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Fraud - Deprivation. Ontario Securities Commission v. Katmarian
In Ontario Securities Commission v. Katmarian (Ont CA, 2026) the Ontario Court of Appeal considers (and grants but on other grounds) a motion for leave to appeal [under POA s.131] - this respecting a "fraud conviction under s. 126.1 of the Securities Act".
The court considers "the standard for causation on the deprivation element of the actus reus of fraud", here in a POA s.131 leave to appeal context:Proposed question (i): What is the standard for causation on the deprivation element of the actus reus of fraud?
[14] I am not persuaded that it is essential in the public interest or for the due administration of justice that leave be granted for this court to determine the standard of causation on the deprivation element of the actus reus of fraud. The legal principles applied by the appeal judge are neither novel nor controversial.
[15] Canadian law has long recognized that a conviction for fraud does not require proof that a victim suffered an actual loss as a result of the fraudster’s dishonest conduct. As the appeal judge observed, “[t]he element of deprivation is satisfied on proof of detriment, prejudice, or risk of prejudice to the economic interests of the victim. It is not essential that there be actual economic loss as the outcome of the fraud”: R. v. Olan et al., 1978 CanLII 9 (SCC), [1978] 2 S.C.R. 1175, at p. 1182.
[16] In Vézina and Côté v. The Queen, 1986 CanLII 93 (SCC), [1986] 1 S.C.R. 2, at p. 19, the Supreme Court reiterated that: “Fraud consists of being dishonest for the purpose of obtaining an advantage and which results in prejudice or a risk of prejudice to someone’s “property, money or valuable security”. There is no need to target a victim … and the victim may not be ascertained.”
[17] Likewise, in R. v. Théroux, 1993 CanLII 134 (SCC), [1993] 2 S.C.R. 5, at p. 20, the Court affirmed that deprivation caused by a deceitful act constitutes fraud if it causes a deprivation either in the form of an actual loss or “the placing of the victim’s pecuniary interests at risk”.
[18] These principles were applied in R. v. Drabinsky, 2011 ONCA 582, 107 O.R. (3d) 595, leave to appeal refused, [2011] S.C.C.A. No. 491. Drabinsky concerned a company’s balance sheet filed as part of a package of materials in its initial public offering. The balance sheet misrepresented the company’s financial affairs, inflating the real value of the shares. At the fraud trial against two individuals responsible for the IPO package, the prosecution did not call evidence showing that investors were induced to purchase shares based on the misrepresentations in the balance sheet. The defendants argued that, as a result, the Crown had not proven that the misrepresentations were material to the shareholders’ decision to purchase shares and so the Crown had not established that the defendants’ deceit caused any deprivation.
[19] This defence was rejected. The trial judge in Drabinsky held that the investing public was put at risk by the falsehoods in the balance sheet, and that this was enough to establish the actus reus of the offence. This court upheld the convictions, endorsing the following passage of the trial judge’s reasons, at paras. 81-82:The inclusion of a balance sheet that is false is an act of deceit, falsehood and dishonesty. Since members of the public are entitled to rely on these statements before risking their funds, there is potential risk to the public.
If the balance sheet is false, it is no answer to say that the investors would only look to the income statement. One cannot pick and choose sections that may be more or less important to a potential investor. The reasons for investing may be as diverse as the number of investors.
That the accused did not profit from the falsehood is irrelevant to the charge. That the public did not suffer is irrelevant to the charge. [20] Similarly, in R. v. Riesberry, 2015 SCC 65, [2015] 3 S.C.R. 1167, the Supreme Court upheld a conviction for fraud based on an accused injecting race horses with performance-enhancing substances. There was again no evidence that this dishonest conduct had affected any racetrack betting or that any bettor had lost any money as a result of this conduct. Writing for the Court, Cromwell J. affirmed that evidence of inducement, reliance and actual loss may prove the actus reus of fraud, but such evidence is not always necessary. What is essential is proof of a sufficient causal connection between the fraudulent act and a victim’s risk of deprivation: Riesberry, at para. 22. At paragraph 26 of his reasons in Riesberry, Cromwell J. accepted that “a rigged race creates a risk of prejudice to the economic interests of bettors”, and this made the absence of inducement or reliance irrelevant.
[21] Notwithstanding this long line of authority, Mr. Katmarian contends that the standard for causation on the deprivation element of the offence of fraud is unresolved or ambiguous, given the appeal judge’s rejection of the causation analysis in R. v. Kazman, 2017 ONSC 5300, aff’d 2020 ONCA 22, 452 C.R.R. (2d) 185, leave to appeal refused, [2020] S.C.C.A. No. 58;[2] and his reliance on the analysis in R. v. Nowack, 2019 ONSC 2914.
[22] I disagree. These cases do not contradict the principle in Olan, Vézina, Théroux, Drabinsky, and Riesberry that, as a general rule, fraud may be proved if a deceitful act caused either an actual loss or a risk to victims’ pecuniary interests. Kazman and Nowack are simply examples of the application of broad principles to specific facts.
[23] Kazman involved dishonest statements made in support of applications for bank loans. The trial judge in that case, Spies J., concluded that, in the context of these transactions, the Crown had to prove that the misrepresentations induced the banks to advance the loans. I agree with the appeal judge in this case that Spies J. was describing the causation requirement in the specific circumstances of the case rather than advancing a novel proposition of law. This is apparent because, in setting out the elements of the offence of fraud at the outset of her analysis, Spies J. noted that deprivation may be established either by actual prejudice, or by a risk of prejudice to the economic interests of the victim, citing Théroux and Olan.
[24] The analysis in Nowack likewise does not, as Mr. Katmarian contends, broaden the actus reus that may constitute fraud. In Nowack, the accused argued that his misrepresentations to investors did not cause them any deprivation, because they were made after the investors’ advanced funds. This defence was rejected, because the trial judge found that the misrepresentations nonetheless caused a risk to the investors’ economic interests. This is again consistent with recognized principles.
[25] Mr. Katmarian asserts that the appeal judge erred in finding that the case at bar is more akin to Drabinsky and Riesberry than Kazman, and that he should not have suggested, based on Nowack, that Mr. Katmarian’s fraud could be established based on versions of Peblik’s website dated after investors invested in cryptocurrency tokens. I do not need to determine whether these are arguable errors. Even if they were, they would arise from the misapplication of established law to specific facts. As such, they would be errors of mixed fact and law that could not be the basis for granting leave to appeal under s. 131 of the Provincial Offences Act.
[26] Finally, Mr. Katmarian contends that leave to appeal this question should be granted under the due administration of justice criterion in s. 131(2), because the Commission advanced a different theory of causation on appeal than at trial, contrary to R. v. Varga (1994), 1994 CanLII 8727 (ON CA), 18 O.R. (3d) 784 (C.A.). This same submission was rejected by the appeal judge. There is no basis to conclude that he erred in doing so, as the application record does not include the transcripts and materials that he cited in rejecting the submission.
[27] For these reasons, I deny leave to appeal on the first proposed question of law.
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