OSC v Future Solar, 2015 ONSC 2334- invest money get citizenship contrary to the public interest
RE: Ontario Securities Commission, Applicant
Future Solar Developments Inc., Cenith Energy Corporation, Cenith Air Inc., Angel Immigration Inc. and Xundong Qin also known Sam Qin, Respondents
BEFORE: L. A. Pattillo J.
COUNSEL: Christie Johnson, for the Applicant
Allan Rouben, for the Respondents
HEARD: April 7, 2015
 On February 16 and 17, 2015, the Ontario Securities Commission (the “Commission”) issued 11 freeze directions (the “Freeze Directions”) against the bank accounts and property of the Respondents Future Solar Developments Inc. (“Future Solar”), Cenith Energy Corporation (“Cenith Energy”), Cenith Air Inc. (“Cenith Air”), Angel Immigration Inc. (“Angel Immigration”) (collectively the “Corporate Respondents”) and Xundong Qin (also known as Sam Quin) (“Quin”) pursuant to s. 126(1)(a) and (b) of theSecurities Act, R.S.O. 1990, c. S.5, as amended (the Act).
 There are two matters before the court:
1. The Commission’s application for an order continuing the Freeze Directions pursuant to s. 126(5) of the Act; and
2. A motion by the Respondents to revoke the Freeze Directions or, in the alternative to have them varied to allow payment of expenses by the Corporate Respondents in the ordinary course of business and payment of legal fess.
 The Commission’s application for continuation of the Freeze Directions first came before the court on February 26, 2015. Because the Respondents wished to bring their motion and file material, the application was adjourned to April 7, 2015 and the Freeze Directions were continued until that date. On April 7, 2015, following argument, I reserved my decision and continued the Freeze Directions pending release of this decision.
 For the reasons that follow, the Commission’s application is allowed and the Freeze Directions are continued. The Respondents motion is dismissed.
 The Corporate Respondents are incorporated in Ontario and are engaged in solar energy (Future Solar) and the manufacture of air purifier systems (Cenith Energy and Cenith Air). Quin is an officer and director of the Corporate Respondents.
 The Commission alleges that the Respondents are trading in securities without being registered, contrary to s. 25 of the Act, illegally distributing securities contrary to s. 53 of the Act and/or acting contrary to the public interest.
 Future Solar was incorporated in May 2011 for the purpose of developing and managing solar energy projects in Ontario. In order to raise capital, Solar Energy, through a firm in Beijing, sought out individuals in the People’s Republic of China (“China”) who had monies available and who wished to immigrate to Ontario utilizing the Ontario Provincial Nominee Program (“OPNP”).
 OPNP is an immigration program offered through the Ontario Ministry of Citizenship, Immigration and International Trade (“MCII”) whereby Ontario nominates individuals and their families’ for permanent resident status based on certain criteria including amount of investment, number of jobs created and involvement in the business.
 The Commission has been involved in an investigation of the respondents which is ongoing. To date, the Commission staff has observed approximately $5.9 million in payments from 11 OPNP investors deposited into Ontario-based bank accounts held by Future Solar and Cenith Energy between May 2012 and August 2014. In contrast, Qin advised the Commission staff that he had raised approximately $8.1 million from 13 OPNP investors.
 The Ontario based bank accounts of the Corporate Respondents show a further $830,000 in funds received from eight investors which came from Canadian financial institutions and further deposits totaling approximately $3.6 million which originated primarily from mainland China but also from Hong Kong and Australia. None of these investors are associated with the OPNP.
 Further, Commission staff has been able to locate $1.84 million of assets in Ontario made up of approximately $845,000 in bank accounts and $965,000, net, in real property held in Qin’s name and in Cenith Energy’s name. Based on its investigation to date, Commission Staff believes that the properties were purchased from funds in the Corporate Respondents’ bank accounts after receipt of funds from investors.
 Cenith Air is engaged in the manufacture and distribution of air purifier systems and related products. In October 2014, Cenith Air signed a memorandum of understanding with a Chinese company relating to the manufacture and sale of air purifiers in China. Cenith Air has other contracts for the sale of air purifier products.
 None of the Corporate Respondents are reporting issuers in Ontario. Further, between January 1, 2011 and at least December 8, 2014, the Respondents were not registered with the Commission and no prospectus was filed on behalf of any of the Corporate Respondents.
 The Respondents submit that they are legitimate businesses and, since the Freeze Directions, have been unable to carry on business. They have been unable to carry on projects or to pay their manufacturers, suppliers and employees.
 The relevant provisions of s. 126 of the Act are:
126. (1) If the Commission considers it expedient for the due administration of Ontario securities law or the regulation of the capital markets in Ontario or expedient to assist in the due administration of the securities laws or the regulation of the capital markets in another jurisdiction, the Commission may,
(a) direct a person or company having on deposit or under its control or for safekeeping any funds, securities or property of any person or company to retain those funds, securities or property;
(b) direct a person or company to refrain from withdrawing any funds, securities or property from another person or company who has them on deposit, under control or for safekeeping;
(1.1) A direction under subsection (1) applies until the Commission in writing revokes the direction or consents to release funds, securities or property from the direction, or until the Superior Court of Justice orders otherwise.
