R v Stevenson, 2015 ABQB 740

Court of Queen’s Bench of Alberta Citation: R v Stevenson, 2015 ABQB 740 Date: 20151123 Docket: 130229958S2 Registry: Lethbridge Between: Her Majesty the Queen Appellant - and - Rand Tyler Stevenson, Brent Ray Derricott, Robert Michael Smylski Respondents Corrected judgment: A corrigendum was issued on December 1, 2015; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Oral Reasons for Judgment of the Honourable Mr. Justice D.K. Miller _______________________________________________________

[1] The issue to be decided in this Appeal is whether the Provincial Court Judge erred in law in finding that the “LoanAgreements” used by the Respondents in raising over a million dollars from private investors over a two year period, from 2009 to 2011were not securities as defined by the Alberta Securities Act. [2] Randy Tyler Stevenson is the sole voting shareholder, director and officer of an Alberta corporation known as OCI Q Corp.Brent Ray Derricott was authorized by Stevenson’s Corporation to raise funds for a project. Robert Michael Smylski assisted Mr.Derricott directly and Mr.

Stevenson by meeting with lenders and having these lenders sign loan agreements and receive funds. Theevidence of the lenders at trial consisted of a general understanding as to why Stevenson and OCI needed the funds. The story wasconsistently told by Mr. Derricott and Mr. Smylski. Mr. Stevenson had met with a Pilipino farmer fisherman named Romeo Santiagowho was the sole beneficiary of a large estate valued in the multi-million dollar range, if not at the billion dollar level.

The estate wasthat of Romeo Santiago’s aunt who had allegedly accumulated this wealth while in the employ of the Philippine dictator, FerdinandMarcos. Mr. Stevenson and his company had apparently contracted with the beneficiary, Romeo Santiago to assist in probating the estateand gain access to the assets. In exchange, Romeo Santiago agreed to richly reward these investors. OCI Corp. and Mr.

Stevensonpromised in the Loan Agreements, entered into with 24 lenders, returns ranging from four to two hundred times their investment. [3] Not surprisingly, none of the lenders received any returns on their investment nor did they receive their principal loanamount back. [4] It is clear from the evidence at trial that the lenders understood that the money they advanced was a “personal loan” to OCICorp. The actual Loan Agreement was authored by Mr. Stevenson and it contained two features of interest: 1. The unusual and rather unbelievable rates of return on the investment. 2.

The express wording purporting to exclude the Loan Agreement from securities law in paragraph seven. [5] The Provincial Court Judge found that each of the Loan Agreements were separate and distinct private transactions betweenOCI Corp. and the lender. He also concluded that the Loan Agreements were not “securities” as defined by the Securities Act RSA 2000,cS-4. [6] As result of his finding in relation to the separate Loan Agreements and the Securities Act, the Provincial Court Judgedismissed the charges against Rand Tyler Stevenson, Brent Ray Derricott, and Robert Michael Smylski.

Rand Tyler Stevenson isrepresented by counsel at the Appeal. Brent Ray Derricott and Robert Michael Smylski are self-represented at the Appeal and filed nomaterial and made no argument at the Appeal but adopted the argument presented by Counsel for Mr. Stevenson. [7] The issue is whether the proper legal standard was applied to the facts of this case. Specifically was the definition “security”under the Securities Act properly applied to the facts before the Court. It is clear in this Court’s view that the application of law to a fixedset of facts is a question of law, reviewable on the standard of correctness.

The Trial Judge must be correct in applying the law, or a legalstandard to a set of facts. (cf. R v Abdulle, [2014] AJ 97 at paragraph 7). This Court agrees with the Crown that the standard of review iscorrectness. [8] Security is defined in s1(ggg) of the Securities Act as follows: (

i) any document constituting evidence of title to or interest in the capital, assets, property, profits, earnings or royalties of anyperson or company; (ii) any bond, debenture note or other evidence of indebtedness; (iii) any profit sharing agreement; and (iv) any investment contract. [9] The Supreme Court of Canada in the case of Pacific Coast Coin Exchange of Canada Ltd. V Ontario SecuritiesCommission, (SCC), [1978] 2 SCR 112 is the seminal case in Canadian jurisprudence on what constitutes a security oran investment contract.

The majority in that case indicated that in interpreting the legislative and regulatory scheme of securities law that“substance, not form, is the governing factor” and that the legislation must be construed broadly. The stated goal of the legislation isprotection of the public and it is that goal that the Courts must keep in mind in interpreting this type of legislation.

As well, Courts must“replace the harshness of caveats emptor” in applying this legislation. [10] The Crown argued at trial and on appeal that the Loan Agreements used by the three accused in this case fall into fourcategories of the definition of security in s1(ggg) of the Securities Act. Indeed it only needed to fall within one of the

definitions in orderfor a conviction to succeed but the Crown argued that the Loan Agreements met all four

definitions and therefore the accuseds wereclearly liable to conviction. [11] The accuseds argued that the Loan Agreements by their very nature were not securities and according to their wording theyare simply private contracts between the parties and the normal rules of contract should apply.

