Executive Summary: Key Legal and Evidentiary Issues

• Scope of the statutory right of action under s. 75(3) of the Credit Unions and Caisses Populaires Act, 2020 and whether it applies when PACE shares were acquired only by inter-member transfers during administration rather than by new share issuances.
• Interpretation of ss. 67 and 68 of the Credit Union Act regarding when an offering statement is required, and whether “consideration” paid between members (or deposited with the credit union) triggers primary-market style disclosure obligations.
• Classification and transferability of PACE’s Class A Profit Shares and Class B Investment Shares, including whether patronage shares and dividend-issued shares fall within the statutory exemption from offering statement requirements.
• Factual question whether any new investment shares were issued during the administration period, and whether PACE in fact received consideration “for its securities” as opposed to merely handling member funds and facilitating transfers.
• Argument over whether FSRA could be characterized as a “director” of PACE or as a person who “sold the security on behalf of the credit union” for the purposes of s. 75(3), given the FSRA CEO’s role as Administrator.
• Availability of any remedy at all in this proceeding, including whether the putative class members’ recourse lies instead in the liquidation claims process and potential applications to void improper transfers rather than a statutory misrepresentation claim against FSRA.

Background and factual context

Frank Losak, a retired City of Hamilton employee, invested a substantial portion of his retirement savings—between approximately $330,500 and $370,971.49—in Class A and Class B shares of PACE Savings and Credit Union Limited (PACE). He acquired these shares through share transfer transactions at his local PACE branch in Hamilton in late 2018 and 2019, after PACE had already been placed into administration. His evidence was that he relied on representations from a PACE employee when deciding to acquire the shares. PACE was a member-owned credit union in southwestern Ontario. Unlike a bank with publicly traded equity, its capital structure consisted of membership shares, patronage (profit) shares and investment shares, all held by members. PACE’s financial and governance troubles led to regulatory intervention. In September 2018, the Deposit Insurance Corporation of Ontario (DICO) placed PACE into administration due to governance failures, conflicts of interest, breaches of fiduciary duty and other regulatory breaches. DICO, as Administrator, suspended PACE’s board powers and assumed control. When FSRA became operational in June 2019, its Chief Executive Officer (CEO) assumed the Administrator role and responsibility for PACE’s administration. Over time, PACE’s condition worsened, in part due to the COVID-19 pandemic and litigation linked to prior management’s conduct. The Administrator eventually concluded that PACE’s business should be sold and the entity itself wound up. PACE’s operating business and certain assets and liabilities were sold to Alterna Savings and Credit Union Limited in June 2022, while membership, profit and investment shares were expressly left behind to be dealt with in liquidation. In August 2022, the Ontario Superior Court ordered PACE wound up and appointed KPMG Inc. as liquidator, with a court-approved claims process to resolve stakeholders’ claims.

Share structure and how Mr. Losak acquired his shares

Under the Credit Unions and Caisses Populaires Act, 2020 (the Credit Union Act), credit unions may issue three main classes of shares: membership shares, patronage shares and investment shares. PACE’s capital structure mirrored this statutory framework. Membership shares confer membership status and voting rights, but these were not at issue on the motion. PACE’s Class A Profit Shares functioned as patronage-type shares: they were created to reward members for their patronage and could be issued either as patronage rewards or as dividends on existing Class A Profit Shares or Class B Investment Shares. Class B Investment Shares were capital-raising instruments, sold to members through formal share offerings. Investment shares (such as Class B) are one of the few vehicles through which a credit union can raise regulatory capital. The evidence showed that PACE’s Class B Investment Shares had originally been issued at $1.00 per share through five separate “Initial Offerings” by predecessor credit unions between 1995 and 2009, each under a contemporaneous offering statement approved with a receipt from the regulator. Those predecessor credit unions later amalgamated to form PACE, with the Class B shares forming part of PACE’s authorized capital. Importantly, the liquidator’s Third Report and FSRA’s evidence both showed that during the administration period there were no new issuances of Class B Investment Shares. The only share activities were: (1) dividends on existing profit and investment shares; and (2) transfers of previously issued shares using share transfer forms between members. PACE used different subscription forms when it sold investment shares in the Initial Offerings. Mr. Losak’s own transactions were completed via PACE’s “Share Transfer Form,” which identified the type of share, number of shares, certificate number and date, and described him as both shareholder and transferee. These forms, signed by him and witnessed by the PACE employee, were used when shares moved from one member to another, not when new shares were issued by PACE itself. He conceded that he did not purchase any Class B Investment Shares at the time of the Initial Offerings; those offerings predated his membership and his acquisitions, which occurred only after PACE had already been placed under administration.

