where one allegation has not been proved by Staff, this should be taken into account regarding a costs award. I also find it reasonable for the Respondents to make the argument that it was Staff’s choice to have multiple counsels present at a fairly straight-forward hearing, and therefore it is not entirely fair for Respondents to automatically assume that full burden. Further, while I do not take the view that the dockets provided by Staff were “grossly deficient” as argued by the Respondents, I would note that the dockets lacked detail as to the type of work performed. The dockets do show however that many hours were spent on this case by various members of Staff, and I do not doubt the time spent on this case as it was clear from the Merits Hearing that extensive investigation and financial analysis was required. I have taken the Respondents submissions at paragraphs 61 to 64 into account however I am of the view that the costs requests of Staff sit squarely within the parameters of the Act. I take no issue with the disbursements.
[66] Therefore, I order that costs in the amount of $150,000 shall be payable by the Respondents on a joint and several basis.
VII. CONCLUSION
[67] For the reasons discussed above, I have concluded that the sanctions I impose above are proportionate to the respective conduct and culpability of each of the Respondents in the circumstances and are in the public interest. I will issue a sanctions and costs order substantially in the form attached as Schedule “A” to these reasons.
Dated at Toronto, this 1st day of October, 2012.
“Margot C. Howard”
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发表于 2012-10-18 13:00:10
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