First Global Data Ltd | Sep 15, 2022

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Citation: First Global Data Ltd (Re), 2022 ONCMT 25

Date: 2022-09-15

File No. 2019-22

IN THE MATTER OF

FIRST GLOBAL DATA LTD., GLOBAL BIOENERGY RESOURCES INC.,

NAYEEM ALLI, MAURICE AZIZ, HARISH BAJAJ,

and ANDRE ITWARU

REASONS AND DECISION

(Subsection 127(1) of the Securities Act, RSO 1990, c S.5)

Adjudicators: Timothy Moseley (chair of the panel)

Lawrence P. Haber

Mary Anne De Monte-Whelan

Hearing:

By videoconference and teleconference, October 5, 7, 9, 13-16, 19,

21-23, 26, 27, November 20, 25-27, December 4, 7, 9-11, 14-17,

2020; January 7, 8, 11-15, 18, April 6, 2021; written submissions

received March 29 to August 10, 2021

Appearances: Mark Bailey

Charlie Pettypiece

For Staff of the Ontario Securities

Commission

Anil Saxena

For Global Bioenergy Resources Inc.

Syed Abid Hussain

For Nayeem Alli, for a portion of the

hearing

Simon Bieber

Robert Stellick

For Maurice Aziz

Harish Bajaj

For himself

Kevin Richard

For Andre Itwaru, for a portion of the

hearing

No one appearing for First Global Data Ltd.

TABLE OF CONTENTS

1.

2.

OVERVIEW .............................................................................................. 1

BACKGROUND.......................................................................................... 3

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

Introduction ................................................................................... 3

The initial connection....................................................................... 4

The Colombian assets and the need for funding................................... 5

Aziz introduces Bajaj and Thiviyanayagam to the project ...................... 6

GBR entities................................................................................... 7

Desire to raise funds using public companies......................................10

Agreement between First Global and GBR Colombia ............................11

Solicitation of investors...................................................................11

The breakdown of the First Global relationship ...................................12

2.10 Loans from EH...............................................................................13

2.11 Purported licence transactions..........................................................13

3.

PRELIMINARY MATTERS ...........................................................................14

3.1

Alli’s requests to adjourn the merits hearing ......................................14

October 1, 2020, request.......................................................14

October 7, 2020, request.......................................................15

Mid-hearing ruling on the admissibility of testimony about a meeting with

Roch (GBR Colombia’s lawyer).........................................................16

Mid-hearing ruling on the rights of respondents to cross-examine each

other............................................................................................18

Background .........................................................................18

Analysis ..............................................................................20

3.2

3.3

4.

5.

STRUCTURE OF THE ANALYSIS..................................................................22

FIRST GLOBAL DEBENTURES.....................................................................22

5.1

5.2

Introduction ..................................................................................22

Alleged illegal distribution................................................................23

Introduction.........................................................................23

Factual background...............................................................23

Analysis of First Global’s alleged illegal distribution....................24

Conclusion about the allegation that First Global illegally distributed

its debentures......................................................................26

Role of the other respondents in First Global’s illegal distributions27

Engaging in the business of trading the First Global debentures without

being registered.............................................................................33

Introduction.........................................................................33

Trading with repetition, regularity and continuity.......................34

Directly or indirectly soliciting securities transactions .................34

Receiving, or expecting to receive, compensation for trading ......35

Engaging in activities similar to those of a registrant..................35

Conclusion about Staff’s allegation that GBR, Bajaj and Aziz were

engaged in the business of trading..........................................36

Alleged misrepresentations..............................................................37

Introduction.........................................................................37

Use of Funds Representations.................................................38

Colombian Operations Representations ....................................53

Security Representations .......................................................59

Staff’s allegations of fraud contrary to s. 126.1(1)(b)..........................75

Introduction.........................................................................75

Did the GBR Ontario Parties engage in an act of deceit, falsehood

or some other fraudulent means?............................................76

Was there a deprivation caused by the dishonest act, i.e., the

unauthorized diversion of funds?.............................................81

Did each respondent have subjective knowledge of the fraudulent

act? 83

5.3

5.4

5.5

Did each of the GBR Ontario Parties have subjective knowledge

that the fraudulent act could have as a consequence the

deprivation of another?..........................................................91

Conclusion regarding fraud in relation to the First Global

debentures ..........................................................................92

Staff’s allegations of representations prohibited by s. 44(2) .................93

5.6

6.

GBR DEBENTURE.....................................................................................96

6.1

6.2

Introduction ..................................................................................96

Additional background facts.............................................................97

6.3

6.4

The reliability of EH’s testimony .....................................................101

Staff’s allegations of fraud contrary to s. 126.1(1)(b)........................102

Introduction.......................................................................102

Did Aziz and GBR Ontario engage in an act of deceit, falsehood or

some other fraudulent means? .............................................102

Was there a deprivation caused by the dishonest act?..............103

Did each respondent have subjective knowledge of the dishonest

act? 104

Did each respondent have subjective knowledge that the fraudulent

act could have as a consequence the deprivation of another?....104

Conclusion regarding fraud in relation to the GBR debenture.....104

7.

FIRST GLOBAL PURPORTED LICENCE TRANSACTIONS ................................104

7.1

7.2

Introduction ................................................................................104

Evidence.....................................................................................106

Additional background facts .................................................106

Expert opinion evidence.......................................................108

Financial reporting and involvement of First Global’s auditor .....113

Analysis......................................................................................118

First Global........................................................................118

Role of Itwaru and Alli.........................................................124

Conclusion about purported licence transactions...............................125

7.3

7.4

8.

POTENTIAL DEFENCE FOR BAJAJ OF REASONABLE RELIANCE ON LEGAL

ADVICE................................................................................................125

9.

ALLEGATIONS OF CONDUCT CONTRARY TO THE PUBLIC INTEREST ..............127

CONCLUSION........................................................................................128

10.

REASONS AND DECISION

1.

OVERVIEW

[1]

In more than 100 separate transactions during an eight-month period in 2015,

80 investors invested an aggregate of approximately $4.46 million in debentures

of First Global Data Ltd. (First Global), an Ontario public company. The

investors lost all their money.

[2]

[3]

The fundraising activities were carried on by Global Bioenergy Resources Inc.

(GBR Ontario), a private Ontario company, and its two principals. None of them

was a registrant under Ontario securities law.

Staff of the Ontario Securities Commission alleges that the First Global

debentures were illegally distributed (i.e., sold without a prospectus or an

exemption from the prospectus requirement), and that GBR Ontario and its two

principals engaged in the business of trading those debentures without being

registered. We agree. Their sales efforts were repeated and continuous, they

were compensated or expected to be compensated for those efforts, and some of

their activities resembled those of a securities dealer.

[4]

Staff also alleges that GBR Ontario and its two principals perpetrated securities

fraud because of misrepresentations they made. The three sets of allegedly

fraudulent misrepresentations were about:

a.

how the funds raised by selling First Global debentures would be put to

use, i.e., to fund First Global’s working capital, and/or to help First Global

deploy its mobile technology and global payment systems outside Canada,

and/or to fund certain Colombian natural resource operations unrelated to

First Global’s core business;

b.

c.

whether natural resource assets and production facilities existed in

Colombia that were operating and that were producing sufficient revenue

to generate the promised returns on the First Global debentures; and

whether investment in the First Global debentures was secure, guaranteed

and risk-free.

1

[5]

[6]

The individual respondents and other principals cannot themselves agree as to

how investors’ funds were to be used, or whether the representations were

complied with. Worse, the documents provided to investors were fundamentally

contradictory on those subjects.

We agree with Staff’s submission that GBR Ontario and its principals perpetrated

securities fraud as alleged. We conclude that those respondents put investor

funds raised from the First Global debentures to uses that had not been disclosed

to investors, including to:

a.

b.

c.

go toward a different Colombian project involving a coal mine;

pay referral fees and other expenses of GBR Ontario; and

pay interest to debenture holders.

[7]

We also conclude that at a minimum, those respondents:

a.

were reckless as to whether there were sufficient operating assets to

produce the necessary income (we conclude that there were not);

b.

were reckless as to whether any assets had been pledged as promised to

secure the First Global debentures (we conclude that they had not been);

and

c.

were cavalier in promising that investment in those debentures was 100%

secure, guaranteed and risk-free (which it was not).

[8]

Staff makes similar allegations against GBR Ontario and one of its principals

about a debenture issued by GBR Ontario (not First Global) directly to one

investor, reflecting a total investment of $450,000 made over a period of less

than two months. As with the First Global debentures, the same

misrepresentations were made about whether the investment was secured by

assets. We conclude, for reasons similar to those about the First Global

debentures, that GBR Ontario and the principal against whom the allegation is

made perpetrated securities fraud in respect of this debenture.

[9]

Finally, Staff alleges that First Global entered into agreements that purported to

be licence agreements but that were in reality investment or financing

agreements. In one set of audited year-end financial statements, and three

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subsequent quarterly unaudited interim financial reports, First Global improperly

recognized revenue in connection with these agreements. First Global eventually

restated its financial results to reflect a significant negative impact, but Staff

alleges that before that restatement, First Global breached its obligation to

prepare and file financial statements prepared in accordance with applicable

standards. Staff also alleges that First Global’s two principals authorized the

release of the improper financial results and that they therefore failed to comply

with Ontario securities law.

[10] We agree that First Global improperly recognized revenue in respect of the

purported licence agreements. We conclude, though, that First Global and its

principals exercised reasonable due diligence before they did so with respect to

the year-end financial statements and two of the three quarterly interim financial

reports. We reach that conclusion primarily because First Global’s auditor gave a

clean audit opinion with respect to the year-end financial statements despite

being aware of the revenue recognition issue.

[11] However, we find that the due diligence defence was not available in respect of

the third interim financial report. By that time, the issue had been repeatedly

discussed, and First Global’s auditor had reversed his position and advised First

Global not to recognize the revenue. We find that Staff has proven its allegations

regarding that interim financial report.

[12] We explain our reasoning for all the above conclusions in our analysis below,

following a review of the background facts.

2.

BACKGROUND

Introduction

2.1

[13] This proceeding arises because a number of individuals saw opportunities in

coming together with other individuals involved in different sectors, whose

ambitions were different but were seen as complementary. Things did not turn

out as hoped, at least for some of the individuals and their associated

companies.

[14] There are two geographic centres to the events underlying Staff’s allegations.

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[15] The first is Colombia, in which may have been situated certain natural resource

assets, including one or more bitumen mines, biodiesel facilities, and coal mines.

We say “may have” because the existence, status and ownership of these assets

were unclear throughout the relevant time and are in dispute in this proceeding.

[16] The second geographic centre is Ontario, which was home to businesses (First

Global and GBR Ontario) and individuals who sought to raise funds from the

public, supposedly for one or both of two purposes:

a.

to develop mobile payment technology and introduce that technology

outside Canada; and/or

b.

to develop some or all of the Colombian assets referred to above.

[17] It is the public fundraising in Ontario that forms the core of this proceeding. Staff

alleges that from approximately May to December of 2015 (the Solicitation

Period), the respondents raised funds in a manner that breached numerous

provisions of the Securities Act.¹

2.2

The initial connection

[18] The connections in this case began in early 2014, when through a mutual friend,

the respondent Maurice Aziz met Michel Faille (who is not a respondent). Aziz

had worked in financial services but described his passion as business

development, bringing some of his many contacts together to help them solve

problems. Aziz understood that Faille was a tax specialist.

[19] According to Aziz, who was based in Ontario, Faille told him about a project that

he was working on in Colombia. Faille explained that a friend of his owned all the

necessary facilities, rights and permits with respect to some natural resource

assets, but that more funding was needed to develop the assets and to increase

production at the facilities.

[20] Aziz expressed interest in the project. Faille then introduced Aziz by telephone to

Faille’s friend Adriana Rios Garcia, and Garcia’s husband Martin Grenier. Aziz

began to speak with Garcia and Grenier regularly. Like Faille, neither Garcia nor

Grenier is a respondent in this proceeding.

1

RSO 1990, c S.5

4

[21] Garcia is from Colombia and is a dual citizen of Colombia and the United States

of America, with residences in both countries. Garcia and Grenier told Aziz that

Garcia controlled various assets in Colombia, although legal title to some of them

was held by Garcia’s family members’ companies. According to Garcia, who

testified at the hearing, she oversaw the operations of the Colombian

businesses, and her husband Grenier was in charge of fundraising.

[22] Despite Grenier’s active and prominent role in the events giving rise to this

proceeding, his name does not appear on any contracts or other formal

documents. In late June 2015, Grenier explained to Aziz and other involved

individuals that this was so because of issues in his past. It is evident that he

was referring to some or all of what had been publicly reported about him,

including that:

a.

he had been charged with offences (some of which he had very recently

pled guilty to) relating to money laundering and the proceeds of drug

trafficking;

b.

c.

he had used aliases; and

he had used a Canadian lawyer to fabricate a document in an attempt to

legitimize the origins of illicit funds.

2.3

The Colombian assets and the need for funding

[23] Aziz says that Garcia and Grenier told him that Garcia held rights to six

Colombian assets. These assets, and the distinctions among them, become

significant in our analysis below, since Staff’s allegations raise issues relating to

whether all the assets were indeed operating, who owned what portion of the

assets, and what representations were made to investors about the assets for

which their funds would supposedly be used.

[24] Four of the six assets were bitumen mines: the Rio Negro mine, the SGS

Baranquilla mine, the Asfaltitas mine, and the La Esperanza mine. The other

two assets were the Hoyo Patia coal mine and either one or two biodiesel

production facilities (an uncertainty we address below).

[25] Aziz says that Garcia and Grenier explained that their bitumen production was

being done by hand in open pit mines using “artisanal” methods, including

5

pickaxes and shovels. According to Garcia and Grenier, they needed funding to

upgrade their bitumen production methods. Similarly, they needed funding for

the biodiesel facility(ies), so that they could buy equipment and make capital

investments in order to significantly increase production.

[26] Garcia and Grenier said they had been unable to raise the necessary funds

through conventional means, because many lenders feared investing in

Colombia.

2.4

Aziz introduces Bajaj and Thiviyanayagam to the project

[27] Aziz liked the opportunity that the Colombian projects appeared to present, but

he felt that he lacked the appropriate skillset to raise the necessary funds. He

decided to introduce the projects to two individuals he knew in Ontario – the

respondent Harish Bajaj, whom Aziz had known for about 15 years, and an

associate of Bajaj’s, Shankar Thiviyanayagam, who is not a respondent. Aziz

testified that Bajaj and Thiviyanayagam often partnered together to raise funds.

[28] In late 2014, Aziz introduced Bajaj and Thiviyanayagam to Faille, who in turn

introduced them to Garcia and Grenier. Following that introduction, Aziz, Bajaj

and Thiviyanayagam reviewed documents from Garcia and Grenier. They also

traveled to Colombia to meet with Garcia and Grenier and to visit some of the

assets. During a January 2015 trip, Bajaj and Thiviyanayagam visited:

a.

what they were told was the La Esperanza mine, where they saw a few

people digging by hand and filling bags; and

b.

a biodiesel plant that they were told was producing biodiesel, although the

extent of Bajaj’s understanding about this plant was that one of Garcia’s

companies owned it; when he testified at the hearing he could not recall

the name of the company.

[29] In our analysis below, we examine more closely the due diligence conducted by

Aziz and Bajaj, which becomes important in considering the representations they

made to investors.

[30] There was significant uncertainty about the subject assets from the start. For

example, Aziz and Bajaj differed about which assets were to be the subject of

6

the fundraising efforts. Bajaj testified that initially it was the bitumen assets

only. Aziz says the biodiesel facility was included from the beginning.

[31] In any event, Aziz testified that having made the initial connection, he left it to

Bajaj, Thiviyanayagam, Garcia and Grenier to move things forward. He says that

over the first few months he was not actively and directly involved in the

partnership.

2.5

GBR entities

[32] Two corporations using “Global Bioenergy Resource” or its derivation “GBR” as

part of their names figure prominently in this case. We mentioned the

respondent GBR Ontario above. We will return to GBR Ontario after describing

the other GBR company.

[33] That other company, which was incorporated six months earlier than GBR

Ontario, is “Global Bioenergy Resource SAS”, a Colombian corporation with

offices in Bogotá. The parties in this proceeding referred to the company as

“GBRSAS”. We will refer to it as GBR Colombia.

[34] Garcia testified that on February 26, 2015, she incorporated GBR Colombia, of

which she owned 100% and was the sole legal representative and only person

with authority to sign on behalf of the company.

[35] Just over three months later, in early June 2015, Bajaj and Thiviyanayagam

signed a memorandum of understanding (which they dated May 14, 2015) with

GBR Colombia (the GBR Colombia MoU, or the MoU). The GBR Colombia MoU,

which was signed by Garcia on behalf of GBR Colombia, reflected that:

a.

Bajaj and Thiviyanayagam committed to raise funds through an

unspecified Canadian company and to invest in GBR Colombia an amount

up to C$5 million;

b.

GBR Colombia would manage the Colombian bitumen mining operation

and would increase production to 30,000 tons per month;

c.

Garcia would own 50% of the shares of GBR Colombia; and

d.

Bajaj and Thiviyanayagam together would own the other 50% of the

shares.

7

[36] Bajaj and Garcia agree that at the time they signed the MoU, the La Esperanza

and Rio Negro bitumen mines were the only assets that were identified as

becoming part of the fundraising arrangement. While Bajaj did not know at the

time what assets GBR Colombia owned, he says he was promised by Garcia and

Grenier that the La Esperanza mine would be transferred to GBR Colombia

without any conditions. He expected the transfer to be effected when the MoU

was signed. The biodiesel facility was added later.

[37] There is some dispute about the extent of Aziz’s participation at this stage. Bajaj

claims to have been working with Aziz from the beginning. Bajaj states that even

before the MoU was signed, there was an oral understanding between him and

Aziz that the two of them would be entitled to equal shares of the business. On

the other hand, Aziz denies having had any direct involvement in the fundraising

efforts at the time. He notes that he was not a party to the MoU and that he had

no entitlements under it.

[38] Bajaj drafted the MoU without the benefit of any legal advice. It is brief and it is

precise as to share ownership (Garcia as to 50%, with Bajaj and Thiviyanayagam

together owning the other 50%, with no suggestion that Aziz would own any

shares). The only evidence to suggest that Aziz was entitled to an ownership

interest is Bajaj’s testimony, which is contradicted by the MoU and by testimony

from Aziz and Garcia.

[39] Bajaj gave no explanation as to why the supposed oral understanding was not

reduced to writing in the MoU or elsewhere. Aziz’s testimony aligns with the

documentary evidence, and we conclude that it is more likely than not that Aziz

had no ownership interest in GBR Colombia at that time.

[40] Ownership of GBR Colombia aside, much of the evidence in this hearing revolved

around whether Garcia promised to transfer any of the Colombian assets to that

company, and whether any such transfers ever happened. We will return to that

issue in our analysis below.

[41] For our purposes in this proceeding, the next significant corporate event for GBR

Colombia occurred in October 2015, four months after the MoU was signed. At a

meeting in Montreal, at the offices of GBR Colombia’s lawyer, four directors of

GBR Colombia (Garcia, Aziz, Thiviyanayagam and Bajaj) signed a resolution

8

appointing Bajaj as president, an individual by the name of Paul James as chief

executive officer, and Garcia as secretary. Garcia testified that there was an oral

agreement that this and other resolutions signed at that time were to remain

undated and were to be held in escrow until GBR Ontario raised at least $5

million. We reject Garcia’s claim, for reasons we discuss further below.

[42] GBR Ontario was founded by Aziz, Baja and Thiviyanayagam, and incorporated

on August 11, 2015. From its inception, Aziz was a director and Bajaj was its

president. Aziz became the secretary beginning in 2017. GBR Ontario’s sole

reason for existing was to carry out the fundraising. GBR Ontario carried on no

other business.

[43] In these reasons we sometimes refer to the respondents GBR Ontario, Bajaj and

Aziz together as the GBR Ontario Parties.

[44] Bajaj testified that he and the other two co-founders of GBR Ontario (Aziz and

Thiviyanayagam) were responsible for raising funds for GBR Colombia to develop

the Colombian assets. Bajaj stated that the three of them, along with Faille,

managed the day-to-day operations of GBR Ontario.

[45] Staff submits that Aziz was a directing mind of GBR Ontario. Aziz disagreed,

testifying that he was not part of management and played only a peripheral role,

and that it was Faille (as Grenier’s voice) and Bajaj who managed the company.

We address that issue in our analysis below.

[46] According to Bajaj, Faille and Aziz told him:

a.

to continue to use, for GBR Ontario, an office in Richmond Hill that Bajaj

had previously been using for an unrelated entity; and

b.

that whether Bajaj used the Richmond Hill office or Bajaj’s Brampton

office (which Bajaj used for his financial and accounting services, and

which Bajaj preferred over the Richmond Hill office), he would be

reimbursed for rent and employee salaries.

[47] Staff submits that Bajaj was also a directing mind of GBR Ontario. Bajaj submits

that his role with GBR Ontario was to raise funds and to show the investment

opportunity to investors. That role is not inconsistent with Staff’s allegation, and

9

as we set out in more detail below, we conclude that Bajaj was indeed a

directing mind of GBR Ontario.

[48] Even though some documents referred to GBR Ontario as the “Canadian office”

and GBR Colombia as the “Colombian office”, there was no corporate relationship

between the two companies. Where possible in these reasons, we will distinguish

between the two companies. However, presentations and marketing documents

often conflated the two entities, referring to them together as “GBR”, or referring

to one or the other as “GBR”, without being clear about which entity was

involved. Accordingly, where appropriate, we will occasionally refer simply to

“GBR”, to reflect the message that was being given to investors at that time that

the two entities were one.

2.6

Desire to raise funds using public companies

[49] By June 2015, when the GBR Colombia MoU was signed, Bajaj had already been

speaking with investors about the Colombian assets, and had already been

promoting the investment through marketing material and radio advertisements.

[50] Bajaj and Thiviyanayagam considered it important that the fundraising be done

through a public company, so that investors could hold their investments in

registered accounts (e.g., RRSP, TFSA). Unsuccessful attempts ensued with two

companies, before Aziz suggested a company he knew of that, he had recently

learned, was experiencing financial difficulties.

[51] The company was the respondent First Global, a Canadian company with its head

office in Toronto. First Global became a public company by way of a reverse

takeover in 2012. It was listed on the TSX Venture Exchange and was a

reporting issuer in Ontario and other provinces. First Global described itself as an

international financial technology company, involved in mobile payments and

cross-border payments.

[52] Aziz had a long-standing relationship with First Global, having been friends with

its two principals, the respondents Andre Itwaru (a co-founder of First Global and

its then-CEO) and Nayeem Alli (also a co-founder of First Global and its

then-CFO) for approximately ten years. In these reasons we sometimes refer to

First Global, Itwaru and Alli together as the First Global Parties.

10

[53] Aziz believed that there was an opportunity to align his and Bajaj’s interests with

those of First Global, Garcia and Grenier. In July 2015, Aziz introduced First

Global’s principals Itwaru and Alli to Faille, Bajaj and Thiviyanayagam to discuss

how they might all work together to raise funds to meet their various objectives.

2.7

Agreement between First Global and GBR Colombia

[54] First Global Corp. (First Global’s subsidiary) entered into an agreement with GBR

Colombia, pursuant to which GBR Colombia agreed to help First Global raise

funds by distributing First Global debentures. The agreement, which we refer to

as the First Global-GBR Debenture Agreement, is dated August 21, 2015,

although it appears to have been executed sometime after that date, likely in

October or later. In any event, by August 21, the date shown on the agreement,

First Global had already raised approximately $1.6 million from investors using

First Global’s subscription documents.

[55] According to Aziz, First Global was to be only a temporary solution for GBR

Colombia, as a vehicle to raise funds. He testified that once a shell listed

company could be identified, GBR Colombia would roll all its assets into that

company and continue raising capital using that company. GBR Colombia would

no longer need First Global.

2.8

Solicitation of investors

[56] In our analysis below, we describe in detail the methods by which investors were

solicited and investments were documented. Briefly:

a.

Bajaj led the fundraising efforts on behalf of GBR Ontario, using his

existing client network, PowerPoint presentations at open in-person

seminars, brochures made available to potential investors, radio

advertisements, and referral networks;

b.

c.

Aziz played a role in the fundraising, although a less central role than

Bajaj;

Bajaj and Aziz made representations to investors about:

i.

how funds would be used;

11

ii.

the extent to which the assets in Colombia were operating and

capable of producing the advertised return; and

iii.

whether investment in the First Global debentures was secure,

guaranteed and risk-free; and

d.

investors signed First Global subscription documents that indicated that

funds were to be used for First Global’s working capital, but did not

mention use of funds for any other purposes, including the Colombian

operations.

2.9

The breakdown of the First Global relationship

[57] During the time that funds were being raised, primarily for the Colombia

operations, a dispute arose about the extent to which First Global was entitled to

retain some portion of those funds. Once it was clear that First Global had

retained approximately $1.5 million (more than some thought it was entitled to),

trust between Garcia, Grenier and Faille on the one hand and First Global on the

other was eroded. The parties agreed that the best way forward was for GBR

Colombia to work with a new Canadian company and for First Global to assign

the debentures to that company.

[58] Grenier and the GBR Ontario Parties urgently wanted to find a public company to

replace First Global. Grenier reintroduced Threegold Resources Inc.

(Threegold), which had been one of the companies contemplated before First

Global became the fundraising vehicle (see paragraph [50] above). The

relationship with Threegold had not previously been formally concluded.

[59] Preparatory steps were taken, and on December 22, 2015, Bajaj (as a director of

Threegold) signed an agreement pursuant to which First Global assigned $3.43

million of the First Global debentures to Threegold. However, challenges arose

because Threegold was not actively listed on the TSX-V, and if that issue were

not addressed, investors would suffer significant tax penalties.

[60] Threegold made efforts to resolve the issue, but those efforts were not

successful. The proposed reverse take-over transaction with Threegold, which

had been contemplated before First Global became involved, was never effected.

12

Ultimately, in December 2017, First Global accepted the reassignment of the

First Global debentures back from Threegold.

2.10 Loans from EH

[61] One investor provided funding for the Colombian operations through a channel

other than the First Global debentures. In July and August of 2015, investor EH

provided loans totaling $450,000. Staff and Aziz dispute which entity EH invested

in, and the extent of Aziz’s involvement. We explore these issues in detail in our

analysis below (see discussion of the “GBR Debenture” beginning at paragraph

[442]).

[62] Staff alleges that Aziz and GBR Ontario perpetrated securities fraud in respect of

these loans. EH received a limited number of interest payments (fewer than EH

was entitled to) but no principal.

2.11 Purported licence transactions

[63] The last category of transactions that form the subject of Staff’s allegations is a

set of what purported to be licence agreements involving First Global’s subsidiary

First Global Data Technologies Inc. These agreements stated that individuals

advanced funds in exchange for exclusive licences to market and deploy First

Global’s technology. EH, the investor mentioned above, was one of the

individuals, but there were others.

[64] At the time these agreements were entered into between First Global Data

Technologies Inc. and various individuals, there was much discussion involving

First Global’s principals and First Global’s auditor and accounting staff about the

appropriate accounting treatment for the agreements. In one set of year-end

comparative financial statements, and three succeeding quarterly interim

financial reports, First Global recognized significant revenue from the

agreements. Concerns were raised about whether it was appropriate to recognize

revenue equal to the sums advanced by the individuals, as opposed to treating

the sums received as liabilities (due to the obligation to repay the amount

advanced at the end of the term of the agreement) or deferred revenue.