Statutory framework for offering statements and transfers

The Credit Union Act establishes a disclosure regime for credit union securities. Section 68(1) provides that a credit union may sell its securities to a member or accept consideration for its securities only if it has obtained a receipt for an offering statement from the FSRA CEO which remains in effect. This regime is directed at primary market issuance—where the credit union itself issues and sells its own shares and receives payment from members in exchange for those shares. The legislation distinguishes between “selling” securities and “transferring” securities. Section 67 deals with restrictions on transfers: once securities have been properly issued under s. 68(1)(a) with an offering statement, those securities may be transferred to another member or a prescribed person, subject to manner and conditions set out in regulations. In other words, investment shares that have already entered circulation under an approved offering statement can be traded between members, with the statute leaving any additional conditions to the regulations. The pertinent regulation, O. Reg. 105/22, did not prescribe any further manner or conditions specific to disclosure for inter-member transfers. Section 51 of the Credit Union Act, under the heading “Consideration,” reinforces that the relevant “consideration” is the payment a credit union must receive before issuing a share (other than a patronage share). It must receive full payment in cash or, with approval, in property, for its own shares. Patronage shares, including those issued as dividends, are expressly treated differently. Section 68(3) provides that s. 68(1) and the Ontario Securities Act do not apply to the issuance of patronage shares or patronage shares issued under s. 57 to pay a dividend. As a result, the statutory regime gives robust disclosure protections to primary purchasers of investment shares from the credit union, but not to members who later trade those shares among themselves, and it exempts patronage and dividend-issued patronage shares from offering statement requirements.

The plaintiff’s statutory misrepresentation theory

Because PACE was in liquidation and he was barred from suing PACE, its former management or the employee who promoted the shares to him, Mr. Losak pursued a statutory misrepresentation claim against FSRA. He relied on s. 75(3) of the Credit Union Act, which creates a right of action for purchasers of a security where an offering statement contains a misrepresentation. His core theory was to characterize the absence of an offering statement as a misrepresentation in itself—arguing that he and other putative class members should have received an offering statement disclosing that the shares were high-risk investments. He sought to frame all of his share acquisitions as falling within s. 68(1), contending that any transaction involving consideration for PACE shares—including inter-member transfers where the purchase price passed through PACE, or any situation in which PACE accepted member funds—triggered the obligation to have an offering statement. On this view, “consideration” was broad; if PACE accepted money in connection with transactions involving its shares, the disclosure regime should apply, even when the seller was another member. He also attempted to rely on the classification of Class A Profit Shares, arguing that because patronage shares allegedly were not permitted by PACE’s articles and because s. 45(3) of the Credit Union Act prohibits their inter-member transfer, any patronage-share transfer for value necessarily fell within the s. 68(1) disclosure requirement. To bring FSRA within the categories of persons subject to suit under s. 75(3), he advanced two arguments. First, he claimed FSRA was effectively a director of PACE at the relevant time, once the FSRA CEO as Administrator assumed day-to-day control and board powers. Second, he argued that FSRA knew of, permitted or acquiesced in the sale of PACE securities and should be treated as a person who “sold the security on behalf of the credit union,” even though there was no direct evidence that FSRA personnel sold shares. He also contended that the Crown Liability and Proceedings Act, 2019 (CLPA) should not bar his claim because his cause of action was not in negligence, nor did it concern legislative or policy decisions, but instead was a specific statutory right of action for misrepresentation in an offering statement.