(5) As soon as practicable, but not later than 10 days after a direction is issued under subsection (1), the Commission shall serve and file a notice of application in the Superior Court of Justice to continue the direction or for such other order as the court considers appropriate.
(5.1) An order may be made under subsection (5) if the court is satisfied that the order would be reasonable and expedient in the circumstances, having due regard to the public interest and,
(a) the due administration of Ontario securities law or the securities laws of another jurisdiction; or
(b) the regulation of capital markets in Ontario or another jurisdiction.
(7) A person or company directly affected by a direction may apply to the Commission for clarification or to have the direction varied or revoked.
 In Ontario Securities Commission v. Sextant Capital Management Inc. (2010), 100 O.R. (3d) 707 (CA), the Court of Appeal set out the test to be applied by the Superior Court when determining whether to continue freeze directions pursuant to s. 126(5) of the Act. That test, as first articulated by Farley J. in Ontario (Securities Commission) v. RBC Dominion Securities Inc. (2001), 2001 CanLII 27979 (ON SC), 54 O.R. (3d) 767 (SCJ), is similar to the test for a Mareva injunction and has three parts: a strong prima facie case or a serious issue to be tried, as to whether there has been a contravention of the Act; a close connection between the alleged misconduct and the frozen assets; and evidence of a potential dissipation of assets.
 At the time of the Sextant decision, s. 126 (5.1) was not present in the Act. It was added by amendment in July 2014 (2014, c.7, Sched. 28, s.13(2)). At the same time, amendments were also made to the wording of s. 126 (1) (a), (b) (c) and (1.1).
Position of the Parties
 The Commission submits that the test set out in Sexton no longer applies to the continuance of Commission freeze directions given the recent enactment by the legislature of s. 126(5.1). Further, and based on that section, it submits the court should continue the Freeze Directions because it is reasonable and expedient to do so, having regard to the public interest and the administration of the Act. In the alternative, and if the Sexton test still applies, it submits that the Commission’s evidence before the court satisfies each of the three criteria.
 The Respondents submit, notwithstanding the amendment, the Sexton test should continue to apply. The test continues to reflect the considerations set out in s. 126(5.1). They submit that the Commission has failed to meet the Sexton test. It has failed to establish a strong prima facie case that the Respondents breached either s. 25(1) or s.53(1) of the Act. Nor has it established a close connection between the alleged misconduct and the frozen assets or that there is any risk of dissipation of assets.
 Section 126 (5.1) of the Act requires that in order to continue the freeze directions, the court must be satisfied that the order would be “reasonable and expedient in the circumstances” have due regard to the public interest and the due administration of securities laws in Ontario and or other jurisdictions, or, the regulation of capital markets in Ontario or other jurisdictions.
 Ultimately, based on the provisions of s. 126 (5.1), the question for the court to decide is whether it is in the public interest to continue the freeze direction.
 I agree with the Commission that having regard to the wording of s. 126(5.1) of the Act, the Sexton test is no longer applicable. As submitted by the Commission before me, the addition of s. 126(5.1) of the Act has lowered the threshold of the test required to continue a freeze direction from a test akin to a Mareva injunction. Nevertheless, in my view, the Sexton test remains a useful guide in formulating what is “reasonable and expedient” having regard to the public interest.
 Further, and notwithstanding that the grounds considered by the Commission to issue a freeze order under s. 126(1) of the Act and the grounds for continuation set out in s. 126(5.1) are very similar, in my view, the addition of the word “reasonable” in s. 126(5.1) gives the court an oversight role which makes the task more than just a duplication of the Commission’s role.
 Section 126(5.1) requires that the court consider all the circumstances. This includes the stage of the investigation; the allegations of the Commission; the strength of the evidence; whether a proceeding has been initiated; any material filed in response by the company or individual who is the subject of the direction; the extent of the impact on private interests and any other circumstances unique to the particular case.
 In considering the circumstances, the court must have regard to the public interest. The public interest in question is the public interest as reflected by the provisions of the Act. That is the proper administration and enforcement of the Act to protect investors and capital markets in Ontario. Included in that is ensuring that the Commission carries out its mandate in a proper manner, according to law. The Commission’s interests are more specifically addressed in the later requirements concerning the due administration of securities law and regulation of capital markets.
 With the above in mind, I consider that the following factors are relevant to the court’s oversight role as set out in s. 126(5.1) of the Act.
 First and foremost, the conduct in issue must provide a basis for the freeze order to have been issued. In that regard, the Commission must establish at a minimum that the conduct complained of contravenes the Act (or the securities laws of another jurisdiction).