[65] First Global’s auditor signed a clean audit opinion for the year-end statements

that recognized revenue. He later changed his view, following further discussions

13

with First Global management. First Global eventually restated the various

financial results, to exclude the revenue.

3.

PRELIMINARY MATTERS

[66] Before we address the merits of Staff’s allegations, we review three preliminary

matters:

a.

two requests by Alli to adjourn the merits hearing, immediately prior to

and immediately after the commencement of, the hearing;

b.

our mid-hearing ruling (for reasons to follow) about the admissibility of

certain testimony, given Staff’s objection on the ground that the

substance of the testimony was not properly disclosed before the hearing;

and

c.

our mid-hearing ruling (for reasons to follow) about the right of

respondents to cross-examine each other, and the procedure to be

followed in hearings with multiple respondents.

[67] We note here as well that after the evidentiary portion of this hearing had

concluded, Alli brought a motion to stay this proceeding. Staff brought a motion

to dismiss Alli’s stay motion. On consent, we ordered that Staff’s motion to

dismiss be heard in writing. We issued our decision to grant Staff’s motion,²and

our reasons for that decision are issued simultaneously with, but separately

from, this decision.³

[68] We will now address in turn the three preliminary matters mentioned above.

3.1

Alli’s requests to adjourn the merits hearing

[69] We begin with Mr. Alli’s requests to adjourn the merits hearing.

October 1, 2020, request

[70] Less than a week before the merits hearing was set to begin, Mr. Alli requested a

30-day adjournment for several reasons, primarily to retain new legal counsel.

Mr. Alli had previously been represented by counsel at the preliminary

2

(2021) 44 OSCB 10375

3

First Global Data Ltd (Re), 2022 ONCMT 24

14

attendances in this matter, but by September 24, 2020, that counsel was no

longer retained.

[71] After hearing submissions from the parties, that panel (differently composed

than this panel) advised that for reasons to follow, the merits hearing would

proceed as scheduled, beginning the following Monday, October 5, 2020. The

reasons for that decision are published simultaneously with, but separately from,

this decision.⁴

[72] At the motion hearing, and in its reasons, the panel stated that the decision on

the October 1 adjournment request would not preclude any future counsel

retained by Mr. Alli from bringing a further request for adjournment, should new

facts or evidence become available.

October 7, 2020, request

[73] By the second day of the merits hearing, Mr. Alli had retained new counsel,

Mr. Syed, who attended on his behalf. At the commencement of the hearing day,

counsel for Mr. Alli made a request for a week-long adjournment, citing the large

volume of material he needed to review in order to effectively represent his

client, given his recent retainer.

[74] Staff opposed the request, citing the facts that the hearing had already begun,

and investor witnesses were scheduled to begin their testimony that week. Staff

submitted that the “exceptional circumstances” requirement under Rule 29 of the

Rules of Procedure and Forms had not been met.

[75] As the Tribunal has previously held, the “exceptional circumstances” standard is

a "high bar" that reflects the important objective set out in Rule 1, that Tribunal

proceedings be "conducted in a just, expeditious and cost-effective manner”.

This objective must be balanced against the parties' ability to participate

meaningfully in hearings and to present their case. A determination about

whether to grant an adjournment is necessarily fact-based.⁵

4

First Global Data Ltd (Re), 2022 ONCMT 23

5

2019 ONSEC 40 (Money Gate) at para 54, citing Pro-Financial Asset Management Inc (Re), 2018

ONSEC 18 at para 28 and Cheng (Re), 2018 ONSEC 13 at paras 5-6

15

[76] Mr. Alli did not provide any additional facts or evidence supporting his request

for an adjournment, aside from his recent retainer of new counsel. In Money

Gate, the Tribunal explained that “while a party is generally entitled to choose its

counsel without any obligation to explain its choice, that rule cannot apply when

the party seeks to rely on a change of counsel to justify an adjournment

request”.⁶In those circumstances the party must provide evidence that the

change of counsel constitutes exceptional circumstances. Mr. Alli failed to

provide any such evidence.

[77] The panel denied Mr. Alli’s request for an adjournment. Mr. Alli failed to meet his

onus of establishing exceptional circumstances that warrant an adjournment of

the merits hearing, and the hearing continued as scheduled.

3.2

Mid-hearing ruling on the admissibility of testimony about a meeting

with Roch (GBR Colombia’s lawyer)

[78] We now turn to our mid-hearing ruling on the admissibility of testimony about a

meeting that involved GBR Colombia’s lawyer.

[79] During the hearing, Aziz sought to testify about a meeting held in Montreal on

October 12, 2015, at the offices of Steven Roch, of the firm of Colby Monet,

which acted for GBR Colombia and various entities controlled by Garcia. Present

with Aziz at the meeting were Garcia, Bajaj, Thiviyanayagam, Faille and Grenier.

[80] Aziz wished to testify about a discussion at that meeting, at which Roch allegedly

told the group that they could retain a reserve amount from funds raised, to

cover interest obligations owing to investors.

[81] Staff objected to the admission of this testimony on the basis that Staff had not

been given sufficient notice of this anticipated evidence in pre-hearing

disclosure, contrary to Rule 27 of the Rules of Procedure and Forms. That rule

provides that parties may not rely on evidence that was not disclosed as

required, unless the panel permits.

[82] After hearing submissions, we decided to admit the evidence, without prejudice

to the ability of any party (including Staff) to make submissions following the

6

Money Gate at para 58

16

hearing about what weight, if any, ought to be attached to the evidence. We

advised that our reasons for that decision would follow, and we set out those

reasons here.

[83] The idea of retaining a portion of the raised funds in order to pay interest to

earlier investors was incorporated into a GBR Colombia resolution signed at the

meeting in Montreal, by Garcia, Aziz, Thiviyanayagam and Bajaj. The resolution

said that “14% of raised fund [sic] will keep [sic] for interest purposes”.

[84] Staff called Garcia as a witness at the hearing. She testified that Roch drafted

the resolution. On cross-examination, she was asked whether there was any

discussion at the meeting about 14% being retained for interest purposes. She

said she did not remember.

[85] In his testimony, Aziz explained that production in Colombia at the time was

insufficient to fund interest obligations to the First Global debenture holders,

which made Bajaj concerned. Following discussion among everyone including

Roch, the decision was to retain 14% of the raised funds to cover interest in the

first year, in case there was a shortfall.

[86] In submissions about the admissibility of this testimony, Aziz conceded that his

summary of anticipated evidence, delivered to Staff as required before the

hearing, did not refer specifically to this evidence. However, Aziz submitted that

Staff received notice of this evidence through Roch’s summary of anticipated

evidence, which said that Roch would testify about:

a.

b.

c.

how he “advised [GBR Ontario] and [GBR Colombia] on how to raise

money in compliance with applicable securities laws”;

the resolutions signed at the meeting, including the one referred to

above; and

“the flow of funds from [GBR Colombia] investors through the Fundraising

into Olympia Trust, to his own trust account at Colby Monet, and then on

to Ms. Garcia and Mr. Grenier in Colombia.”

[87] Aziz notes that during Staff’s investigation, Staff did not interview Roch. Further,

once confronted by this evidence from Aziz, Staff could have asked for some

relief, including an adjournment if necessary to adduce evidence in response.

17

Presumably, that could have been done by having Roch testify orally or provide

an affidavit. Staff also chose not to request that Bajaj be recalled so that Staff

could ask him about that evidence.

[88] Staff submits that the failure to disclose before the hearing “prevent[ed] any

pre-hearing investigation of the evidence by Staff”. We do not accept that

submission. Staff was free, during its investigation, to ask questions of any of

the attendees at the meeting, including Roch. Staff knew about the meeting, at

least through Staff’s own witness Garcia, and Staff had the resolutions. Staff was

in no way prevented from investigating as it saw fit.

[89] Staff submitted that a party cannot rely on the summary of anticipated evidence

of one witness to allow another witness (in this case, a respondent witness, Aziz)

to testify about something. That may be an appropriate outcome in some cases,

but we are not prepared to adopt that approach as a categorical rule. The

purpose of pre-hearing disclosure is to put parties on notice of issues in the

proceeding and evidence that may be given. There is no policy reason to treat

each witness’s evidence separately in all cases. In some cases, the admissibility

decision might turn on who the source of the anticipated testimony is. We do not

think that applies in this case.

[90] Roch’s summary of anticipated evidence gave Staff enough pre-hearing notice

that discussions at the Montreal meeting were at issue. In addition, Staff’s own

witness Garcia testified about the meeting and that Roch drafted the resolution.

Staff was not prejudiced by Aziz testifying about the same meeting.

[91] For these reasons, we ruled that Aziz’s testimony was admissible.

3.3

Mid-hearing ruling on the rights of respondents to cross-examine each

other

Background

[92] As a final preliminary matter, we explain our mid-hearing ruling about the rights

of respondents to cross-examine each other and the procedure to be followed in

hearings with multiple respondents who wish to question each other.

[93] During the evidentiary portion of the hearing, these questions arose. It appeared

to the parties and to us that the questions had not been squarely addressed in a

18

Tribunal decision in the context of competing submissions. Following our receipt

of helpful submissions from the parties before us, we gave our ruling and

advised that our reasons for that ruling would be incorporated in these reasons.

[94] We begin by noting that the term “cross-examination” describes examination of

a witness by another party, as opposed to by the representative for the party

that called the witness. Questions in cross-examination may be leading (i.e.,

suggesting the answer in the question) and often are leading, but even if they

are not leading, they are still cross-examination.

[95] In this hearing, the issue arose in the context of one respondent (or their

representative) examining another respondent, as opposed to examining a

non-party witness called by another respondent. The principles set out here may

well apply equally to non-party witnesses, but our ruling was and is confined to

respondents as questioners and witnesses.

[96] During the hearing, we ruled that:

a.

b.

c.

on issues where the two parties were adverse in interest, they were

entitled to cross-examine each other, including by asking leading

questions;

on issues where the parties were aligned in interest, they were entitled to

cross-examine each other, but were not permitted to ask leading

questions; and

on issues where it was not clear whether the parties were adverse or

aligned in interest (including because respondents in enforcement

proceedings before the Tribunal do not file a formal response to the

Statement of Allegations), we would err on the side of caution and permit

leading questions, but the questioning party would bear the risk of the

resulting answer being given less weight if it ultimately became clear that

the parties were aligned in interest.

[97] As matters of practice:

a. we ruled that a testifying respondent be cross-examined by their

co-respondents first (in an order determined by the panel after hearing

submissions) and then by Staff;

19

b.

c.

we encouraged the questioning parties to advise when they were about to

move into questions about a different issue, so that we could determine

(after hearing submissions if necessary) whether leading questions would

be permitted on that issue; and

we adopted a practice of permitting co-respondents, after Staff’s

cross-examination, to conduct re-direct examination of the witness within

the normal boundaries, i.e., to address any issue on which the questioner

and the witness were aligned in interest and where the purpose of the

re-direct questions was to address matters raised in cross-examination.

Analysis

[98] The core principles underlying our decision are well explained by the Superior

Court of Justice in Elder v Rizzardo Bros Holdings Inc:⁷

a.

b.

c.

cross-examination is an integral part of the adversarial process we employ

in hearings to find the truth;

cross-examination is designed to challenge or discredit evidence given in

chief, so leading questions are permitted for those purposes; and

leading questions in non-adversarial circumstances could distort rather

than enhance the truth-finding objective, and the rationale for permitting

leading questions is absent.⁸

[99] We also referred to the decision of the Court of Appeal for Ontario in

R v McLaughlin,⁹which while a case arising in criminal law, offers useful

guidance. The Court held that once an accused person chooses to testify, that

person subjects themselves to cross-examination, whether for impeachment

purposes or to elicit testimony favourable to the questioner.¹⁰The ability of an

accused to cross-examine a fellow accused (i.e., by asking leading questions) is

an important right for the former.¹¹

7

2016 ONSC 7235 (Elder)

8

Elder at paras 22, 24-26 and 30

9

1974 748 (McLaughlin)

10

McLaughlin at para 15

11

McLaughlin at para 17

20

[100] As for “sweetheart” evidence (where a party asks questions to bolster a common

position or set of facts), the Court of Appeal held that allowing one accused to

cross-examine another could permit the questioner to put their defence before

the court without testifying and thereby exposing themselves to

cross-examination. The Court stated, however, that this was not “a matter of

great concern”, because in deciding what weight to give to the evidence, the

trier of fact would note, among other things, the form of the question that

elicited the answer.¹²

[101] This Tribunal has previously considered the issue in part. In reasons for decision

at the conclusion of a hearing on the merits in Natural Bee Works Apiaries

Inc (Re), the Tribunal reviewed instructions that it had given to the respondents

about their ability to cross-examine each other.¹³The Tribunal stated that in

cross-examination, the questions must be on matters where the co-respondents

are adverse in interest, and that the respondents were not allowed to ask

questions to bolster a common position or set of facts.

[102] It does not appear from the reasons in that case that the issue had been the

subject of opposing submissions, or that the panel was required to turn its mind

to whether there was a middle ground between adversity and bolstering. In our

view, there will be circumstances where parties who are aligned in interest on an

issue can legitimately ask non-leading questions whose purpose is not to

improperly bolster testimony, but instead is, for example, to clarify an answer

given earlier or fill in a gap that would be best addressed by the respondent

being questioned. The reasons in Natural Bee Works do not expressly preclude

those possibilities, and in our view such a refinement on the language in that

decision is more consistent with the principles set out in the authorities cited

above.

[103] The panel is of course always able to control any examination by any party, to

ensure that it respects applicable parameters, and to ensure that the hearing is

conducted in a fair and efficient manner.

12

McLaughlin at para 23

13

2019 ONSEC 23 (Natural Bee Works) at para 44

21

[104] For these reasons, we issued the mid-hearing ruling described in paragraph [96]

above.

4.

STRUCTURE OF THE ANALYSIS

[105] We turn now to our analysis of the merits of Staff’s allegations.

[106] Given the complex factual matrix underlying the allegations, as well as the

number of respondents and their differing interests, we have organized our

analysis in three main parts, each of which focuses on a group of significant

transactions. Those three categories are:

a.

b.

c.

sales of the First Global debentures;

the loans from investor EH; and

the First Global purported licence transactions.

[107] With respect to each of the three groups of transactions, Staff alleges that one or

more respondents contravened a number of different provisions of Ontario

securities law.

[108] We will address each group of transactions in turn. In our discussion of each

group, we will begin by describing the factual background, followed by our

analysis of the allegations relating to that group. We start with the First Global

debentures.

5.

FIRST GLOBAL DEBENTURES

Introduction

5.1

[109] Staff alleges that some or all respondents breached Ontario securities law in

several ways relating to the First Global debentures:

a.

b.

c.

by illegally distributing those debentures (i.e., without a prospectus and

without an exemption from the prospectus requirement);

by engaging in the business of trading the debentures without being

registered to do so; and

by perpetrating fraud in connection with the debentures.

[110] We will address each of these, beginning with the alleged illegal distribution of

the First Global debentures.

22

5.2

Alleged illegal distribution

Introduction

[111] Staff alleges that the First Global debentures were illegally distributed, because

they had never previously been traded before they were sold to investors, no

prospectus was filed and receipted, and no exemption was available from the

prospectus requirement. Of those elements, the only one about which there was

any real dispute was whether an exemption was available. First Global purported

to rely on the accredited investor exemption, which allows an issuer to proceed

without a prospectus in respect of distributions to investors who meet certain

qualifications. The issuer must take steps to document the availability of, and

reliance on, that exemption.

[112] As we explain below, we conclude that in none of the distributions of First Global

debentures was the accredited investor exemption available. We therefore find

that First Global illegally distributed the debentures. We further find that the

other respondents directly participated in that illegal distribution.

Factual background

[113] A possible alignment of interests between First Global and GBR became apparent

to some of the respondents in the late spring of 2015. First Global was

experiencing financial difficulties, and GBR needed a public company to use as a

vehicle to raise capital from holders of registered accounts (e.g., TFSA, RRSP) to

further development of the Colombian assets. This alignment of interests formed

the basis for what ultimately evolved into distribution of First Global debentures,

with First Global and GBR splitting the funds raised through those distributions.

[114] We heard conflicting evidence about the evolution of this idea, from the initial

plan to the mechanism that was put in place. For example, while it is undisputed

that Bajaj took on significant responsibility for raising funds from investors, it is

unclear what limits, if any, there were on his responsibility. Alli (First Global’s

CFO) testified that because Bajaj was not qualified to be a broker to raise funds,

Bajaj’s responsibility was only to bring investors to First Global.

[115] Bajaj denies that there was such a limitation. Whatever the truth about whether

there was supposed to be a limitation, things did not proceed in a way that

23

resembled Alli’s version. Bajaj proceeded as if there had been no limitation. He

did significantly more than simply refer investors, in that he gave regular

seminars regarding the investment opportunity, he met with the investors, he

explained aspects of the investment, and he worked with the investors to

complete subscription documents.

[116] We explore Bajaj’s role in further detail below. We turn now to analyze the

allegation of illegal distribution by First Global.

Analysis of First Global’s alleged illegal distribution

[117] Every issuance of the First Global debentures was a “distribution”, as that term is

defined in the Act, because the debentures had not previously been issued.¹⁴

Section 53(1) of the Act prohibits the distribution of securities unless a

prospectus has been filed and a receipt for the prospectus has been issued, or an

exemption is available.

[118] No prospectus was filed. Alli is incorrect in his unsubstantiated submission that

none was required.

[119] Ontario securities law does provide numerous exemptions from this requirement.

However, where a respondent seeks to rely on an exemption, the respondent

must file a report of exempt distribution (Form 45-106F1), which provides a wide

range of information about the distribution, including the particular exemption

relied on. Whichever exemption the issuer seeks to rely on, the issuer ultimately

bears the burden of establishing their entitlement to that exemption.¹⁵

[120] First Global filed no reports of exempt distribution in respect of the First Global

debentures. Despite this, in this proceeding the respondents asserted to varying

extents that some steps were taken at the time of investment to show that First

Global was relying on the accredited investor exemption provided for in s. 2.3 of

National Instrument 45-106 Prospectus Exemptions (NI 45-106). That

exemption applies where certain requirements are met, including prescribed

income and asset thresholds for the investor.¹⁶

14

Act, s 1.1, “distribution”

15

Meharchand (Re), 2018 ONSEC 51 (Meharchand) at para 95

16

Act, s 73.3(1)(j); NI 45-106, s 1.1 “accredited investor” (j) to (m)

24

[121] As the Tribunal has previously held, issuers that rely on the accredited investor

exemption cannot, without further investigation, simply rely on an investor’s

certification as to their accredited status. Before accepting a prospective

subscription, the issuer must go beyond any boilerplate language in a

subscription agreement and must conduct a serious factual inquiry in good

faith.¹⁷

[122] The investor witnesses testified either that the term “accredited investor” was

not discussed with them (in the case of investors KF, SR and KG) or that they

were told that the accredited investor forms were just a formality (in the case of

investor JN). Bajaj denied saying that to the investors. Instead, Bajaj claimed

that every investor who met with him told him that “they have enough assets

back home” worth more than $1 million, and that that was sufficient to qualify as

an accredited investor.

[123] We prefer the testimony of the investor witnesses, which is consistent from one

witness to another, and is consistent with the perfunctory manner in which the

subscription documents and other agreements were completed (by Bajaj, among

others), often after the fact, as attempts of varying quality that purported to

memorialize practices that were already being followed.

[124] In any event, even if we believed Bajaj’s assertion that every investor said they

had assets worth more than $1 million “back home”, that assertion, unsupported

by any documentary evidence, would be insufficient to meet the standard of a

serious factual inquiry. It would also fail to meet the asset threshold for the

accredited investor exemption, which requires either financial assets (as opposed

to total assets) of more than $1 million, or total assets of more than $5 million.

In both cases, the minimum asset amount is net of related liabilities.

[125] Itwaru submits that in 2015, his understanding of First Global’s obligations was

that First Global simply had to verify that each investor had completed an

accredited investor certificate. Unfortunately for Itwaru, his understanding was

incorrect, as we have explained above regarding an issuer’s obligation to conduct

appropriate due diligence.

17

Money Gate at para 189

25

[126] Alli offered two additional responses to the allegation that First Global illegally

distributed its debentures.

[127] First, Alli submitted that each capital raise that First Global completed was

recorded in First Global’s financial statements. Even if true, that fact does not

relieve First Global of its securities law obligations with respect to the

distributions.

[128] Second, Alli submitted that for each capital raise, First Global relied on the

expertise of its counsel. A defence of reasonable reliance on legal advice is not

available for an alleged breach of s. 53(1) of the Act,¹⁸but even if it were, First

Global would have to show that its counsel advised First Global that it was

entitled to distribute the debentures without a prospectus, and the reasons for

that conclusion. First Global offered no such evidence.

[129] We conclude that the accredited investor exemption was unavailable to First

Global because:

a.

none of the investors who testified before us was in fact an accredited

investor;

b.

despite Bajaj’s assertions to the contrary, the investor witnesses were not

given an explanation of the subscription documents, and they signed

blank documents and/or initialed them where they were told; and

c.

the completed documents were provided to First Global (the issuer of the

debentures), whose staff simply reviewed the forms to ensure that the

accredited investor certificates were completed, without having any

contact with the investors.

Conclusion about the allegation that First Global illegally distributed its

debentures

[130] The First Global debentures were securities that had not previously been issued.

No prospectus was filed, no relief from the prospectus requirement was obtained,

and First Global has failed to show that it was entitled to rely on any exemption

from that requirement, including the accredited investor exemption.

18

Money Gate at para 195

26

[131] Accordingly, each trade in First Global debentures was an illegal distribution and

constitutes a breach by First Global of s. 53(1) of the Act.

[132] Staff submits that we should make a similar finding against each of the other

respondents. We turn now to consider that submission.

Role of the other respondents in First Global’s illegal distributions

5.2.5.a

Itwaru and Alli

[133] We begin with First Global’s principals, Itwaru and Alli. Staff alleges that Itwaru

and Alli participated directly in First Global’s illegal distributions, or alternatively

that they should be deemed not to have complied with Ontario securities law

because they authorized, permitted or acquiesced in First Global’s non-

compliance.

[134] We conclude that each of Itwaru and Alli played a direct role in the illegal

distributions:

a.

both were involved in negotiating the First Global-GBR Debenture

Agreement, the foundational document pursuant to which GBR Colombia

agreed to assist First Global in raising funds through the sale of the First

Global debentures;

b.

Itwaru signed the First Global-GBR Debenture Agreement on behalf of

First Global;

c.

d.

e.

both voted as directors of First Global to approve the debenture offering;

Itwaru signed the debentures on behalf of First Global; and

both Itwaru and Alli signed and accepted subscription documents on

behalf of First Global.

[135] Alli submits that neither he nor Itwaru ever issued the debentures directly to

purchasers. While that may be true in a literal sense, in that neither of them

physically handed a debenture to an investor, Staff need not show physical

delivery in order to establish an individual’s direct participation in an illegal

distribution. We return to this point below (at paragraph [146]) in our discussion

about Aziz’s role in the distributions.

27

[136] We find that Itwaru and Alli, as principals, contravened s. 53(1) of the Act by

participating directly in the illegal distribution of First Global debentures.

[137] Even if we had not found that Itwaru and Alli participated directly as principals,

we would have found that as directors and officers of First Global they authorized

First Global’s illegal distributions, and therefore by virtue of s. 129.2 of the Act,

they would be deemed to have contravened Ontario securities law.

5.2.5.b

GBR, Bajaj and Aziz

Introduction

5.2.5.b.i

[138] We turn next to the GBR Ontario Parties, i.e., GBR Ontario and its principals

Bajaj and Aziz. Staff alleges that all three directly participated in First Global’s

illegal distributions.

[139] In considering the role of each of the three GBR Ontario Parties, it is useful to

understand, at a high level, two PowerPoint presentations that the GBR Ontario

Parties used to solicit new investors and, to some extent, to update existing

investors. We will examine the contents of these presentations in greater detail

later in these reasons, but the presentations may be described briefly as follows:

a.

Colombia Presentation – Many iterations of this presentation were

entered into evidence. Through to February 2016, its contents were

updated as new information was acquired, or in response to questions

asked by investors at seminars. The presentation gave information about,

among other things:

i.

GBR, and its assets and reserves;

ii.

the advantages of investing in Colombia;

bio-diesel and bitumen generally;

iii.

iv.

v.

how investor funds would be used;

how the investment would be secured;

expected revenues from the bio-diesel and bitumen operations;

vi.

vii.

methods of investment (e.g., RRSP, TFSA) and their corresponding

returns; and

28

viii.

risk mitigation strategies.

b.

Mortgage Presentation – This presentation offered scenarios whereby

investors could pay down personal mortgages on their homes more

quickly by using savings, or by borrowing funds, to invest and receive

royalty payments from the investment in First Global debentures.

5.2.5.b.ii

Bajaj’s role

[140] Bajaj, on behalf of GBR, led the effort to sell the First Global debentures. Most

investors were Bajaj’s clients from his tax business, or individuals who had been

referred to Bajaj.

[141] Bajaj had been actively fundraising for the Colombian assets before First Global

became involved. Once Bajaj, Aziz and Thiviyanayagam had agreed on their

desire to use a public company as the investment vehicle so that holders of

registered accounts could invest, the three of them had short-lived relationships

with two other public companies (Threegold Resources Inc. and Northern

Coast Financial Limited) before engaging First Global.

[142] Bajaj described himself as a member of the GBR fundraising team, along with

Aziz and others. His direct participation and central role in the fundraising

throughout is evident from the following:

a.

in March 2015, before First Global became involved, he and

Thiviyanayagam traveled to Montreal to meet with the president of

Northern Coast, one of the two public companies that was originally to

have been used as the fundraising vehicle;

b.

c.

he reviewed drafts of the Northern Coast subscription documents;

he completed copies of the Northern Coast subscription documents and

presented them to investors (although no investors ever completed

purchases of Northern Coast bonds as intended, because Northern Coast

terminated the relationship in early July 2015 for reasons we explain

below);

d.

he conducted seminars at the Richmond Hill office, during which he

explained the Colombian investment opportunity in bitumen and biodiesel

to potential and existing investors, including to individuals who were

29

helping to solicit new investors – these seminars began in March or April

of 2015 (before First Global became the public company vehicle for the

fundraising) and continued throughout 2015;

e.

f.

he drafted the Colombia Presentation, presented it at seminars at the

Richmond Hill office, and asked investors to show it to other people;

he signed a GBR Colombia board resolution as one of the company’s

directors, confirming that version 85 of the Colombia Presentation

(entitled “Bio-Diesel & Bitumen”) could show investors the biodiesel plant

and Rio Negro bitumen mineral rights, including pictures of both, as being

“part of” GBR Colombia;

g.

h.

he prepared and showed the Mortgage Presentation, encouraging

investors to borrow money through a secured line of credit to invest in the

First Global debentures;

he participated in reviewing drafts of the First Global subscription

documents (including the attached term sheet) and in preparing packages

for investors that included those documents as well as account opening

forms;

i.

beginning in July 2015, he started raising funds using the First Global

subscription documents;

j.

he prepared and distributed brochures that were available at the

Richmond Hill office, were handed out to seminar attendees, and were

also sent to investors by mail;

k.

l.

when his tax clients came to his office, Bajaj spoke to them about the

investment opportunity, showed them the presentations and brochures,

and encouraged them to attend the seminars at the Richmond Hill office;

he prepared and placed radio advertisements, some but not all of which

mentioned that investment in the First Global debentures was for

accredited investors;

m.

he met with investors to help them fill out First Global subscription

documents as well as Olympia Trust account opening and transfer

30

documents, and provided the Olympia Trust documents to Olympia Trust;

and

n.

he managed a referral network for sales of First Global debentures, and

received and paid referral fees from and to his team of agents, which

team together with Bajaj himself raised over $3.8 million from 68

investors through 85 subscriptions for First Global debentures.

