Mortgage Broker

CmB magazIne cmba-achc.ca spring 2018 | 45 CASE STudy e importance of cross-provincial recognition of out-of-province discipline is demonstrated by the recent case of the Ontario Securities Commission (OSC) in Cook (Re), 2018 ONSEC 6. e OSC was looking to make a reciprocal order concerning Lance Sandford Cook ("Cook") and CBM Canada's Best Mortgage Corp. (CBM). What Happened e British Columbia Securities Commission (BCSC) in a 2017 decision concluded that Cook and CBM had distributed securities without filing a prospectus, contrary to the BC Securities Act (see Canadian Mortgage Broker Spring 2017, page 50, for a more complete summary of that decision). Between 2008 and 2010, Cook and CBM issued, renewed and reissued six promissory notes totalling $380,000 to four investors; three were issued by Cook and three by CBM. ere was no real separation of financial affairs between Cook and CMB; Cook was CBM's president, sole director and controlling mind. e BCSC concluded that issuance of each note was a distribution of a security, for which a prospectus under securities legislation was required. No prospectus had been provided. Cook and CBM were registered, at the relevant times, as B.C. mortgage brokers and had dealt with the investors in that capacity. e BCSC concluded that Cook's conduct constituted a serious risk to the capital markets. It made orders against Cook to: n disgorge him from the profits made from the transactions; n pay an administrative penalty of $25,000; n resign any position he held as a director or officer of an issuer or registrant; n prohibit him from trading or purchasing securities or exchange contracts, except for his own account through a registrant; and n prohibit him from acting as a director or officer of an issuer or registrant, as a registrant or promoter or in a management or consultative capacity in connection with securities market activities. ese market prohibitions were to remain in effect until the later of five years from the date of the order or until the monetary sanctions were paid. e BCSC made orders for similar market prohibitions against CBM. Decision e OSC made reciprocal orders against Cook and CBM, with the wording of the orders changed to reflect Ontario legislation. In doing so, it noted that: n Reciprocal orders have become a common means of overcoming the limits inherent in provincial regulation of Canada's capital markets. n In view of the ease with which individuals may trade in securities in provinces other than their own, conduct relating to Ontario is not required for a reciprocal order. Indeed, one of the purposes of the legislation allowing reciprocal orders is to ensure that a wrongdoer cannot avoid sanctions imposed in one province simply by moving its activities to another province. n A reciprocal order will prohibit Cook from pursuing similar activities in Ontario and will also deter others who might be inclined to engage in similar conduct in Ontario and elsewhere. n By removing the potential for province- hopping, the availability of national implementation of enforcement orders increases general deterrence throughout Canada. TAkEAWAyS Obtaining education in one province to meet qualification requirements in another could be misguided, short-sighted and ill-advised. Not having been educated as to the laws, practices and policies of the provinces in which you conduct business makes it more likely you will run afoul of licensing requirements. Regulatory discipline in one province can follow you to other provinces, sometimes to the point of interfering with or prohibiting you from doing business in those other provinces. e prudent mortgage broker will meet the education and experience requirements of each province in which licensing is sought, even if exempted from them.

• Cover