Decision and Reasons: In the Matter of Edward Joseph Allen et al.
IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED
- AND –
JOSEPH EDWARD ALLEN, ABEL DA SILVA,
CHATERAM RAMDHANI, AND SYED KABIR
||May 24 - 27, 2005
|Panel:||Robert L. Shirriff, Q.C.
David L. Knight, FCA
|Commissioner (Chair of the Panel)
James Alexis Levine
|- On behalf of Staff of the
Ontario Securities Commission
|Respondents:||Joseph E. Allen
|On behalf of himself
On behalf of himself
DECISION AND REASONS
 This is a hearing before the Ontario Securities Commission (the “Commission”) pursuant to sections 127 and 127.1 of the Securities Act, R.S.O. 1990, C. s.5 as amended (the “Act”) to consider whether it is in the public interest to make an order against the respondents, Joseph Edward Allen (“Allen”), Chateram Ramdhani (“Ramdhani”), Abel da Silva (“da Silva”), and Syed Kabir (“Kabir”) (collectively the “Respondents”).
 This hearing arose as a result of a statement of allegations filed by staff of the Commission (“Staff”) on November 4, 2004. The conduct that led to this statement of allegations being issued occurred between September 2002 and June 2003. The statement alleges that the Respondents have violated securities law and acted contrary to the public interest. Staff’s allegations against the Respondents may be summarized as follows:
(1) the Respondents were trading without appropriate registration contrary to section 25(1)(a) of the Act and to the public interest;
(2) the Respondents engaged in a distribution of securities to investors who did not qualify as accredited investors and for which no other exemption was available under the Act, in violation of section 53 of the Act;
(3) the Respondents failed to disclose commissions received in connection with their trades of securities contrary to section 36 of the Act and to the public interest;
(4) the Respondents made representations to investors with the intention of effecting trades in securities contrary to section 38 of the Act and to the public interest; and
(5) the Respondents used high-pressure sales tactics when selling securities to members of the public contrary to the public interest.
 Counsel for Staff seeks an order of the Commission pursuant to sections 127 and 127.1 of the Act that:
- trading in any securities by the Respondents cease permanently or for such period as is specified by the Commission;
- any exemptions contained in Ontario securities law do not apply to the Respondents permanently or for such period as is specified by the Commission;
- the Respondents disgorge to the Commission any amounts obtained as a result of their non-compliance with the Act;
- the Respondents be reprimanded;
- the Respondents be ordered to pay the costs of the Commission investigation and the hearing; and
- such other orders as the Commission may deem appropriate.
 Further, counsel for Staff also seeks an order pursuant to section 37 of the Act that the Respondents cease permanently to telephone from within Ontario to any residence within or outside Ontario for the purpose of trading in any security or in any class of securities.
 At the outset of this hearing, the parties indicated that they wished to make further submissions and introduce additional evidence relevant to sanctions, only if this panel were to find that the Respondents have breached the Act and/or acted contrary to the public interest. We granted this request. Accordingly, in these reasons, we are required to make a finding only as to whether the Respondents violated the provisions of the Act and/or acted contrary to the public interest.
 Further, we have considered the written submissions filed by counsel for Staff and by the respondents Allen and Ramdhani after the hearing on the merits. Counsel for Staff filed submissions on June 6, 2005. The respondent Allen filed his written submissions on July 15, 2005 and the respondent Ramdhani filed his written submissions on July 21, 2005.
A. Unrepresented Respondents
 Two of the Respondents, Allen and Ramdhani, were present at the hearing but were not represented by counsel. However, at the outset of this hearing, they expressly consented to have the hearing proceed without the assistance of counsel.
 The other two Respondents, da Silva and Kabir failed to appear at the hearing and were not represented by counsel.
B. da Silva and Kabir’s Failure to Appear at the Hearing
 If an oral hearing is held, a party is entitled to notice of it and to be present at all times while evidence and submissions are being presented in order to obtain full disclosure of the case the party has to meet. However, pursuant to section 7 of the Statutory Powers Procedure Act, RSO. 1990, c. S.22 (the “SPPA”), where a party who has been given proper notice of a hearing fails to respond or to attend, the tribunal may proceed in the party’s absence and the party is not entitled to any further notice in the proceeding.