5.2.5.b.iii

Aziz’s role

[143] Aziz’s involvement was less central, but he also participated directly in the

fundraising efforts, including the distribution of First Global debentures:

a.

he reviewed, or at least was given an opportunity to review, drafts of the

Northern Coast subscription documents;

b.

he was included in correspondence that exchanged draft First Global

subscription documents and drafts of the Colombia Presentation, which

drafts Aziz reviewed and approved;

c.

he and Thiviyanayagam came up with the idea to use brochures to market

the investment;

d.

Bajaj gave him packages of First Global subscription documents and

account opening forms because Aziz was speaking to existing and

potential investors;

e.

as the sole signatory on behalf of GBR, he signed the foundational First

Global-GBR Debenture Agreement referred to above, which agreement

contemplated the First Global debentures being offered to the public;

f.

he had his own office in the Richmond Hill office space that was used for

the seminars;

g.

h.

he signed rent cheques on behalf of GBR Ontario, the only business of

which was to raise funds by selling First Global debentures;

he was aware of Bajaj’s radio advertisements referred to above and

received at least one script of an advertisement, and concluded that Bajaj

should not be advertising on the radio, although there is no evidence that

he expressed that concern to Bajaj;

31

i.

he approved payment of the referral fees mentioned above;

j.

he provided First Global subscription documents to GBR staff and directed

staff to send packages to investors;

k.

l.

as he admitted, he remained in close contact with Bajaj, Thiviyanayagam,

Garcia and Grenier and he was kept generally apprised of the status of the

Colombian projects; and

subscription documents showed that he was the salesperson for at least

$288,305 of First Global debentures, and together with Faille solicited

approximately $600,000 of debenture investments.

[144] In addition, we find that Aziz attended and spoke at several seminars regarding

the potential investment. Investor witness JN, who regularly attended the

seminars, testified that Aziz came to four or five of the seminars, and that on at

least two of those occasions Aziz: (i) talked about having just returned from

Colombia, and (ii) advised that the project was going well and that investors’

money was safe.

[145] In his submissions, Aziz sought to minimize his involvement in these seminars.

However, we accept JN’s testimony, which was corroborated by Bajaj to a

material extent in this respect, and which is more consistent with the broad

range of activities set out above in which Aziz was involved. Further, Aziz did not

cross-examine JN on this aspect of his testimony. Accordingly, we are unable to

accept his submission that we should prefer his version over JN’s.

[146] Aziz also submits that he cannot be found to have “distributed” the First Global

debentures because a distribution is a kind of trade, and he did not “trade” the

First Global debentures. Aziz further submits that he could not reasonably have

known that First Global was not entitled to an exemption (including the

accredited investor exemption) in respect of those investors who subscribed for

First Global debentures. He submits that we should narrowly construe the

prohibition in s. 53(1) and that he should not be found to have contravened it.

[147] We cannot accept that submission. Subsection 53(1) does not provide or even

suggest that it applies only to the issuer whose securities are distributed.

32

Indeed, the language explicitly includes any individual who trades the issuer’s

security on behalf of that issuer, as the following excerpt demonstrates:

No person… shall trade in a security… on behalf of any…

company if the trade would be a distribution of the security,

unless a preliminary prospectus and a prospectus have been

filed… [emphasis added]

[148] Further, a “trade” is not limited to the actual purchase or sale of the security.

The term “trade” is defined in the Act¹⁹to include acts, solicitations, or other

conduct directly or indirectly in furtherance of a trade.

5.2.5.b.iv

Conclusion about the GBR Ontario Parties’ roles in the illegal

distributions

[149] We find that by their many activities in aid of securing investors for the First

Global debentures, Bajaj and Aziz, and through them GBR Ontario, traded the

First Global debentures on behalf of First Global. Aziz’s participation was less

active than Bajaj’s, but he was nonetheless fully involved.

[150] As we concluded above, the trades were distributions of the securities.

Accordingly, we find that each of the GBR Ontario Parties directly contravened

s. 53(1) of the Act.

5.3

Engaging in the business of trading the First Global debentures without

being registered

Introduction

[151] We turn now to Staff’s allegation that GBR Ontario and its principals Bajaj and

Aziz engaged in the business of trading in securities. If they did, then because

none of them was registered under the Act, they will have violated s. 25(1) of

the Act. We conclude that they did violate that provision.

[152] The meaning of “engaged in the business of trading in securities” is addressed in

Companion Policy 31-103CP Registration Requirements, Exemptions and

Ongoing Registrant Obligations. That Companion Policy suggests criteria that

19

Act, s 1(1), “trade”

33

help determine whether a person or company is engaged in the business of

trading in securities.

[153] The Companion Policy is not part of Ontario securities law and therefore is not

directly binding on the respondents. However, in other proceedings the Tribunal

has adopted the “business purpose” test in s. 1.3 (also referred to as the

“business trigger” test), on which Staff relies.²⁰Of the factors that are included

in the test, the following are relevant in this proceeding:

a.

trading with repetition, regularity or continuity, whether or not that

activity is the sole or even primary endeavour of the business;

b.

c.

d.

directly or indirectly soliciting securities transactions;

receiving, or expecting to receive, compensation for trading; and

engaging in activities similar to those of a registrant, including by

promoting the sale of securities.

[154] We adopt the test and will assess each of these factors in turn.

Trading with repetition, regularity and continuity

[155] In the eight-month period in 2015 that GBR Ontario was raising funds, it raised

over $4.46 million from 80 investors in 104 separate transactions.

[156] That timing and frequency place the trading in this case at the high end of the

spectrum for repetition, regularity and continuity. By this criterion, the GBR

Ontario Parties’ conduct suggests that they were engaged in the business of

trading securities.

Directly or indirectly soliciting securities transactions

[157] We set out above, in paragraphs [142] and [143], Bajaj’s and Aziz’s specific and

direct involvement in soliciting investment in the First Global debentures. These

efforts yielded the desired results of attracting investors, including individuals

who had been referred by others and individuals who had heard about the

opportunity through the radio advertisements.

20

See, e.g., Money Gate at para 145

34

[158] Within GBR Ontario, Bajaj and Aziz’s exclusive focus on these fundraising efforts,

as opposed to any other aspect of First Global’s or GBR’s business, strongly

suggests that they were engaged in the business of trading in securities.

Receiving, or expecting to receive, compensation for trading

[159] Bajaj testified that he received over $114,000 in referral fees in return for

soliciting investors in the First Global debentures. The fact that he earned this

large amount in the short time, and for no activity other than selling debentures,

strongly suggests that he was engaged in the business of trading in securities.

[160] Aziz did not receive referral fees. However, he understood that he was to receive

a one-sixth ownership interest in GBR Colombia for two reasons: (i) because he

introduced all the parties (Bajaj, Thiviyanayagam, Grenier, Garcia and Faille) to

each other; and (ii) because he introduced many potential buyers of the bitumen

product in Colombia.

[161] Aziz not only carried out those introductions; he also spent considerable time

involved with the fundraising in many ways. We find that it is more likely than

not that the shares of GBR Colombia he was promised related to his overall work

with the enterprise, including his fundraising efforts for GBR Colombia via First

Global. This factor suggests that Aziz was engaged in the business of trading in

securities.

Engaging in activities similar to those of a registrant

[162] Staff submits, and we agree, that GBR Ontario effectively acted as a dealer of

the First Global debentures. As itemized above, the GBR Ontario Parties did

many of the things that a registered exempt market dealer would normally do,

including by actively soliciting investments, providing and completing

documentation, and acting as an intermediary between the investors and the

issuer.

[163] This conduct by the GBR Ontario Parties strongly suggests that they were

engaged in the business of trading.

35

Conclusion about Staff’s allegation that GBR, Bajaj and Aziz were

engaged in the business of trading

[164] Bajaj, Aziz and Thiviyanayagam founded GBR Ontario and were its only directors

and shareholders. Bajaj testified that the three of them, along with Faille, were

GBR’s fundraising team, engaging in sales efforts themselves and creating and

managing a network of referral agents. Further, GBR Ontario carried on no

business other than raising funds through the sale of First Global debentures, a

portion of which was to flow through to GBR Colombia.

[165] Simply put, GBR Ontario’s business was the trading of First Global debentures.

GBR Ontario did so repeatedly, continuously and regularly during the

eight-month fundraising period in 2015. Bajaj and Aziz were compensated, or

they expected to be compensated, for their efforts associated with the business,

and GBR Ontario’s activities were similar to those of a registered dealer.

Effectively, those activities took the place of such a dealer, and in so doing, GBR

Ontario deprived the investors of the protections associated with the involvement

of a registered intermediary. By these actions, GBR Ontario engaged in the

business of trading securities and thereby breached s. 25(1) of the Act.

[166] As Bajaj himself admitted, his role was to raise funds and to show the

investment opportunity to investors. He was directly compensated for that

activity, which he carried out continuously. As a result, he too breached s. 25(1)

of the Act.

[167] Aziz submits that we should reach a different conclusion about his own

participation. He submits that his actions were administrative or operational, as

opposed to fundraising in nature. We accept that his focus was different from

Bajaj’s, but that distinction is of no material significance. Aziz was directly

involved in fundraising, as set out in paragraph [143] above. To the extent that

the fundraising was carried on by GBR through Bajaj, we find that Aziz at least

acquiesced in that conduct. As a director and officer of GBR, he is therefore

deemed by s. 129.2 of the Act to have contravened Ontario securities law as

well, because of GBR’s non-compliance.

[168] As a result, we find that GBR, Bajaj and Aziz engaged in the business of trading

securities of First Global, and that they thereby contravened s. 25(1) of the Act.

36

5.4

Alleged misrepresentations

Introduction

[169] The last category of alleged misconduct relating to the First Global debentures

involves Staff’s allegations that the respondents made three sets of

misrepresentations.

[170] At a high level, the first set of alleged misrepresentations (the Use of Funds

Representations) consisted of two different statements:

a.

that funds raised would be used for First Global’s general working capital;

or

b.

that funds raised would be used for bitumen and biodiesel assets in

Colombia that were owned by GBR.

[171] The second set of alleged misrepresentations (the Colombian Operations

Representations) related to the operational status of the Colombian facilities

and to whether production from those facilities was sufficient to generate the

14% annual return owed on the First Global debentures.

[172] The third set of alleged misrepresentations (the Security Representations)

included representations that investment in the First Global debentures was

secure, guaranteed and risk-free.

[173] All three sets of alleged misrepresentations figure into two different alleged

contraventions of the Act:

a.

that GBR Ontario, Bajaj and Aziz (but not First Global, Itwaru or Alli)

defrauded investors, contrary to s. 126.1(1)(b) of the Act: and

b.

First Global (and by extension Itwaru and Alli, pursuant to s. 129.2 of the

Act, because they permitted, authorized or acquiesced in First Global’s

conduct), GBR Ontario, Bajaj and Aziz contravened s. 44(2) of the Act

because the representations were about a matter that a reasonable

investor would consider relevant in deciding whether to enter into or

maintain a trading relationship with them, and the representations were

untrue or omitted information necessary to prevent them from being false

or misleading in the circumstances in which they were made.

37

[174] We begin our analysis of the various representations by assessing their truth or

falsity. After making those factual findings, we will then consider the alleged

contraventions and determine whether the misrepresentations, if any, constitute

a breach of the Act.

Use of Funds Representations

5.4.2.a

Introduction

[175] We begin with the Use of Funds Representations. Much of the documentary and

oral evidence before us on that question conflicted in numerous respects.

[176] Staff alleges that representations to investors about the use of their funds fell

into two categories:

a.

in the term sheet that formed part of the First Global subscription

documents, a representation that the funds raised would be used for First

Global’s “general working capital”; and

b.

for at least some investors, representations made by Bajaj and Aziz that

the funds raised would be used to finance GBR’s bitumen mining and/or

biodiesel operations in Colombia.

[177] Staff alleges that all these representations were untrue. Specifically:

a.

neither GBR Colombia nor GBR Ontario had any direct ownership interests

or business operations in bitumen mining or biodiesel, so no funds were

directed to such operations as promised; and

b.

approximately $300,000 of the raised capital was used to make interest

payments to investors on the First Global debentures and on the loans

from investor EH.

[178] In exploring more closely what was said about how the funds were to be used,

we begin with what the respondents themselves understood the plan to be. As

will quickly become apparent, those who made the representations cannot

themselves agree about how the funds were to flow.

5.4.2.b

The purposes of the offering as understood by the respondents

[179] Aziz testified that one of the purposes of the offering was to help First Global

deploy its mobile and cross-border payment technology in various countries. His

38

understanding is corroborated by the First Global-GBR Debenture Agreement, as

well as promissory notes documenting the loans from First Global to GBR

Colombia.

[180] Both the First Global-GBR Debenture Agreement and the promissory notes

expressly refer to the use of funds for technology deployment. The agreement

provides that the “majority of the proceeds from the Offering shall be used

toward the deployment of [First Global] services by [GBR Colombia], and for

[First Global] working capital needs. [emphasis added]” The promissory notes

were less precise about the apportionment of funds, i.e., what portion would be

devoted to the deployment: “Use of proceeds includes the technology division

of [GBR Colombia] sourcing and deploying technology of [First Global] in

Colombia and other countries. [emphasis added]”

[181] Itwaru gave a similar description. He testified that the First Global-GBR

Debenture Agreement contained the terms of the arrangement. He described

what he called the “main thrust” of that agreement as being the establishment of

First Global’s services and technology in Colombia and elsewhere.

[182] Alli had the same understanding. He testified that he had limited involvement in

any of the fundraising activities, because he was focused on First Global’s

technology. However, he understood that GBR Colombia would launch First

Global’s technology in Colombia.

[183] Bajaj, who was not a signatory to the First Global-GBR Debenture Agreement,

says that he had no knowledge of any efforts to launch First Global’s technology

in Colombia, and never spoke with Garcia, Grenier or anyone else about that

technology. Bajaj disputes that there was a fundraising objective related to First

Global’s technology.

[184] In Bajaj’s view, the purpose of the offering was to raise funds for the Colombian

natural resource assets. That this was his understanding is corroborated by:

a.

the fact that the Northern Coast subscription documents, used before First

Global became engaged, referred to agreements with GBR Colombia

relating to bitumen and biodiesel;

39

b.

c.

the absence of any mention of the First Global technology in the radio

advertisements or PowerPoint presentations referred to above;

an email he sent on September 17, 2015, to Aziz, Faille and

Thiviyanayagam, requesting a letter from First Global’s lawyer to confirm

that the funds raised “will not be used anywhere else, it will be used for

Global bioenergy Resources [sic; i.e., the Colombian bitumen and

biodiesel assets]”;

d.

e.

the absence of any evidence that Aziz sought to correct that description

(in the September 17 email) of how the funds would be used, despite

Aziz’s testimony before us that all parties understood that some funds

would be used for First Global technology;

the fact that of the seven GBR Colombia board resolutions executed in

October 2015 (which are all the GBR Colombia board resolutions in

evidence before us), some refer to the bitumen, biodiesel and coal assets

in Colombia, but none refers to First Global technology;

f.

the fact that the resolutions’ only reference to First Global is as a vehicle

through which funds would be raised, and as the transferee of mineral

rights to secure the debenture holders’ investment;

g.

the consistency between Bajaj’s testimony and that of the investor

witnesses who attended seminars led by Bajaj, or with whom Bajaj met,

or both, in that none of those witnesses was aware of any intention to

direct a portion of the invested funds to deploy First Global technology;

and

h.

Garcia’s testimony to the effect that neither she nor Grenier nor GBR

Colombia had any involvement in the development of First Global’s

technology anywhere in South America.

[185] With this fundamental disagreement among the respondents at the time of the

solicitation of investors as backdrop, we turn to the representations made to

those investors.

40

5.4.2.c

The purposes of the offering as represented to the investors

[186] In this section we review the representations in detail. While investors were told,

in one form or another, about both of the different uses described above,

representations about the Colombian natural resource operations predominated.

[187] The less visible representations, that the funds would be used for First Global’s

working capital, were contained in the term sheet that formed part of the First

Global subscription documents, that investors received and that they signed.

[188] Itwaru submits that the subscription agreements clearly stated that the

investment in First Global debentures was clearly for use by First Global in First

Global’s business. In our view, and in the context of this case, Itwaru’s is a

broader description of permissible uses, since the term sheet specified “general

working capital” as opposed to a sense of “anything First Global might do”. In his

testimony, Itwaru described what he understood the term “general working

capital” to be. That description extended to what he called “paying the bills, so to

speak”, and the expansion of First Global’s business globally, including the

deployment of First Global’s services in different parts of the world.

[189] Itwaru did not include in his definition any reference to lending funds to another

entity for the development of natural resources, an activity that bore no relation

to First Global’s existing business. Having said that, even if Itwaru had included

that in his understanding, without proper substantiation, we would not be bound

by it.

[190] What is critical for the purposes of this proceeding is how a reasonable investor

would understand that term, if they even noticed it in the subscription

documents. If an investor did note that limitation on the use of funds, then in

our view it would be reasonable for that investor to conclude that the funds could

be used to further the company’s existing business. We know of no bright line

test to apply to any potential business, to determine whether use of funds for

that potential business would fall within “general working capital”, but in the

specific circumstances before us, we have no difficulty concluding that no

reasonable investor would understand the words “general working capital” to

give First Global free rein to do anything it wanted with the funds, without

limitation.

41

[191] We find that this term on the term sheet did not permit First Global to provide

funds to GBR Colombia for the purpose of developing natural resource projects

(as opposed to for the geographic expansion of First Global’s existing technology

business).

[192] We emphasize that in reaching that conclusion, we heard no expert evidence as

to the meaning of “general working capital”, or even if that term has a clear

meaning within generally accepted accounting principles or accounting standards

of any kind. Further, we are unaware of any Tribunal decision that would guide

us. Staff referred us to Quadrexx (Re),²¹which involved some consideration of

working capital, but, like this case, involved no expert evidence as to the

meaning of that term.²²We do not opine on what that term might mean in other

instances. Our finding is limited to the conclusion that in this case, the term did

not extend to natural resource projects in Colombia.

[193] In any event, the First Global subscription documents made no mention of any

business in Colombia, whether implementation of First Global’s technology or

development of natural resources.

[194] In contrast, representations by Bajaj and Aziz or in documents prepared and

issued by them (including the Colombia Presentation) said the funds would be

used to finance bitumen mining and biodiesel operations in Colombia. As was

commonly the case generally in the events giving rise to this proceeding, the

representations and the documents in which they were contained often

improperly conflated GBR Colombia and GBR Ontario.

[195] The Colombia Presentation, which contained the impugned representations, was

shown at the seminars held in the Richmond Hill office and sent regularly to a

small group of investors, identified four uses for the funds:

a.

b.

c.

land and road infrastructure costs;

mineral rights buy-out;

operating cash flow for biodiesel and bitumen; and

21

22

2017 ONSEC 3 (Quadrexx)

Quadrexx at para 230

42

d.

mining equipment purchase.

[196] The Colombia Presentation did not suggest, and neither Bajaj nor Aziz told

investors, that First Global would retain funds raised under its debentures or that

it would use those funds to deploy First Global technology. Bajaj conceded that

he knew nothing about First Global’s technology services in Colombia, and that

he never spoke to investors about that technology. Indeed, according to Bajaj,

his own understanding largely aligned with the investors’ expectations.

Specifically, he testified that all the funds (except for First Global’s 2%, as

explained below beginning at paragraph [211]) were intended for GBR Colombia.

[197] This fundamental misalignment between First Global’s representations (in the

subscription documents) and the GBR Ontario Parties’ representations (in person

and in marketing documents) makes it unsurprising that investors’

understanding about the intended use of funds differed in substance and in

amount of detail.

[198] The investor witnesses testified that they understood that the funds they

invested were going to be used for natural resource-related projects in Colombia.

Some investors testified that they did not know of First Global. Others said they

knew of First Global, but understood that it was simply an intermediary that was

needed to process their investment because RRSP funds could not be sent

directly to GBR Colombia, or so that interest could be paid to them. At least one

investor noted the name First Global but did not understand its role or why the

investor was investing in a debenture of that company.

[199] Knowledge about the Colombian operations varied from witness to witness, but

generally speaking they believed at a high level that the funds would be used to

start or expand the biodiesel facility, and to buy equipment and infrastructure for

the bitumen project so that it could increase production. Understandably, at least

some investors were more concerned with the promised return (of 14%) and

with the fact that the investment would be RRSP-eligible.

[200] The fact that most investors understood that their funds would be used for the

Colombian bitumen and biodiesel projects is not surprising, given the likelihood

that direct personal representations from individuals such as Bajaj and Aziz

would easily overcome the language contained in the First Global subscription

43

documents, most of which the investors testified they did not read, if they read

any part of them at all. In this regard, we reject Aziz’s submission that investors

were told only broadly that funds would go into mining in Colombia. Some may

have been told that, but many others were told specifically that the funds would

be used for the bitumen and biodiesel projects, as is reflected in the Colombia

Presentation, among other things.

[201] Bajaj used the seminars at the Richmond Hill office not only to solicit new

investors, but also to update existing investors. However, only a limited number

of existing investors attended these seminars. Apart from those few investors,

and a small group who regularly received updated copies of the PowerPoint

presentations by email, there was no evidence that other investors were kept up

to date on the status of their investment or of the Colombia projects, including

the intended asset transfers.

[202] As for Aziz, we do not accept his attempts to distance himself from responsibility

for the Colombia Presentation and the representations made to investors. In one

example of Aziz’s attempts, he referred to the involvement of a “Jonathon” who

worked with Garcia and Grenier in Colombia and who provided information to

Bajaj and Aziz.

[203] He testified that the “majority of the PowerPoint presentations was created by a

gentleman by the name of Jonathon that worked directly with” Garcia and

Grenier in Colombia. Aziz could not remember his last name and admitted that

there was no email or any other record showing draft presentations, or the

content of them, being circulated by someone of that name. Further, neither

Bajaj nor James (who also testified about the presentations) mentioned a

Jonathon or was asked about the involvement of someone by that name.

[204] He submits that his testimony is corroborated by one email, sent in July of 2016

from Victor Goncalves (President and CEO of Threegold) to Grenier seeking

information, which Grenier forwarded to “[email protected]”.

However, we have no basis to conclude that the addressee of that email is the

same person Aziz refers to, and we have no information about that person’s role.

Aziz’s testimony on this point is unsupported by any documentary evidence, and

44

is inconsistent with Bajaj’s own admission that Bajaj was primarily responsible

for the presentations. We reject Aziz’s testimony.

[205] Aziz also disputes Staff’s allegations about the degree to which he participated in

the seminars in the Richmond Hill office. We do accept Aziz’s testimony that he

was less prominent than Bajaj, and that he attended fewer seminars than Bajaj.

[206] However, we accept the testimony of investor witness JN, who had a clear

recollection of having seen Aziz at a number of seminars, and also of having had

a conversation with Aziz in his office after one of the seminars, during which Aziz

reassured JN about the safety of the investment. JN had no apparent motive to

implicate Aziz, and was not specifically challenged on his testimony. Aziz’s

counsel did cross-examine JN about from where or from whom JN obtained

information about the investment. However, JN’s testimony in chief was specific

about when JN saw Aziz, and what Aziz said to JN. In contrast, the

cross-examination of JN was in general terms, and JN was not confronted

directly about Aziz’s involvement. In fact, Aziz’s counsel did not mention Aziz’s

name in cross-examination. We do not think JN was given a full and proper

opportunity to rebut what Aziz now submits is JN’s admission that he relied

exclusively on information from Bajaj. We find that JN’s testimony in chief was

both credible and reliable.

[207] We also reject as unreasonable Aziz’s assertion that he knew nothing about what

was being said to investors at the seminars. That assertion is inconsistent with

the documentary evidence showing that Aziz reviewed and approved the

Colombia Presentation.

[208] We cannot accept Aziz’s submission that the investors were told exactly where

their money would go, i.e., to the Colombia projects, including the coal mine. To

the extent that his submission suggests that the representations alerted

investors that funds would go to the coal mine, that submission is

unsubstantiated. Aziz also submits that he reasonably understood that investors

were told about the coal mine before funds raised were put to that use, but

again he offers no basis for that understanding. We disagree with his assertion.

[209] In summary, it is more likely than not that most investors were told (whether

through the Colombia Presentation or otherwise) that their funds would be used

45

for bitumen and biodiesel projects in Colombia. There was no explicit

representation that funds would be used for a coal mine or the deployment of

First Global technology, and the only representation relating to how First Global

might use funds was the reference to general working capital in the subscription

documents.

5.4.2.d

Intended flow of funds through First Global

[210] We now turn to examine the parties’ intentions about the flow of funds, as

distinct from the intended ultimate uses. Consistent with other aspects of this

case, we conclude that the parties did not at the time and do not now share an

understanding of how the raised funds were to flow.

[211] First Global was obligated to pay its debenture holders interest at 14% per year.

Bajaj testified that First Global was to lend the raised funds to GBR Colombia at

an interest rate of 16% per year. Payment of this interest from GBR Colombia to

First Global would enable First Global to pay the 14% per year due to First Global

debenture holders. First Global would retain the additional 2%, and according to

Bajaj, this constituted the entirety of First Global’s entitlement to a portion of the

funds raised.

[212] Bajaj stated that he had an oral commitment with Aziz to the above effect from

the beginning of the Solicitation Period. As Bajaj points out, these terms were

reflected in one of the GBR Colombia board resolutions signed in October 2015

and referred to above. That resolution authorizes the use of First Global to raise

funds, which activity of course had already been underway for some time. The

resolution authorizes Bajaj to allocate the funds raised as follows:

a.

b.

c.

d.

70% to GBR Colombia;

14% kept “for interest purposes”;

2% to First Global; and

a total of 14% for referral fees and office expenses for the “Canadian

Operation”.

[213] On its face, that resolution corroborates Bajaj’s testimony that First Global was

to receive only 2% of funds raised. Aziz offers a different perspective, testifying

that First Global was to retain the 2% spread between the 14% and 16%

46

interest rates, plus an additional approximately 20% of the funds as working

capital in order to fund its operations. He says that the percentages contained in

the resolution, as set out above, applied only after First Global had first taken its

approximately 20% for working capital.

[214] That contention is directly contradicted by the wording of the resolution, which

expressly provides that each of the above percentages was a portion of the

raised funds (e.g., “2% of raised fund [sic] will be paid to FGD”), not of an

amount net of a working capital allocation to First Global.

[215] Aziz says that the additional amount to be retained by First Global was the

subject of discussion, and that while never specified precisely, it was

approximately 20%-30% to a maximum of $1.5 million. He asserts that this was

the subject of an oral agreement but never recorded in in any documents signed

on behalf of GBR Colombia. Despite Aziz’s imprecision, he says that First Global

exceeded its entitlement when it retained $1.5 million of the $4.46 million that

was raised (or approximately 34%).

[216] Itwaru gave similar testimony about the nature of the arrangement, stating that

First Global was entitled to retain more than the 2% spread. However, he

conceded that while he understood GBR Colombia would use some of the funds

for its own purposes, he was unaware of any agreement as to the allocation,

between First Global and GBR Colombia, of the balance of the funds raised.

[217] Alli was equally uncertain about when First Global could lend funds to GBR

Colombia and in what amounts those loans could be. He also stated the

following, although he acknowledged that these terms were not documented:

a.

