



COURT OF APPEAL FOR BRITISH
COLUMBIA




Citation:



McCabe v. British Columbia
  (Securities Commission),









2016 BCCA 7




Date: 20160108

Docket: CA42515

Between:

Colin Robert Hugh
McCabe

Appellant

And

British Columbia
Securities Commission and the Executive

Director of the
British Columbia Securities Commission

Respondents




Before:



The Honourable Mr. Justice Tysoe

The Honourable Madam Justice Garson

The Honourable Mr. Justice Goepel




On appeal from:  The
decisions of the British Columbia Securities Commission, dated July 8, 2014
(liability) (
Re McCabe
, 2014 BCSECCOM 269) and
December 18, 2014 (sanctions) (
Re McCabe
, 2014 BCSECCOM 512).




Counsel for the Appellant:



S.K. Boyle

M.P. Good





Counsel for the Respondent:



W.L. Roberts

D. Chapman





Place and Date of Hearing:



Vancouver, British
  Columbia

November 2, 2015





Place and Date of Judgment:



Vancouver, British
  Columbia

January
  8, 2016





Written Reasons by:





The Honourable Mr. Justice Goepel





Concurred in by:





The Honourable Mr. Justice Tysoe





The Honourable Madam Justice Garson








Summary:

Appeal from decisions of the
British Columbia Securities Commission finding the appellant liable for
misrepresentations contrary to s. 50(1)(d) of the Securities Act, R.S.B.C.
1996, c. 418. The appellant argues that the Commission lacked the
jurisdiction to make a finding of liability under s. 50(1)(d) because the
impugned conduct took place in the United States. Held: appeal dismissed. The
Commission was correct in taking jurisdiction. A real and substantial
connection exists between the appellants conduct and the province of British
Columbia.

Reasons for Judgment of the Honourable
Mr. Justice Goepel:

INTRODUCTION

[1]

The appellant, Colin McCabe, appeals from decisions of the British
Columbia Securities Commission (the Commission). The Commission found that
Mr. McCabe contravened s. 50(1)(d) of the
Securities Act
, R.S.B.C. 1996,
c. 418 (the 
Act
) when he made gross misrepresentations
concerning
Guinness Exploration
Inc. (Guinness
ˮ)
in
certain publications that were printed and distributed in the United States. The
Commission made orders against him for disgorgement of approximately $2.78
million and an administrative penalty of $1.5 million. The liability decision
is indexed at 2014 BCSECCOM 269; the sanctions decision at 2014 BCSECCOM 512.

[2]

Mr. McCabe sought leave
to appeal. In reasons indexed at 2015 BCCA 176, a judge of this Court gave
Mr. McCabe leave to appeal the single issue of whether the Commission had
jurisdiction to sanction him for breach of s. 50(1)(d).

[3]

Mr. McCabe argues that
the Commission was without jurisdiction because the impugned conduct took place
outside the province of British Columbia. He seeks an order setting aside the
Commissions finding that he contravened s. 50(1)(d) along with the
monetary sanctions that flow from this finding.

[4]

The Commission submits
that it has the jurisdiction to sanction the appellant because his conduct had
a real and substantial connection to British Columbia.

[5]

For the reasons that
follow, I would dismiss the appeal.

BACKGROUND

[6]

To put the parties submissions in context, it is first necessary to
review the underlying facts. The facts are not in dispute.

[7]

Mr. McCabe is a British Columbia resident. He is the sole shareholder,
director and officer of Jake Landon Publishing Inc. (Landon). He has no
experience in the securities industry and has never been registered as an
investment advisor under the
Act
.

[8]

Through Landon, Mr. McCabe published stock recommendations under his own
name in a monthly report known as the Elite Stock Report. He carried on his
business from his home in Abbotsford, British Columbia.

[9]

Between December 2009 and May 2010, Mr. McCabe wrote and published three
reports in the Elite Stock Report promoting shares in Guinness
(the Guinness Tout Sheetsˮ). Guinness
is
a
company incorporated
in Nevada.
Its shares are quoted on the Over-the-Counter Bulletin Board (the
OTCBB) in the United States.

[10]

The appellant wrote each of the
Guinness
Tout Sheets
at his home in Abbotsford.
He
then emailed a PDF of the documents from his home to a printing company in
South Dakota. The Guinness Tout Sheets were printed in South Dakota and
distributed by direct mail from South Dakota to approximately three million
homes in the United States. There is no evidence that the Guinness Tout Sheets
were received, read or known to any person in British Columbia or Canada other
than Mr. McCabe.

