Bahamas rejects Ontario Securities Commission bid to enforce $20m penalty
The Ontario Securities Commission has ordered former Bay Street fund manager Wayne Pushka and his company to pay over C$20m but the Supreme Court of the Bahamas has ruled that the penalty cannot be enforced on the Bahamian resident.
Justice Winder ruled that the C$20m sanction against Wayne Pushka, former chief executive of a Canadian investment management firm, was a government penalty and therefore not enforceable in the jurisdiction.
Because the funds would go to the regulator rather than compensating investors allegedly harmed by his actions, the regulator's claim ran afoul of the "exclusionary rule", which - in English law jurisdictions such as The Bahamas - means the courts have no ability to enforce orders mandating the payment of fines and penalties to agencies of foreign governments.
Justice Winder rejected the Ontario Securities Commission's submission that the purpose of the proceedings was to facilitate the return of funds to harmed investors"
The Canadian regulator decided to impose the fine after a hearing panel concluded he acted in an "appalling" fashion and breached his duty to investors in a 2009 deal to buy management rights for a group of investment funds.
The OSC found that Pushka breached his duties to investors in the Crown Hill Fund in a 2009 deal to purchase 13 Citadel Group of Funds contracts that had more than $1bn of assets under management. This is not to be confused with Citadel, the US-based hedge fund founded by Ken Griffin.
Pushka is also banned from trading securities in Ontario until he pays the penalties, and is banned from working as a registrant in the investment industry for at least 10 years, but that ban will be extended if the outstanding amounts have not been paid.
The OSC had claimed that between the initial finding against Pushka in August 2013, and the determination of the appropriate sanction in August 2014, he removed from the Canadian jurisdiction over C$13.5mn and alleged that nearly C$5m were transferred to The Bahamas and the balance to a trust company in Liechtenstein.
Justice Winder said: "There is no allegation or suggestion that Pushka engaged in fraud of any kind."
Pushka said: "The process in The Bahamas was balanced and fair. In Ontario, the original proceedings were in the OSC's tribunal system, where the plaintiff, prosecutor and judge are all from the same organization.
"It was refreshing to have my case heard in The Bahamas where I was before an independent judge, as opposed to Ontario."
Justice Winder's judgement underscored the principle that sovereign nations do not enforce the penalties of foreign governments.
Gail Lockhart-Charles, Pushka's Bahamian attorney, said the ruling "clarifies the legal position in The Bahamas" as to what types of foreign judgments will be enforced or rejected by this nation's judicial system.
"His decision clarifies the legal position in The Bahamas, and will be a guide that informs foreign administrative agencies and governments as to what types of judgments can and cannot be enforced," she said.
"His decision demonstrates that the Bahamian court will not shy away from looking at the substance of the matter rather than the form. Justice Winder rejected the Ontario Securities Commission's submission that the purpose of the proceedings was to facilitate the return of funds to harmed investors, and he noted that this case did not involve the recovery of defrauded monies," she added.
Crown Hill Capital, a management company, borrowed C$28m from its Crown Hill Fund to finance the purchase of the Citadel contracts. The loan represented more than 60% of the value of the assets in the Crown Hill Fund, and the OSC ruled the money was inappropriately borrowed.
The hearing panel at the OSC said the purchase was completed even before unitholders of the fund were notified about a meeting to vote on approving the loan, and a circular sent to unitholders to approve the deal was "materially misleading."
The Ontario Securities Commission however has an unsuccessful track record of enforcing sanctions. A Toronto Star investigation shows that roughly C$360m in penalties levied over the past 10 years — including Pushka's fine — remains uncollected.
Most of that represents fines against individuals and small firms also handed trading bans.
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