 The respondents da Silva and Kabir were not present at the hearing but counsel for Staff has established to our satisfaction that they had received notice of the date and place of this hearing.
 The panel is satisfied that the respondent da Silva was aware of this hearing as the order scheduling this hearing was sent to his counsel by both the office of the Secretary of the Commission and by counsel for Staff. Further, an affidavit of service was produced at the hearing to demonstrate that the notice of hearing had been provided to his counsel.
 The panel is also satisfied that the respondent Kabir was given notice of this hearing. Indeed, the Commission issued an order on November 22, 2004 to the effect that Kabir had been effectively served with the notice of hearing and the statement of allegations, pursuant to Rule 1.3(3) of the Rules of Practice, and had been provided with reasonable notice of this proceeding. The order also provided for the future method of service on Kabir which we find was followed by Staff.
 After reviewing the evidence presented by counsel for Staff at the hearing, we concluded that both da Silva and Kabir had been served with the notice of this hearing and the statement of allegations and had chosen not to appear.
C. Use of Hearsay Evidence
 In this case, counsel for Staff adduced both oral and documentary evidence which was hearsay. Amanda Downs (“Downs”) is an investigator at the Commission and Andrea Robinson (“Robinson”) is an employee of Andromeda Media Capital Corporation (“Andromeda”). Staff counsel relies on statements made to Downs and to Robinson during telephone inquiries conducted by them with persons who purchased or were asked to purchase securities of Andromeda. Counsel offers these statements for the truth of their contents. Counsel also submits that these statements are reliable evidence because they are corroborated by other evidence.
 Evidence in Commission proceedings is governed by section 15 of the SPPA, which provides that the Commission may admit evidence at a hearing “whether or not…[that evidence is] admissible as evidence in a court.” Hence, hearsay evidence is admissible in proceedings before the Commission.
 With respect to the admission and reliance upon hearsay evidence we have applied the test adopted by the panel in the YBM Magnex International Inc. matter (see Ruling of the panel in Hearing Transcript dated July 18, 2001 at pp. 1-10). There the panel stated that threshold reliability and ultimate reliability must be distinguished when considering the reliability of a hearsay statement. Threshold reliability is concerned with whether the circumstances surrounding the statement itself provide circumstantial guarantees of trustworthiness. Ultimate reliability requires that the statement be corroborated by and consistent with other evidence.
 We recognize that corroboration is an important factor in assessing the weight to be given to hearsay evidence. As stated in Re E.A. Manning Ltd. (1995), 18 O.S.C.B. 5317 at para. 28:
As permitted by subs. 15(1) of the Statutory Powers Procedure Act, we admitted hearsay evidence. However, when such evidence was the only evidence on a particular issue, we have given it very little weight. To the extent that the evidence was corroborative of other evidence, on the other hand, we were prepared to give it greater weight.
 For some findings of fact in this case we have relied in part upon hearsay evidence which we believe meets these tests of both threshold and ultimate reliability and we have given what we consider to be the proper weight to it.
 Of the Respondents, only Allen chose to give oral evidence under oath and subject to cross-examination. Both the respondents Allen and Ramdhani made certain factual admissions during their submissions to the panel and the questioning of witnesses. We considered this evidence and the factual admissions in arriving at our decision.
D. Commission’s Jurisdiction over Trades in Securities in a Different Province
 In this case, sales of securities of Andromeda were made by the Respondents to investors in Ontario and in Alberta. A substantial portion of the activities surrounding the sales of these securities by the Respondents took place in Ontario. The issuer is located in Welland, Ontario. The Respondent’s offices and operations were based in Toronto, Ontario. The promotional materials were mailed from Toronto. The phone calls made by the Respondents were made from their Toronto offices and cheques in payment for the purchase of Andromeda securities were also sent to this location.
