Executive Summary: Key Legal and Evidentiary Issues

• The Ontario Securities Commission (OSC) found that Katebian illegally distributed securities and engaged in fraud

• Over $1.7 million was raised from investors through false representations and without proper registration or disclosure

• The OSC imposed sanctions including a $300,000 administrative penalty and an order to disgorge $1.6 million

• Katebian challenged the OSC’s decision on the grounds of procedural unfairness and unreasonable findings

• The Divisional Court rejected the challenge, finding the OSC’s decision was procedurally fair and legally reasonable

• The court confirmed the broad remedial powers under section 127 of the Securities Act, including disgorgement

Facts of the case

This case arises from regulatory proceedings against Nima Katebian by the Ontario Securities Commission (OSC). The Commission found that Katebian participated in the illegal distribution of securities and committed securities fraud by soliciting funds from investors under false pretenses. He had promoted investments in a real estate business and related promissory notes without being registered and without filing the necessary prospectuses or disclosure documents. Investors were led to believe their funds were being used for legitimate real estate development purposes, but in reality, the funds were used for other purposes, including personal and unrelated business expenses.

The OSC determined that Katebian had raised more than $1.7 million from 35 investors between 2015 and 2018 and that the representations he made were misleading and in breach of Ontario securities law. Notably, none of the investors received a return on their investment.

The Commission’s decision and sanctions

In its decision, the OSC concluded that Katebian’s conduct violated sections 25 and 53 of the Securities Act (distribution without registration or prospectus) and engaged section 126.1 (fraud). It imposed multiple sanctions under section 127(1) of the Act, including:

• A 15-year ban on market participation

• A $300,000 administrative monetary penalty

• An order for disgorgement of approximately $1.6 million

The Commission reasoned that these sanctions were necessary to deter Katebian and others from engaging in similar conduct and to protect the integrity of Ontario’s capital markets.

Application for judicial review

Katebian brought an application for judicial review before the Divisional Court, arguing that the OSC’s findings were unreasonable and that the hearing was procedurally unfair. He claimed that he did not have a fair opportunity to respond to the allegations and that the Commission’s approach to determining sanctions was disproportionate and unsupported by the evidence.

Judicial review outcome

The Divisional Court dismissed the application. The court held that the OSC had provided Katebian with full disclosure and adequate opportunities to be heard. It emphasized that administrative proceedings do not require the same procedural formalities as court trials and that the standard of review for the OSC’s decision was reasonableness.

The court also affirmed that the OSC has wide discretion under section 127 of the Securities Act to impose remedial orders, including disgorgement and monetary penalties, even in the absence of direct investor compensation mechanisms. The court found no error in the OSC’s interpretation or application of these powers.

The court concluded that the OSC’s decision was transparent, intelligible, and justified based on the record. As such, Katebian’s challenge failed, and the Commission’s orders were allowed to stand.

This case underscores the scope of the OSC’s enforcement authority, the limited grounds for overturning regulatory findings on judicial review, and the consequences for engaging in unauthorized capital-raising activities under the guise of commercial enterprise.