Legal experts say acquittal of three ex-cannabis executives should send signal to government Ontario Securities Commission To do some “deep soul searching”.
A day after ex-Canntrust Holdings Inc. CEO Peter Aceto, Chairman Eric Paul and Vice-Chairman Mark Litvin were acquitted on Thursday, the regulator revealed plans to convict the men on charges related to allegedly growing unlicensed cannabis. was not a reasonable possibility. at a Niagara Region facility.
The three, who pleaded not guilty in October, were each charged with fraud and authorizing, allowing or receiving the commission of a crime.
Litvin and Paul were also facing allegations of insider trading, and Litvin and Aceto were accused of creating a false prospectus and a false preliminary prospectus.
OSC says no reasonable prospect of conviction in Canntrust case
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Industry observers have been eagerly awaiting the outcome of the case — the OSC’s first court case involving a publicly traded cannabis company — and Doug Sarro sees it as one way the regulator might change its mind.
“The OSC has had a reputation for some time for being weak on enforcement and this result doesn’t help,” said the lawyer and assistant professor at the University of Toronto.
In 2007, the regulator ordered Bre-X Minerals Ltd. It also lost an insider trading case against John Felderhof, the chief geologist of the US.
In 2010, it settled a 1986 civil lawsuit filed on behalf of shareholders of real estate company Muskan Corp. after 24 years of litigation.
Sarro believes that Thursday’s acquittal further adds to the OSC’s reputation for court losses and that the OSC should look at how it handles cases.
“This was a really high-profile prosecution that really was going to change that perception, and clearly with this result, the OSC is going to have to do some soul searching,” he said.
The OSC declined to comment Friday but cited Thursday’s statement to The Canadian Press as saying it was considering the implications of “(the court’s) decision and assessing its options.”
Rather than acquit the accused, the OSC asked the court to withdraw its case, which would have allowed it to pursue charges against the men again.
“The law seems to be against you,” Justice Victor Giorgos told the OSC’s lawyers.
Following the acquittal, the OSC has few options on how to proceed with the case, although Sarrow said the regulator could bring an administrative proceeding before the Ontario Capital Markets Tribunal, where jail time would not be possible, but the accused could be served time. Can be barred from being a director of public companies.
Like Saro, University of Ottawa law professor Jennifer Quaid suspects the OSC’s next step is a “deep soul-searching session” to find out why it doesn’t have a higher rate of success, especially when the more resource-rich Than the US Securities and Exchange Commission.
The outcome of the case against the ex-Canntrust leaders “isn’t very flattering for the OSC,” she said.
“It won’t help his reputation, that’s for sure, because I’m pretty sure the public explanation of what happened will not be favorable to him,” she said.
In the years leading up to the case, CannTrust, now known as Phoena Holdings Inc. In at least one news release, Health Canada suspended CannTrust’s license, after admitting to participating in “unlicensed” development and halting cannabis sales and shipments from the company.
Yet the OSC case fell apart weeks into the hearing, when Litwin’s attorney Scott Fenton cross-examined Graham Lee, Canntrust’s former director of quality and compliance.
Fenton presented Lee with documents showing the entire Niagara facility was licensed between 2017 and September 2019.
Lee testified the documents, which were not shown to him by the OSC before the court proceedings, did not include any restrictions on what rooms the company could grow pot.
The cross-examination also revealed documents where CannTrust was seeking ministerial approval to add rooms where the allegation of unlicensed growing had been made to that licence. But in May 2020, Health Canada relieved cannabis growers of the requirement to obtain ministerial approval before using grow rooms.
A few days after cross-examination, the OSC announced that it no longer had a reasonable prospect of convicting the men.
Observers felt that a strong ruling in favor of the financial regulator would deter other pot companies from flouting the law and bring comfort to investors who lost money when the company was exposed in July 2019 for growing unlicensed.
“Maybe (OSC) realized that if they crack down on people who don’t follow the rules, it will send a message that ‘hey, cannabis is not a free for all,'” Quaid said.
“It would have been powerful if they had gone through a 50-day trial and been found guilty, but that didn’t happen.”
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