 The Commission has jurisdiction over a trade in securities, notwithstanding that the purchaser is in a different province, provided that some substantial aspect of the transaction occurred within Ontario. In Gregory & Co. Inc. v. Quebec Securities Commission,  S.C.R. 584, at para. 10, the Supreme Court of Canada concluded that the fact that the offices and operations of the vendor were in Montreal was sufficient to give the Quebec Securities Commission jurisdiction over sales to extra-provincial purchasers.
 The event that gave rise to the activities of the Respondents being considered at this hearing was an offering to the public by Andromeda, an Ontario corporation, of its common shares and warrants to purchase common shares.
 Andromeda arose from a reverse takeover of E-Commatrix.com Inc., a company founded in 1999 which had previously been the web development arm of Trimedia Marketing and Publicity Inc.
 Andromeda has never filed a preliminary prospectus or a prospectus with the Commission.
 Andromeda retained a consultant to explore available methods for raising capital. Following advice from the consultant, the company decided to pursue sales of its securities to accredited investors pursuant to the requirements of Ontario Securities Commission Rule 45-501. The consultant also referred Andromeda to the respondent Allen, who was described as an expert in the raising of capital for junior public companies by way of the “Accredited Investor Exemption”.
 In August 2002, Andromeda issued a private offering memorandum for the sale to accredited investors of a maximum of 2 million units, comprising common shares and warrants to purchase common shares of the company, at a price of $1.00 per unit. Each unit consisted of one common share and a warrant to purchase one half common share of Andromeda.
 On August 23, 2002, Allen entered into what was entitled a Business Consultant Agreement (the “Agreement”) with Andromeda whereby he agreed as a consultant to “refer potential investors to the Company and discuss the merits of the Company with potential and existing investors”. Pursuant to the Agreement, Allen agreed to devote a minimum of 160 hours per month to his duties for a period of 6 to 8 months. According to the Agreement, Allen’s compensation for his services was to be an amount equal to 60 % of the funds collected by him from the offering; 20% was to reimburse him for overhead/expenses and 40% was to pay his commission.
 Pursuant to the Agreement, between September 2002 and June 2003, Allen and his employees (including the other respondents, the “Salesmen”) undertook a sales program for Andromeda’s securities. Allen paid a commission to the Salesmen of 20% of the funds collected by them from sales of Andromeda securities.
 A certain type of investor was targeted: individuals aged 40 to 60 with reported income exceeding $100,000 and who owned businesses with between 5 and 50 employees. Allen or his staff sent a glossy brochure and a summary of the offering to potential investors whose names were obtained from a purchased list. Allen or one of the Salesmen then made follow-up phone calls to potential investors and if one expressed interest, the investor was sent further material by XpressPost or courier. If an investor agreed to make a purchase, Allen or one of the Salesmen would send an “invoice” for the purchase price, together with a subscription agreement. Allen collected and forwarded to Andromeda signed subscription agreements and photocopies of the investors’ cheques made payable to Andromeda. The majority of the investors were not provided with a copy of the offering memorandum.
 The Respondents sent approximately 30,000 brochures to potential investors and made approximately 1,000 phone calls per week to potential investors.
 Through the sales efforts of Allen and the Salesmen, the Andromeda securities offering raised $1,080,000 from approximately 240 investors. The company filed a Form 45-501F for Ontario investors, certifying that the investor purchased the securities pursuant to the accredited investor exemption. Allen was represented on those forms to be the sales agent for Andromeda.
 Allen was paid $600,624 in total fees or commission by Andromeda pursuant to the Agreement.
 Andromeda declared the offering closed in June 2003.
 The Respondents sold Andromeda’s securities to accredited investors and also to investors who were not accredited investors. After the closing of the offering, Andromeda attempted to contact and interview these investors and to refund the purchase price to those investors who did not qualify as accredited investors.
 This proceeding raises the following issues:
- Did the Respondents trade without appropriate registration?
