Tools of the trade: OSC criminal and quasi-criminal charges result in jail terms for convicted securities fraudsters

Hancuffs and the word "Fraud"

As reported in our 2021 Annual Review of capital markets regulatory enforcement activities, Canadian securities regulators have shown their commitment to using a variety of enforcement tools to better safeguard their capital markets. While the traditional remedial path is through administrative proceedings, regulators have shown a willingness to proceed against alleged wrongdoers in the provincial courts, laying criminal or quasi-criminal charges that could lead to jail time. Recently, the Ontario Court of Justice sentenced an Ottawa man to 30 months in prison for quasi-criminal charges arising from breaches of the Securities Act. The case represents the first time in over two years that the Ontario Securities Commission’s (OSC) exercise of its quasi-criminal enforcement powers has resulted in a jail term. In another recent case, the Ontario Court of Justice sentenced a U.K. resident to six years in jail for criminal charges under the Criminal Code.

The Brunet case

In 2018, the OSC filed quasi-criminal charges against Marc and Helene Brunet relating to their sale of over $750,000 worth of securities in MultiCast Networks Holdings Inc. In June 2021, Justice J. Loignon of the Ontario Court of Justice found that a significant percentage of that money was used for the couple’s personal benefit, resulting in Mr. Brunet’s conviction under the Securities Act of fraud contrary to section 126.1(1)(b) and trading without registration contrary to section 25(1). Mr. and Ms. Brunet were also convicted of trading without a prospectus contrary to section 53(1).  

On December 1, 2021, Justice Loignon of the Ontario Court of Justice sentenced Mr. Brunet to two and a half years of jail time. Additionally, Ms. Brunet was sentenced to 12 months of probation and the couple was ordered to pay over $700,000 in restitution. Both Mr. and Ms. Brunet are appealing their convictions.

The Sevilla case

In 2020, Mr. Sevilla was charged with fraud over $5000 contrary to section 380(1)(a) of the Criminal Code, and possession of property obtained by crime contrary to section 354(1)(a) of the Criminal Code. The charges arose out of Mr. Sevilla’s coordination of an international fraud scheme targeting Ontario investors while he was living in the U.K. Roughly 100 Ontario investors invested more than $6 million with Mr. Sevilla, and the funds were used personally by Mr. Sevilla and an accomplice.

Following an extradition request by the OSC in 2020, Mr. Sevilla was arrested in the U.K., where he was held in custody until his extradition to Canada in October 2021. Mr. Sevilla pled guilty to both charges. On December 16, 2021, Justice Chapin of the Ontario Court of Justice sentenced Mr. Sevilla to six years in jail.

Both the Brunet and Sevilla investigations were conducted by a team within the Enforcement branch of the OSC dedicated to investigating criminal and quasi-criminal offences related to securities law. To date, this team has pursued a total of 56 criminal and quasi-criminal matters.

OSC’s criminal and quasi-criminal enforcement powers

Pursuant to section 122 of the Securities Act, the OSC has the authority to lay quasi-criminal charges against every person or company that contravenes Ontario securities law. These charges are investigated and prosecuted by the OSC, and carry the potential sanction of jail time up to five years less a day. Criminal charges, which are laid pursuant to the Criminal Code, are investigated by the OSC but prosecuted by the Ministry of the Attorney General.

The OSC’s Annual Report [PDF] demonstrates the relative rarity of both quasi-criminal and criminal enforcement proceedings and resulting jail terms: in the 2020–2021 fiscal year, there were only two quasi-criminal enforcement proceedings concluded before the courts, and no jail time resulted from these proceedings. Within the same time period, there were no Criminal Code proceedings. As we wrote earlier this year, statistics published by the Canadian Securities Administrators demonstrate that just six individuals across Canada received jail terms for breaches of Canadian securities laws [PDF] in the 2020–2021 fiscal year, and there was only one proceeding commenced under the Criminal Code.

Some reasons why OSC enforcement staff generally may find it challenging to pursue quasi-criminal investigations rather than administrative ones include that

  • OSC staff have to demonstrate their case beyond a reasonable doubt, whereas regulatory proceedings only require staff to prove their allegations on a simple balance of probabilities
  • quasi-criminal offences likely require proof of the accused’s mental state
  • defendants in a quasi-criminal investigation are protected by the Canadian Charter of Rights and Freedoms — which includes a right against self-incrimination — limiting staff’s ability to make use of statutory investigative tools otherwise available

For these and other reasons, quasi-criminal charges are generally reserved for more clear and serious criminal-like wrongdoing, where punishment such as jail terms may be more appropriate than other market-protecting remedies.

Despite the relative infrequency with which staff pursue quasi-criminal charges, the outcome in the Brunet and Sevilla cases serve as a reminder that jail time remains available as a sanction for breaches of securities law. Discussing the Court’s decision to order jail time in the Brunet case, the OSC Director of Enforcement stated that this outcome “sends a clear message to anyone thinking of committing securities fraud in Ontario that they will be held accountable for their actions.”