FSRA’s summary judgment motion and defensive position

FSRA moved for summary judgment under Rule 20 of the Rules of Civil Procedure, seeking dismissal of the proposed class action on the basis that there was no genuine issue requiring a trial. Its case was built in layers. First, FSRA focused on a threshold statutory point: it argued that the shares acquired by Mr. Losak and the proposed class members during administration did not require an offering statement under s. 68(1) at all. There were, according to the evidence of KPMG and FSRA, no new Class B Investment Share issuances during the administration—only inter-member transfers and dividend distributions. Because the statutory offering statement regime is designed to regulate primary market issuances by the credit union itself, and because inter-member transfers occur after securities are already in circulation and are governed only by transfer rules in s. 67 and the regulations, the regime did not apply to the transactions here. Without a required offering statement, there could be no misrepresentation in an offering statement and therefore no s. 75(3) cause of action. Second, FSRA submitted that, even if an offering statement were somehow required, FSRA was not a proper defendant under s. 75(3). The statutory right of action is confined to certain categories, notably directors at the time the offering statement was filed and persons who sold the securities on behalf of the credit union. FSRA pointed out that, as a corporation without share capital, it is structurally distinct from its CEO; the FSRA Act separates the regulatory powers and duties of the FSRA CEO from the corporate entity, granting FSRA itself only rule-making powers, not operational director-like functions. FSRA maintained that it never acted as, nor could legally be, a director of PACE and never sold securities on PACE’s behalf. Finally, FSRA invoked s. 11 of the CLPA, arguing that even apart from the above, that statute barred any cause of action against a Crown agent in respect of good-faith regulatory or policy decisions. FSRA emphasized that while investors like Mr. Losak had suffered losses, their recourse lay in the court-supervised liquidation claims process, including possible applications to void improper share transactions, not in a statutory misrepresentation claim against the regulator.

Court’s analysis of the need for an offering statement

Justice Valente approached the case as a summary judgment matter, applying the modern framework from Hryniak v. Mauldin and subsequent authorities. The central question was whether, on the undisputed facts, the statutory conditions for requiring an offering statement under s. 68(1) were met. The court accepted KPMG’s and FSRA’s evidence that during the administration there were no new Class B Investment Share issuances and no new capital raised by PACE via share offerings. All share activity consisted of dividends on existing shares and transfers between members documented on share transfer forms. Mr. Losak did not lead contrary evidence and conceded that he did not buy in the original offerings. On that record, the court found that during administration, both he and the putative class could only have acquired Class A Profit Shares issued as dividends or previously issued Class A Profit Shares and Class B Investment Shares by inter-member transfers. Turning to the statute, the court drew a firm distinction between “selling” and “transferring” securities. Section 68(1) governs sales by the credit union, where it “sells its securities to a member or accepts from a member consideration for its securities,” and these transactions require an offering statement with a receipt. Section 67, by contrast, governs transfers of already issued securities between members and other permitted persons, leaving any additional conditions to the regulations. As the regulations did not impose disclosure conditions on inter-member transfers, the court rejected the plaintiff’s contention that an offering statement must accompany any transfer simply because the shares were originally issued under s. 68(1). Justice Valente also rejected the plaintiff’s broad reading of “consideration.” Relying on the context of s. 51, the court held that “consideration” in s. 68(1) is limited to payments received by the credit union itself for its own securities—i.e., primary issuance money that increases the credit union’s capital. Payments made between two members, even if funds pass through PACE accounts, do not convert an inter-member transfer into a primary market sale. Nor does the receipt of funds for other services (such as depositing retirement savings) trigger s. 68(1). FSRA’s evidence that member-to-member share transfers did not affect PACE’s capital position supported this conclusion, confirming that PACE was not receiving consideration “for its securities” in these transactions.

