Costello appealed the decision of the Ontario Securities Commission (the “Commission”) which found that he had acted as an “advisor” without being registered to do so under section 25(1)(c) of the Securities Act, R.S.O. 1990 C. s.5 (the “Act”). The court employed a standard of review of reasonableness and found that the Commission’s decision was reasonable and supported by the evidence.

Administrative law – Decisions of administrative tribunals – Securities Commission – Personal interests – Public interest – Stock brokers and advisors – Disciplinary proceedings – Advisor – definition – Judicial review – Compliance with legislation – Standard of review – Reasonableness simpliciter – Costs

Costello v. Ontario (Securities Commission), [2004] O.J. No. 2972, Ontario Superior Court of Justice, July 12, 2004, O’Driscoll, Lane and Jennings JJ.

Costello was a well-known financial author, seminar speaker, radio personality and investment commentator on personal finance matters. He did no direct trading as part of his business, but conducted many seminars for members of the public. In December 1992, Costello signed a letter agreement establishing The Financial Planning Group (“FPG”) through The Height of Excellence Financial Planning Group Inc. and DPM Securities Inc. These two entities were registrants under the Act and carried on business as FPG. The net profits of FPG flowed into another company, FPGServiceCo, which was not a registrant. Costello was not a registrant but was chairman of FPGServiceCo and owned 47.5% of the shares. The Commission found that the business structure was devised as a means of allowing Costello to participate in the control of FPG without having to become qualified as an officer or a director of a registrant. Costello gave investment seminars on behalf of FPG but did not disclose his interest in FPGServiceCo or that he was entitled to remuneration derived from the activities of FPG. On several occasions during the seminars, Costello mentioned certain investment funds in which FPGServiceCo held a minority equity position and recommended these funds.

The Commission found that Costello had previously been warned in 1994 by the Saskatchewan Securities Commission that it was improper to make specific recommendations unless registered. He undertook not to do so but further complaints were received by the Saskatchewan Securities Commission, which issued a further warning.

In determining the appropriate standard of review, the court employed the pragmatic and functional approach as outlined in Pushpanathan v. Canada (Minister of Citizenship and Immigration), [1998] 1 S.C.R. 982 (S.C.C.). In this approach, the standard of review is determined by considering four contextual factors – the presence or absence of a privative clause or statutory right of appeal; the expertise of the tribunal relative to that of the reviewing court on the issue in question; the purpose of the legislation and of the provision in particular; and, the nature of the question. In this case, the statutory right of appeal was extremely broad, which militated in favour of a more searching standard. However, the court found that the second factor, the expertise of the Commission, strongly favoured a high degree of deference due to the technical nature of the Commission’s analysis. The court also noted that the purpose of the Act was to protect the public and that the policy role granted the Commission by the Act tended towards a higher standard of deference. Based upon a consideration of all the factors, the court came to the conclusion that the appropriate standard of review was reasonableness.

The court analysed whether or not the Commission erred in finding that Costello had acted as an “advisor” within section 25(1)(c) of the Act. An “advisor” is defined in the Act as “a person or company engaging in or holding himself, herself or itself out as engaging in the business of advising others as to the investing in or the buying or selling of securities”.

The court reviewed the evidence before the Commission which had led the Commission to find that Costello had given advice as to the wisdom or value of investing in specific securities owned in part by FPGServiceCo on a number of occasions in his seminars and newsletters. The court found there was ample evidence in the record to support this finding. The court noted that the Commission had found specifically that there were more than isolated incidents involved and that the totality of evidence showed that Costello had offered advice in a manner reflecting a business purpose. The evidence repeatedly showed that the principal purpose of the seminars was lead generation and that the techniques employed included collecting the names of participants, distributing marketing material to them, failing to discuss risk and risk tolerance, and encouraging the use of borrowed money by focusing solely on the upside. The court found that the findings and inferences made by the Commission in its analysis were entirely reasonable and should not be disturbed. Costello’s appeal on this point was dismissed.

The Commission had rendered a Bill of Costs in the amount of the $300,000. Costello objected to this award. The court found that the refusal of the Commission to provide any real support for its assessment of costs was manifestly unfair to Costello. Therefore, the court ordered that the issue of costs be remitted to the Commission for reconsideration in accordance with whatever procedure the Commission adopted to meet its obligation of fairness and due process to Costello.

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