 Further, and while the use of the terms “reasonable” and “expedient” in my view provide for a lesser standard than the requirement to establish a strong prima facie case or even a prima facie case, I am of the view, given the draconian nature of the remedy and the fact that it originates ex parte, it is both reasonable and expedient that the Commission establish on the evidence that there is a serious issue to be tried in respect the alleged contravention of the Act or other securities law.
 I am also of the view that it is reasonable, given the nature of the remedy, to require the Commission to establish a connection between the frozen assets and the conduct at issue. While the Commission need not prove a direct connection given that its investigation may be ongoing, it still must still establish some basis to suspect, suggest or prove that there is a connection between the assets sought to be frozen and the conduct complained of.
 Finally, and while I do not consider that s. 126(5.1) requires the Commission must establish dissipation of assets, it must establish that the freeze order is necessary for the due administration of securities laws or the regulation of capital markets, in Ontario or elsewhere. This would include not only dissipation of assets but preservation of assets, inappropriate use of investor funds and other situations where the freeze direction is necessary to protect the investing public or capital markets.
 In summary, in order for the court to continue the Freeze Directions pursuant to s. 126(5) of the Act, based on s. 126(5.1), the Commission must establish:
1. That there is a serious issue to be tried in respect of the Respondents’ breaches of the Act or other securities laws in another jurisdiction;
2. That there is a basis to suspect, suggest or prove a connection between the frozen assets and the conduct at issue; and
3. That the Freeze Directions are necessary for the due administration of securities laws or the regulation of capital markets, in Ontario or elsewhere.
 Turning to the evidence as presented by the Commission in this case, in my view the Commission has established that there is a serious issue to be tried in respect of the Respondents alleged breaches of ss. 25 and 53 of the Act.
 Section 25(1) of the Act provides: “Unless a person or company is exempt under Ontario securities laws from the requirement to comply with this subsection, the person or company shall not engage in or hold himself, herself or itself out as engaging in the business of trading in securities unless the person or company, (a) is registered in accordance with Ontario securities laws as a dealer; or (b) is registered in accordance with Ontario securities laws as a dealing representative of a registered dealer and is acting on behalf of the registered dealer.”
 Section 53(1) of the Act provides: “No person or company shall trade in a security on his, her or its own account or on behalf of any other person or company if the trade would be a distribution of the security, unless a preliminary prospectus and a prospectus have been filed and receipts have been issued for them by the Director.”
 While the Commission’s investigation is ongoing, the Commission has established that it appears the Respondents have raised between approximately $5.9 million and in excess of $10 million from investors resident in China, Ontario and elsewhere. The investments were solicited by the Respondents and others on their behalf, utilizing the OPNP and other means. For example, both Future Solar and Cenith Energy have active websites that contain links entitled “investors” which invite further contact with the companies. Further, during the relevant period of the Respondents were not registered with the Commission as required by s. 25(1) of the Act and did not file a preliminary prospectus or a prospectus with the Commission as required by s. 53(1) of the Act.
 The Respondents submit that because they carry on legitimate businesses relating to solar energy and air purification that they are not in the business of trading in securities. The Respondents further submit, having regard to the provisions of Canadian Securities Administration Companion Policy 31-103CP, they do not meet any of the criteria set out therein for determining whether they are required to register.
 I need not determine that issue on this application. In my view, having regard to all of the evidence, I am satisfied that the Commission has established there is a serious issue to be tried concerning its allegation that the Respondents have breached ss. 25(1) and 53(1) of the Act.
 The Respondents further submit there is no close connection between the alleged misconduct and the frozen assets, given there is no allegation of misrepresentation. In my view, there is no requirement that there be an allegation of misrepresentation to establish close connection.
 The Commission’s evidence establishes that the monies raised by the Respondents from investors contrary to the provisions of the Act either remain in the bank accounts now frozen or were used to purchase the property which has been frozen.
 Finally, in freezing the bank accounts and property of the Respondents, the Commission seeks to preserve both monies and property for the benefit of investors. In my view, the Freeze Directions are necessary for the due administration of the Act.
 Based on the above therefore, the Commission’s application is allowed. I conclude it is reasonable and expedient that the Freeze Directions be continued until the Commission or this court orders otherwise.
The Respondents’ Motion
 The Respondents have brought a separate motion to revoke the Freeze Directions or, in the alternative, to vary them to allow for the payment of expenses by the Corporate Respondents in the ordinary course of business and the payment of legal fees.
 As noted, s. 126(7) of the Act provides that any person or company affected by a direction may apply to the Commission … “to have the direction varied or revoked.”
 In my view, based on s. 126(7) of the Act, I have no jurisdiction to deal with the Respondents motion. It should be brought before the Commission. Having said that, I have reviewed and considered the Respondents’ material in relation to the Commission’s application to continue the Freeze Directions.
 Accordingly, the Respondents’ motion is dismissed without prejudice to them bringing it on before the Commission.
 The Commission’s application raised novel issues. The Respondent’s motion was mainly a response to the application. In the circumstances, no costs.
L. A. Pattillo J.
Released: May 5, 2015