- Did the Respondents engage in a distribution of securities to investors who did not qualify as accredited investors and for which no other exemption was available under the Act?
- Did the Respondents fail to disclose commissions received in connection with their trades of securities?
- Did the Respondents make prohibited representations to investors during the course of an offering?
- Did the Respondents use high-pressure sales tactics when selling securities to members of the public?
 Counsel for Staff submits that:
- at all relevant times, the Respondents were trading in securities without being registered to do so, contrary to section 25 of the Act and to the public interest. Neither the accredited investor exemption under Rule 45-501, nor any other exemption from registration is available to the Respondents. They acted as market intermediaries and thus were required to be properly registered;
- the Respondents distributed securities to investors without a prospectus or preliminary prospectus being filed and receipts obtained, contrary to section 53 of the Act; and
- the Respondents acted as principal or agent in connection with a trade in securities without disclosing the commission charged in respect of the trade contrary to section 36 of the Act and to the public interest.
 Counsel for Staff also submits that the Respondents made prohibited representations during the course of the offering, contrary to section 38 of the Act and to the public interest. Counsel submits that the Respondents made representations to potential investors to the effect that Andromeda’s shares would be listed on an exchange for trading and provided investors with inaccurate and misleading information about Andromeda and its common shares, including:
- that Andromeda had a major contract with Bell Mobility;
- that Andromeda’s shares were heavily traded in the over-the-counter market; and
- that institutional investors would make purchases of large blocks of Andromeda’s shares.
 Counsel for Staff further submits that the Respondents used high-pressure sales tactics when selling securities to members of the public contrary to the public interest including: taking an aggressive and demanding tone when dealing with investors, suggesting that legal action would be taken if investors did not pay for investment commitments that were tentative and sending couriers to pick up cheques where an investor had not committed to purchase.
 In his written submission, the respondent Allen rejects the submissions by Staff counsel. In particular, he submits that at no time did he ever hold himself out as being in the business of trading in the securities of Andromeda and others. On the contrary, he submits that he was hired by Andromeda to refer potential investors to the company for purposes of distributing securities in a private placement. He submits that he was advised by the company on all matters pertaining to the distribution and had no authority to make any decisions to accept or deny a potential subscription from a potential investor. He basically asserts that the activities undertaken by him did not require him to be registered.
 Further, Allen denies that high pressure sales tactics were used by him and Ramdhani except for one instance where a courier was sent to a potential investor. He submits that shareholders were happy with how they were introduced to Andromeda. As to the allegation of misrepresentations made to potential investors, Allen asserts that Staff was unable to provide any direct evidence to corroborate this assertion.
 In his written submissions, Allen did not address the allegation that he failed to disclose commissions received in connection with an offering . However, in his evidence, Allen acknowledges that neither he nor his Salesmen disclosed their commissions to investors.
 In his written submissions, the respondent Ramdhani states that while there has been some dispute about the facts: “There has been no denial that a trade of Andromeda common shares did take place; or that of sending brochures to potential investors in Andromeda’s common shares; calling and soliciting investments in Andromeda; making representations to investors about Andromeda and the offering; sending invoices and subscription agreement (sic) to investors; receiving cheques and signed subscription agreements from investors; and sending the completed documentation and funds to Andromeda.” Ramdhani submits that the Respondents and Staff have “different criteria for the application of some of the key term (sic), that is, different conceptions of what is named by that term”.
 Further Ramdhani submits:
- that an exemption from the registration requirements of the Act is available to the Respondents by virtue of the fact that Andromeda made a filing with the Commission under the exempt distribution and that the Commission was aware or ought to have been aware that Allen and others were raising capital for Andromeda;
- that the Commission has no jurisdiction or authority over all of the trades in securities of Andromeda made by the Respondents in Alberta or any other province; and
- that Allen assured the other respondents that all the people they were contacting were “screened for accredited investor status” and Allen alone must be held responsible for showing “disregard for the interests of investors”. He also argues that the President of Andromeda knew that Allen employed a number of salesmen to raise money and that he never raised any objection.