First Global was to receive $1.5 million by September 2015, although this

timing was a point of contention among the parties at the time, since First

Global took these funds in the early stages of fundraising, rather than

taking a proportionate share of each amount invested as it came in; and

b.

another $4.5 million was to be raised by the following month.

[218] Bajaj denies that there was any arrangement for First Global to retain more than

the 2% contemplated by the resolution referred to above, and he denies that

Aziz ever told him that there was any arrangement for more than 2%.

47

[219] In his submissions, Aziz is rightly skeptical that First Global would enter into such

an arrangement. We agree with his submission that the terms described, which

would give First Global a mere $88,000 to take on approximately $4.4 million in

debt, make little commercial sense. As Itwaru observed, the company spent

approximately that amount just on legal fees to structure the transactions.

[220] There is no answer that perfectly reconciles the oral testimony and documentary

evidence on that point. As Aziz submits, the agreement that Bajaj describes

makes little commercial sense, but the resolution that the two of them signed

(along with Garcia and Thiviyanayagam) is clear. It specifies unambiguously that

First Global was to receive only 2% of funds raised. Aziz offered no persuasive

explanation as to why there was a supposed oral agreement that would override

the written resolution, with significantly different terms.

[221] The conflicting evidence and the recurring assertions of oral agreements that

supersede written agreements reinforce our conclusion that even the parties

themselves did not share a common understanding of the relationships among

the various entities and how the raised funds were to be used. In light of this

fact, it is unsurprising, as we turn to examine the actual use of funds, to see that

funds were not used as represented to investors.

5.4.2.e

Actual use of funds

Introduction

5.4.2.e.i

[222] Staff’s analysis of how the funds raised were used was not seriously challenged.

As we explain below, First Global retained $1.51 million of the $4.46 million

raised, and only a small portion of the remaining $2.95 million went to GBR

Colombia, although not to any bitumen or biodiesel assets that it owned.

[223] The flow begins with funds raised through the sale of First Global debentures

being deposited into the trust account of First Global’s lawyer. According to the

First Global-GBR Debenture Agreement, the funds were then to go to GBR

Colombia for the deployment of First Global services. Transfers of funds took

place directly or indirectly through First Global, although to various entities other

than GBR Colombia, as we explain below. The transfers were reflected in

promissory notes, which documented GBR Colombia’s obligation to repay the

funds to First Global with interest at 16% per year.

48

[224] As it turned out, First Global received no payments of principal or interest from

GBR Colombia as required by the promissory notes, but continued to advance

funds to or for the benefit of GBR Colombia. First Global ultimately wrote off its

receivables in respect of the promissory notes.

[225] The approximately $4.46 million raised was split between First Global and other

entities, as summarized here:

a.

b.

as noted above, First Global retained approximately $1.51 million; and

the remaining $2.95 million was provided to or for the benefit of GBR

Colombia, although not for bitumen mining or biodiesel operations owned

by GBR Colombia:

i.

$1.91 million was transferred to Bioclean Inc., a Canadian company

owned as to 74% by Garcia;

ii.

$957,000 was transferred to Threegold; and

$77,000 was transferred to GBR Ontario.

iii.

[226] We explain these amounts further below.

5.4.2.e.ii First Global retained $1.5 million

[227] The first use was by First Global itself, which kept approximately $1.51 million.

First Global made only limited efforts toward deploying its technology in

Colombia (i.e., a few conversations involving one or more of Itwaru, Alli, Aziz

and Grenier), and none of the $1.51 million was used to support those efforts.

This “failure to launch” in 2015 was corroborated by Aziz, Alli and Itwaru. Aziz

testified that First Global did launch a mobile payment platform in Colombia in

2016 or 2017, but neither he nor any other party or witness provided any further

details or established any connection between that launch and the funds raised

through the sale of First Global debentures.

[228] In any event, Aziz testified that Grenier, Garcia and Faille thought that First

Global had kept more than its share by retaining $1.51 million. This eroded the

trust between Grenier and Garcia on the one hand and First Global on the other,

eventually resulting in a December 29, 2015, termination of the First Global-GBR

Debenture Agreement.

49

5.4.2.e.iii

$2.95 million was provided to or for the benefit of GBR Colombia

[229] The remaining $2.95 million was disbursed to Bioclean, Threegold and GBR

Ontario, ostensibly to or for the benefit of GBR Colombia, but as it turned out,

not actually for bitumen mining or biodiesel operations owned by GBR Colombia

itself as opposed to other projects or other entities in which GBR Colombia had

no interest.

[230] The $2.95 million was used as follows:

a.

Coal mine – $1 million was used to acquire or develop the Hoyo Patia coal

mine, 80% of which was owned by AM Resources, a company wholly

owned by Garcia indirectly through A&M USA Resources 2015 LLC

(Garcia’s US company). The allocation of $1 million to the coal mine

was reflected in a GBR Colombia board resolution signed in October 2015.

The allocation was ostensibly done because none of the other assets were

generating revenue, and it was necessary to have an asset that was

producing, in order to fund the interest payments to First Global

debenture holders (although no such interest payments were ever made).

In closing submissions, Bajaj asserts that he told investors that the coal

mine was being added to the project in order to pay interest on time.

However, his testimony does not fully support that submission, and we

cannot accept it, given that:

i.

he testified only that he told investors “about the coal mine”,

without specifying at all (or therefore being cross-examined on)

what he told them about the mine;

ii.

in his testimony, he did not mention interest payments;

iii.

neither the Colombia Presentation nor the marketing brochure

contained any reference to a coal mine; and

iv.

the investors’ testimony, which we accept, contradicts Bajaj’s

assertion.

b.

Referral fees – $309,000 was used to pay referral fees, including

$114,000 paid to Bajaj himself via his company UnfoldU Inc., and

$195,000 paid to other individuals.

50

c.

Interest on debentures – $301,000 was used for interest payments on the

First Global debentures, and on the loans from EH (described at

paragraph [61] above and discussed further below). In other words, funds

raised from new investors were used to pay interest obligations to earlier

investors. Bajaj and Aziz admitted that this was the arrangement, and

testified that this was done in consultation with Steven Roch, a lawyer in

the Montreal law firm of Colby Monet, lawyers for GBR Colombia.

d.

e.

GBR Ontario’s business expenses – Over $300,000 was used to pay

business-related expenses incurred by GBR Ontario, including $90,000 for

the Richmond Hill Office lease.

Transfer to a subsidiary of Bioclean – $300,000 was transferred to

Biominerales, a wholly-owned subsidiary of Bioclean, and the holder of a

60% interest in Asfaltitas, which in turn wholly owned:

i.

the La Esperanza bitumen mine; and

a biodiesel production facility in Bogotá.

ii.

f.

Threegold’s business expenses – $185,000 was used to pay

business-related expenses incurred by Threegold.

g.

Payment to Garcia’s US company – In January 2016, $150,000 flowed

through Threegold to Garcia’s US company, purportedly to satisfy the

condition reflected in an October 2015 letter from Roch as attorney for

GBR Colombia, addressed to GBR Ontario, providing that acquisition of the

biodiesel production plant was conditional on the repayment of a

$150,000 loan, plus charges and costs. As we explain further below at

paragraph [314], the loan to be repaid was to Rob Mattachione, an

individual who had worked with Bajaj and Aziz in the past, and who

apparently was a “former principal” of the business that owned the plant,

although whether there was a debt to him is in dispute;

h.

Bajaj’s expenses – In addition to the referral fees paid directly to Bajaj

and mentioned above, $141,000 of additional payments were made to

Bajaj’s company UnfoldU Inc., purportedly for expense reimbursement to

Bajaj.

51

i.

Further payment to Bajaj – $100,000 was transferred to 2329520 Ontario

Inc., a Bajaj-controlled corporation, to pay referral fees and interest

payments.

j.

Payment to GBR Ontario – $78,000 was transferred to GBR Ontario.

k.

Payment to CIV Carbon Credit Ltd. – $55,000 was paid to CIV Carbon

Credit Ltd., a company that entered into transactions with Grenier and

Garcia, but no witness could explain why First Global debenture funds

would be used for this purpose.

5.4.2.f

Conclusion about actual use of funds compared to promised use of

funds

[231] Staff makes no submission that the $1.51 million kept by First Global

represented a departure from the representations contained in the First Global

subscription documents, which contemplated that the funds would be used for

First Global’s general working capital. We had no evidence about how First Global

used the $1.51 million. Instead, Staff submits that the misalignment was

between the representations made by the GBR Ontario Parties directly to

investors, since those representations did not contemplate First Global retaining

funds.

[232] Staff submits that the same applies to the remaining $2.95 million, none of

which was used as represented. We note the possible exception of the $150,000

that flowed through Threegold to Garcia’s US company, ostensibly to satisfy the

condition associated with the biodiesel production plant (see paragraph [314]

below).

[233] Returning to the representations made in the First Global subscription

documents, Staff submits, and we agree, that the uses to which the $2.95

million was put cannot be described as “working capital” uses for First Global.

First Global’s business (mobile technology and payment transfers) was entirely

distinct from that of GBR Colombia (natural resource extraction and production).

When asked for his understanding of how funds raised might be used for First

Global’s working capital, Itwaru testified that permitted uses would be the

normal business of the company, as well as an expansion of the company’s

business elsewhere in the world, including as a partner of another organization.

52

Itwaru did not claim that GBR Colombia’s own activities, including natural

resource extraction and production, would fall within First Global’s working

capital. As Alli aptly put it in his submissions, “We were not going into the mining

business.”²³

[234] In summary, we conclude that it is more likely than not that of the $4.46 million

raised, none of it (with the exception of the $150,000 associated with the

biodiesel production plant) was used in a manner that conformed to the

representations that the GBR Ontario Parties made to investors by various

means, including the Colombia Presentation, brochures, in-person seminars and

radio advertisements.

[235] In our analysis below of the alleged contraventions that flow from this, we

address the question of where responsibility lies for the improper use of investor

funds. We turn now to review the representations made to investors about

whether the operations in Colombia were sufficient to fund the 14% annual

return promised to First Global debenture holders.

Colombian Operations Representations

5.4.3.a

Introduction

[236] Staff alleges that investors were told that GBR Colombia had control over

operations related to its assets in Colombia, and that those operations would be

sufficient to generate a 14% annual return. Staff alleges that these

representations were untrue.

[237] We will examine the representations, and the evidence with respect to whether

they were true, below. Before doing so, though, we must make some comments

about Garcia’s credibility, since her testimony and her actions figure prominently

in the parties’ submissions and in our analysis.

[238] The respondents, and Aziz in particular, submit that Garcia is not a credible

witness. Staff accepts that we should approach her testimony with caution, but

23

Closing Submissions of Nayeem Alli, June 28, 2021 (Alli Submissions), at 103

53

correctly submits that we can choose to accept some but not all of any witness’s

testimony.²⁴

[239] While Garcia clearly had an interest in defending her position through her

testimony even though she is not a respondent in this proceeding, we must still

be mindful of the most reliable indicator of truth, i.e., harmony with the other

evidence in this case.²⁵We will adhere to that standard.

[240] In comparing a witness’s testimony to the documentary record or to other

testimony, though, we must be wary about reaching unwarranted conclusions

that would undermine a witness’s credibility, especially where a supposed

inconsistency is not as clearly evident as a party may suggest. For example, Aziz

submits that there is a contradiction between:

a.

Grenier’s February 2016 email, copied to Garcia, that said in part: “Right

now the business with the money plan to be paid in next month… will

generate enough money to pay interest and promess made to investor.

[sic]”; and

b.

Garcia’s testimony that she and Grenier did not know that investors were

being promised interest.

[241] Aziz submits that Grenier’s email (which refers to the payment of interest)

demonstrates that Garcia was not being truthful when she said that she didn’t

know investors were receiving interest.

[242] However, Garcia’s testimony was in the context of questions about the GBR

Colombia MoU, which was signed in May 2015. It is entirely possible that in May

2015, Garcia was unaware of the intended terms for investors but she later

became aware that they had been promised interest. We do not know, but we

disagree that this is a contradiction. With that as an example, we emphasize the

importance of examining Garcia’s testimony (and that of other witnesses)

carefully in light of other evidence in the record.

[243] We turn now to consider the representations made about operations in Colombia.

24

Meharchand at para 62

25

Springer v Aird & Berlis LLP, 2009 15661 (ON SC) at para 14

54

5.4.3.b

The representations

[244] It is uncontroverted that the GBR Ontario Parties told potential investors that the

Colombian operations were in production. Indeed, investors were told that they

would receive not only the interest payments due on the debentures, but that

they would receive royalty payments on sales as well.

[245] The GBR Ontario Parties also produced two marketing brochures that described

the investment as secure. One stated that:

a.

the biodiesel plant in Bogotá was already “fully functional”, and beginning

in 2016, the company would “be able to produce” more than 2 million

litres of biodiesel monthly;

b.

c.

the investment would yield a “12% annual Secure Return”; and

there were “Signed purchase orders”.

[246] The other brochure, entitled “SECURE INVESTMENTS”, promised a 14% annual

return and stated that the company was currently in production and had mineral

rights.

[247] Aziz cautions that it is unclear at what point the bitumen and biodiesel assets

would be sufficient to generate the 14% return. Aziz says that investors were not

told that the Colombian assets were currently operating to that level, i.e., with

sufficient production at the time of the representation. Instead, investors

generally understood that the project was in an early phase, and that production

was expected to reach that level in the future.

[248] We cannot know what every single investor understood. Based on the evidence

in the record, though, we cannot accept Aziz’s submission as it relates to

investors’ entitlement to interest (as opposed to royalties). Both of the brochures

referred to above could only have been interpreted by a reader as promising a

“secure” 12% or 14% annual return (depending on the brochure). The Colombia

Presentation said the same thing, promising a “100% Secured Investment with

14% per annum fixed Returns for 3 Years”. None of those documents qualified

the promise by saying that it was a projection, or that it would be reached some

time in the future. The only reasonable interpretation of the brochures and the

55

Colombia Presentation is that the investor would begin receiving that rate of

interest as soon as they invested, no matter the stage of production.

[249] In contrast to the description of interest payments, the documents did tie the

payment of royalties to production of bitumen (“up to” $10 per ton) and/or

biodiesel (“up to” 10 cents per litre). The promise of interest payments featured

no such uncertainty or variability.

[250] Because production figures prominently in investors’ entitlement to royalties, and

in the comfort an investor might derive from the business’s ability to pay the

promised interest, we will now review the evidence relevant to those promises.

[251] The then-current and the future expected quantities of bitumen production were

the primary components of representations and projections about revenue.

Some versions of the Colombia Presentation claimed that 1,000 tons of bitumen

were being produced monthly, and contained photographs that purported to

show bitumen being extracted manually. Bajaj testified that this information

came from Grenier and was about the La Esperanza mine, although he could

offer no documentary support for that.

[252] Garcia testified that at the time the MoU was signed in early 2015, she expected

bitumen production to increase to 30,000 tons/month once funds were injected.

[253] Some versions of the Colombia Presentation showed calculations based on

expected bitumen production of 30,000 tons per month, the amount promised by

GBR Colombia in the GBR Colombia MoU. Later versions of the presentation

reduced that to 20,000 tons per month and contained what purported to be a

letter of intent dated August 15, 2015, addressed to Paul James at GBR

Colombia, from the VP of World Sales at Palmyra Petroleum Co. Inc., indicating

that Palmyra was “ready and willing to order 20 000 tons” of bitumen monthly.

The letter, which Grenier had provided to the GBR Ontario Parties, later proved

to have been a forgery.

[254] It is unclear who forged the letter, but in any event, Staff correctly submits that

we need not decide that question. In our view, it is the use that the GBR Ontario

Parties made of the letter that is relevant. Even if they believed it to be

legitimate at the time (and there is no evidence that they doubted its

56

authenticity), they did not take even basic steps to confirm the validity of what

appeared to be a significant potential source of revenue.

[255] The basis for overall production and revenue estimates suffered another,

unrelated setback. At one point, Bajaj received what he described as a “shocking

call” from Grenier. In that call, Grenier told Bajaj to stop including the La

Esperanza mine in presentations to investors or talking to investors about the

mine, since it belonged not to GBR Colombia but to Mattachione, the purported

“former principal” of the biodiesel facility, as referred to in paragraph [230]g

above.

[256] After Grenier told Bajaj to stop including La Esperanza in the presentations, Bajaj

substituted photographs of the biodiesel facility. He added revenue and return

projections based on scenarios that contemplated biodiesel production ranging

from 500,000 litres per month to 4 million litres per month. A scenario involving

2 million litres per month was highlighted. Bajaj testified that he received these

numbers from Grenier, but he could not recall whether he received any

documentary support for them.

[257] At the hearing before us, in support of the contention that the assets were

generating enough revenue to pay interest to investors, Aziz submits that

Grenier consistently gave reassurance to that effect. Aziz also points to Garcia’s

testimony that in February of 2016 there were potential coal sales that would

generate $100,000 per month in revenue, and $50,000 per month of revenue

from biodiesel. Whether those figures were reliable or not, we note that there

was no reasonable basis to assume that First Global debenture holders would

benefit from sales of coal (as opposed to bitumen or biodiesel).

[258] With respect to the potential for generating revenue from bitumen, Bajaj

similarly sought comfort in unverified projections. He submits that Garcia and

Grenier said they had a mineral reserve in the Rio Negro mine of approximately

1.26 million tons. The portion of the geologist’s report excerpted in the Colombia

Presentation suggested a possible inference of 1.1 million tons, but that the work

plan for the mine contemplated the existence of 1.26 million tons. One need not

be a mining expert to distinguish between an established reserve and a possible

inference. The possible inference here ought to have offered little if any comfort.

57

[259] Bajaj says that he did research and calculated that the per ton price at 90%

purity would range from $1,000 to $1,400. His research appears to have been

limited to a simple search for the term “gilsonite price” on the website of a global

and generic marketplace that is for all types of products and is not specific to

natural resources. We heard no evidence about the reliability of such a source, or

more importantly whether Bajaj had any reasonable basis to adopt that range as

a benchmark against which to compare Grenier’s estimates.

[260] According to Bajaj, Grenier advised that the bitumen was 82% pure, the price of

which would be at least $500 per ton, yielding a reserve value of approximately

$630 million. This information was reflected in the Colombia Presentation, which

represented a net asset value of $441 million after deducting production costs of

$189 million.

[261] The Colombia Presentation juxtaposed the supposed $441 million net asset value

of the bitumen reserve against the $12 million amount of the first tranche of

First Global debentures, purportedly to demonstrate that investment in the

debentures would be fully secured.

[262] The Colombia Presentation then combined the projected $84 million annual

revenue from the bitumen operations (based on a production estimate of 20,000

tons per month) with the projected $12 million annual revenue from the

biodiesel operations to project a total annual revenue of $96 million.

5.4.3.c

Actual production

[263] The optimistic and largely unfounded projections stand in stark contrast to what

appears to have been the reality in mid-2015 and beyond. For example, emails

from Grenier in June and July specified that there was no production at Rio

Negro.

[264] There is no evidence that there was ever any bitumen production at any facility

other than the mine that Grenier advised in the summer of 2015 was not one of

the assets that would be transferred to GBR Colombia (i.e., La Esperanza).

[265] As for biodiesel, we heard reference to two different facilities. Some evidence

related to a smaller existing plant that was producing although in limited

quantities. Other evidence referred to Garcia and Grenier’s intention to establish

58

a bigger plant in a different location, and their need for funds to undertake that

expansion and move.

[266] There is no evidence that biodiesel was ever produced or could be produced at

the bigger facility. Doing so would require a licence for the use of methanol, a

highly controlled substance in Colombia that is a necessary catalyst in the

production process. Such a licence was still outstanding as late as March 2016.

Understandably, we had no evidence of any biodiesel sales to customers.

5.4.3.d

Conclusion about the truthfulness of the Colombian Operations

Representations

[267] Once again, there were some inconsistencies in the various representations

made to investors. Some investors may have understood when they invested

that the facilities were not yet producing (and therefore selling) enough product

to generate the necessary funds to pay interest on the debentures, but that that

goal would be attained within a reasonable time. Others would not have had that

understanding, especially in light of the categorically positive representations in

the Colombia Presentation and the brochures.

[268] The representations about generating funds to pay interest do not mean that

each dollar of revenue (or profit) must flow directly to debenture holders. As we

discussed above, First Global bore the obligation to pay interest on the

debentures, no matter what the level of production of the Colombian assets.

Having said that, the ability of the Colombian operations to generate revenue

was important, since investors would reasonably derive comfort from that in

assessing the risk of losing their investment.

[269] In that regard, the Colombian Operations Representations materially misstated

the extent to which the operations were, or would imminently, be able to provide

that sense of security.

Security Representations

5.4.4.a

Introduction

[270] We turn now to Staff’s allegations that it was represented to investors that the

First Global debentures would be fully guaranteed and secured by assets owned

59

by GBR Colombia. Staff alleges that these representations were untrue. We

agree both that the representations were made and that they were untrue.

[271] The representations were unequivocal, with a clear message that investment in

the First Global debentures was completely secure and guaranteed by assets

owned by GBR Colombia, with no risk. The representations appeared repeatedly

in the radio advertisements, the Colombia Presentation and the brochures.

[272] As we explain in greater detail below, those representations were false when

made and they continued to be false throughout the Solicitation Period.

5.4.4.b

The representations

[273] There can be little controversy about the content of many of the representations

made to investors on this topic. While some representations were made orally,

many were in documents and radio advertisements, the content of which is not

in dispute.

[274] The radio advertisements that Bajaj placed referred to “14% secure interest” and

to the fact that the investment was “guaranteed”, “absolutely safe”, “completely

secure”, “100% secure”, and “fully secure against our company’s asset”.

[275] The Colombia Presentation described the investment as being “Secured

Investments”, because:

a.

an investment made through an RRSP or TFSA was in a “Highly Regulated

Industry”;

b.

c.

the investment was “100% Secured”;

the investment was “guaranteed by a first charge against all of the assets

of [GBR Colombia] including Mineral rights” [emphasis in the original];

and

d.

the guarantee would be at least 142% of the debenture amount over the

term of the debenture (a figured derived by adding three years of interest

at 14% to the principal), so both the investor’s principal and interest were

“protected”.

[276] The GBR Ontario Parties also produced the two marketing brochures referred to

above, both of which described the investment as secure. One stated that:

60

a.

b.

“Global Bioenergy Resources” had two offices, one in Richmond Hill and

one in Bogotá; and

Global Bioenergy Resources was “a Canadian company” that had “secured

the rights to mine… bitumen in Colombia”.

[277] The other brochure, entitled “SECURE INVESTMENTS”, promised that both

principal and interest were secured against the assets of the company, and

stated that the company was currently in production and had mineral rights.

[278] With respect to risk, the Colombia Presentation said that the need for risk

mitigation was minimal, because, among other things:

a.

the “exploration risk”, which would typically account for 70 to 75% of the

total risk of an investment of this type, was “not applicable”;

b.

c.

d.

“minerals and mining is a rich, hard asset”;

current demand exceeded supply for bitumen; and

there was no risk associated with invested capital or return on the

investment, since those were 100% guaranteed against the assets.

[279] The content of the Colombia Presentation and the radio advertisements is

indisputable and is unequivocal. The message was abundantly clear – the

investments were fully secured, both as to principal and interest, by the assets

of the Colombian operation. The investor witnesses’ testimony as to what they

were told was consistent with the above, was not successfully challenged on

cross-examination, and we accept it.

5.4.4.c

Witnesses’ testimony about the assets and interests

[280] In assessing the truthfulness of those representations, we confront the myriad of

factual issues that arise in this proceeding about the various assets involved.

Some of those issues relate to the particular kind of rights, e.g., whether the

rights constitute a title to land, exploration rights only, or other mineral rights.

Other issues relate to identifying the owner or owners of the rights.

[281] In her affidavit, Garcia includes what purports to be a list of the companies and

assets in which she says she had a controlling interest, directly or indirectly, as

61

of May 2, 2018. Her testimony accords with Aziz’s version of what she and

Grenier told Aziz.

[282] Garcia’s affidavit also includes documents that, according to her, substantiate

her testimony about the assets. Aziz challenges that testimony, submitting that

it is unclear how the cited documents support her assertions.

[283] In his affidavit, Aziz includes a list of relevant assets that is nearly identical to

Garcia’s, except that he includes a bitumen mine by the name of “SGS

Baranquilla”, which he conceded on cross-examination was not pledged to secure

the First Global debentures. That correction aside, Aziz testified that Garcia and

Grenier told him that Garcia ultimately controlled all the subject assets.

[284] Whatever may have been the truth about whether Garcia controlled the various

assets and was therefore in a position to cause them to be transferred to GBR

Colombia, the more important question is whether the assets were ever

transferred to that company.

[285] On this point, it is common ground that there were discussions, and some

documentary references, to intentions to transfer assets to GBR Colombia. What

those intentions were is less clear. For example, Bajaj admitted that he could not

remember if, when he was beginning to raise funds using the Northern Coast

subscription documents, he had figured out what form of security would be used.

[286] Whether those intentions translated into action is also unclear. For example, Aziz

describes discussions he had with Garcia and Grenier about the intended transfer

of assets. He testified that not all the assets in Colombia under their control

would be associated with the First Global debentures. Initially, Garcia and

Grenier stated that two assets would be transferred to GBR Colombia and used

as security for the First Global investors:

a.

the La Esperanza mine, a bitumen mine that was wholly owned by

Asfaltitas Colombianas SAS, a company owned as to 60% by Biominerales

Colombia SAS, in which Garcia had approximately a 74% interest; and

b.

the biodiesel facility, a facility in Bogotá wholly owned by Biominerales

Colombia SAS, producing biodiesel from waste cooking oil, and which

Garcia says was never profitable, despite approximately $1.4 million of

62

capital raised from Canadian investors through GBR having been invested

in it.

[287] Aziz states that for reasons unknown to him, Garcia and Grenier later decided

that at least one and possibly two assets would be used instead of the La

Esperanza mine.

[288] The asset that was certainly to be used, according to Aziz’s account of what

Garcia and Grenier decided, was often referred to as “the Rio Negro mine”,

although it was not always clear from all witnesses and documents whether the

asset being described was:

a.

as Garcia stated, the Rio Negro Mining Exploration Title that she

owned along with her son purportedly contained bitumen deposits, and is

a title that she says benefited from $50,000 invested from funds raised

from Canadian investors through GBR, but was an exploration title only,

since no actual mining title was ever obtained; or

b.

the Asfaltitas mine, an asset near Rio Negro, owned 60% by

AM Resources SAS (which in turn was indirectly wholly owned by Garcia)

and in which GBR Colombia never had any ownership interest, according

to Garcia.

[289] Aziz testified that he was always referring to what he understood to be the Rio

Negro bitumen mine, not the Asfaltitas mine. He says that it was at least the Rio

Negro mine that Garcia and Grenier said would replace La Esperanza, and

possibly the Asfaltitas mine as well.

[290] However, Aziz also testified in his affidavit that “the ultimate agreement was that

those assets (i.e., both the Rio Negro mine and the Asfaltitas mine) would

belong to [GBR Colombia] and secure investor funds.” [emphasis in the original]

[291] We note the incongruity in the certainty of Aziz’s assertion about there having

been an “ultimate agreement”, and his uncertainty about which assets were

included (i.e., whether the Asfaltitas mine would be included). We do not

question Aziz’s honesty in making these assertions, but his uncertainty is a gap

that is emblematic of the manner in which much of the business that is the

subject of this hearing was conducted.