Treatment of Class A Profit Shares and patronage share arguments

The court also addressed the special status of Class A Profit Shares and patronage shares. Justice Valente found no evidence to support the plaintiff’s assertion that patronage shares were not authorized by PACE’s articles of amalgamation. On the contrary, PACE’s articles specified that its authorized capital included an unlimited number of membership shares, Class A Profit Shares issuable in series and Class B Investment Shares issuable in series. KPMG’s unchallenged evidence showed that Class A Profit Shares were created to reward members for their patronage and were issued either as such rewards or as dividends on existing Class A or Class B shares. The court acknowledged that under s. 45(3) of the Credit Union Act, patronage shares issued as patronage rewards can be transferred only to PACE or another credit union, not freely among members, and that any purported inter-member transfer of such shares would be void. However, Class A Profit Shares issued as dividends stand on a different footing: they may be transferred between members. Critically, s. 68(3) exempts both patronage shares and patronage shares issued as dividends under s. 57 from the offering statement requirements of s. 68(1) and from the Securities Act. Justice Valente concluded that all Class A Profit Shares—whether issued as pure patronage rewards or as dividends—fell within this exemption. Thus, even if some patronage shares had been transferred in contravention of s. 45(3), that statutory breach would not transform those transfers into transactions requiring an offering statement under s. 68(1). Instead, any remedy for void transactions involving patronage shares would lie in the liquidation process, for example by applying to have such transfers declared void, not in a statutory misrepresentation action under s. 75(3) against FSRA.

Rejection of the plaintiff’s interpretive and evidentiary theories

Having parsed the statutory scheme and the factual record, Justice Valente rejected each of the plaintiff’s key interpretive moves. The attempt to treat any flow of money involving the credit union as “consideration” for its securities was found to be inconsistent with both the text and purpose of the legislation. The regime is designed to regulate the raising of capital by the credit union (primary issues), not ordinary operational banking transactions or secondary trades between members. Likewise, the argument that an offering statement should be impliedly required each time a share is transferred because the share was originally issued under an offering statement was incompatible with s. 67, which assigns conditions on transfers to the regulations, and those regulations did not create such a continuing disclosure obligation. Justice Valente drew an analogy to securities law, accepting FSRA’s submission that the Credit Union Act distinguishes conceptually between primary market purchasers (to whom the statute grants a disclosure regime and statutory cause of action) and secondary market purchasers (for whom there is no comparable continuous disclosure cause of action). Unlike the Securities Act, which was amended in 2005 to create secondary market liability for continuous disclosure breaches, the Credit Union Act—even after its 2022 amendments—has not been expanded to provide similar rights. The plaintiff had also advanced arguments grounded in alleged improprieties in patronage-share transfers and the notion that patronage shares were unauthorized. The court found these propositions unsupported by the evidence and, in any event, irrelevant to s. 68(1). A contravention of s. 45(3) does not supply the missing statutory trigger for an offering statement. The judge emphasized that the record contained no proof that PACE actually received consideration from members in exchange for securities during administration; at most, it received and moved funds as part of its ordinary dealings with member accounts, including the transfer of retirement funds, which is distinct from issuing shares.

Disposition, outcome, and lack of monetary award

On this record and legal analysis, Justice Valente concluded that none of the PACE shares acquired by Mr. Losak or the proposed class members during the administration period required an offering statement under s. 68(1) of the Credit Union Act. Because the precondition for the statutory right of action in s. 75(3)—a misrepresentation in an offering statement respecting the securities—was not met, the statutory cause of action simply did not arise. With that threshold element missing, there was no genuine issue requiring a trial on the misrepresentation claim or the broader putative class action. Accordingly, the court granted FSRA’s motion for summary judgment and dismissed Mr. Losak’s claim. As a result, the Financial Services Regulatory Authority of Ontario is the successful party. The endorsement does not award any damages, compensation or quantified costs to either side; instead, it encourages the parties to agree on costs and, failing agreement, provides only a timetable for brief written submissions. No specific dollar amount is set in this decision for damages, costs, or any monetary award in favour of FSRA, and therefore the total amount ordered in favour of the successful party cannot be determined from this judgment.