 Ramdhani submits that he did not use high pressure sales tactics and that the majority of investors were comfortable with the sales approach of all the Respondents except those of Allen.
 Section 25(1)(a) of the Act sets out the general registration requirements for trading in securities:
No person or company shall,
(a) trade in a security or act as an underwriter unless the person or company is registered as a dealer, or is registered as a salesperson or as a partner or as an officer of a registered dealer and is acting on behalf of the dealer.
 Pursuant to section 53(1) of the Act, no company shall trade in a security where such trade would be a distribution of such security, unless a preliminary prospectus and a prospectus have been filed and receipts obtained from the Commission:
No person or company shall trade in a security on his, her or its own account or on behalf of any other person or company where such trade would be a distribution of such security, unless a preliminary prospectus and a prospectus have been filed and receipts therefor obtained from the Director.
 OSC Rule 45-501 provides certain exemptions from the registration requirements for trading in securities. One of the categories of exemptions includes the sale of securities to “accredited investors”. Section 2.3 of Rule 45-501 provides that sections 25 and 53 of the Act do not apply to trades in securities if the purchaser is an accredited investor and purchases as principal. However, section 3.4 of Rule 45-501 removes the registration exemption for market intermediaries.
 The definition of market intermediary is set out at section 204(1) of the Regulation to the Act, R.R.O. 1990, Regulation 1015 (the “Regulation”):
“market intermediary” means a person or company that engages or holds himself, herself or itself out as engaging in Ontario in the business of trading in securities as principal or agent, other than trading in securities purchased by the person or company for his, her or its own account for investment only and not with a view to resale or distribution, and, without limiting the generality of the foregoing, includes a person or company that engages or holds himself, herself or itself out as engaging in the business of,
(a) entering into agreements or arrangements with underwriters or issuers, in connection with distributions of securities, to purchase or sell such securities,
(b) participating in distributions of securities as a selling group member,
(c) making a market in securities, or
(d) trading in securities with accounts fully managed by the person or compa ny as agent or trustee,
whether or not the person or company engages in trading in securities purchased for investment only.
 Section 36(1)(f) of the Act requires the disclosure of a commission in respect of a trade in a security. Section 36(1)(f) states:
Every registered dealer who has acted as principal or agent in connection with any trade in a security shall promptly send by prepaid mail or deliver to the customer a written confirmation of the transaction, setting forth,
(f) the commission, if any, charged in respect of the trade; and
 Section 38 of the Act states:
(1) No person or company, with the intention of effecting a trade in a security, other than a security that carries an obligation of the issuer to redeem or purchase, or a right of the owner to require redemption or purchase, shall make any representation, written or oral, that he, she or it or any person or company,
(a) will resell or repurchase; or
(b) will refund all or any of the purchase price of, such security.
(2) No person or company, with the intention of effecting a trade in a security, shall give any undertaking, written or oral, relating to the future value or price of such security.
(3) Subject to the regulations, no person or company, with the intention of effecting a trade in a security, shall, except with the written permission of the Director, make any representation, written or oral, that such security will be listed on any stock exchange or quoted on any quotation and trade reporting system, or that application has been or will be made to list such security upon any stock exchange or quote such security on any quotation and trade reporting system, unless,
(a) application has been made to list or quote the securities being traded, and securities of the same issuer are currently listed on any stock exchange or quoted on any quotation and trade reporting system; or
(b) the stock exchange or quotation and trade reporting system has granted approval to the listing or quoting of the securities, conditional or otherwise, or has consented to, or indicated that it does not object to the representation.
A. Did the Respondents trade without appropriate registration? and
B. Did the Respondents engage in a distribution of securities to investors who did not qualify as accredited investors and for which no other exemption was available under the Act?
Trading of Securities
 Andromeda hired Allen, who was described as an expert in the raising of capital for public companies by way of the accredited investor exemption. Based on this referral, Allen entered into the Agreement with Andromeda whereby he agreed to “refer potential investors to the Company and discuss the merits of the Company with potential and existing investors” (see paragraph  of these Reasons for further details).