63

[292] Having said that, we return to the central question. Were any of these assets

transferred to GBR Colombia? Garcia is definitive in answering no. She testified

that GBR Colombia never had any ownership interest in any of the assets

identified on the list attached to her affidavit, primarily because the minimum

fundraising of $5 million had not been achieved. At the highest, GBR Colombia

may have had an interest in the Rio Negro Mining Exploration Title, clearly not a

revenue-producing asset.

[293] Garcia’s is the only direct testimony we have that speaks clearly to the question

of whether GBR Colombia had an ownership interest in the subject assets.

[294] No other witness was in a position to testify directly on the topic, although Alli

did testify that he participated in a conference call in November 2015 with Roch

(GBR Colombia’s lawyer) and staff from First Global’s audit firm, in which

(according to Alli) Roch gave some sort of confirmation that the Colombian

assets were secured, except that the confirmation was temporary “until the

confirmation came from [GBR Colombia] or Colby Monet [Roch’s firm].” Alli fixes

the time of the conference call by referring to preliminary work the firm was

doing for First Global’s 2015 audit.

[295] We place no weight on Alli’s testimony on this point, because:

a.

a supposed confirmation that is temporary until a confirmation is received

does not, in our view, constitute a confirmation;

b.

the auditor’s testimony, which we accept as being more reliable than Alli’s

as to the timing of work on the 2015 audit, was that the firm did no work

on the 2015 audit until 2016;

c.

Alli did not suggest to the auditor in cross-examination that this call

happened in 2015, thereby depriving the auditor of a fair opportunity to

address Alli’s testimony; and

d.

Itwaru did not corroborate Alli’s testimony, a notable divergence given the

importance of the issue.

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5.4.4.d

Documentary evidence about the assets and interests

Introduction

5.4.4.d.i

[296] We will now discuss a number of documents that may bear upon the question.

We exercise caution when reviewing the documents in the record. Provenance

and authenticity are sometimes in question, and the documents contain various

inconsistencies that make us hesitant to rely on some of them in all their

respects.

[297] The most relevant are set out in the following paragraphs. In considering these,

we disagree with Staff’s submission that all of them (except the letters from

Roch, referred to beginning at paragraph [308] below) presuppose that the

transfer of assets has taken place. We explain further as we consider the precise

language in the documents.

5.4.4.d.ii

First Global-GBR Colombia Debenture Agreement

[298] The First Global-GBR Colombia Debenture Agreement dated August 21, 2015, is

signed by Aziz on behalf of GBR Colombia and by Itwaru on behalf of First

Global. Each individual is named as the recipient of notices to his respective

company.

[299] The agreement records that GBR Colombia will assist First Global in raising

capital by referring potential investors to First Global and by “providing” GBR

Colombia assets as collateral. We acknowledge that the words “will assist”,

literally construed, speak to the future and are not definitive about whether the

transfer of assets or rights has already taken place. However, the agreement

explicitly refers to assets that “are pledged as part of this Agreement”.

[300] In the agreement, GBR Colombia represents that it is the sole and exclusive

owner (or agent or representative of the owner) of the “pledged” assets and that

GBR Colombia has the sole and unfettered right to pledge those assets. The

agreement does not, however, identify the specific assets referred to.

[301] On balance, it appears that the parties intended that certain unspecified assets

would be transferred by, or would have been transferred prior to, the

agreement. Whether the assets were transferred or not is unclear.

65

5.4.4.d.iii

Promissory notes

[302] As explained above, most of the funds raised by First Global were loaned to GBR

Colombia. These loans were documented by promissory notes, one for each of

the eleven advances made between August 25 and December 23, 2015.

[303] The first of the promissory notes, for $400,000 and dated August 25, 2015,

served as a template for the remaining ten notes. It provides that “[v]alue

received shall be guaranteed by a first charge against all of the assets of [GBR

Colombia]…”.

[304] The words “shall be” are temporally ambiguous. We do not read them as

purporting to create an immediate security interest, and there is no evidence

that anyone did. Indeed, as is discussed below, even after delivery of some of

the promissory notes, efforts were still underway to ensure that the assets were

available to GBR Colombia. Such efforts would be unnecessary if the security

interest had already been established.

5.4.4.d.iv

GBR Colombia board resolution mentioning a lien

[305] One of the seven October 2015 GBR Colombia board resolutions referred to

above is entitled “Offering lien against all the assets of GBR to Investors”. In it,

the board resolves that it “allows to raise funds through a First Global Data Ltd.

(First Global debentures) and GBR will transfer Mineral Rights to First Global

debentures to Secure Investors Investments. [sic]” The board further resolves to

“pay the investors” a number of benefits, including that the “Debentures shall be

guaranteed by a first charge against all the assets of [GBR Colombia] […] and

this will include the mineral rights of the [GBR Colombia]. [sic]”

[306] The resolution suffers from the same temporal ambiguity as the promissory

notes, although the words “will transfer” are more clearly prospective than are

“shall be”. Further, the legal imprecision of the remaining language of the

resolution hinders the drawing of reliable conclusions, as does the fundamental

inconsistency between: (i) the contemplated “transfer” of “mineral rights” to

First Global directly, and (ii) the contemplated guarantee of the First Global

debentures by a first charge against all of GBR Colombia’s assets.

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[307] We do not read the resolution as purporting to create an immediate security

interest, for reasons similar to those expressed above regarding the promissory

notes.

5.4.4.d.v

Roch letters

[308] The next documents we examine attracted considerable attention during the

hearing.

[309] Garcia attached to her affidavit two letters appearing to be on the letterhead of

the Montreal law firm of Colby Monet, solicitors for GBR Colombia, and signed by

Roch. The letters are dated October 8, 2015 (four days before the GBR Colombia

board resolutions are dated) and are headed in bold, underlined, all capital

letters, “UNDER ALL RESERVES”. That English phrase is a literal translation of

the French “sous toutes réserves”, which typically means “without prejudice” and

sometimes means “subject to confirmation”.

[310] The letters are addressed “to whom it may concern” at GBR Ontario. Each letter

describes itself as a “letter of comfort” and purports to confirm that GBR

Colombia has acquired certain rights.

[311] One letter refers to “the rights of the Rio-Negro Mine in Colombia, a surface

covering over… 650 hectares”. The letter advises that Colby Monet have

“prepared” the transfer of the mineral claims in Colombia for GBR Colombia as

requested. Roch warns that the “transfer may take a certain period of time” to

appear on the registry, but promises that they will follow up and ensure that the

claims are transferred at the registry as swiftly as possible.

[312] We find this letter to be ambiguous as to what formal steps had already been

taken, and as to what steps remained to be taken. In any event, we question the

utility of the letter given its “without prejudice” nature, a characterization that is

clear from the heading but mysterious given the content of the letter and the

absence of anything approaching an attempt to resolve issues.

[313] The parties before us did not address this supposed “without prejudice”

character of the letter, so we do not rely on it. Even without taking that into

account, the letter does not suffice as reliable confirmation that any assets had

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been transferred. This is particularly so in light of subsequent communications,

as described in detail below.

[314] The other letter refers to “the rights to the biodiesel production in Colombia”. It

provides that the “acquisition of the biodiesel production plant is conditional to

[sic] the repayment of a loan to the former principals in the amount of…

$150,000… plus any additional charges and costs.” Colby Monet promises to

follow up and ensure that “the repayments are made and that the titles are

transferred at the as [sic] swiftly as possible.”

[315] The letter is ambiguous as to whether the “acquisition” that is conditional upon

the loan repayment is of the biodiesel plant itself as opposed to of production

rights (if there is a difference in the context of this letter), since the latter are

reported to have already been acquired. The letter is also ambiguous as to who

the “former principals” are, and even as to who loaned whom the $150,000 that

is mentioned, although as we have discussed above, at least some of the parties

understood the reference to be to Mattachione, the apparent owner of the La

Esperanza mine. Finally, as with the previous letter, the utility of the letter is

questionable given its supposed “without prejudice” nature. Once again, even

putting that consideration aside, the letter does not suffice as reliable

confirmation that any assets had been transferred, particularly given the

apparently unsatisfied condition and subsequent communications.

5.4.4.d.vi

Absence of clear documentary support

[316] Paul James (GBR Colombia’s CEO) testified that as part of his task to help

provide an “insurance wrap” around the Colombian bitumen assets, he tried to

conduct what he considered to be due diligence about the various properties in

Colombia. In email correspondence, he asked Grenier for information and

documents, including evidence of title to land, or agreements to access the

mining sites and to carry on mining activity on those sites, government permits

to allow the same, and information about the biodiesel facility.

[317] James received information from Grenier and from others, but he did not fully

understand some of the documents he was provided (often because they were in

Spanish and had not been translated), and he was not satisfied with the

reliability of some of the information. In particular, he noted the absence of

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documentation that clearly established ownership of the land. He continued to

follow up with Grenier and with Roch, but the typical response was that things

were in progress.

[318] James communicated his concerns to Aziz (who shared some of James’s

concerns, including about an inability to fully understand the documents), as well

as to Bajaj and Thiviyanayagam, but his concerns were never resolved.

[319] As Aziz conceded on cross-examination, none of the documents he reviewed

established that GBR Colombia owned any of the Colombian assets.

5.4.4.e

Other circumstantial evidence about the transfer of assets

[320] Given the limitations of the documentary evidence that arguably purports to

grant rights, and given the scant oral testimony on this issue, we must consider

other circumstantial evidence from which we may be able to draw inferences

about the question. We turn to consider that evidence now.

[321] Circumstantial evidence about the transfer of assets includes oral and written

communications about the status of any such transfer, and about any

preconditions that applied before the transfer could be completed.

[322] Aziz submits that Grenier repeatedly assured him and Bajaj that title to the

Colombian assets had been transferred, or was in the process of being

transferred, to GBR Colombia. Grenier said that Roch was taking steps to effect

the transfers. We note that in mid-June 2015, Grenier wrote an email in which

he referred to putting the Rio Negro and La Esperanza mines into GBR Colombia,

but he made clear that the assets were not yet owned by GBR Colombia.

[323] Faille also provided information to Bajaj on behalf of Grenier, including an

assurance in August 2015 that an unspecified “we” had purchased the mineral

rights, and not the land, for the La Esperanza and Rio Negro mines within the

past year. He also noted that the reserves were worth billions.

[324] When Bajaj was asked whether he stopped the fundraising efforts when he

learned that the bitumen assets had not been transferred to GBR Colombia, he

referred to the two letters from Roch, referred to above.

[325] As to whether there were any preconditions to the transfer of assets to GBR

Colombia, the various witnesses differ significantly.

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[326] Garcia testified that GBR Colombia was incorporated for the purpose of

transferring La Esperanza and the biodiesel facility to GBR Colombia once Bajaj

and Thiviyanayagam had raised $5 million. According to her, once that minimum

was reached, Bajaj and Thiviyanayagam would jointly be entitled to a 50%

interest in GBR Colombia. She testified that any preparatory steps taken toward

transferring the assets were just that, and the actual transfer would not be

completed until $5 million had been raised. Garcia says that it was important to

impose the minimum, since she required certainty about raising the necessary

funds to ensure development of the assets without undue costs and delays.

[327] In contrast, Bajaj testified that the $5 million figure in the GBR Colombia MoU

was a target, not a condition – a position that is consistent with the words “up to

$5 million” in the MoU. Further, Bajaj submits that had there been a condition

requiring a minimum raise of $5 million, an escrow account would have been

established for the raised funds, until that minimum was met.

[328] Garcia justifies the discrepancy between her understanding and that of Bajaj by

saying that there was an oral agreement that existed in parallel to the MoU.

Bajaj denies the existence of such an agreement.

[329] Garcia’s testimony is difficult to accept on its face, given the clear contradiction

between the explicit text of the MoU (which Garcia signed, and which said “up to

$5 million”) and the terms of the oral agreement that Garcia claims existed.

[330] Bajaj’s testimony is also problematic, though. He testified that the $5 million

figure was a target, but he was unable to explain what would happen if

fundraising reached $5 million. He testified that even if the GBR Ontario Parties

raised less than $5 million, he would become a shareholder in GBR Colombia,

which would own bitumen mines worth hundreds of millions of dollars. We have

great difficulty accepting that if the GBR Ontario Parties raised only a nominal

amount, Bajaj still reasonably expected to own 25% of that business.

[331] The confusion continued beyond the initial stages. The parties’ uncertainty about

which assets, if any, were to be transferred or had been transferred to GBR

Colombia is exemplified by the call from Grenier to Bajaj we referred to above,

that Bajaj described as “shocking”. In that call, Grenier told Bajaj to stop

including that mine in presentations to investors, since the mine belonged not to

70

GBR Colombia but to Rob Mattachione, an individual who had worked with Bajaj

and Aziz in the past.

[332] Until that call, Bajaj was confident that the La Esperanza mine was one of the

assets that would be transferred to GBR Colombia. Despite this, upon receiving

the call he complied with Grenier’s instruction and removed references to the

mine from the Colombia Presentation. That such an apparently significant change

in the assets that backed the First Global debentures could happen at all, could

happen so suddenly, could happen without any formal documentation but only

on the strength of a phone call from Grenier to Bajaj, and could happen without

notice to or consent from investors who had already provided funds,

demonstrates Bajaj’s cavalier manner in managing the millions of dollars

invested by the First Global debenture holders.

[333] In the days between the first advance from First Global (August 25, 2015) and

the GBR Colombia board meeting in Montreal in mid-October 2015, there were

numerous red flags about whether GBR Colombia held the assets as expected:

a.

on August 31, Grenier wrote in an email that “Global” was held by Garcia

alone;

b.

on September 5, in response to an inquiry from Bajaj, Faille advised that

the mineral rights were in Garcia’s name and that “the lawyer is working

on it”, in response to which Bajaj asked for a letter transferring the rights

(associated with the Rio Negro mine) to GBR Colombia;

c.

also on September 5, Grenier wrote about transfer paperwork that

remained to be done; and

d.

on September 16, Grenier wrote two emails that clearly implied that the

bitumen claim had not yet been transferred to GBR Colombia.

[334] As Aziz testified in his affidavit, “final documentation was always about to come”

[emphasis in the original]. This candid and apt description is at odds with the

GBR Ontario Parties’ position now that they reasonably believed at the time that

any assets had been transferred. Similarly, Aziz submits that he was reassured

by Roch, among others, that GBR Colombia owned the assets “being offered up”

71

as security, words that are inconsistent with an understanding that the transfer

had been concluded.

[335] The issue had still not been resolved by the time of the GBR Colombia board

meeting in mid-October. As discussed above, the two “without prejudice” letters

from Roch and one of the GBR Colombia board resolutions signed at that

meeting mention, among other things, existing or potential security interests

against certain assets. The resolution, which is not clearly drafted, contains

these notable elements:

a.

b.

c.

it is titled “Offering lien against all the assets of [GBR Colombia] to

Investors”;

GBR Colombia “will transfer Mineral Rights to [First Global] to Secure

Investors Investments”; and

the debentures “shall be guaranteed by a first charge against all of the

assets of [GBR Colombia]… and this will include the mineral rights of [GBR

Colombia]”.

[336] We noted above Garcia’s testimony that the GBR Colombia board resolutions

were not effective. According to her, the resolutions were to remain undated and

held in escrow until $5 million had been raised. We do not accept her testimony.

It is contradicted by the documentary evidence, in which all mentions of a $5

million figure portray the number as a target, not a minimum. it is

uncorroborated by any other evidence, including by any contemporaneous or

subsequent covering note or communication. Garcia did not explain why there

would be an oral and undocumented agreement to this effect. This disparity in

the evidence is not about an insignificant detail. This is a critical point, about

which one would reasonably expect to see some corroboration. We find that it is

more likely than not that there was no such oral agreement.

[337] The lack of clarity and certainty did not improve in the ensuing months. For

example:

a.

on October 28, Roch sent an email that suggested a documentation

deficiency and that continued to leave doubt about the ownership of one

of the assets;

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b.

c.

d.

on December 12, Grenier wrote an email noting that the biodiesel facility

was not owned by GBR Colombia, and stating that GBR Colombia had “not

respected the commitment toward this business”;

on February 29, 2016, Bajaj emailed Aziz with a list of items needed “to

fix to protect the investors”, including a legal transfer of the bitumen,

biodiesel and coal assets; and

on March 9, 2016, Grenier wrote in an email that by the beginning of the

following week, there would be “notarized paper” showing that the Rio

Negro mine (as to 100%) and the Hoyo Patia coal mine (as to 40%)

would belong to GBR Colombia.

[338] In contrast, investors received repeated assurances and were not kept well

informed of issues relating to the supposed intended transfer of assets. For

example, in early July 2015 when Northern Coast advised that it would no longer

be involved with the group because of Grenier’s criminal activities (including

money laundering and creating false documents), none of that information was

conveyed to existing or potential investors. Without any follow-up or due

diligence in light of what should have been very concerning information, Bajaj

and Aziz appear to have deliberately kept that information to themselves.

5.4.4.f

Conclusion about the truthfulness of the Security Representations

[339] Before concluding about the truthfulness of the Security Representations, we

must address a submission made by Aziz. He asserts that there are various

things in the record (including documents and evidence of oral communications)

that “could conceivably have transferred ownership or granted security” in

respect of some or all of the subject assets. He submits that whether any of that

did have the effect of transferring ownership or creating a security interest is a

matter of Colombian law, and therefore a question we are not in a position to

determine in the absence of any testimony (most likely expert testimony), which

Staff did not adduce.

[340] If the question before us were one of Colombian law, we would agree with Aziz’s

submission. However, we reject the underlying premise of the submission.

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[341] As we have noted, Garcia’s testimony was the only direct evidence before us as

to whether GBR Colombia ever had an ownership or security interest in the

assets. She unequivocally denies that this was so. We have reason to find her

testimony to be unreliable in some respects, but on this issue her testimony is

consistent with the exchange of correspondence, referred to above, that took

place in the latter half of 2015 and early 2016.

[342] All of that evidence, taken together, is sufficient for us to conclude on a balance

of probabilities that no title or security interest was ever transferred to or for the

benefit of GBR Colombia. While the respondents did not bear the initial burden of

proving the contrary, they knew what Staff’s position was on this issue, and if

they considered Staff’s position to be incorrect, they had every opportunity to

adduce evidence to rebut the conclusion that naturally flows from the evidence

that Staff put forward. They did not, and we heard no reason why that was

impossible or even difficult.

[343] Reaching that conclusion involves no assessment of Colombian law. We simply

accept Garcia’s testimony on this point, corroborated as it is by numerous

contemporaneous communications.

[344] In reaching that conclusion, we are mindful of Aziz’s submission about Grenier’s

history and, impliedly, about how Grenier would not have been a credible

witness had he testified. We need not resolve that question, though, when

assessing whether the appropriate assets were ever transferred to GBR

Colombia. As Aziz himself observed, Grenier was always saying that final

documentation was about to come. Either Grenier was telling the truth at the

time or he was not, but either way the communications back and forth would not

have consistently reflected an absence of such final documentation if that

documentation had already been received. Clearly, no one believed at the time

that the transactions had been completed. Not once did anyone ask why others

were still pursuing documentary proof when that proof already existed. Aziz’s

submission on this point is illogical, no matter whether Grenier can be trusted or

not.

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5.5

Staff’s allegations of fraud contrary to s. 126.1(1)(b)

Introduction

[345] With that factual background, we turn to consider the alleged contraventions of

the Act arising out of the representations. We begin with Staff’s allegation that

the GBR Ontario Parties perpetrated a fraud on the First Global debenture

holders.

[346] For Staff to prove its allegation of fraud, Staff must establish two things:

a.

the actus reus, a mostly objective element (except for the subjective

requirement that the act have been a voluntary act of the person alleged

to have committed it,²⁶a consideration not in issue here), which must

consist of:

i.

a prohibited act, which may be an act of deceit, falsehood, or some

other fraudulent means; and

ii.

deprivation caused by that act; and

b.

the mens rea, or subjective or mental element, which must consist of:

i.

subjective knowledge of the act referred to above; and

ii.

subjective knowledge that the act could have as a consequence the

deprivation of another.²⁷

[347] While a corporation cannot be described as having “knowledge” in the same way

that an individual does, a s. 126.1(1)(b) allegation is established against the

corporation where Staff proves that the corporation’s directing minds knew or

ought reasonably to have known that the corporation perpetrated a fraud.²⁸

26

R v Théroux, [1993] 2 SCR 5 at para 17 (Théroux)

27

Théroux at para 24, cited in Quadrexx at para 19

28

Al-Tar Energy Corp (Re), 2010 ONSEC 11 at para 221

75

Did the GBR Ontario Parties engage in an act of deceit, falsehood or

some other fraudulent means?

5.5.2.a

Introduction

[348] We start our analysis by considering the first of the four elements listed above,

i.e., the first of two parts of the actus reus test. Did the GBR Ontario Parties

engage in an act of deceit, falsehood or other fraudulent means?

5.5.2.b

Scope of the Statement of Allegations

[349] Aziz makes two objections to Staff’s closing submissions on this topic, arguing

that some of those submissions are outside the scope of the Statement of

Allegations.

[350] First, Aziz submits that Staff unfairly broadens the range of alleged

misrepresentations. We disagree.

[351] In the Statement of Allegations, Staff particularizes its fraud allegation as

follows:

a.

the GBR Ontario Parties soliciting investments in the face of First Global’s

and the GBR Ontario Parties’ contradictory representations regarding the

intended use of their investment funds;

b.

c.

d.

the representations regarding the First Global debentures being fully

secured by a charge against assets owned by GBR Colombia were untrue;

the funds raised from the sale of First Global debentures were used in a

manner contrary to the representations;

the GBR Ontario Parties knew or ought to have known that the various

representations were false or misleading, in particular:

i.

some funds went to coal mining projects in respect of which GBR

Colombia had no ownership interest;

ii.

no assets were pledged by GBR Colombia as security;

iii.

GBR Colombia made no interest payments to First Global under the

promissory notes; and

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iv.

some funds went to make interest payments on the First Global

debentures and the GBR debenture.

[352] Aziz objects to Staff submitting that funds were put to uses different from those

represented. However, his objection is limited to contrasting at a high level the

organization of Staff’s closing submissions with the organization of a portion of

the Statement of Allegations. He does not develop that submission by identifying

any variances that are substantive, as opposed to merely being different in

structure and wording.

[353] We see no differences that are substantive or that might cause any unfairness to

Aziz or either of the other GBR Ontario Parties. Paragraph 10 of the Statement of

Allegations explicitly alleges the actus reus, i.e., that the capital raised from the

sale of First Global debentures was used in a manner contrary to the

representations. It particularizes that allegation by mentioning First Global’s

retention of $1.5 million and the use of $2.9 million to or for the benefit of GBR

Colombia. Paragraph 46 of the Statement of Allegations repeats that

apportionment, explicitly alleging that the funds were not used for bitumen

mining and/or biodiesel operations purportedly owned by GBR Colombia.

[354] Paragraph 50 of the Statement of Allegations alleges the mens rea, i.e., that

Bajaj and Aziz knew or ought to have known that the Use of Funds

Representations (among others) were false or misleading. It is true that

paragraph 51, which follows that allegation and which particularizes the mens

rea, does not explicitly mention some of the uses Staff complains of in its

submissions (e.g., referral fees, GBR Ontario and Threegold business expenses).

However, in alleging the mens rea component of the fraud allegation,

paragraph 50 incorporates by reference paragraph 46, i.e., the allegation that

none of the funds were used for bitumen and/or biodiesel.

[355] Taking these provisions of the Statement of Allegations together, Staff expressly

alleges that Bajaj and Aziz knew or ought to have known that the funds raised

were generally not put to the promised uses. Neither Bajaj nor Aziz suffers any

prejudice by the absence of an explicit editorial link. We therefore reject Aziz’s

submission that Staff has unfairly broadened the case regarding

misrepresentations.

77

[356] Aziz’s second objection is that at times in its submissions, Staff relies on the

“other fraudulent means” element of “deceit, falsehood or other fraudulent

means”, but the Statement of Allegations refers only to misrepresentations and

not to “other fraudulent means”. We reject Aziz’s submission that this is unfair.

[357] Staff’s allegation that Aziz, Bajaj and GBR Ontario perpetrated a fraud is clear

both on its face and in its essential content. Each of “deceit”, “falsehood” and

“other fraudulent means” involves dishonesty. Aziz offered no support for the

proposition that Staff’s allegation must conform to that wording, and we see no

policy reason to reach that conclusion. The Statement of Allegations leaves no

mystery about the case Aziz and the other respondents had to meet. Further,

once again Aziz did not attempt to identify any prejudice resulting from Staff’s

choice of words. Broadly speaking, any defence to “deceit” or “falsehood” would

necessarily incorporate everything needed to defend against “other fraudulent

means”, given that all the material facts are set out in the Statement of

Allegations.

[358] We therefore reject both of Aziz’s objections about Staff’s closing submissions.

5.5.2.c

Analysis of “deceit, falsehood or other fraudulent means”

5.5.2.c.i

Use of Funds Representations

[359] We return now to the first element that Staff must establish in order to prove its

fraud allegation. Did the GBR Ontario Parties engage in an act of “deceit,

falsehood or other fraudulent means”? We consider that question first with

respect to the Use of Funds Representations.

[360] Even if a representation is not literally false at the time it is made (e.g., a

statement of intention as to future use of funds), a respondent may be found to

have committed the fraud if they adopt some other fraudulent means in

connection with that representation. The Supreme Court of Canada, in the

leading case of Théroux, stated that whether an act falls within “other fraudulent

means” must be determined objectively, with reference to what a reasonable

person would consider to be a dishonest act.²⁹Even where deceit or falsehood

29

Théroux at para 14

78

cannot be established, a situation may still be dishonest and therefore be “other

fraudulent means”.

[361] That description applies to unauthorized diversions of funds³⁰because they

generally constitute, in the words of the Supreme Court of Canada, “the wrongful

use of something in which another person has an interest, in such a manner that

this other’s interest is… put at risk.”³¹It is the unauthorized nature of the

diversion that is the wrongful use at the heart of the dishonesty contemplated by

“other fraudulent means”. The separate question of whether a wrongful use puts

one’s interest at risk (as contemplated in the above quotation) is part of the

analysis of deprivation. That is the second element of the actus reus, which we

will address below.

[362] We have found that none of the raised funds were used as Bajaj and Aziz

promised, with the possible exception of the $150,000 that flowed through

Threegold to Garcia’s US company. Other than that amount, no funds were

directed to bitumen or biodiesel assets owned by GBR Colombia or GBR Ontario.

Clearly there were bitumen and biodiesel assets of some sort, over which Garcia

and/or her associates and related companies apparently had some interest, but

that is a very different thing. When investor funds were allocated to entities and

uses that did not meet the stated criteria, the investors did not get what they

bargained for. This diversion of funds to other purposes constitutes the first of

the two elements of the actus reus of a fraud.

[363] In this case, the unauthorized diversions included the payment of interest to the

First Global debenture holders, and the payment of expenses and referral fees

associated with the fundraising process. Those uses of funds are dishonest, as

payments to unrelated third parties would be.³²Just because the impugned uses

have some connection to the securities used to raise the funds does not change

that conclusion.

30

Théroux at para 15

31

R v Zlatic, [1993] 2 SCR 29 at para 19 (Zlatic)

32

Rezwealth Financial Services Inc (Re), 2013 ONSEC 28 at para 265; New Found Freedom Financial

(Re), 2012 ONSEC 46 at para 193

79

[364] Accordingly, we conclude that with respect to the Use of Funds Representations,

Bajaj and Aziz engaged in acts that constituted “other fraudulent means” within

the meaning of s. 126.1(1)(b). Because Bajaj was indisputably a directing mind

of GBR Ontario, and carried out all the impugned activities in that capacity, it

follows that GBR Ontario also engaged in the same acts. The conclusion about

“other fraudulent means” applies equally to GBR Ontario.

