Executive Summary: Key Legal and Evidentiary Issues

• Non-prospectus securities were sold under misleading representations, resulting in investor losses and OSC findings of fraud.

• Regulatory sanctions included trading bans, officer and director disqualifications, administrative penalties, and disgorgement.

• Allegations of bias and ineffective assistance by former counsel were rejected due to lack of credible or material evidence.

• Attempts to reopen the case using Rule 59.06 were dismissed for failing to meet the legal standard for new or undiscoverable facts.

• All expert affidavits were struck as inadmissible, irrelevant, or unnecessary on matters of domestic law.

• A $100,000 security for costs was ordered due to unpaid prior judgments and unsupported claims of financial hardship.

Background and regulatory findings

North American Financial Group Inc. (NAFG), North American Capital Inc. (NAC), and their principals, brothers Alexander Flavio Arconti and Luigino Arconti, became subject to enforcement proceedings by the Ontario Securities Commission (OSC). Initially operating a used car business, the Arcontis later raised approximately $5.7 million through unregistered securities offerings to investors, promising returns of up to 15%. A further $1 million was raised by NAC, with funds redirected to NAFG. They also operated Carter Securities Inc. as a dealer without proper compliance, and engaged in marketing that was later deemed misleading.

After a compliance review and hearings held under the Securities Act, the OSC found that the Arcontis had engaged in fraudulent conduct, traded without registration, and violated securities laws. In 2013 and 2014, the Commission imposed significant penalties, including permanent market bans, administrative penalties of $600,000 per individual, disgorgement of $2,052,691.16, and a $200,000 costs award.

2018 Divisional Court decision and further appeals

The appellants challenged the OSC’s findings before the Ontario Divisional Court, alleging bias, errors in the fraud findings, excessive penalties, and ineffective assistance from their former counsel. The court found no merit in any of these claims and upheld all OSC decisions. Leave to appeal was denied by the Ontario Court of Appeal and later by the Supreme Court of Canada.

Rule 59.06 motion and expert evidence challenge

Years later, the appellants attempted to reopen the 2018 decision using Rule 59.06 of the Rules of Civil Procedure, which allows judgments to be set aside on grounds of fraud or newly discovered facts. They argued that they had uncovered post-judgment evidence of OSC staff misconduct, undisclosed conflicts involving their prior counsel, and ethical breaches. They submitted seven expert affidavits to support these claims.

The OSC filed motions to strike the expert evidence and for security for costs. The Divisional Court found that none of the expert reports were admissible. Many addressed domestic legal issues, such as duties of loyalty or procedural fairness, which the court did not require expert input to assess. Others speculated about facts or repeated previously adjudicated claims. All seven reports were struck for failing the admissibility thresholds under White Burgess Langille Inman v. Abbott and Haliburton and R. v. Mohan.

Security for costs and final orders

The Court also granted the OSC’s motion for $100,000 in security for costs. The appellants had not paid prior cost orders exceeding $240,000 and failed to provide financial records to support claims of hardship. The Court found no justification to exempt them from this obligation. The motion to admit more than three expert reports was denied as moot.

Conclusion

The Court confirmed that the Rule 59.06 motions lacked the necessary legal and factual basis to justify revisiting a final judgment. Allegations of misconduct and conflict were unproven or irrelevant, and none of the proposed expert evidence altered that conclusion. All motions were dismissed, and the prior findings of fraud and sanctions by the OSC remain intact.