Under Canadian securities law, the requirement to register as a dealer is triggered by trading securities for a business purpose. One of the uncertainties under the “business trigger” test and associated guidance is whether trading in securities that is ancillary to a business purpose, such as raising capital for a business, crosses the line into registrable activity. In Go-To Developments Holdings Inc (Re), 2025 ONCMT 8 (“Go-To”), a case involving a finding of fraud, Ontario’s Capital Markets Tribunal (the “Tribunal”) held that the respondents were not in the business of trading securities without being registered as a result of selling the securities of a series of limited partnerships formed to engage in real estate development projects.
The Go-To decision brings welcome clarity to sponsors and promoters of serial limited partnerships that raise capital for real estate development, private equity, venture capital or other business purposes.
Facts and Submissions
As we discussed in a previous post, between March 2016 and June 2020, a real estate developer (“OF”) and his company, Go-To Developments Holdings Inc. (“GTDH”), raised over C$80 million from approximately 85 investors. The capital was invested in 10 separate limited partnerships for nine different projects.
Ontario Securities Commission staff (“Staff”) alleged that OF and GTDH traded in securities of the various GTDH limited partnerships and that their capital raising conduct activated the business trigger, which required them to be registered to trade. OF and GTDH did not dispute Staff’s allegation that they were trading in securities but submitted that their trading did not cross the line between permissible capital raising and the registrable business of trading.
Staff submitted that the Tribunal should consider all of the GTDH projects together in its analysis of the business trigger, as OF was the directing mind of and solicited investments for all of the projects with repetition, regularity and continuity. Staff characterized the capital raising for the projects as a single ongoing business, rather than “something in the start-up stage” for each project. Staff also cited and relied on the guidance in Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations (the “Companion Policy”), which sets out the following criteria to assist in determining whether the business trigger has been met:
- engaging in activities similar to a registrant;
- intermediating trades or acting as a market maker;
- carrying on the activity with repetition, regularity or continuity;
- being, or expecting to be, remunerated or compensated for the activity; and
- directly or indirectly soliciting securities transactions.
OF and GTDH submitted that, to the contrary, each of the limited partnerships represented a separate business, financing a different project, and there was no reason to disregard the separate legal personality of each partnership. They suggested that the fundraising efforts of each partnership should be viewed discretely and that OF’s activity was explicable (i.e., non-registrable) as he was the directing mind of GTDH, which was the shareholder of each partnership’s general partner. OF and GTDH argued that, when viewed as stand-alone partnerships, each limited partnership was raising funds primarily in its start-up phase.
Key Findings and Analysis
The Tribunal ultimately held that OF and GTDH did not engage in the business of trading securities without dealer registration contrary to subsection 25(1) of the Securities Act (Ontario). In its decision, the Tribunal highlighted the inherent tension in the Companion Policy between the criteria listed above and additional guidance that issuers with an active non-securities business (or a bona fide business plan for one), that trade in their own securities, are generally not considered to be in the business of trading if they meet certain criteria. The Tribunal noted that the criteria are the obverse of those set out above, and while not determinative, the presence of an underlying business for which capital is being raised is a factor that weighs against a finding of a “business of trading”.
In determining that OF and GTDH did not engage in the business of trading securities without registration, the Tribunal considered the following factual findings:
- each capital raising was for a defined underlying business in respect of a particular property development;
- OF “wore many hats” for GTDH, and there was no evidence to suggest that activity related to soliciting investments consumed more than a modest fraction of his time or that he was compensated based on the quantum raised;
- while GTDH received administration fees from the limited partnerships, there was no evidence to support an assertion that they were more, or less, than one would expect for the administration of property development projects;
- there was no evidence as to whether any component of any fee attributable to investor relations was typical or not; and
- none of the investor witnesses suggested that they viewed OF or GTDH as being in the business of trading securities; all of them said, in one way or another, that GTDH was a real estate development business.
In reaching its conclusion that each capital raising was for a defined underlying business, the Tribunal made no finding of whether each limited partnership was in its start-up stage or whether the GTDH family of projects should be viewed as single or as separate businesses.
The Tribunal also contrasted two of its recent decisions, Paramount Equity Financial Corporation (Re), 2022 ONSEC 7 (“Paramount”) and Stinson (Re), 2023 ONCMT 26 (“Stinson”), as follows:
“In Paramount, the respondents offered units in pooled mortgage investment funds and direct mortgage investments on a continuous basis. The Tribunal cautioned that, just because an issuer carries on a core or other business, it does not preclude a conclusion that the issuer is engaged in the business of trading in securities. The Tribunal focused on other factors such as the amount of management time spent on soliciting investors, the regularity and continuity of sales of securities, and the expectation of those engaged in the trading activity to be compensated for it. The Tribunal concluded that the business trigger test had been met.
In Stinson, on the other hand, the respondents were pursuing a strategy to acquire, renovate, convert and operate a hotel and condominium project. Despite an agreed statement of facts that purported to admit to a breach of the registration section, the Tribunal determined that the Commission had not established that the respondents had met the business trigger test. It found that the respondents did not cross the line from capital raising for a specific underlying business, to engaging in the business of trading in securities.”
The Tribunal concluded that the positions of OF and GTDH were more analogous to those of the respondents in Stinson than those in Paramount. Although GTDH had nine separate projects, each was the subject of a separate capital raising, and the focus of OF and GTDH was to raise capital for those businesses.
The Go-To decision suggests that selling securities will not be registrable activity when conducted as capital raising for a specific underlying non-securities business, where persons engaged in marketing, solicitation and sales activities: (i) are not compensated based on the amount of capital raised; and (ii) do not spend a significant portion of time on such activities relative to time spent on other aspects of their engagement with the entity trading in securities. While the Tribunal dismissed Staff’s allegations that the respondents had traded securities without the necessary registration, the Tribunal found that they had perpetrated fraud in five ways and that OF had made misleading statements to Staff during their investigation.
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