In Re Davis, 2018 BCSECCOM 284, the British Columbia Securities Commission upheld permanent market prohibitions against Mr. Davis who committed fraud on one investor in the aggregate amount of (only) $7,000.

Background

Mr. Davis, who was never registered under the Securities Act (B.C.), purported to sell shares that he did not own to an investor over a period of two years. Throughout that time, Davis continued to deceive the investor by providing false assurances regarding the status of the shares. Although the investor was successful in obtaining repayment of her $7,000 through court proceedings, the Commission, in its 2016 decision, imposed permanent market prohibitions and a $15,000 administrative penalty.

Appeal

Mr. Davis appealed the Commission's imposition of the permanent market prohibitions on the basis that they were unreasonable. In particular, Mr. Davis argued that the panel had failed to consider his unblemished record in the industry and the principle of proportionality. The Court of Appeal agreed. It concluded that the Commission had failed to conduct an individualized assessment of Mr. Davis' personal circumstances, and remitted the matter back to the Commission for reconsideration.

Analysis

As directed, the Commission considered Mr. Davis' personal circumstances, in particular the evidence regarding his livelihood and his unblemished career in the capital markets industry. The evidence revealed, however, that since late 2011 or early 2012, he had moved on to other types of work and was no longer dependent upon his involvement in the capital markets to earn a living. Further, the fact that Mr. Davis had no prior regulatory history was inconsequential to the Commission's decision to impose section 161 prohibition orders, which are intended to be "protective and preventative".

While the amount of the fraud was relatively small, Mr. Davis' misconduct involved ongoing deceitful conduct over two years, which demonstrated a significant lack of honesty and integrity. In addition, the investor was deprived of her funds for several years, suffered emotional harm and had to seek recourse to the courts for recovery. Accordingly, the Commission found that the significant risk Mr. Davis posed to the integrity of the capital markets and to investors warranted (re)ordering permanent market prohibitions.

Takeaway

This decision serves as a reminder that participants in the securities industry are held to high standards of honesty and integrity. As a result, they should expect that the securities regulators will impose significant sanctions if they commit securities fraud, even "small" ones.

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