[11]

The Guinness Tout Sheets
were grossly misleading. They contained false and unfounded claims that
Guinnesss mining property had in excess of one million ounces of gold (the
Guinness Misrepresentationsˮ). The Commission found that the Guinness
Misrepresentations were intended to significantly increase trading volumes in
Guinness shares in order to inflate its stock price.

[12]

Mr. McCabe prepared the
Guinness
Tout Sheets
at the behest of Mr. Erwin Speckert, who identified himself to
Mr. McCabe only as Erwin and provided a fax number to which Mr. McCabe was to
send his invoices. Mr. McCabe invoiced Emma Marketing Services, Inc., a British
Virgin Islands corporation. He was paid a total of $2.65 million for touting
Guinness. Mr. Speckert arranged for payment through various offshore companies
and a Swiss bank account. The funds were ultimately deposited in Landons bank
account in Surrey, British Columbia.

[13]

On March 19, 2010, during the period in which Mr. McCabe was writing and
distributing the Guinness Tout Sheets, the Commission issued a Cease Trade
Order of Guinness shares for the companys failure to meet its filing
obligations as an OTC reporting issuer in British Columbia. Pursuant to BC
Instrument 51-509,
Issuers Quoted in the U.S. Over-the-Counter Markets
,
a company with a connection to British Columbia whose shares are quoted on the
OTCBB is deemed to be a reporting issuer under the
Act
.

[14]

On July 31, 2012, the Commission issued a notice of hearing alleging in
part that Mr. McCabe made misrepresentations contrary to s. 50(1)(d) of the
Act
.
Section 50(1)(d) reads as follows:

50
(1) A person, while engaging in investor relation
activities 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 misrepresentation;

[15]

Around this time, Mr. McCabes conduct also came under scrutiny in the
United States. The Guinness Misrepresentations were just one aspect of a
broader case of alleged misconduct brought by the United States Securities and
Exchange Commission (the SEC) against Mr. McCabe.

[16]

Prior to the hearing on liability before the Commission, Mr. McCabe
applied for a stay of proceedings in British Columbia on the basis of
forum
non conveniens
, arguing that the United States was the more appropriate
forum.  His application was denied:
Re McCabe
, 2013 BCSECCOM 250.

[17]

The Commissions decision on liability was issued on July 8, 2014. Its
decision on sanctions followed on December 18, 2014.

[18]

In the liability hearing, Mr. McCabe argued that the Commission lacked
jurisdiction because the Guinness Tout Sheets were only sent to residents of
the United States, and Guinness shares were only traded in the United States.
The Commission rejected this argument:

[128]    This argument overlooks the facts that McCabe, at
the time a British Columbia resident, wrote these reports from his home in
British Columbia, and received the $5 million in fees for publishing them, in
bank accounts he controlled, at least one of which was in British Columbia.

[129]    Although the targets of
the touting may have been investors in the US, and the companies concerned
traded only in the US, McCabe engaged in this misconduct in British Columbia.
Tolerance of that misconduct could not help but impugn the reputation of our
markets.

[19]

At paras. 175-177 of its decision on liability, the Commission also
stated:

[175]    McCabe says that the alleged misrepresentations
only came into existence when they were received and acted upon in the United
States and therefore there is no factual basis or jurisdiction for a finding
that McCabe contravened section 50(1)(d).

[176]    This argument has no merit.  The executive
director proved that McCabe, with the intention of effecting a trade in a
security, made untrue statements of material facts about Guinness. That
encompasses the entire prohibition contained in section 50(1)(d).

[177]    Nothing in section
50(1)(d) says anything about the notion of misrepresentations coming into
existence, much less a requirement that a misrepresentation be received or
acted upon, in the United States or anywhere else.  McCabes suggestions
otherwise are baseless inventions.

[20]

The SECs allegations against Mr. McCabe were never adjudicated. On
August 13, 2015, without admitting or denying liability, Mr. McCabe consented
to the entry of a final judgment against him in the United States.

[21]

The Commission has brought a new evidence application to introduce the
SECs settlement with Mr. McCabe as evidence in this proceeding.

THE APPEAL


A.  Overview

[22]

While the sole issue on the appeal is whether the Commission had
jurisdiction to find that Mr. McCabe contravened s. 50(1)(d) of the
Act
,
this issue requires consideration of the standard of review and the applicable
test for determining the scope of the Commissions jurisdiction.


B.  Standard of Review

[23]

Mr. McCabe submits that the question before the Court is one of
correctness. He says that the constitutional applicability of the
Act
raises a true question of jurisdiction. He argues that it can never be
reasonable for a tribunal to act beyond the constitutional territorial limits
of provincial power.