5.5.2.c.ii

Colombian Operations Representations

[365] We will now consider whether Bajaj and/or Aziz engaged in an act of deceit,

falsehood or other fraudulent means with respect to the Colombian Operations

Representations.

[366] We concluded above that the Colombian Operations Representations materially

misstated the extent to which the operations were, or would imminently, be able

to provide that sense of security. In that regard, we reject the implications of

Aziz’s submission that “[N]one of the investor witnesses testified that they were

actually told that the Colombia projects were immediately capable of generating

a 14% return.” That submission does not mirror Staff’s allegation, but even if

they are substantially similar, we focus on the representations that were

indisputably made (in the Colombia presentation and the brochures), not on

recollections of conversations long past. We focus on the indisputable truth that

at no time did production in Colombia remotely approach what was suggested in

those representations. Taking all of this together, the representations were false.

[367] We also conclude that both Bajaj and Aziz were responsible for making those

representations, although Aziz to a lesser extent than Bajaj.

[368] Accordingly, Staff’s proof that Bajaj and Aziz made the false representations

satisfies the first element of the actus reus in s. 126.1(1)(b). Because Bajaj was

indisputably a directing mind of GBR Ontario, and made all the

misrepresentations in that capacity, it follows that GBR Ontario is also

responsible for those misrepresentations. The conclusion about s. 126.1(1)(b)

applies equally to GBR Ontario.

80

5.5.2.c.iii

Security Representations

[369] We now consider whether the Security Representations constitute an act of

deceit, falsehood or other fraudulent means.

[370] The GBR Ontario Parties’ representations that investment in First Global

debentures would be 100% secure, guaranteed by assets held by GBR Colombia,

and risk-free, were false. There was no evidence before us, and there was no

reliable evidence at the time of the capital raise, that any such security existed.

We think it more likely than not that there was no such security.

[371] Accordingly, Staff has established the first of two components of the actus reus

with respect to the representations about the security of the investment. Both

Bajaj and Aziz were responsible for making these representations, although Aziz

to a lesser extent than Bajaj.

[372] Once again, Staff’s proof that Bajaj and Aziz made the false representations

satisfies the first element of the actus reus in s. 126.1(1)(b). Because Bajaj was

indisputably a directing mind of GBR Ontario, and made all the

misrepresentations in that capacity, it follows that GBR Ontario is also

responsible for those misrepresentations. The conclusion about s. 126.1(1)(b)

applies equally to GBR Ontario.

Was there a deprivation caused by the dishonest act, i.e., the

unauthorized diversion of funds?

5.5.3.a

Use of Funds Representations

[373] Having found that Staff has proven the first element of the actus reus in respect

of each of the three sets of representations, we turn to the second element;

namely, did that first element cause a deprivation? We begin with the Use of

Funds Representations.

[374] The investor witnesses testified that they have lost their entire investment.

[375] It appears that none of the $4.46 million raised was returned to investors. Staff

need not prove that, though, since a risk of prejudice to economic interests

causes a deprivation,³³and that risk of prejudice can be established where

33

Théroux at para 13

81

investors are induced, by dishonest means, to purchase or hold an investment,

even if doing so causes no actual economic loss.³⁴Accordingly, we are not

required to engage in an assessment of the relative risks of the authorized use of

funds and the unauthorized use of funds.

[376] There is a causal link between a diversion of invested funds like the one that

occurred in this case, and a risk of prejudice to those funds. In these

circumstances, the investors unwittingly took on risks they did not bargain for.

[377] Because of the causal link between the diversion and a risk of prejudice, and

because Staff relies here on “other fraudulent means” (i.e., unauthorized

diversion of funds) Staff need not prove that investors actually relied on the act

that proved to be dishonest.³⁵Staff has proven the dishonest act undertaken

voluntarily by the respondents, and a deprivation caused by that dishonest act.

Staff has therefore established the actus reus elements of its fraud allegations.

[378] In reaching that conclusion, we attach no weight to Staff’s submission that

investors in the First Global debentures were generally unsophisticated, and that

there is no evidence that any of them properly qualified as an accredited

investor. The investors who testified at the hearing represent only approximately

5% of the total number of investors. While we have no reason to believe that the

investors who testified were an unrepresentative sample, we have no evidence

upon which we can conclude that they were representative.

[379] Little turns on that, until we reach Staff’s next submission that the GBR Ontario

Parties specifically targeted investors who were neither knowledgeable nor

experienced. We reject the implication, if one was intended, that the GBR

Ontario Parties deliberately preyed on more vulnerable investors to improve the

chances of concluding a transaction. There is no direct evidence to support that

implication, and we decline to draw that inference from the limited evidence in

the record about the investor group’s characteristics, which could just as easily

be attributable to who Bajaj’s and Aziz’s contacts were, and their referral

network.

34

Quadrexx at para 21

35

R v Riesberry, 2015 SCC 65 at para 26

82

[380] Returning to the specific element of the fraud allegation, we conclude that the

Use of Funds Representations were a substantial cause of the deprivation

suffered by all investors.

5.5.3.b

Colombian Operations Representations

[381] We reach the same conclusion about the Colombia Operations Representations.

[382] It was evident from the investor witnesses’ testimony that they were focused on

the return on their investment, and the ability of their invested funds to earn

them that return. We conclude that it is more likely than not that the materially

misleading overstatement of the existing or imminent production by the

Colombian operations to generate sufficient funding to provide the promised

14% return did in fact induce many, if not most, investors to purchase First

Global debentures.

[383] The false representations therefore contributed to their deprivation, in the form

of a complete loss of their principal and most or all of the interest they expected

to receive from their investment.

5.5.3.c

Security Representations

[384] We reach the same conclusion about how the Security Representations caused

the same deprivation, for the same reasons set out above about the Colombian

Operations Representations.

[385] We accept the testimony of the investor witnesses who actually relied on the

representations, and we find that their reliance was reasonable. The false

representations therefore contributed to their deprivation.

Did each respondent have subjective knowledge of the fraudulent act?

5.5.4.a

Introduction

[386] We turn to consider the mental element of the fraud allegations, which is

established where: the respondent is subjectively aware that (i) they are

undertaking a prohibited act; and (ii) the prohibited act could cause

deprivation.³⁶

36

Théroux at para 21

83

[387] In doing so, we bear in mind that subjective awareness may be established by

showing that the respondent was reckless.³⁷If one is aware that there is danger

that their conduct could bring about the prohibited result, but persists despite

the risk, that person is reckless and that subjective element is proven.³⁸

[388] We also highlight the words “reasonably ought to know” in s. 126.1(1). This

constructive knowledge principle makes clear that Staff may prove the element

of knowledge of the fraudulent act by establishing that the respondent

reasonably ought to have known that the impugned act, practice or course of

conduct perpetrates a fraud.

5.5.4.b

Use of Funds Representations

Introduction

5.5.4.b.i

[389] We begin with the Use of Funds Representations.

[390] In order to prove the first of the two elements, i.e., that the respondent was

subjectively aware that they were undertaking a prohibited act, Staff need not

show that the respondent regarded the act as dishonest. In the case of a

dishonest means (e.g., unauthorized diversion of funds), subjective awareness of

the prohibited act is proven where the person knowingly undertook the act. It is

not necessary to prove that they knew that the act that they undertook was

prohibited.³⁹

[391] We have already found that both Bajaj and Aziz made, or were at least aware of,

all of the impugned representations made to investors. For each of the two of

them, it then remains to be determined whether he was aware, or ought to have

been aware, of the diversion of funds in a manner contrary to those

representations.

37

Théroux at para 25

38

Sansregret v The Queen, [1985] 1 SCR 570 at para 16

39

Théroux at para 22

84

[392] Bajaj’s and Aziz’s knowledge that funds were being diverted is evidenced by the

following, among other things:

a.

both Bajaj and Aziz signed the GBR Colombia resolutions in October 2015,

one of which documented that 30% of the raised funds would be used for

purposes other than sending to GBR Colombia;

b.

one of the resolutions that both Bajaj and Aziz signed approved the use of

$1 million for the coal mine, and in correspondence from Bajaj to Grenier

(copied to Aziz, among others), Bajaj raised the concern that the $1

million had been “raised for Bitumen and Bio-diesel”;

c.

Aziz signed the First Global-GBR Debenture Agreement and the

promissory notes documenting transfers of raised funds, and none of

these documents referred to any funds going to GBR Colombia, contrary

to the Colombia Presentation, of which he was fully aware; and

d.

Bajaj and Aziz had control over GBR Ontario and Threegold bank accounts

and authorized various uses of funds in a manner inconsistent with the

Use of Funds Representations.

[393] We conclude that both Bajaj and Aziz knew that raised funds were being diverted

to unauthorized purposes. Staff has proven the first part of the mens rea with

respect to the Use of Funds Representations.

5.5.4.c

Colombian Operations Representations

[394] We now consider that first part of the mens rea in the context of the Colombian

Operations Representations.

[395] We agree with Staff’s submission that both Bajaj and Aziz knew, or ought to

have known, that the Colombian assets were not generating any appreciable

revenue at all, let alone enough to support the 14% interest obligation that First

Global had to its debenture holders. At a minimum, Bajaj and Aziz were reckless

on this point, as is demonstrated by:

a.

their near-total reliance on unsupported and uncorroborated information

(including estimates of production) from Grenier, whom they knew had a

background that ought to have raised significant red flags;

85

b.

their engagement in “diligence” that was cursory and superficial at best,

e.g., a visit to what purported to be a mining facility using manual

methods, without knowing with any certainty what that facility was;

c.

their wishful transformation of tentative possibilities (e.g., a “possible

inference”) into concrete projections;

d.

their being advised that the La Esperanza mine was not available to

support the First Global debentures, but continuing the fundraising

without verifying whether there was production at other facilities;

e.

f.

their approval of investment in the coal mine because they knew that, in

Aziz’s words, the other assets “were experiencing regulatory delays and

would not be able to generate an immediate return to pay interest to

investors”; and

their approval of the use of new investor funds to pay interest to previous

debenture holders.

[396] In each of those instances, they were aware or were at least reckless. Staff has

proven this part of the mens rea.

5.5.4.d

Security Representations

[397] In our analysis above regarding the actus reus of the Security Representations,

i.e., the various ways in which the GBR Ontario Parties represented to investors

that their investment was secure, we reviewed the various correspondence and

discussions, in which Bajaj and Aziz were fully involved, and from which it was

clear that assets had not been transferred and no security interest had been

created.

[398] Aziz’s own testimony that final documents were always about to come (according

to Grenier) exemplifies the lack of care that Bajaj and Aziz took to ensure that

the Security Representations were fulfilled. We reject Aziz’s submission that he

reasonably believed that the GBR Colombia assets had been transferred or were

in the process of being transferred. We do not accept that he believed

(reasonably or otherwise) that the assets had been transferred. The term “in the

process of being transferred” is so vague as to be meaningless in this context,

especially because by his own description that process was infinitely long. In any

86

event, the Security Representations in which he participated were not qualified

or limited in a way that would have given the investors to whom they were made

the benefit of appreciating the level of uncertainty.

[399] Bajaj’s testimony and submissions also underscore the cavalier attitude that he

and Aziz had on this issue. Bajaj testified that it was First Global’s responsibility

“to secure the asset [sic] to protect the investor”, and that Aziz was overseeing

First Global’s efforts in that regard. That view is not shared by others, it is

inconsistent with the documentary record, and we reject it.

[400] Even if his view was factually correct, his supposed understanding fundamentally

misconceives where responsibility lay. It was the GBR Ontario Parties, not First

Global or its principals, who made the Security Representations. Indeed, the First

Global subscription documents that Bajaj used made no mention of the

Colombian operations, or Colombian assets, or use of such assets to secure the

investment. Yet Bajaj persisted in reassuring every investor, in writing and

orally, that the investment was 100% secure, including because of a charge on

the assets.

[401] We find that Bajaj and Aziz were aware that the Security Representations were

false, or they were at least reckless as to their accuracy.

5.5.4.e

Self-reliance vs reliance on others

[402] We now consider the extent to which the GBR Ontario Parties purported to rely

on others, as opposed to on their own diligence, such as it was.

[403] We have found that Staff has proven the first part of the mens rea with respect

to the GBR Ontario Parties and all three sets of impugned representations. In

other words, the GBR Ontario Parties were aware that the representations were

false, or were at least reckless as to their accuracy.

[404] We alluded briefly to Bajaj’s and Aziz’s testimony and submissions that they

carried out due diligence, and therefore that they reasonably believed that the

representations were true.

[405] A defence of due diligence is available to an allegation of fraud contrary to

s. 126.1(1)(b) of the Act. Because we do not accept that the GBR Ontario Parties

in fact conducted due diligence, though, our findings above about mens rea do

87

not reflect that defence. In the following paragraphs, we explain why we reject

the GBR Ontario Parties’ position on this issue.

[406] Their lack of diligence goes back to the initial connection with Faille and Grenier,

even before First Global was involved. The issues with Grenier’s past, which led

to Northern Coast terminating the arrangements with the GBR Ontario Parties,

came to light because of Northern Coast’s own due diligence. Before that

revelation, Bajaj had not even searched the internet for Grenier’s or Faille’s

names. Even after the revelation, and after Northern Coast advised that on its

lawyer’s instructions it would no longer be involved in fundraising with the group,

neither Bajaj nor Aziz treated these developments as the red flags they ought to

have been. Aziz testified that this was due to Grenier’s charisma and (what he

believed to be) the fact that Garcia had control of the assets.

[407] Bajaj and Aziz did travel to Colombia on numerous occasions and they say they

believe they witnessed production first-hand. However, they are imprecise about

which assets they viewed (e.g., Bajaj’s submission that in January 2015 he and

Thiviyanayagam visited “the Bitumen mine”). We think it more likely than not

that the reason for their imprecision is, as Aziz conceded, that they were not

clear at the time which assets they were viewing. Bajaj recorded videos and took

some pictures, and while these appear to depict activity consistent with a manual

digging process and a production facility of some sort, nothing in the video or

pictures helps to identify which asset is portrayed.

[408] On one of the trips that Bajaj and Thiviyanayagam took, they traveled with some

investors. Bajaj submits that everyone was very satisfied with the bitumen mine

after that trip, but nothing about his testimony on the subject gives a reasonable

basis for him or for the investors to be very satisfied. Their inspection was

superficial at best, especially given the uncertainty about which property they

were visiting. Further, we have no evidence that anyone in the group had any

expertise whatsoever that they could use to assess independently the accuracy

of what they were being told by Grenier and Garcia.

[409] This over-reliance on others is illustrated by Aziz’s testimony that on a visit to

Colombia, he visited the assets and was introduced to someone he understood to

be a geologist, who purported to confirm the accuracy of information Aziz had

88

previously received about the productivity of the La Esperanza and Rio Negro

mines. We have no evidence that Aziz (or Bajaj) confirmed the identity of the

individual he was told was a geologist, or that he obtained any confirmation in

writing.

[410] As to the question about ownership of the Colombian assets, and whether those

assets had been transferred to GBR Colombia, neither Bajaj nor Aziz was

diligent.

[411] Aziz shared Paul James’s concern about not understanding most of what was

contained in documents sent to them by Grenier and others, since most of the

documents were in Spanish. Aziz had only one document translated. Despite

there being no compelling reason not to have the remaining documents

translated, Bajaj and Aziz acquiesced in a suggestion that the group ask Garcia

to explain to them what the documents meant. Apart from the fact that doing so

would not be an effective form of diligence, Aziz did not recall that Garcia ever

provided a written translation of any of the documents.

[412] Bajaj would sometimes ask Grenier to address a concern Bajaj had, but Bajaj’s

pursuit of these concerns was generally half-hearted. In one instance in June

2015, when Grenier provided what appeared to be a geologist’s report about the

Rio Negro property, Bajaj wondered why the report showed that ownership of

the land was not available. Bajaj asked Grenier by email. In his reply email,

Grenier said simply that it just meant that the land title information had not been

supplied to the geologist. It is possible that this innocent explanation was

correct, but there is no evidence that Bajaj did any further investigation to find

out.

[413] Bajaj and Aziz portray themselves as conduits of information that they received

from others. For example, Bajaj testified that all the figures contained in the

Colombia Presentation came from Grenier. Aziz submits that all of the

information that was presented to investors came to Bajaj and Aziz from Garcia

and Grenier, who made Bajaj and Aziz feel like partners, or from Roch, their

lawyer. They now question the veracity of that information, as well as Garcia and

Grenier’s attempts to legitimize the representations that they made. Bajaj and

Aziz point to the following actions by Garcia and Grenier, among other things:

89

a.

Garcia and Grenier involved Roch, a lawyer at an established firm, upon

whom Aziz testified that he relied;

b.

c.

Grenier regularly sent them pictures of the Colombian projects;

Grenier received multiple iterations of the Colombia Presentation and

never advised that the contents were incorrect; and

d.

Garcia and Grenier repeatedly sent information to Bajaj and Aziz, as did

Faille (whom Garcia described as a longstanding friend and business

partner) on behalf of Garcia and Grenier.

[414] In addition, Bajaj and Aziz point to answers that Garcia and Grenier gave to

requests from Paul James, who was with GBR Ontario from February 2015 to the

end of 2016. James assisted with operational functions but was brought in to

help put an “insurance wrap” around the Colombian bitumen assets, a task that

required him to conduct some due diligence about those assets.

[415] James communicated directly with Grenier, Faille and Roch. Information came

from all three, although primarily from Grenier, who sent it sporadically and in

fragments, with promises that they would do their best to send complete

information. Roch gave James similar reassurance. Grenier promised James that

the necessary documents existed, and that the Rio Negro asset was real and

presented a lucrative opportunity.

[416] Grenier also sent:

a.

what purported to be the contact information for the Colombian lawyers

responsible for GBR Colombia, who would be working with Roch to effect

the various transactions;

b.

c.

what appeared to be a certified appraisal of “what was in the ground”;

a finished 43-101 report, which James understood to be a geologist’s

report about the quantity of a certain mineral could be found in one

location; and

d.

documents that James said appeared to contain or verify the mineral

rights and mining reports relating to certain assets.

90

[417] The skepticism that Bajaj and Aziz now admit to, about all of the information

they received from Grenier and Garcia, ought to have been applied at the time,

when Bajaj and Aziz were making the various representations to investors. Had

Bajaj and Aziz been appropriately skeptical, had they responded appropriately to

red flags (e.g., Grenier’s past, and the numerous purported oral agreements

contradicting written agreements or resolutions), had they engaged their own

legal counsel (as opposed to relying on First Global’s or GBR Colombia’s, neither

of which represented GBR Ontario or its principals), had they obtained

translations of documents in Spanish, or had they engaged independent

professionals to evaluate the information they were receiving, they might have a

due diligence defence available to them. Having taken none of those steps, they

cannot benefit from such a defence.

Did each of the GBR Ontario Parties have subjective knowledge that the

fraudulent act could have as a consequence the deprivation of another?

[418] The final element Staff must prove as part of its fraud allegations is that each of

the GBR Ontario Parties subjectively knew that the impugned act could have as a

consequence the deprivation of another.

[419] As we have discussed above, the deprivation at issue in this case arises because

the investors’ funds were directed to destinations, and subjected to risks, that

the investors had not bargained for and that were not disclosed to them.

[420] To satisfy this element of the test for fraud, Staff need not prove directly what

was in a respondent’s mind. In certain cases, we may infer a subjective

awareness of the consequences from the dishonest act itself.⁴⁰

[421] With respect to the Use of Funds Representations, we draw that inference. We

have already concluded that Bajaj and Aziz knew that investor funds were being

directed to uses other than those that they had disclosed to the investors. A

different use of funds inherently subjects those funds to different risks, and we

find that Bajaj and Aziz understood that. They may have been motivated by

what they considered to be good intentions in the best interests of investors.

They may have felt that they were reducing risk, not increasing it. However,

40

Théroux at para 20

91

neither of those possibilities assists them. It is a change of risk, not an increase

in risk, that makes out the fraud, and good intentions (even had they existed) do

not bear upon the mens rea of a fraud allegation.

[422] We draw the same inference with respect to the Colombian Operations

Representations and the Security Representations. In both cases, Bajaj and Aziz

continued to raise funds even when they knew or ought to have known that

representations contained in the Colombia Presentation and the brochures were

false. They may have believed that production at hoped-for levels, and that a

transfer of assets to GBR Colombia, or a security interest in those assets, would

be effected imminently. Once again, even if they did hold those hopes and

expectations, that does not preclude a finding that Staff has proved the second

part of the mens rea.

Conclusion regarding fraud in relation to the First Global debentures

[423] Bajaj and Aziz made, or participated in the making of, two sets of contradictory

representations to investors about how the invested funds would be used:

a.

for First Global’s “working capital”, according to the First Global

subscription documents; and

b.

for the bitumen and biodiesel operations of GBR Colombia, according to

the presentations, brochures and oral statements directed to those

investors.

[424] Bajaj and Aziz did not attempt to reconcile those conflicting representations or to

explain clearly to investors how the conflicts could be resolved. Further, even

putting aside the representations contained in the First Global subscription

documents, Bajaj and Aziz did not update existing or potential investors as to

how their funds would be deployed within GBR Colombia’s operations, as

circumstances changed. Investors were not told, for example, that what would

eventually amount to almost 25% of the total funds raised ($1 million of

$4.46 million) would go to a coal mine.

[425] As to the security of the investments, Bajaj and Aziz made promises (e.g.,

“100% secured”) that were completely at odds with the reality. The delay in

assets being moved into GBR Colombia did not dampen their enthusiasm as

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expressed to existing and potential investors. They were reckless about whether

or not there were in fact any assets securing the investment.

[426] We reject the submission that Staff was required to prove a negative, i.e., that

title was not actually transferred. Similarly, we reject the submission that we

should find that one or more of the documents in the record might have

transferred title, and that an expert in Colombian law was required in order for

us to reach any conclusion on this topic. Staff led evidence from Garcia, who

stated categorically that there were never any assets in GBR Colombia securing

the First Global debentures. She was not successfully cross-examined on this

point, e.g., by confronting her with evidence to the contrary. Her testimony

stands and we accept it.

[427] We conclude that Bajaj and Aziz perpetrated fraud contrary to s. 126.1(1)(b), as

described above. Bajaj was indisputably a directing mind of GBR Ontario, and

therefore GBR Ontario is equally liable for the fraud. This is so whether or not

Aziz was also a directing mind of GBR Ontario, an issue we need not resolve.

[428] Aziz submits that he was “not a protagonist in an elaborate scheme”, but rather

a victim of deception. We accept that characterization as far as it goes, but it is

no defence for Aziz or Bajaj that they did not deliberately set out to defraud the

First Global investors. They made unqualified promises to investors, and they

were reckless about whether those promises could be kept. They ignored red

flags along the way, and they purported to rely on undocumented oral

agreements that directly contradicted the written record. The casual and careless

approach they adopted is unsuitable where funds are to be raised from the

public. Indeed, their approach was a far cry from the care they ought to have

taken.

5.6

Staff’s allegations of representations prohibited by s. 44(2)

[429] We turn now to Staff’s allegations that First Global and the GBR Ontario Parties

breached s. 44(2) of the Act, in that:

a.

First Global made the Colombia Operations Representations and the

Security Representations; and

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b.

the GBR Ontario Parties made the Use of Funds Representations, the

Colombian Operations Representations, and the Security Representations.

[430] In general, an alleged breach of s. 44(2) presents three potential issues:

a.

b.

whether the respondent made a statement;

whether the statement was untrue or omitted information necessary to

prevent the statement from being false or misleading in the circumstances

in which it was made; and

c.

whether a reasonable investor would consider the subject of the

statement to be relevant in deciding whether to enter into or maintain “a

trading or advising relationship” with the respondent who made the

statement.

[431] We begin with the third of those, i.e., whether a trading relationship existed or

was intended, between any potential reasonable investor and the respondent

who made the statement. We conclude that there was no actual or intended

trading relationship within the meaning of s. 44(2), and we therefore need not

consider the first two issues mentioned above.

[432] The term “trading relationship” is not defined in the Act. We must therefore

examine the context in which it appears, i.e., “to enter into or maintain a

trading… relationship.” The plain meaning of the word “relationship”, in its

ordinary sense, evokes an ongoing connection involving enduring or repetitive

behaviour. The word “maintain” in s. 44(2) highlights this enduring character.

The alternative (“enter into”) clearly aims the provision not only at existing

participants in the subject relationship, but also at potential participants.

[433] There can be no question that for as long as an investor holds a security of an

issuer, the investor and issuer are in a relationship. The question is whether it is

a relationship that falls within the provision. To answer that question, we must

look to the fact that the nature of the enduring or repetitive behaviour is defined

by the qualifier “trading”.

[434] We also look to the rest of s. 44, to give additional context. Section 44 has only

one other subsection apart from s. 44(2). Subsection 44(1) provides that a

person or company may make a representation about their registration status

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under the Act only if that representation is true and it specifies the particular

category of registration. The subsection aims to ensure that investors can know

whether or not they are dealing with a registrant, and if so, the category of

registrant.

[435] Subsection 44(1) of the Act does not apply to the facts of this case. However, we

still find it useful in assessing the purpose of s. 44(2). While we do not place

significant weight on its presence, we note that it governs registrants or others

who make representations about being a registrant. This reinforces our

conclusion that the “trading or advising relationship” envisaged by s. 44(2) is of

a nature typically provided by registrants, i.e., to act on behalf of investors to

assist with their trading on an ongoing basis, and to advise investors on an

ongoing basis about investment decisions they may make.

[436] Staff refers to the Tribunal’s 2013 decision in Winick (Re).⁴¹In that case, the

respondent Winick directed a transfer agent to send misleading correspondence

to potential investors in two issuers of which Winick was the directing mind. The

Tribunal dismissed Staff’s allegation that by giving that direction, Winick

breached s. 44(2). The Tribunal found that while the misstatements might have

related to a trading relationship with the transfer agent (a conclusion that the

Tribunal contemplated as possible but did not opine on), they did not relate to a

trading relationship with Winick himself.⁴²

[437] While the facts in Winick are distinct from those in this case, Winick does

reinforce the importance not just of identifying who was responsible for a

communication that contained untrue or misleading statements, but also of

carefully identifying who the parties are in the relationship that is governed by

s. 44(2), i.e., a trading or advising relationship.

[438] We turn now to consider each of the respondents against whom the allegation is

made.

[439] The only relationship between First Global and an investor was that of issuer and

security holder. If s. 44(2) were to apply in the circumstances of this case, then

41

Winick (Re), 2013 ONSEC 31 (Winick)

42

Winick at paras 157-158

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every issuer might be said to be in a trading relationship with every holder of

that issuer’s securities, even if a security holder made one purchase one time.

That cannot be the correct interpretation.

[440] We reach a similar conclusion with respect to Bajaj and Aziz. There is no

evidence that either of them was seeking to establish an ongoing trading

relationship with any of the investors. They played a role in concluding a

one-time investment in one particular security. That role, while significant for a

particular investor, did not create a trading relationship. In this regard, we

distinguish the Tribunal’s decision (cited by Staff) in Black Panther (Re),⁴³in

which the respondent was both issuer and salesperson, and the securities issued

were short-term promissory notes with the intention (realized, in some

instances), that investors would receive a return of their principal and would

then reinvest. Those facts align much more closely with the concept of a trading

relationship. We find no such relationship here.

[441] Accordingly, we dismiss Staff’s s. 44(2) allegations against First Global and the

GBR Ontario Parties.

6.

GBR DEBENTURE

Introduction

6.1

[442] That concludes our analysis with respect to the First Global debentures. One

other debenture is featured in Staff’s allegations. What Staff describes as the

“GBR Debenture” refers, according to Staff, to two loans made by investor EH.

