Executive Summary: Key Legal and Evidentiary Issues

• The appropriateness of appointing a receiver under section 129(1) of the Securities Act was central to the dispute.

• The evidentiary standard required for appointing a receiver—whether a “serious concern” or a “strong prima facie case”—was contested.

• The diversion of investor funds between projects without disclosure formed the factual basis for regulatory intervention.

• The ongoing nature of the OSC’s investigation influenced the court’s approach to interim remedies.

• Statutory interpretation of the Securities Act’s remedial provisions and their relationship to investor protection was a key issue.

• The court’s decision clarified that a lower evidentiary threshold applies to receivership orders, supporting regulatory oversight.

Facts of the case

The Ontario Securities Commission (OSC) initiated proceedings against Cacoeli Asset Management Inc. and related entities, which are involved in acquiring, holding, and managing residential properties in southern Ontario. The Cacoeli group, managed by Jedidiah Liu and Kasey Wong, raised at least $13 million from 53 investors since 2015, primarily through the sale of limited partnership units to finance property projects. The OSC began investigating Cacoeli after a complaint from a former chief financial officer, focusing on allegations that funds raised for specific projects were diverted to other uses without disclosure to investors. The investigation revealed that investor equity was used across projects and that proceeds from some sales were used to repay unrelated loans. In at least one instance, $1 million raised for a developer loan was not used as promised.

Policy terms and statutory provisions at issue

The OSC applied for the appointment of a receiver under section 129(1) of the Securities Act, which allows the court to appoint a receiver if it is in the best interests of creditors, security holders, or for the due administration of Ontario securities law. The appellants admitted that funds were diverted but argued such actions were permitted and that investors were or would be given interests in the projects where their funds were used. The application judge rejected this argument, finding the diversions were not allowed under the relevant agreements or law.

A central legal issue was the evidentiary standard required for appointing a receiver. The appellants argued for a “strong prima facie case” standard, citing the serious consequences of receivership. The court, however, held that the appropriate standard is a “serious concern” that there have been possible breaches of the Act, aligning with the OSC’s public protection mandate and the interim nature of receivership orders. The court noted that receivership orders can be varied or discharged as investigations progress.

Outcome and ruling

The Court of Appeal for Ontario dismissed the appeal, upholding the application judge’s decision to appoint a receiver. The court found that the “serious concern” standard is consistent with the statutory scheme and purpose of the Securities Act, which is to protect investors and the integrity of capital markets. The court also clarified that a higher evidentiary standard is not required for receivership orders, distinguishing them from final adjudications on the merits. The OSC was awarded its costs of the appeal, fixed at $15,000. The successful party in this matter was the Ontario Securities Commission, and the total amount ordered in its favor for costs was $15,000.