 Pursuant to the Agreement, between September 2002 and June 2003, Allen and his employees (including the Salesmen) undertook a sales program for Andromeda’s securities.
 In the course of the sales program, Allen and his staff sent brochures to potential investors whose names were obtained from a purchased list. Allen, or a salesperson employed by Allen, then made follow-up phone calls to these potential investors. If a potential investor expressed interest, the investor would be sent further material by XpressPost or courier. If an investor agreed to a purchase, an “invoice” and a subscription agreement would be sent to the investor. Allen collected signed subscription agreements and forwarded to Andromeda photocopies of the investors’ cheques (see paragraph  of these Reasons for further details).
 On several occasions, Allen confirmed his involvement in the sale of Andromeda’s securities and the nature of his business activities. For instance, in an e-mail to Robinson dated May 14, 2003, Allen wrote “we negotiate private placements for a living”.
 Further, in a letter dated August 6, 2003 addressed to Downs, Allen wrote:
Since August, 2002 Andromeda Media Capital Corporation (“Andromeda”) has been raising capital through a private offering of common shares and warrants being offered to purchasers who are accredited investors pursuant to the requirements of OSC Rule 45-501. I have been employed by Andromeda throughout this period as a consultant to assist in the selling effort. My personal Corporation J. Allen Capital Inc., holds the lease on the premises at Suite 1205 , 20 Bay Street , Toronto but has not otherwise participated in the offering. Mr. Kabir was employed by me to assist me in the solicitation of qualified investors, but he was never an employee of J. Allen Capital Inc.
 In addition to sales made to investors in Ontario, securities of Andromeda were sold to investors in Alberta. Downs testified that Mark Arsenault, the manager of investigations at the Alberta Securities Commissions (the “ASC”), told her that the ASC had received complaints about Allen selling Andromeda securities in Alberta.
 At the hearing, Gilbert McIntee (“McIntee”), an investor, testified that he purchased 2,000 Andromeda units in or around March 2003 through da Silva from J. Allen Capital. He also testified that he was contacted again by Allen “not too long after that” to make an additional purchase.
 McIntee also gave evidence as to his status as an accredited investor. Based on his evidence, we concluded that he did not qualify as an accredited investor within the meaning of Rule 45-501.
 Based on the evidence before us, we conclude that the respondent Allen solicited, negotiated, and acted in furtherance of trades in securities of Andromeda, and therefore traded in those securities.
 At the hearing, Allen testified that he engaged staff to help him with the sales of Andromeda’s securities including the respondent Ramdhani.
 During his cross-examination of Downs, the respondent Ramdhani made the following comments in relation to alleged complaints from persons residing in Alberta who were solicited to purchase securities of Andromeda:
Q. …I'm suggesting to you that this person -- if this person complains about me, he actually did buy and did agree to accept a courier, because a second thing we do not do in our business, we do not tell the courier to go and pick up a cheque. It's an envelope that they're picking up.
So I'm suggesting to you, Ms. Downs, that this person, if he did buy, he knew that courier is coming out to pick up a cheque, and this is no negative billing. He agreed to purchase. I do not -- I cannot remember this person, but I remember the incident in Medicine Hat at that time. I also remember speaking to a wife of somebody who was contacted and she said—
 At the hearing, during the course of an exchange with the Chair of the panel, Ramdhani also confirmed that he had spoken to potential investors residing in Alberta regarding purchases of securities of Andromeda.
 Documentary evidence presented to us established that some solicitations to potential investors had been made by an individual called “Ram”. When asked who “Ram” was during the course of his cross-examination, Allen identified the respondent Ramdhani who was then present in the hearing room.
 During his cross-examination of Allen, Ramdhani confirmed that he had been involved in selling securities with Allen and that in fact, Allen had terminated his employment:
Q. Okay. Mr. Allen, is it correct to say that on the day that you terminated me, my employment with you, you gave -- the reason is that you are seeking to become a limited market dealer and no other reason?