The loans were of $350,000 on July 2, 2015, and $100,000 ($98,000 cash plus a

$2,000 interest credit) on August 13, 2015.

[443] EH made the payments to Roch in trust. Staff alleges that the loans were to GBR

Ontario, but Aziz disputes that characterization. He submits that EH invested

directly in Bioclean Inc. (the Canadian company owned as to 74% by Garcia) and

Biominerales SAS (presumably Biominerales Colombia SAS, owned 99% by

Bioclean Inc. and 1% by Garcia), although that submission does not align

completely with his own testimony. We address this issue below.

43

2017 ONSEC 1

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[444] Staff alleges that the loans were not documented until October 1, 2015, after

they had already been made. Staff submits (but it is disputed) that at that time

EH was given a debenture term sheet that included the following terms:

a.

the debenture would pay simple interest of 4% per month (a rate that

was also reflected in an October 31, 2015, letter from Paul James to EH);

b.

the investment was 100% secured and was guaranteed by a first charge

against all the assets of GBR Colombia (a representation that was

consistent with the Security Representations made with respect to the

First Global debentures); and

c.

the first charge was, at a minimum, equal to 142% of the amount that EH

invested (a representation that was consistent with that contained in the

Colombia Presentation).

[445] Staff alleges that Aziz and GBR Ontario (but not Bajaj) perpetrated securities

fraud in respect of this debenture because they essentially repeated the Security

Representations to EH. We agree, and we conclude that Aziz and GBR Ontario

breached s. 126.1(1)(b) of the Act as alleged.

[446] Staff also alleges that the facts relating to the GBR debenture give rise to a

breach of s. 44(2) of the Act by Aziz and GBR Ontario. For the same reasons

given above beginning at paragraph [429], we dismiss that allegation.

6.2

Additional background facts

[447] EH’s investment came about as a result of EH being referred to Aziz by EH’s

accountant. Aziz had an initial meeting with EH and EH’s spouse, at which Aziz

discussed various potential investment vehicles. After rejecting vehicles such as

segregated funds, Aziz said to EH that the only investment that fit EH’s desired

profile was the ongoing project in Colombia.

[448] A subsequent meeting was arranged in July 2015, at which EH, EH’s spouse and

EH’s son attended, along with Aziz and Faille. EH testified that Aziz and Faille

both spoke in favourable terms about a bitumen project in Colombia. They

showed EH a PowerPoint presentation, stated that the investment was secured,

and characterized the project as profitable and as yielding a big return with zero

risk. EH found the pitch that Aziz and Faille gave to be believable, as a result of

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which EH agreed during the meeting to invest $350,000, with interest to be paid

to EH at 14% per year.

[449] Aziz testified that even though he attended the meeting, it was Faille, not he,

who presented the biodiesel and bitumen investment opportunity. He testified

that EH’s investment was in “Biominerales SAS”, although neither the question

nor his answer was clear as to whether this was Biominerales Colombia SAS or

Biominerales Pharma SAS. In his submissions, Aziz asserts that the investment

was in Biominerales SAS (again, with no specificity as to which corporation he

meant), and in Bioclean, although when he testified he did not mention Bioclean

as receiving the investment.

[450] Aziz also submits that Bioclean Inc. and Biominerales SAS sent EH a receipt for

EH’s investment. We saw no actual receipt from either of those entities, although

Roch sent a letter to EH on July 16, 2015, soon after the initial $350,000

investment. In that letter, Roch wrote that:

a.

his firm was “counsel for Bioclean and Biominerales” and had been

retained to assist with financing of “both corporations [sic] projects in

Columbia [sic]”; and

b.

“we shall act as escrow agents on the financing and to that effect we have

received an amount of $350,000.00 from you for the investment in the

Columbia project. [sic]”

[451] The letter did not specify which corporate entity was intended by “Biominerales”,

did not mention GBR Colombia or GBR Ontario, and did not explain what the

escrow conditions were, if any.

[452] Aziz submits that Staff cannot show the representations made to EH to have

been false because:

a.

b.

c.

EH was not told that that the investment was in GBR Colombia;

EH invested directly in Bioclean Inc. and Biominerales SAS; and

on Staff’s evidence, those companies owned the biodiesel facility, so they

held title to assets that could have been pledged as security.

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[453] We disagree. The last point is not persuasive, since even if EH’s investment were

in one or both of those companies, and even if the company or companies in

which EH invested had assets that could have been pledged as security, that

possibility might be of no value to EH unless the assets actually were pledged.

While it is theoretically possible that a civil claim against the defaulting owner of

the assets might be productive even without a security interest over those

assets, it would require impermissible speculation, and a suspension of common

sense, to conclude that EH would be equally well protected without the creation

of a proper security interest.

[454] As to the terms of the arrangement, Aziz testified that EH was offered 12%

interest per year plus a royalty. There is no evidence to corroborate this, and no

explanation as to why the terms of this debenture would be different than the

First Global debentures, but nothing turns on the discrepancy.

[455] Aziz’s position that he was minimally involved is once again contradicted by

documentary and other evidence. EH was clear that Aziz was EH’s primary

contact, a fact that is reflected in an email sent by Bajaj shortly after EH’s initial

$350,000 investment, stating that “Maurice raised 350,000. Congratulations

Maurice the Great.”

[456] On August 13, 2015, about a month after EH’s initial investment, Faille called EH

to solicit an additional investment. Aziz was not on the call. Faille offered that if

EH would invest an additional $100,000, the interest rate would increase to 48%

per year for the entire $450,000 investment. EH agreed to invest the additional

$100,000, by paying $98,000 and giving a $2,000 credit against future interest

payments.

[457] EH asked for documentation to confirm the terms of the investment. Staff points

to, among other things, the debenture term sheet that it submits EH received.

Aziz submits that we ought to give the term sheet no evidentiary value, because

during the hearing EH did not specifically recall ever having received the

document. We draw the inference that EH did receive the sheet, an inference we

find flows naturally and reasonably from the following:

a.

EH recalled seeing the accredited investor certification form (on GBR

Ontario letterhead) signed by Faille and James, with a blank line for EH’s

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signature (and which identifies the issuer of the debenture as “Global

Bioenergy Resources Ltd.”, presumably a mistaken reference to GBR

Ontario, which is Global Bioenergy Resources Inc., as no party suggested

that Global Bioenergy Resources Ltd. existed);

b.

c.

the accredited investor certification is marked “Page 1/2", although it is

not clear by whom;

the term sheet, which is also on GBR Ontario letterhead, is marked “Page

2/2”, although it is not clear by whom;

d.

e.

the two pages both bear the same effective date, October 1, 2015; and

EH provided the documents together to Staff.

[458] The term sheet provides that “The Debentures [sic] shall be guaranteed by a

first charge against all the assets of [GBR Colombia]”. The document appears to

incorporate elements from a template (possibly the one used for the First Global

debentures), since there was only one debenture issued to EH but the term

sheet refers several times to “Debentures” plural, and the investment is

described as being eligible for registered accounts (which, presumably, it was

not, given that unlike First Global, none of the GBR entities was a public

company).

[459] Whether or not the term sheet is patched together from a First Global template,

it is on the letterhead of GBR Ontario, it refers to $450,000 as the principal

amount, and it cites the interest rate EH testified to (i.e., 4% simple interest per

month). It is clearly intended to apply specifically to EH’s investment.

[460] EH received regular interest payments for a few months, but then those stopped.

EH inquired of Faille, but according to EH, Faille “disappear[ed]” and was rude.

Aziz testified that EH contacted him in late 2015 or 2016 to inquire, that he

spoke to Grenier, and Grenier advised that he was unable to pay interest at 4%

per month.

[461] On June 28, 2016, Faille wrote to EH on letterhead of Bioclean Canada Inc.,

purporting to confirm that Bioclean Canada Inc. was three months late on “the

interest payment”, and that the situation would be resolved within the next 45

days. We note that the corporate name Bioclean Canada Inc. differs from

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Bioclean Inc., and does not appear elsewhere in documentation relating to EH’s

investment. We received no evidence to explain the connection, if any, between

Bioclean Canada Inc. and Bioclean Inc., or between Bioclean Canada Inc. and the

GBR companies.

[462] EH went without interest payments for over a year until after a trip to Colombia

made on Grenier’s invitation. During that visit, EH agreed that $200,000 in

outstanding interest would be added to the principal amount of the debenture,

and that the interest rate would be reduced to 14% annually and paid on the

$650,000. These terms were recorded in a July 6, 2017, letter, on GBR Colombia

letterhead, signed by Aziz as vice-president of operations of GBR Colombia, that

also provided that EH’s “investment is guaranty [sic] by a title mining [sic] (Rio

Negro Mining Title…)”, which appears to be the same property that was

purportedly used to secure the First Global debenture holders’ investment.

[463] After EH returned from visiting Colombia, Aziz personally paid ten months’

interest payments (with some assistance from Alli, First Global’s CFO). He has

not been repaid.

[464] EH has not received any of the invested principal or any additional interest

payments.

6.3

The reliability of EH’s testimony

[465] Aziz urges us to exercise caution with respect to EH’s testimony. In the months

leading up to the hearing, and during the hearing itself, EH candidly expressed

concerns about being able to recall details. We therefore accept Aziz’s

submission that we should approach EH’s testimony cautiously.

[466] Having said that, much of the evidence concerning EH’s investment is, as Aziz

concedes, not controversial. Indeed, there is no disputed fact about which EH

testifies that is not corroborated both by direct evidence and by circumstantial

evidence.

[467] For example, EH’s testimony about having been told orally by Aziz and Faille that

the investment was secure was vague, especially on cross-examination. EH was

candid in admitting that Aziz and Faille were not specific about the form of

security. EH is experienced in private mortgage lending and therefore familiar

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with security interests, but EH is a layperson. Despite that vagueness, EH’s

testimony was consistent with the overwhelming evidence of the Security

Representations made to investors in the First Global debentures. In any event,

the idea of a legal security interest is reflected in the July 2017 letter to EH,

signed by Aziz, referred to above.

6.4

Staff’s allegations of fraud contrary to s. 126.1(1)(b)

Introduction

[468] With that factual background, we turn to our analysis of Staff’s allegation that

Aziz and GBR Ontario perpetrated securities fraud in respect of the GBR

debenture issued to EH. Staff bases this allegation on its claim that Aziz and GBR

Ontario falsely represented that the GBR debenture was secured by assets in

Colombia.

Did Aziz and GBR Ontario engage in an act of deceit, falsehood or some

other fraudulent means?

[469] EH dealt with several individuals about the investment in the GBR debenture,

and viewed Faille as the “boss” of GBR. However, Aziz was EH’s primary contact

and it was Aziz who received EH’s funds.

[470] For the reasons we explained above, we accept EH’s evidence that both Aziz and

Faille characterized the bitumen operations as profitable and that there was

“zero” risk associated with the investment. We also accept that EH was told that

the investment was “secured” because of all the assets that “they” had. This

testimony is entirely consistent with incontrovertible evidence of representations

that we have already found Aziz and GBR Ontario made to investors with respect

to the First Global debentures. Further, while EH candidly admitted to memory

challenges, EH’s testimony was not successfully challenged in any material

respect, e.g., by documents inconsistent with their testimony.

[471] It is immaterial whether, in the July 2015 meeting with EH, it was Faille or Aziz

who actually spoke the representations to EH about the security of the

investment. Even if Faille made them, Aziz was present at the meeting and

involved in the discussion. Faille and Aziz were there on behalf of GBR Ontario,

presenting to EH. If Faille made misrepresentations and Aziz did not intervene in

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any way to correct them, then by his silence he adopted those

misrepresentations.

[472] Aziz attempts to avoid any responsibility for EH’s investment in the GBR

debenture by submitting that the investment was in companies owned by Garcia

and Grenier, in which Aziz played no role. We cannot accept that submission. It

is certainly true that the evidentiary record is inconsistent about the entity or

entities to which EH’s funds flowed. However, it would be perverse if different

respondents, each associated with a different entity, could together participate in

a sequence of events whereby some documents given to the investor suggested

the investment was in one entity, and other documents suggested the other

entity, and then each respondent successfully denies any connection to the

investment.

[473] In this case, much of the documentary evidence about EH’s investment suggests

that EH’s loans went to GBR Ontario or GBR Colombia or both. The accredited

investor form, the debenture term sheet, and Aziz’s July 2017 letter to EH all

support that conclusion.

[474] Ultimately, though, nothing turns on the precise identity of the corporation(s)

into which the investment was made. No matter what the answer is to that

question, EH understood that the funds were going to be used for the Colombian

projects, and that the investment would be secured by the assets in Colombia.

That did not happen.

[475] We find that Aziz represented to EH that EH’s investment in the GBR debenture

was secured by assets in Colombia. The representation was false. Staff has

established the first element of the actus reus.

Was there a deprivation caused by the dishonest act?

[476] Staff has also established the second element of the actus reus, i.e., that the

dishonest act caused a deprivation to EH.

[477] At a minimum, EH’s funds were put to a use that was materially riskier than she

understood, given the absence of any security. Further, even though Staff need

not prove reliance, it cannot be seriously challenged that EH relied on the various

representations in choosing to invest. Finally, it is undisputed that EH received

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some interest payments, but lost hundreds of thousands of dollars of principal

and forewent significant interest payments that were due.

[478] Each of these constitutes a deprivation.

Did each respondent have subjective knowledge of the dishonest act?

[479] Staff submits, and we have already found, that Aziz knew or ought to have

known that neither GBR Ontario nor GBR Colombia owned, or had a security

interest in, the Colombian assets during the Solicitation Period. Even if that were

not true, Aziz was, at a minimum, reckless as to whether the security interest

existed. That recklessness is sufficient to constitute awareness for the purpose of

this analysis.

[480] The Solicitation Period overlaps with the period during which Aziz solicited EH’s

investment. Accordingly, this element of the mens rea is established.

Did each respondent have subjective knowledge that the fraudulent act

could have as a consequence the deprivation of another?

[481] In this case, we may infer from the fraudulent act itself that Aziz knew or ought

to have known that the misrepresentation to EH could cause a deprivation. EH’s

ability to receive a return of principal was based in significant part on there being

assets to secure the investment. To Aziz’s knowledge, the absence of any such

assets exposed EH to significantly greater risk, thereby depriving her.

Conclusion regarding fraud in relation to the GBR debenture

[482] Staff has established that Aziz perpetrated securities fraud in respect of the GBR

debenture. At all times, Aziz was acting on behalf of the issuer GBR Ontario, of

which he was one of two principals and the only active principal with respect to

EH. In matters involving EH, Aziz was GBR Ontario’s directing mind. We

therefore conclude that both Aziz and GBR Ontario contravened s. 126.1(1)(b) of

the Act in respect of the GBR debenture.

7.

FIRST GLOBAL PURPORTED LICENCE TRANSACTIONS

Introduction

7.1

[483] Staff’s final set of allegations relates to First Global’s financial reporting of certain

transactions that were reflected in agreements entered into between individuals

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and First Global (primarily through its subsidiary First Global Data Technologies

Inc.).

[484] We find that First Global incorrectly recognized revenue relating to these

agreements. That revenue appeared in First Global’s comparative financial

statements for the year ending December 31, 2016, and in its quarterly interim

financial reports for each of the first three quarters of 2017. The misstatement

was material, and later resulted in a restatement of financial results for those

periods.

[485] For reasons we explain below, we conclude that First Global is entitled to the

benefit of a due diligence defence in respect of all those financial reports except

the interim report for the third quarter of 2017. We find that by filing that report,

First Global breached Ontario securities law. We also deem Itwaru and Alli to

have not complied with Ontario securities law with respect to that report.

[486] The agreements come in one of two forms, which we will refer to together as the

Licence Agreements:

a.

b.

an “international special purpose license agreement” (an International

Licence Agreement); or

a “technology licence agreement” that is accompanied by a “marketing

agreement” (together, Technology Licence and Marketing

Agreements).

[487] Staff submits that despite differences in form, the substance of all Licence

Agreements was the same. We refer to the transactions contemplated by the

Licence Agreements collectively as Licence Transactions.

[488] Staff submits that despite the way the Licence Agreements are described, the

Licence Transactions are simple loans, in that the individual would advance a

sum to First Global (sometimes described as an up-front licence fee), First Global

would pay fixed monthly fees to the individual (described as royalty or marketing

fees), and First Global would then, at the end of the term of the agreement, be

required to repay to the individual the sum originally advanced.

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[489] Staff alleges that:

a.

no true licences were ever issued and no one took steps or intended to

take steps to market or deploy First Global’s technology;

b.

in quarterly interim and year-end financial reporting over an

approximately one-year period, First Global reported the licence

transactions as revenue, when in fact some of those transactions were

liabilities (either financial liabilities because they were borrowings, or

non-financial liabilities because they represented deferred revenue);

c.

First Global later restated its financial reports and its Management

Discussion and Analysis (MD&A) to correct the error;

d.

for the 21 months ended September 30, 2017, the restatement reduced

revenue from $17.4 million to $4.7 million and increased First Global’s net

loss from $505,000 to $12.4 million; and

e.

as a result, First Global’s financial reports were not prepared in

accordance with generally accepted accounting principles (GAAP) and

contained material misstatements, thereby contravening a number of

provisions of Ontario securities law, which provisions we enumerate in our

analysis below.

7.2

Evidence

Additional background facts

[490] Itwaru testified that International Licences were offered in two ways.

[491] In the first, in return for the funds provided by the licensee, the licensee would

have the right to receive revenues from First Global’s deployment of its mobile

payment infrastructure in a specific territory. Itwaru did not specify any activities

that the licensee would have to undertake, other than that they would have to

provide funding.

[492] Itwaru described the second as being like a franchise opportunity, in that the

licensee could own an instance of First Global’s money remittance software so

that the licensee could market the software. However, as Staff notes, the

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licensee would receive the contemplated periodic payments and have the right to

return of capital without having to do anything.

[493] Itwaru explained that there were delays preventing implementation, so the

licensees did not carry out any work on First Global’s behalf.

[494] As for the validity of the accounting approach, Itwaru observed that the program

was introduced in 2015. Alli submits that all licensees knew and acknowledged

that there would be a period during which First Global would use the licensee’s

“capital” to “build the market, in essence a ramp up period”, after which “it”

would be handed over.⁴⁴He maintains that the strategy was to leverage the

licensees’ networks to market the technology.

[495] Two purported licensees testified at the hearing. One was EH, the investor in the

GBR debenture described above. Both EH and JF, the other licensee, testified

that as far as they understood, they were not required to do anything other than

advance funds (the licence fee) to entitle them to the periodic payments (at 12%

per year) and to a return of their licence fee at the end of the term of the

agreement.

[496] None of the First Global Parties adduced evidence to support Alli’s submission

that the licensees knew and acknowledged that there would be a ramp-up

period. We think Alli comes close to the true nature of the agreements when he

says that the amount paid by the licensee was capital, and that the funds would

be used to build the market.

[497] JF expected their $125,000 licence fee to be returned to them within three

years. JF’s periodic payments stopped around June 2018 after five payments,

and they have not received their licence fee.

[498] EH entered into two Technology Licence and Marketing Agreements in 2017, and

paid licence fees totalling $260,000. EH received periodic payments until 2018

and received a return of $99,000 of the $260,000 licence fee.

44

Alli Submissions at 12

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[499] First Global reported the Licence Transactions as revenue in:

a.

its comparative financial statements for the year ended December 31,

2016; and

b.

its interim financial reports for the quarters ending March 31, June 30,

and September 30, 2017.

[500] First Global later restated those financial reports (the Restatements) to change

the accounting treatment of the Licence Transactions. For those instances where

First Global had collected cash as part of the Licence Transaction, First Global

reclassified the cash amount from revenue to borrowings; for those instances

where First Global had not collected cash, First Global reversed both the revenue

entry and the accounts receivable entry. The Restatements appeared in First

Global’s:

a.

comparative financial statements for the year ended December 31, 2017;

and

b.

interim financial reports for the quarters ending March 31, June 30, and

September 30, 2018.

Expert opinion evidence

7.2.2.a

Introduction

[501] Staff adduced expert opinion evidence through Trisha LeBlanc, a Chartered

Professional Accountant and the National Practice Leader – Financial Reporting

Advisory Services at Grant Thornton LLP. LeBlanc was well qualified to give

opinion evidence about the application of International Financial Reporting

Standards (IFRS), and no party challenged her qualifications.

[502] The use of appropriate accounting standards in financial reporting by public

companies is dictated by National Instrument 52-107 Acceptable Accounting

Principles and Auditing Standards (NI 52-107), which requires public companies

to prepare their financial statements in accordance with generally accepted

accounting principles. Canadian accounting practice applies IFRS to public

companies.

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[503] LeBlanc referred to the standards that applied at the time of the Licence

Agreements and Licence Transactions she reviewed. Some changes were made

to IFRS at the relevant time, but no specific change was identified that would

bear on our conclusions. In fact, LeBlanc testified that there were no significant

changes to IFRS relating to revenue and financial instruments for the year-end

2016 and 2017 reporting periods.

[504] LeBlanc testified that for the sake of faithful representation in financial reporting,

the concept of “substance over form” is a guiding principle. Alli agreed with this

approach, and we adopt LeBlanc’s assertion that analysis for this purpose must

be “based on an understanding of the terms and conditions of each contract as

well as considering the overall substance of the transaction, regardless of its

legal form.”

[505] IAS 18 is an accounting standard that is particularly relevant here. It defines

revenue as the “gross inflow of economic benefits… arising in the course of the

ordinary activities of the entity”. IAS 18.14 provides that revenue may be

recognized if:

a.

b.

significant risks and rewards of ownership have been transferred;

the selling entity retains neither continuing managerial involvement nor

effective control over the goods sold;

c.

the amount of revenue can be reliably measured;

d.

the economic benefits associated with the transaction will likely flow to

the selling entity; and

e.

the costs associated with the transaction can be reliably measured.

[506] With that background, we turn to LeBlanc’s analysis of the Licence Agreements

and Licence Transactions.

7.2.2.b

Four groupings of the Licence Transactions

Introduction

7.2.2.b.i

[507] LeBlanc reviewed a subset of the Licence Agreements:

a.

all Licence Agreements for the restatement of financial results for the year

ending December 31, 2016; and

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b.

Licence Agreements representing $3 million in respect of the nine-month

period ending September 30, 2017.

[508] These 43 agreements totaled approximately $6.5 million. For her analysis,

LeBlanc divided those agreements into four categories, each of which contained

agreements with the same characteristics, and each of which we will address in

turn.

7.2.2.b.ii

Group 1

[509] Group 1 consisted of sixteen agreements totaling approximately $1.3m. All were

International Licence Agreements. The following notable terms appeared in these

agreements:

a.

the licensee could demand repayment of the licence fee on termination of

the agreement;

b.

the licensee could request redemption of the licence fee at any time,

although First Global reserved the right to refuse redemption any time

within the first five years;

c.

First Global reserved the right to refuse redemption before the end of the

fifth year of the licence term; and

d.

the licensee was to be paid a minimum annual royalty of 12% of the

licence fee.

[510] In analyzing these agreements, LeBlanc made certain assumptions, which Alli

accepted and Itwaru did not dispute:

a.

b.

c.

unless the Licence Agreement was terminated before the end of its term,

it automatically terminated at the end of the term;

First Global was obliged to redeem the licence fee at the end of the term

of the agreement;

if the first of these assumptions was incorrect, and the agreement was not

terminated, the periodic royalty payments would continue into perpetuity;

and

d.

the amount of the royalty was equal to the market rate of interest.

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[511] The licensee therefore had an unqualified right to be repaid the licence fee under

the termination provisions or the redemption provisions at the end of the term.

First Global did not have the right to refuse payments. As First Global

acknowledged, the Licence Agreements would therefore be a financial liability

under IAS 32.19. The licence fee paid under the agreement is not revenue,

because the initial fair market value of the liability is the amount of the licence

fee received, so there is no remaining inflow of economic benefits.

7.2.2.b.iii

Group 2

[512] Two agreements made up Group 2. They totaled $50,000 and were the same as

those in Group 1, except that the term specified in paragraph [510]b above did

not apply. Accordingly, First Global’s right to refuse redemption was not

time-limited. As a result, the licensee’s right to demand repayment of the licence

fee arose only on termination, since First Global reserved its right to refuse

redemption at any time, not just in the first five years.

[513] Because First Global did not have an unqualified right to avoid paying the licence

fee at the end of the term of the agreement, these Licence Agreements were

financial liabilities.

7.2.2.b.iv

Group 3

[514] Group 3 consists of 23 Licence Agreements totaling approximately $4 million. All

are Technology Licence and Marketing Agreements. LeBlanc opined that it was

necessary to consider the two documents (the Technology Licence Agreement

and the Marketing Agreement) together.

[515] Once again, the key elements of the agreements were that:

a.

the licensee could demand repayment of the licence fee upon termination

of the agreement; and

b.

First Global was required to pay a minimum periodic payment equal to

12% per year (which payment is called a “Marketing Fee” in the

agreement, and which LeBlanc assumed to be a market rate of interest).

[516] LeBlanc assumed that the licensees signed the two agreements together. In

most cases, the Technology Licence Agreement provided for a licence fee that

was equal in amount to the termination fee in the Marketing Agreement. In the

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three cases in which the amount of the termination fee was left blank in the

Marketing Agreement, LeBlanc assumed that the two fees were equal.

[517] There are no redemption provisions in these agreements.

[518] LeBlanc concluded that with one exception, the Licence Agreements in this group

were financial liabilities, for essentially the same reasons as applied to the first

two groups of agreements.

7.2.2.b.v

Group 4

[519] The last group of agreements consisted of two Technology Licence Agreements

totaling $1,190,000, without corresponding Marketing Agreements. There are

therefore no terms requiring repayment of the licence fee (or of a termination

fee) at the end of the term. Similarly, there are no terms requiring periodic

payments to the licensee. In neither case was the licensed software delivered to

the licensee at the time the transaction was originally accounted for.

[520] For one of the two agreements, the licence fee was paid, but not for the other.

[521] LeBlanc concluded that these two agreements were not financial liabilities of First

Global, because they did not include a contractual obligation for First Global to

repay the licence fee at the end of the term, and First Global was under no

obligation to make periodic payments to the licensee.

[522] However, she concluded that revenue was improperly recognized for this

grouping, because the first two of the five tests set out in paragraph [505] above

were not met. In both cases this was because the licensed software was not

delivered, i.e.:

a.

b.

the significant risks and rewards of ownership were not transferred; and

the selling entity did not give up effective control of the goods that were

supposedly sold.

[523] As a result, LeBlanc concluded, these transactions ought to have been recorded

as deferred revenue at the time of the transaction.

7.2.2.c

Materiality

[524] LeBlanc opined that the difference between First Global’s original accounting and

the restated accounting was material within the meaning of IFRS.

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[525] We agree. The test under IFRS, which aligns with the standard we would apply in

any event, is whether the subject item(s) could “influence the economic decision

that users” of financial statements may make.⁴⁵Because the newly restated

numbers related to revenue, a key indicator for any company, and because the

restated numbers were different from the original by orders of magnitude, any

reasonable user of First Global’s financial statements and reports would find the

difference to be significant.

[526] The differences were also well above the materiality thresholds established for

general purposes for First Global’s 2016 and 2017 audits.

[527] We therefore have no difficulty accepting LeBlanc’s opinion on materiality.

7.2.2.d

Conclusion on the accounting treatment

[528] In his submissions, Alli expressly acknowledges and accepts LeBlanc’s approach

and analysis about the appropriate accounting treatment. We do as well. In our

view, the transactions were, in substance, loans. Attempts to characterize them

as licence agreements were efforts to prefer form over substance.

