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information purposes only. This article does not necessarily reflect the opinions of
Cassels Brock & Blackwell LLP or any of its lawyers or clients. The content of this
article is not intended to be used as a substitute for specific legal advice or opinions.
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1. See OSC Staff Notice 45-707 – OSC Broadening
Scope of Review of Prospectus Exemptions.
2. See: (a) OSC Staff Notice 33-735 – Sale of Exempt Securities to
Non-Accredited Investors.; (b) OSC Staff Notice 33-738 – 2012
OSC Annual Summary Report for Dealers, Advisers and Investment
Fund Managers (p 52); and (c) OSC Staff Consultation Paper 45-710
Considerations for New Capital Raising Exemptions (p. 37).
3. See http://www.osc.gov. on.ca/en/SecuritiesLaw_
4. See http://www.osc.gov. on.ca/en/SecuritiesLaw_
5. These are decisions under Section 31 of the Securities Act
(Ontario) involving opportunities to be heard by the Director.
6. See paragraph (j) of definition of AI under s. 1.1 of NI 45-106.
7. Where individuals own financial assets indirectly, through trusts
or other investment vehicles, it is necessary to consider whether
these financial assets can be included in meeting the applicable
threshold. Various criteria are used to make this determination,
including evidence of possession, entitlement to income from the
asset, the risk of losing the financial value of the asset and the
ability to dispose of or otherwise exercise direction over the asset.
8. See paragraph (l) of definition of AI under s. 1.1 of NI 45-106.
9. See paragraph (k) of definition of AI under s. 1.1 of NI 45-106.
10. See Section 1.9 of the Companion Policy of NI 45-106.
11. See Section 1.9 of 45-106CP.
12. Photo Violation Technologies Corp. (Re), 2012
BCSECCOM 284 at para. 20, referencing Solara
Technologies Inc. (Re), 2010 BCSECCOM426.
13. KCP Innovative Services Inc., (Re), 2007 ABASC 584 at para. 97,
referencing InstaDial Technologies Corp. (Re), 2005 ABASC 965
at para. 61; and Euston Capital at paras. 103, 115-117, 119.
14. Euston Capital Corp. v. Saskatchewan Financial
Services Commission, 2008 SKCA 22 at para. 22.
15. R. v. Guettler et al, ONCJ February 5, 2001 (unreported).
16. R. v. Maitland Capital Limited et al., 2011 ONCJ 168.
17. See SEC Release.
18. Rule 506 is a safe harbor under an exemption from the registration
requirements of the U.S. Securities Act of 1933 that permits an issuer
to offer securities to an unlimited number of accredited investors
and to no more than 35 non-accredited investors who meet certain
sophistication requirements. The existing Rule 506 exemption
prohibits the offering or sale of securities through any form of “general
solicitation” or “general advertising” within the meaning of Regulation D.
19. The comment period for the SEC Release ended on October
5, 2012 and there has been no further publication by the
SEC on this subject matter as of December 31, 2012.
20. Readers should note that other steps must also be considered when,
for example, EMDs have investors that invest more than $150,000 in a
single investment in circumstances where the investor may not qualify
as an AI. Although such an investment would satisfy the minimum
investment amount prospectus exemption, the EMD may not be
compliant with their suitability obligations under National Instrument
31-103 – Registration Requirements, Exemptions and Ongoing Registrant
Obligations by having such a large investment in a single issuer.
21. See article in the Winter 2012 edition of the EMDA
magazine titled, “Compliance With The Accredited Investor
Exemption - A 9 Point Plan for EMDs Firms and Dealing
Representatives”, by Brian Koscak and David Gilkes.
22. The authors caution readers that these questions are only samples
of the types of questions that can be included in a KYC/investment
questionnaire of this nature to assist market participants in verifying
the AI status of an investor. Readers are urged to obtain their own
legal advice if they prepare such a questionnaire and, if a reader is
a registrant, such as an EMD, to ensure the questionnaire includes
other relevant questions that are required in order to satisfy the
registrant’s KYC obligations under applicable securities law.
23. We note that this approach is not without its detractors. Having
an investor sign a statutory declaration under the penalty of
perjury could have the effect of shifting the burden for compliance
and associated liability from the issuer to the investor; but not
necessarily. This may be an appropriate solution for sophisticated
parties that are aware of the legal consequences for false
representations but not for unsophisticated investors.