A. No, that's not correct.
Q. So Mr. Allen, why did you wait at least two months after the Medicine Hat incident to terminate my employment with you? It doesn't seem correct.
A. I don't recall waiting
 Ramdhani admitted his involvement in his own written submissions:
There has been no denial that a trade of Andromeda common shares did take place; or that of sending brochures to potential investors in Andromeda’s common shares; calling and soliciting investments in Andromeda; making representations to investors about Andromeda and the offering; sending invoices and subscription agreement (sic) to investors; receiving cheques and signed subscription agreements from investors; and sending the completed documentation and funds to Andromeda.
 Based on the evidence before us, we conclude that the respondent Ramdhani solicited, negotiated, and acted in furtherance of trades in securities of Andromeda, and therefore traded in those securities.
 At the hearing, Allen testified that he engaged Abel da Silva as one of the Salesmen. He described da Silva as being “quite a salesman”.
 Downs testified that McIntee had been contacted by da Silva of J. Allen Capital to sell him securities of Andromeda. As a result of this call, she said that McIntee invested $2,000 in Andromeda securities in March 2003. Although Downs’s evidence is hearsay, we find it reliable and we give it appropriate weight, as it is corroborated by the direct evidence given by McIntee and Allen.
 McIntee testified that da Silva contacted him by telephone to sell him securities of Andromeda and confirmed that he purchased 2,000 Andromeda units at a cost of $2,000.
 Allen further testified that after da Silva’s sale to McIntee, Allen made a follow-up call to McIntee to ask him to make an additional purchase.
 Allen also testified that he and the Salesmen had set up a system for keeping track of sales of Andromeda securities, using post-it notes. He explained that, as many of the investors sent cheques drawn on corporate accounts, the post-it notes were used to identify the name of the person that should appear on the certificate evidencing the securities and the name of the salesman who had been involved with the specific sale. Several cheques had post-it notes on them confirming the involvement of the respondent da Silva in the sales program.
 Based on the evidence before us, we conclude that the respondent da Silva solicited, negotiated, and acted in furtherance of trades in securities of Andromeda, and therefore traded in those securities.
 In a response to a letter addressed to him by Downs, Allen wrote that Kabir was employed by him personally to assist in the solicitation of qualified investors for the Andromeda offering.
 At the hearing, Allen testified that he hired Kabir as one of the Salesmen.
 Allen testified that Kabir had been involved in the sales of securities of Andromeda. A cheque payable to Andromeda by a company had a post-it note on it identifying the person for whom a certificate should be issued. The post-it note also identified “Syed” as the salesman who had sold the shares to this investor.
 Robinson also testified that, in the course of an audit she conducted, she talked to five investors who told her that Kabir was the individual who sold them Andromeda’s securities. Although this is hearsay evidence, we find it reliable and we give it appropriate weight as it is corroborated by the direct evidence of Allen who testified as to Kabir’s involvement in the sales of Andromeda securities.
 Based on the evidence before us, we find that the respondent Kabir solicited, negotiated, and acted in furtherance of trades in securities of Andromeda, and therefore traded in those securities.
 Market intermediaries are persons or companies that engage or hold themselves out as engaging in Ontario in the business of trading in securities as principals or agents, other than trading in securities purchased by those persons or companies for their own account for investment only and not with a view to resale or distribution.
 The respondent Allen argued that at no time did he ever hold himself out as being in the business of trading in the securities of Andromeda. On the contrary, he submits that he was hired by Andromeda to refer potential investors to the company for purposes of distributing shares in a private placement.
 We disagree with Allen’s characterization of his activities. Despite his attempt to structure his retainer by Andromeda as that of an employee of the company, in order to avoid registration requirements, we find that he acted as a market intermediary and not as an employee of Andromeda.