[24]

The Commission submits that the appeal does not involve a question of
true jurisdiction as contemplated by the Supreme Court of Canada in
Dunsmuir
v. New Brunswick
, [2008] 1 S.C.R. 190. It says that Mr. McCabe

has conceded
the constitutional validity of s. 50(1)(d). It argues that the question in this
case concerns the application of s. 50(1)(d) to Mr. McCabes conduct. It

submits
that, as such, the applicable standard of review is one of reasonableness.


C.  Test for Determining the Commissions Jurisdiction

[25]

Mr. McCabe

argues that the Commissions jurisdiction should be
evaluated based on the concept of constitutional inapplicability. He submits
that, where a provincial statute has extra-territorial effect, the appropriate
inquiry is whether a meaningful connection exists between the province and
the extra-territorial matter in question, and whether applying the statute will
respect the legislative sovereignty of other jurisdictions, having regard to the
factors set out in
Unifund Assurance Co. v. Insurance Corp. of British
Columbia
, 2003 SCC 40 [
Unifund
]. He also relies on the presumption
against the extra-territorial application of legislation.

[26]

Mr. McCabe submits that the facts of this case do not satisfy the
meaningful connection test. He says that the purpose of the
Act
is to
regulate conduct in British Columbia, and the purpose of s. 50(1)(d) is to
target misrepresentations concerning securities traded in British Columbia, not
misrepresentations by a resident of British Columbia concerning securities
traded in other jurisdictions. He argues that no meaningful connection exists
between a misrepresentation published outside of British Columbia and the
purpose of the
Act
or the object of s. 50(1)(d).

[27]

Mr. McCabe points to the torts of misrepresentation and defamation for
the proposition that the wrongful act of publication occurs in the jurisdiction
where an impugned statement is received and acted or relied upon. Here, he
says, publication of the Guinness Tout Sheets occurred in the United States.

[28]

While Mr. McCabe concedes that the Commission has a broad mandate
to protect the capital markets and residents of British Columbia, he submits
that its public interest jurisdiction does not extend to specific provisions of
the
Act
. He characterizes the Commissions findings under
s. 50(1)(d) as an instance of jurisdictional overreach that is damaging to
the principle of international comity.

[29]

The Commission submits that the applicable test for determining its
jurisdiction is the real and substantial connection test. It argues that this
test should account for the realities of modern securities trading and
regulation, including technology that facilitates multi-jurisdictional
securities markets and industries.

[30]

The Commission argues that a real and substantial connection exists
between British Columbia and Mr. McCabes conduct which contravened
s. 50(1)(d). It notes that Mr. McCabe resides in British Columbia,
was contacted by Mr. Speckert in British Columbia, drafted the Guinness
Tout Sheets in British Columbia, received payment in British Columbia, and that
Guinness is an OTC reporting issuer in British Columbia. On this basis, the
Commission submits that its finding of liability under s. 50(1)(d) did not
overreach its jurisdiction. It argues that the place where a misrepresentation
is received is irrelevant to a finding of liability under s. 50(1)(d).

DISCUSSION

[31]

As set out above, the parties have different views as to the appropriate
standard of review. The Commission submits that the appropriate standard ought
to be reasonableness, while Mr. McCabe urges that this is a jurisdictional
matter which should be reviewed on a standard of correctness. In the
circumstances of this case, I need not reach a final determination on the
standard of review because I have concluded that the more rigorous standard of
correctness is, in any event, satisfied.

[32]

Modern securities markets are complex and multi-jurisdictional. The
Act
is regulatory in nature and the Commission is part of a network of
administrative bodies that regulate securities markets throughout Canada and
other jurisdictions.

[33]

The Commission plays the central role in the regulation of securities
markets in British Columbia and has been granted a wide mandate to do so under
the
Act
. The primary goal of the
Act
is to serve the public
interest in British Columbia by protecting investors, fostering capital market
efficiency, and promoting public confidence in the system. The Commission is a
highly specialized regulatory tribunal that provides expertise in interpreting
and applying the
Act
, and has broad discretion to determine what is in
the public interest with respect to the securities industry.

[34]

In
Unifund
, the Supreme Court of Canada held that consideration
of a provincial statutes constitutional applicability can be conveniently
organized around the following propositions (at para. 56):

1.         The
territorial limits on the scope of provincial legislative authority prevent the
application of the law of a province to matters not sufficiently connected to
it;

2.         What
constitutes a sufficient connection depends on the relationship among the
enacting jurisdiction, the subject matter of the legislation and the individual
or entity sought to be regulated by it;

3.         The
applicability of an otherwise competent provincial legislation to
out-of-province defendants is conditioned by the requirements of order and
fairness that underlie our federal arrangements;

4.         The principles of order and
fairness, being purposive, are applied flexibly according to the subject matter
of the legislation.