The defence argued that they fall outsidethe scope of the Securities Act. [12] Was the Trial Judge correct in concluding that each Loan Agreement was a “private transaction” and therefore not a security?In reaching his conclusion that the Loan Agreements in question were not covered by the Securities Act by virtue of being privatecontracts the Provincial Court Judge seemed to place an inordinate amount of weight on the rationale of Yamauchi J in R v Kirk, [2014]

ABQB 517. However, upon reading the full case it is clear that paragraph 60 of R v Kirk is obiter and therefore was not binding on the learned Trial Judge. Further, I am not convinced that the Court in R v Kirk in attempting to give an example of what maybe outside the scope of the Act does not actually contradict itself in using such example. Nevertheless at the very least, by virtue of being obiter it is not helpful to the Trial Judge and he may have mistakenly relied on that one, at best confusing example cited by the Court. [ 13 ] By classifying the Loan Agreements as private transactions they are not necessarily taken outside of the security legislation. One must start with the

definitions in the legislation and determine if the definition applies to the facts as proven by the Crown. It is clear from a plain reading of the Loan Agreement that it fits the definition of an “investment contract” in paragraph (iv). I would note that inclusion of a self-serving statement within the Loan Agreement stating that it is not a security does not exempt it from the legislation. [ 14 ] A review of the Loan Agreements through the lens of the remaining

definitions of s1(ggg) is illustrative. [ 15 ] (

i) Any document constituting evidence of title or interest in the Assets, property, profits, earnings or royalties of any person or company. The facts of this case revealed that Loan Agreements purported to provide the investors with “interest and profits or earnings” of the company OCI. This was not conditional on any factors. The Loan Agreement is clear in this regard and the evidence of multiple investors confirms that clear and unambiguous

interpretation of the Loan Agreements. The exact same analysis will yield the exact same result when these facts are put to the “profit sharing” definition which is paragraph (iii) of s1(ggg). The people who loan the money were entitled to a return from the company’s profits. [ 16 ] As it relates to definition (ii) which includes “any bond, debenture note or other evidence of indebtedness” it is clear the Loan Agreements are intended to be and in fact are, evidence of indebtedness. The Loan Agreements are proof of the investor advancing funds to OCI Corp. for the amount of the loan.

They stipulate that if the promise of a return of up to 200 times the original investment is not paid within six months then the amount of the loan shall be referenced as a debt and “shall be placed on the books of OCI as an outstanding liability.” It would seem to this Court that the Loan Agreements are clear evidence of “indebtedness.” [ 17 ] Accordingly in applying any of the four

definitions to the facts of this case it will reveal that the Loan Agreements are securities within the definition of the Securities Act. This is especially the case when one brings to the interpretive framework of securities legislation the fact that it exists to protect investors and the public and to ensure that investors are afforded a minimum level of material information in order to make their investment decision. [ 18 ] Some reference has been made in the decision below and in argument that the investors who loaned their money to OCI Corp., held no animus towards the accuseds and OCI Corp.

In fact the opposite appears to have been the case. Some of the investors were very reluctant Crown witnesses and directed their animosity towards the investigators and prosecution. I must say that the lack of animus towards the accuseds is really irrelevant and of no consequence. It could arise out of a feeling of not wanting to be a further pawn in another game of chess that they cannot control or for any other reason.

The fact of the matter is that who the witnesses like or happy with in the litigation equation is irrelevant. [ 19 ] Accordingly, I am finding that the Provincial Court Judge erred in law in finding that the Loan Agreements were “private transactions” and therefore do not fall within the definition of securities under the Securities Act . In fact the Loan Agreements are indeed securities as defined by the Securities Act .

Accordingly, in view of my finding, the Counts on which the accused were named and acquitted namely Counts 1-2, 4-5, 8, 12-19, 22-23, 25-28, 33-36, 38-49, 52-53, 56-57, and 60-73 shall now have orders of conviction against such accused. I am referring the matter back to the Provincial Court on Tuesday the 1 st day of December, 2015 at 9:30 a.m. to fix a date for sentencing before the Provincial Court Trial Judge. Heard on the 16 th day of September, 2015. Dated at the City of Lethbridge, Alberta this 13 th day of November, 2015. D.K. Miller J.C.Q.B.A. Appearances: Don Young

Deanna H. Steblyk Adrienne Wong Alberta Securities Commission for the Applicant David Kobylnyk for the Respondent, Rand Tyler Stevenson Respondent, Brent Ray Derricott, Self-Represented Litigant Respondent, Robert Michael Smylski, Self-Represented Litigant _______________________________________________________ Corrigendum of the Oral Reasons for Judgment of The Honourable Mr. Justice D.K. Miller _______________________________________________________ 1. Changed the Docket number from 130229958S1 to 130229958S2