[529] While Alli accepts LeBlanc’s analysis, he emphasizes that the analysis is limited,

in that it does not take account of the context at the time, and in particular the

involvement of First Global’s auditor. We turn to examine that aspect now.

Financial reporting and involvement of First Global’s auditor

7.2.3.a

Introduction

[530] In March 2016, First Global approached Fareed Sheik, the principal of his own

audit firm, to conduct audit work for First Global, beginning with First Global’s

comparative financial statements for the year ended December 31, 2015.

[531] Sheik conducted the audit. Whether Sheik also carried out an advisory role with

respect to the Licence Agreements is in dispute.

[532] In his submissions, Alli repeatedly relies on what he describes as advice and

recommendations that Sheik gave to First Global. Sheik emphatically denies that

he did so. Sheik made clear that he played a conventional audit role, in that he

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IAS 8.5

113

audited financial statements. He neither conducted any forensic audits nor

provided consulting or advisory services.

[533] That Sheik was not providing consulting or advisory services to First Global’s

management is reinforced by the fact that as with any public company auditor,

he reported to First Global’s shareholders, not its management. As LeBlanc

confirmed, a company’s financial statements are the responsibility of

management, not of the auditor.

[534] We accept LeBlanc’s general description of the role of an auditor, and we accept

Sheik’s description of the nature of his relationship with First Global and its

shareholders. Both descriptions conform with common and accepted practice,

and we saw no evidence to suggest that Sheik’s engagement departed from that

usual practice.

[535] We turn now to review the various stages of Sheik’s involvement with First

Global.

7.2.3.b

2015 audit

[536] Sheik’s first involvement with First Global, which began in March 2016, was his

retainer to audit the 2015 year-end financial statements.

[537] In fiscal 2015, First Global had few material revenue transactions. The audit was

not controversial.

7.2.3.c

2016 audit

[538] Planning for the fiscal 2016 audit began in early 2017. In the audit planning

memorandum dated February 14, 2017, Sheik recorded the substance of a

concern expressed by the chair of First Global’s audit committee about “the

aggressive approach of revenue recognition by the management through the

sale of licenses”.

[539] Sheik reviewed the terms of the Licence Agreements against the criteria for

revenue recognition and concluded that overall, the agreements met those

criteria, assuming that there was delivery of the software to the licensee for

immediate use. In the case of one licensee, he relied on that company’s

confirmation that it had used the software that was to be delivered under the

Licence Agreement.

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[540] While reviewing the Licence Agreements, Sheik became concerned that the

terms relating to periodic payments and the repayment of the licence fee at the

end of the term were more consistent with financing agreements than with sales

contracts. In mid-April 2017, Sheik met with Itwaru, Alli and Vieira to discuss

these concerns. Itwaru and Alli maintained that the agreements were sales

contracts, and suggested that the wording could be amended to address the

concerns. Itwaru and Alli promised to send revised wording to Sheik.

[541] Sheik completed the 2016 year-end audit on April 30, 2017. He had not received

revised Licence Agreements by that time, although Itwaru observed that Sheik

had not required that step to be taken before the audit could be completed.

[542] First Global reported the relevant transactions as revenue. Sheik issued a clean

audit opinion. Itwaru emphasizes that nothing was withheld from Sheik, and

Sheik was not misled by anyone at First Global, before reaching his conclusion.

[543] Alli testified that the Licence Agreements were revised sometime after the

mid-April meeting, including by the introduction of the Marketing Agreement.

7.2.3.d

Events during 2017

[544] In its unaudited interim financial reports for the first and second quarters of

2017, First Global continued to report the Licence Transactions as revenue. Sheik

assisted with creating schedules but did no accounting or bookkeeping. We reject

Alli’s characterization of Sheik’s work as constituting a “review”, since that is

inconsistent with Sheik’s testimony and the documentary record, and it was not

put to Sheik on cross-examination.

[545] First Global filed its Q2 financial report on August 29, 2017. Approximately one

month later, First Global hired Victoria Ringelberg, an experienced Chartered

Public Accountant, as a part-time CFO to replace Alli, who had recently left First

Global. The Licence Agreements came to Ringelberg’s attention because of their

materiality as a revenue item and because they had receivables associated with

them.

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[546] After reviewing the Licence Agreements and making internal inquiries,

Ringelberg reached preliminary conclusions that:

a.

First Global ought to show a contingent liability in respect of the licensees’

right to repayment;

b.

c.

d.

e.

f.

the periodic royalty payments in fact appeared to be interest payments;

no actual marketing efforts were being undertaken by the licensees;

First Global software had not in fact been delivered to licensees;

the Licence Agreements may have been securities;

it was a red flag that the receivables had been outstanding for months,

and First Global had not accrued a royalty;

g.

h.

it was a red flag that First Global was recording revenue when the licence

fee had not been paid; and

the amounts at issue were material.

[547] Ringelberg expressed her concerns to Itwaru. Following those discussions, Itwaru

agreed that First Global should stop selling licences. Ringelberg suggested, and

Itwaru agreed, that First Global should hire legal counsel to assist with an

understanding as to whether the licences were securities. The two of them

discussed the possible need for First Global to restate First Global’s financial

statements.

[548] Ringelberg also expressed her concerns to Sheik. In explaining her concerns to

him, Ringelberg noted that the Licence Agreements were not being revised, and

that periodic payments continued to be made. Sheik testified that after

discussing the issue with Ringelberg, he concluded that the licence fees could not

be booked as revenue, and that the additional information Ringelberg gave him

caused him to change his view about the appropriate accounting treatment.

[549] As for Alli, he submits that he was not aware of the revenue recognition issue

until it was raised by Ringelberg to Sheik. We cannot accept that submission, as

we are unable to reconcile it with Alli’s acknowledgment that he attended the

April 2017 meeting (referred to in paragraph [540] above), at which Sheikh had

raised concerns about the issue.

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[550] At a special First Global board meeting on October 26, 2017, Ringelberg

discussed her concerns and recommended that the board establish a special

committee to review the Licence Agreements and their treatment. She believed

that the assessment should be completed before First Global filed its Q3 interim

financial report. Various discussions ensued, but Ringelberg was dissatisfied with

First Global’s response. She resigned about a month after she had started,

although her decision was due at least in part to the amount of time that the

position was requiring. A special committee was ultimately formed, but not

formally until April 2018. We saw no evidence that the committee undertook any

work.

[551] Alli returned to First Global in late November 2017. He fixes the date as

November 29, immediately prior to First Global filing its Q3 interim financial

report. However, Staff submits that the correct date was November 27. In any

event, it appears from an email that Sheik sent to Alli on November 29 that Alli

was back in the role no later than November 28. In that email, Sheik said to Alli:

Based on our discussion yesterday regarding the FGD Q3

financial release my suggestion is not to book any [licence]

revenue in Q3 till the fog around it is cleared relating to the

proper accounting treatment and meeting the revenue

recognition criteria of IFRS.

[552] Sheik also advised against Alli’s suggestion that First Global simply add a note to

the financial statements describing the issue. Sheik pointed out that notes to

financial statements are to explain numbers that appear in the statements, and

it would not be appropriate to use notes to disclose management’s plan to review

the policy and the planned process for “cleaning up the mess that has been

created”.

7.2.3.e

2017 audit

[553] In conducting the 2017 year-end audit, Sheik expressed his firm view that

revenue should not be recognized from the Licence Transactions. He identified

the issue as a significant risk in the audit and contemplated that the amounts

received by First Global might have to be booked as borrowings.

[554] He advised that revenue booked had to be reversed and that 2016 revenues

might have to be restated. Initially, Itwaru was particularly concerned about this,

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especially given his view that Sheik had not previously raised the possibility of

restating 2016 revenues, and given that, according to him, changes had been

made to the agreements based on Sheik’s input. By May 2018, Itwaru and Alli

agreed with Sheik’s views on the appropriate accounting treatment.

7.2.3.f

Restatements

[555] First Global yielded to Sheik’s revised view. On August 2, 2018, First Global

issued its 2017 comparative financial statements and MD&A, and restated its

2016 comparative financial statements. Later in 2018, First Global restated its

interim financial reports for the first, second and third quarters of 2017. The

restatements corrected the improper revenue recognition.

[556] For the 21 months ended September 30, 2017, the restatement reduced revenue

from $17.4 million to $4.7 million and increased First Global’s net loss from

$505,000 to $12.4 million. As we noted above, we agree with LeBlanc’s

conclusion that this restatement was material.

[557] We turn now to consider the alleged contraventions of Ontario securities law

arising from First Global’s filing of financial statements that recognized revenue

from the Licence Agreements.

7.3

Analysis

First Global

7.3.1.a

Allegations

[558] Staff alleges that First Global’s failure to ensure that its financial reports were

prepared in accordance with GAAP resulted in the following contraventions:

a.

b.

in respect of the comparative financial statements for the year ended

December 31, 2016, a breach of s. 78(1) of the Act and of s. 3.2(1)(a) of

National Instrument 52-107 Acceptable Accounting Principles and Auditing

Standards (NI 52-107), both of which require the filing of comparative

year-end financial statements prepared in accordance with GAAP;

in respect of the interim financial reports for each of the quarters ending

March 31, June 30 and September 30, 2017, a breach of s. 77(1) of the

118

Act and of s. 3.2(1)(a) of NI 52-107, both of which require that such

statements be prepared in accordance with GAAP; and

c.

the comparative financial statements and the interim financial reports

were misleading or untrue in a material respect, and thereby breached

s. 122(1)(b) of the Act, which prohibits the making of a false or untrue

statement in any financial statement that is required to be filed under

Ontario securities law.

7.3.1.b

Clause 122(1)(b) of the Act, prohibiting false or misleading

statements

[559] With respect to s. 122(1)(b) of the Act, we asked counsel to address the

question of whether the Tribunal has jurisdiction to address allegations of a

breach of that provision, given that its text describes an “offence”, thereby

appearing to contemplate that an allegation falling under that provision would be

the subject of a quasi-criminal proceeding in the Ontario Court of Justice.

[560] We agree with Staff’s submission that we should apply the decision of the Court

of Appeal for Ontario in Wilder v Ontario Securities Commission,⁴⁶in which the

Court:

a.

noted the objects and purposes of the Act and the need for remedial

flexibility in addressing misconduct; and

b.

held that the courts and the Tribunal have overlapping jurisdiction to

address the conduct prohibited by s. 122 of the Act.

[561] We agree with Staff’s proposed analytical framework, i.e., that we should

consider whether the respondent has engaged in conduct contrary to the

prohibition in s. 122. If the respondent has done so, we should make a finding to

that effect and it will then be for the panel presiding over the sanctions hearing

to determine whether such conduct warrants an order under s. 127(1) of the Act.

46

2001 24072 (ON CA)

119

7.3.1.c

Availability of a due diligence defence for First Global

[562] We have found that the subject financial statements and reports were required

to be filed and were not prepared in accordance with GAAP as required, and we

have found that the misstatement was material.

[563] Those findings should lead to the conclusion that each of these contraventions by

First Global has been proven, unless First Global can establish that it was duly

diligent in attempting to comply with Ontario securities law in preparing and

filing its financial statements. Staff conceded that a due diligence defence is

available, but submitted that none of the First Global Parties has met the

necessary standard.

[564] For reasons we explain below, we reach a different conclusion on that question

for the Q3 2017 interim financial report than we do for the other financial

statements:

a.

with respect to those financial statements that were filed before October

2017, i.e., before Ringelberg pressed her concerns and Sheik changed his

views, we conclude that the First Global Parties are entitled to the benefit

of a due diligence defence; and

b.

with respect to the Q3 2017 interim financial report, which was filed on

November 29, 2017, we conclude that the First Global Parties are not

entitled to the benefit of a due diligence defence.

[565] For the first of those two categories, the First Global Parties were proceeding

based on agreements that their lawyer had helped them prepare. We accept that

Itwaru and Alli believed that the accounting treatment being applied was

acceptable. Even though Sheikh raised a concern in mid-April 2017, shortly

before concluding the 2016 year-end audit, he was content to give a clean

opinion for that audit despite his concerns and despite the fact that nothing had

been done to address those concerns before he signed off.

[566] Staff correctly notes that ultimate responsibility for the preparation of financial

statements resided with First Global’s management. However, we do not accept

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the premise underlying Staff’s purported “note”⁴⁷(as opposed to a submission)

that Itwaru and Alli cannot rely on First Global’s auditor to relieve themselves of

the responsibilities of accurate disclosure and to ground a due diligence defence.

If Staff’s use of the word “note” was deliberate and intended to report an

established general principle, we disagree with Staff’s formulation of the general

principle. If Staff intended to submit that on the facts of this case, Itwaru and Alli

cannot rely on the auditor to ground their due diligence defence, that is a

different matter, and one we address below.

[567] As for the general principle, a party’s reliance on an auditor to ground a due

diligence defence does not necessarily relieve the party of their responsibility,

and neither Itwaru nor Alli suggested that it does. The question is whether under

the circumstances, and despite the party’s ultimate responsibility, the party

ought nevertheless to be entitled to avoid being found to have contravened

s. 122(1)(b).

[568] The due diligence defence expressly provided for in s. 122(2) would be

meaningless if this were not at least a possibility, and we do not find either of

the authorities cited by Staff on this point to be persuasive. Indeed, both

decisions contemplate that the defence is available. In Flag Resources (Re), the

Alberta Securities Commission found⁴⁸that in the circumstances of that case, the

individual who was president and CFO and a director of the issuer did not take

reasonable and sufficient steps to avail himself of the defence. Similarly, this

Tribunal concluded in Sino-Forest Corporation (Re)⁴⁹that in the circumstances of

the case, the respondents did not exercise reasonable due diligence.

[569] In this case, we accept Itwaru’s assertion that following the meeting in mid-April

2017, just before the conclusion of the 2016 audit, he felt reassured by the

review by Sheik and Vieira that First Global’s revenue recognition practices were

appropriate. Itwaru also took some comfort from the fact that while Alli (the

CFO) was not a Chartered Professional Accountant, First Global’s controller was,

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48

2010 ABASC 143 at para 161

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2017 ONSEC 27 at paras 1272-1273

121

as was the chair of First Global’s Audit Committee, who had served on the

boards of several public companies.

[570] Staff suggests that First Global ought to have retained an accounting firm to

provide an opinion on the issues relating to the Licence Transactions. That

submission would be more persuasive had the accounting issue not been

squarely raised with the auditor before the audit was concluded, and had the

auditor not specifically focused on the issue before giving a clean opinion despite

the concerns. In the circumstances at the time, it was reasonable for First Global

management to conclude that appropriate experts had opined on the accounting

treatment.

[571] Apart from the possibility of obtaining a formal opinion, Staff does not indicate

what else, in its submission, First Global and its management would have to

have done to entitle them to the benefit of the due diligence defence. Sheik

himself convened the meeting with Itwaru and Alli to discuss the accounting

issue, he turned his mind to the issue, he heard comments from Itwaru and Alli,

and he obtained information about one of the agreements before giving a clean

audit opinion. Even though the outcome of all of that turned out to be incorrect,

those efforts distinguish this case from those in which a particular issue escapes

the auditor’s attention, or worse, those cases in which management actively

conceals issues or information from the auditor.

[572] In our view, while First Global management’s response ultimately proved to be

incorrect from an accounting standpoint, it is not blameworthy under the

circumstances. Auditors raise concerns all the time; some must be addressed

before the audit opinion is issued, but some are deemed by the auditor not to be

consequential enough to impede issuance of a clean audit opinion. Here, it was

reasonable for First Global management to infer that the revenue recognition

issue fell into the latter category.

[573] There were no material developments with respect to the revenue recognition

issue between the conclusion of the 2016 year-end audit and Ringelberg’s arrival

in October of 2017. We find that First Global management were duly diligent in

respect of the statements filed before that time (i.e., the 2016 year-end

statements and the Q1 and Q2 2017 interim financial reports).

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[574] We emphasize that our finding must not be taken to relieve management of its

responsibilities with respect to financial statements; nor does it dilute those

responsibilities. Management continues to be ultimately responsible for the

preparation and filing of financial statements. The question here is whether

members of management did everything they reasonably should have to satisfy

themselves that the financial statements filed before October 2017 were

compliant. We conclude that they did.

[575] We do not reach the same conclusion with respect to the interim financial report

for the third quarter of 2017 (ending September 30), issued on November 29,

2017. By the time that report was issued:

a.

b.

c.

Ringelberg had clearly expressed her concerns;

Sheik had changed his views and recommended restatement;

Itwaru agreed that First Global should stop selling licences and that First

Global should hire legal counsel to assist with an understanding as to

whether the licences were securities;

d.

e.

Ringelberg and Itwaru discussed the possible need for First Global to

restate;

about five weeks had passed since the special First Global board meeting

at which Ringelberg discussed her concerns, recommended that the board

establish a special committee to review the matter, and recommended

that the assessment be completed before First Global filed its Q3 interim

financial report; and

f.

Sheik had sent his November 29 email to Alli, advising that First Global

not book any revenue from the Licence Agreements until the issue was

resolved.

[576] All of these developments should have raised serious red flags. The only

reasonable step for First Global management to take in light of those red flags

would have been to restate its results, or at least to hold off filing its interim

report until the special committee had concluded a thorough examination of the

issue and resolve the question. First Global management made no serious

attempt to do anything in that direction.

123

[577] Itwaru submits that he took proactive steps to improve the quality of First

Global’s finance department by hiring Ringelberg and by giving her authority to

investigate and resolve the accounting issue. We accept that he took steps, but

he did not follow through once Ringelberg had investigated.

7.3.1.d

Conclusion about First Global

[578] Given that the special committee did no real work on the issue, and no other

efforts were made to resolve the question once it was identified, the due

diligence defence cannot be available to First Global in respect of the Q3 2017

interim financial report.

[579] We therefore find that First Global contravened s. 77(1) of the Act, s. 3.2(1)(a)

of NI 52-107, and s. 122(1)(b) of the Act.

Role of Itwaru and Alli

[580] We must now consider whether pursuant to s. 129.2 of the Act we should deem

Itwaru and/or Alli not to have complied with Ontario securities law, because they

authorized, or permitted or acquiesced in First Global’s non-compliance. We

conclude that we should, because they authorized the non-compliance.

[581] At the time of the impugned financial reporting, Itwaru and Alli were CEO and

CFO of First Global, respectively. Alli had only recently returned as CFO, but he

was fully aware of, and engaged in, the revenue recognition issue. Itwaru and

Alli were also both directors. They signed the financial reporting documents that

contained the impugned accounting treatment. They executed certificates of

compliance (52-109FV1 and 52-109FV2) of those documents.

[582] Alli is adamant that it was Sheik who recommended that First Global create a

Marketing Agreement, and Alli says that it was that step that “put us in this

position”. We reject this submission because: (i) there is no evidence that Sheik

recommended the creation of a Marketing Agreement; (ii) even if he did, it was

management’s responsibility to ensure its agreements were legally sound and

that the accounting treatment was proper; and (iii) in any case, it was not the

Marketing Agreement that put First Global in the position it was in, since the

problem predated the creation of that agreement.

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[583] Itwaru submits that he was always focused on a proper resolution, and some

emails from him corroborate that. However, Staff points to other emails and

testimony that undermine that submission, and Itwaru’s words were not backed

up by action. We cannot accept his submission that he should not be blamed for

some directors’ initial reluctance to restate the financial statements. He was not

required to take orders from the board, and it was his choice to authorize and

certify the financial statements.

[584] We accept Itwaru’s characterization of his approval of the financial statements as

“a mistake, not an intent to falsely inflate”. But a mistake it was, and it is one for

which he should be held accountable.

[585] Accordingly, each of Itwaru and Alli is deemed to have contravened Ontario

securities law because he authorized First Global’s non-compliance as set out in

paragraph [558] above.

7.4

Conclusion about purported licence transactions

[586] For the reasons set out above:

a.

b.

we dismiss Staff’s allegations in respect of First Global’s 2016 year-end

financial statements, and the Q1 and Q2 interim financial reports;

we conclude that First Global contravened s. 77(1) and s. 122(1)(b) of the

Act, and s. 3.2(1)(a) of NI 52-107, in respect of the Q3 interim financial

report, and that Itwaru and Alli are deemed to have not complied with

Ontario securities law in that respect, pursuant to s. 129.2 of the Act.

8.

POTENTIAL DEFENCE FOR BAJAJ OF REASONABLE RELIANCE ON LEGAL

ADVICE

[587] Before we reach our overall conclusion on the merits hearing, we wish to note

that none of the respondents expressly asserted, and made submissions

regarding, a defence of reasonable reliance on legal advice in respect of any of

the allegations. However, Bajaj, who was unrepresented by counsel in this

hearing, made some submissions that could be read as purported reliance on

such a defence. Out of an abundance of caution, we address that defence now,

and conclude that it is not available to him.

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[588] Two lawyers played a role in the events giving rise to this proceeding. Steven

Roch, of Colby Monet in Montreal, acted for Garcia, Grenier, GBR Colombia and

at least some of the companies in which Garcia had a controlling interest (e.g.,

Biominerales Colombia SAS and Bioclean Inc.). Jay Vieira was First Global’s

counsel.

[589] Bajaj had interactions with both lawyers, including (in the case of Vieira) in

meetings facilitated by First Global. The fact that Bajaj was expected to have

these kinds of interactions was recorded in one of the GBR Colombia resolutions

signed in October 2015 (the “Appointment of Security Lawyer” resolution). That

resolution provides that Bajaj will “deal with” Viera and Roch for all financial

transactions and any other matter related to GBR Colombia.

[590] Despite that resolution, and despite the fact that Bajaj became a director of GBR

Colombia some time after it was incorporated, Bajaj cannot rely on advice given

by Roch, GBR Colombia’s counsel, because:

a.

b.

Bajaj was not instructing Roch on behalf of GBR Colombia;

Bajaj’s involvement in the impugned activities was on behalf of GBR

Ontario, not GBR Colombia;

c.

Roch was not acting for Bajaj or any of Bajaj’s companies; and

d.

Roch was not acting for GBR Ontario (despite the suggestion to the

contrary in the summary of Roch’s anticipated evidence, prepared by Staff

and referred to in paragraph [86] above, which suggestion is contradicted

by the evidence before us, including that of Aziz).

[591] GBR Ontario did not retain counsel at any time during the subject events. That

choice had unfortunate consequences for GBR Ontario, Bajaj and Aziz. One of

those consequences is that Bajaj cannot rely on the defence of reasonable

reliance on legal advice with respect to any of the alleged contraventions.

[592] Similarly, Bajaj cannot rely on advice given by Vieira, First Global’s counsel,

because:

a.

b.

Bajaj had no position with First Global and was not instructing Vieira; and

Vieira was not acting for Bajaj, GBR Ontario, or any of Bajaj’s companies.

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[593] Even if Bajaj had a relationship with Roch or Vieira that would justify reliance on

their advice, we would conclude that the defence remains unavailable on the

facts of this case. A respondent who asserts the defence must establish that:

a.

the lawyer had sufficient knowledge of the facts on which to base the

advice;

b.

c.

the lawyer was qualified to give the advice;

the advice was credible given the circumstances under which it was given;

and

d.

the respondent made sufficient enquiries and relied on the advice.⁵⁰

[594] The respondent must also adduce clear evidence of the communication they had

with their lawyer, so that it can be determined with reasonable certainty the

question asked and the answer given. There is no such record here, so we could

not give Bajaj the benefit of the defence in any event.

[595] One example illustrates the importance of clear communication. Bajaj submits

that Itwaru and Alli arranged a meeting with Viera to prepare debenture forms.

Bajaj asserts that there were a couple of meetings in which Bajaj asked Viera

whether “we are following OSC guidelines”, and Viera replied affirmatively. The

imprecision in Bajaj’s submission (i.e., “OSC guidelines”) highlights the necessity

of there being a clear and specific record of advice sought and received in order

for this defence to be available.

[596] We considered whether Bajaj could avail himself of this defence, but for the

above reasons we concluded that he could not.

9.

ALLEGATIONS OF CONDUCT CONTRARY TO THE PUBLIC INTEREST

[597] Finally, we address the fact that in addition to specifically alleged contraventions

of the Act, Staff alleges in numerous instances in the Statement of Allegations

that the impugned conduct is “contrary to the public interest”. As the Tribunal

has previously noted,⁵¹the words “contrary to the public interest” do not appear

in the Act.

50

Mega-C Power Corp (Re), 2010 ONSEC 19 at para 261

51

Solar Income Fund Inc (Re), 2021 ONSEC 2 at paras 70-76

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[598] In the Statement of Allegations, in all instances but one, Staff identified no

conduct, other than the alleged contraventions of the Act, that would warrant an

order under s. 127 of the Act.

[599] The one possible exception is in paragraph 66 of the Statement of Allegations.

Staff alleges that First Global, Itwaru and Alli engaged in conduct contrary to the

public interest by failing “to take reasonable or appropriate steps to ensure that

the GBR [Ontario] Parties did not make false or misleading statements to

investors or fail to provide investors with information necessary to prevent the

statements made from being false or misleading”. It appears from the language

used in that allegation that Staff seeks to link to the allegation of a contravention

of s. 44(2) of the Act, which we dismissed as explained above.

[600] However, the Statement of Allegations identifies no source of the alleged

obligation of First Global, Itwaru and Alli to supervise the activities of the GBR

Ontario Parties. Such an obligation may exist, but it was neither supported in the

Statement of Allegations nor argued in Staff’s closing submissions, in which Staff

did not pursue any allegation of conduct contrary to the public interest. We

therefore treat that allegation as having been abandoned.

10.

CONCLUSION

[601] For the above reasons, we find that:

a.

b.

all of the respondents illegally distributed the First Global debentures,

contrary to s. 53(1) of the Act;

GBR Ontario and Bajaj engaged in the business of trading in securities

without being registered, contrary to s. 25(1) of the Act, and Aziz is

deemed to have not complied with Ontario securities law in that respect,

pursuant to s. 129.2 of the Act;

c.

d.

e.

GBR Ontario, Bajaj and Aziz perpetrated fraud, contrary to s. 126.1(1)(b)

of the Act, with respect to the First Global debentures;

GBR Ontario and Aziz perpetrated fraud, contrary to s. 126.1(1)(b) of the

Act, with respect to the loans from EH;

First Global contravened s. 77(1) and s. 122(1)(b) of the Act, and

s. 3.2(1)(a) of NI 52-107, in respect of First Global’s Q3 interim financial

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report, and Itwaru and Alli are deemed to have not complied with Ontario

securities law in that respect, pursuant to s. 129.2 of the Act;

f.

Staff’s allegations that First Global and the GBR Ontario Parties

contravened s. 44(2) of the Act are dismissed; and

g.

Staff’s allegations of conduct contrary to the public interest are considered

to have been abandoned.

[602] The parties shall contact the Registrar by 4:30pm on September 30, 2022, to

arrange an attendance in respect of a hearing regarding sanctions and costs. The

attendance is to take place on a date that is mutually convenient, that is fixed by

the Governance & Tribunal Secretariat, and that is no later than October 31,

2022.

[603] If the parties are unable to present a mutually convenient date to the Registrar,

then each party may submit to the Registrar, for consideration by a panel of the

Tribunal, one-page written submissions regarding a date for the attendance. Any

such submissions shall be submitted by 4:30pm on September 30, 2022.

Dated at Toronto this 15th day of September, 2022

“Timothy Moseley”

Timothy Moseley

“Lawrence P. Haber”

“Mary Anne De Monte-Whelan”

Lawrence P. Haber

Mary Anne De Monte-Whelan

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