[35]

The question is whether there is a real and substantial connection, not
whether a particular connection is the most real and substantial. This question
is to be answered with reference to the regulatory regime at issue, the
particular provision being applied, the impugned conduct, and the individual or
entity who is subject to the regulatory body.

[36]

In the context of securities regulation, the Commissions jurisdiction depends
on whether the impugned conduct has a sufficient connection to British Columbia,
or, as recently expressed by this Court, there is a state of facts
demonstrating circumstances in which it would be appropriate for a tribunal to
take jurisdiction over a legal issue or controversy:
Torudag v. British
Columbia (Securities Commission)
, 2011 BCCA 458 at para. 19. Whether this
connection is termed a meaningful one or a real and substantial one, the
concept is the same:
Torudag
at para. 19.

[37]

The analysis of whether a real and substantial connection exists must
reflect the realities of modern securities regulation. For instance, conduct involving
securities will often be transnational in nature, crossing provincial and state
borders.

[38]

In
Gregory & Co. v. Quebec (Securities Commission)
, [1961]
S.C.R. 584, the Supreme Court of Canada held that the Quebec Securities
Commission could order sanctions against a company whose head office and place
of business was in Quebec, but who dealt with and mailed promotional bulletins
exclusively to persons in other provinces and countries. Fauteux J. for the
majority noted at 588:

The paramount object of the Act is to ensure that persons
who, in the province, carry on the business of trading in securities or acting
as investment counsel, shall be honest and of good repute and, in this way, to
protect the public,
in the province or elsewhere
, from being defrauded
as a result of certain activities
initiated in the province by persons
therein
carrying on such a business.

[Emphasis added.]

[39]

In
R. v. W. McKenzie Securities Limited
(1966), 56 D.L.R. (2d) 56
(Man. C.A.), the accused were charged with unlawfully trading in securities contrary
to the provisions of
The Securities Act
, R.S.M. 1954, c. 237. The
accused, who were not licensed to trade securities in Manitoba, conducted their
business of promoting and selling securities entirely from Toronto by sending
letters and making telephone calls to potential investors, including the
complainant in Manitoba. The Court of Appeal underlined that an offence could
occur in more than one place. At 63, it said:

Although offences are local, the
nature of some offences is such that they can properly be described as
occurring in more than one place. This is peculiarly the case where a
transaction is carried on by mail from one territorial jurisdiction to another,
or indeed by telephone from one such jurisdiction to another. This has been
recognized by the common law for centuries.

[40]

In
R. v. Libman
, [1985] 2 S.C.R. 178, the appellant sought to
have his committal for trial on multiple counts of fraud and conspiracy to
commit fraud quashed on the basis that the alleged offences occurred outside
Canada. Pursuant to the appellants directions, sales personnel in Toronto telephoned
United States residents and attempted to induce them to buy shares in two
Central American mining companies. The sales personnel were directed to make
material misrepresentations with respect to their identity, where they were
telephoning from, and the quality and value of the shares they were selling. As
a result of these misrepresentations, a large number of United States residents
were induced to buy virtually valueless shares in the mining companies. Their
money was sent to Central America where the appellant received his share to
take back to Toronto.

[41]

The Supreme Court of Canada held that the counts of fraud for which the appellant
stood charged could be properly prosecuted in Canada. Nothing in the
requirements of international comity dictated that Canada should not exercise
jurisdiction. Mr. Justice La Forest held that all that is necessary to make an offence
subject to the jurisdiction of our courts is that a significant portion of the
activities constituting the offence took place in Canada. It is sufficient that
there be a real and substantial link between the offence and Canada.

[42]

In
Re Al-tar Energy Corp.
, 2010 LNONOSC 406, the respondents were
located in Ontario but targeted investors outside of that province. The Ontario
Securities Commission (the OSC) found that the conduct of the respondents had
significant and substantial connections to Ontario: para. 52. In determining
that it had jurisdiction, the OSC pointed to the fact that (1) the respondents
were located in Ontario, (2) their materials and telephone calls to potential
investors originated in Ontario, and (3) payments were received by the
respondents in Ontario: para. 52.

[43]

In
Crowe v. Ontario Securities Commission
, 2011 ONSC 6918, the
appellants appealed a decision of the OSC finding them liable for breach of the
Securities Act
, R.S.O. 1990, c. S.5. They argued that the OSC
lacked the jurisdiction to make this finding because the impugned securities
were sold only to offshore investors. The appeal was dismissed. The Divisional
Court upheld the OSCs finding that a substantial connection existed between
the appellants activities and the province of Ontario, and the OSCs decision
to intervene because the appellants conduct negatively affected the reputation
and integrity of Ontarios capital markets. In reaching this decision, the Divisional
Court said at para. 32:

The appellants in the present case focus on the fact that the
trades with investors occurred outside the province. However, that does not
prevent the Commission from asserting jurisdiction on the facts of the present
case. As
Gregory
makes clear, and contrary to what the appellants
assert, a province is not limited to protecting the interests of domestic
investors from unfair or fraudulent activities.
Provincial securities
legislation can also be applied to regulate corporations or individuals within
the province in order to protect investors outside the province from unfair,
improper or fraudulent activities.
Where the Commission is regulating
trades that have an extraprovincial character, the question is not the location
of the investors; rather, it is whether there is a sufficient connection
between Ontario and the impugned activities and the entities involved to
justify regulatory action by the Commission.

[Emphasis added.]

[44]

This Court recently considered the scope of the Commissions
jurisdiction

in
Torudag
, in the context of insider trading. The
Commission found that the appellant, who was not a resident of British Columbia,
used insider information to buy shares in a company listed on the TSX Venture
Exchange, contrary to s. 86 of the
Act
. Many of the sellers were
residents of British Columbia. The appellant argued, as in this case, that the
Act
was constitutionally inapplicable to the impugned conduct by reason of
extra-territoriality. This Court held otherwise, finding that the circumstances
disclosed a real and substantial connection to British Columbia and that no
error had been demonstrated in the Commissions decision to take jurisdiction.
In its analysis, the Court noted at para. 27:

The Commission has the
responsibility to regulate the activities of the Exchange to provide protection
to the investing public. This responsibility includes the duty to ensure a
level playing field for investors in exchange traded companies. Allowing the
misuse of insider information to skew fairness in the trading arena is inimical
to the operation of a fair and orderly market in securities.

[45]

The allegations in this case concern a breach of s. 50(1)(d) of the
Act
,
the material elements of which are:

(a)

the intention of effecting a trade;

(b)

must not  make a statement;

(c)

that the person knows, or ought reasonably to know;

(d)

is a misrepresentation.

[46]

Section 1(1) of the
Act
defines misrepresentation as including
an untrue statement of a material fact and defines material fact as a fact
that would reasonably be expected to have a significant effect on the market
price or value of the securities. The Commission found that the Guinness
Misrepresentations were untrue statements of a material fact. It also found
that Mr. McCabe wrote and caused the Guinness Tout Sheets to be
distributed from his home in British Columbia with the clear intent to effect a
trade in Guinness shares.

[47]

While the appellant asserts that the
Act
should be interpreted as
containing language that limits its geographical applicability, s. 50(1)(d)
does not contain any such language. I note that the
Act
does not include
reference to when a misrepresentation comes into existence, nor does it specify
that a misrepresentation must be received or acted upon. The material element under
s. 50(1)(d) is the making of the statement.

[48]

The appellant, relying on the law of both misrepresentation and defamation,
argues that the wrongful act of publication only occurs where a statement is
read or acted upon, not where it is written, because publication is incomplete
until a statement is consumed by a recipient. With respect, this analogy to
tort law is not apt. Tort law is intended to protect individuals who have been
injured by the conduct of another. Generally speaking, a tort cannot be
committed in a vacuum and there must be a victim who has been harmed. The
Act
,
however, is regulatory in nature. One of its central functions is to regulate
conduct, not remedy harm to victims. Under s. 50(1)(d), the offence is
committed when the statement is made.

[49]

I agree with the Commissions finding that the evidence discloses a real
and substantial connection between the impugned conduct and British Columbia.
The Guinness Tout Sheets were written in British Columbia, by a resident of
British Columbia, who was paid in British Columbia for his services. I find
that the Commission was correct in its analysis of the relevant factors going
to jurisdiction. I see no basis to interfere with its decision to take
jurisdiction under s. 50(1)(d).

[50]

I would dismiss the appeal.

[51]

In the circumstances, it is not necessary to deal with the Commissions new
evidence motion.

The
Honourable Mr. Justice Goepel

I AGREE:

The Honourable Mr. Justice Tysoe

I AGREE:

The Honourable Madam Justice Garson