 We conclude that:
- Allen was paid an aggregate fee or commission of 60% of the funds collected by him and his staff from the sale of securities of Andromeda; 40% as commission to him and 20% to reimburse his overhead/expenses;
- Allen had little or no supervision from Andromeda. He provided his own office and equipment, hired and paid his own staff, took on the risk of loss if no securities were sold, and had substantial opportunities for profit; and
- Allen threatened Andromeda on several occasions that he would switch investors to other offerings if Andromeda did not accept investors sourced by him or his staff, which supports the allegation that he was involved in the business of trading in securities.
 Further, we also find that none of the Respondents were employees of Andromeda. Indeed, the evidence shows that the Respondents, except for Allen, had no direct contact with Andromeda and, for a period of time, Andromeda was not aware of their involvement in its offering.
 Hence, we conclude that Allen and the other respondents were engaged in the distribution of securities of Andromeda as market intermediaries to members of the public purportedly pursuant to the accredited investor exemption in Rule 45-501.
 Section 25(1)(a) of the Act requires that a person not trade in a security unless that person is registered as a dealer, or as a salesperson, partner, or officer of a registered dealer.
 Further, a person need not actually effect a sale of a security to be engaged in trading. Merely preparing a market, or accepting funds can constitute a “trade” within the meaning of the Act (see for example Re Guard Inc. (1996), 19 O.S.C.B. 3737, at para. 77 and Re Lett (2004), 27 O.S.C.B. 3215, at paras. 55 and 61).
 The registration requirements of the Act do not apply to a trade in a security if the purchaser is an accredited investor and purchases as principal through a person who is a registered market intermediary. Hence, an unregistered trader of securities cannot avoid the registration requirements simply by trading in securities to accredited investors under Rule 45-501.
 We conclude that at all relevant times, neither Allen nor any of the other respondents were registered under section 25 of the Act in any capacity.
Did the Respondents trade without appropriate registration?
 Based on our findings as to the activities carried out by the Respondents, we find that the Respondents have solicited, negotiated, and acted in furtherance of trades in securities of Andromeda and therefore traded in those securities without being properly registered, contrary to section 25 of the Act.
Did the Respondents engage in a distribution of securities to investors who did not qualify as accredited investors and for which no other exemption was available under the Act?
 We also find that the Respondents participated in a distribution of securities of Andromeda to investors without a prospectus or preliminary prospectus being filed and receipts obtained and without an exemption being available to them, contrary to section 53 of the Act.
C. Did the Respondents fail to disclose commissions received in connection with their trades in securities?
 Pursuant to section 36(1)(f), every registered dealer who acts as principal or agent in connection with a trade is required to disclose any commission charged in respect of that trade to the customer.
 A dealer who is not registered, but who is conducting activities for which registration is required, engages in conduct contrary to public interest if he or she fails to disclose to investors the commissions charged on a trade (see Re Costello (2003) 26 O.S.C.B. 1617, aff’d (2004), 242 D.L.R. (4 th) 301 (Div. Ct.) at para. 44).
 The evidence establishes that Allen’s agreed overall fee or commission for his services was 60% of the funds he collected from the offering. This commission is substantial and we consider that knowledge of it was material to potential investors. Indeed, some may have been discouraged from investing had they known that 60% of their investment would be paid out as fees or commissions.
 However, the respondent Allen did not, at any time, disclose to investors that he or the Salesmen would receive commissions on the sales of Andromeda securities, nor the rate of the commission. At the hearing, Allen confirmed this fact. Allen testified that he and the Salesmen did not tell the investors that they were paid commissions.
 Although Allen stated that neither he nor his staff disclosed to investors what commission they would be paid, we have no corroborative evidence to establish that the other respondents, Ramdhani, da Silva and Kabir, who were involved in trading securities of Andromeda, failed to disclose their commissions.
 We find that the respondent Allen’s failure to disclose the commission he earned in respect of sales of securities of Andromeda was contrary to section 36(1)(f) of the Act and to the public interest.
Did the Respondents make prohibited representations to investors during the course of an offering?
Did the Respondents use high-pressure sales tactics when selling securities to members of the public?
 Counsel for Staff submits that the Respondents made prohibited representations with the intention of effecting trades in securities of Andromeda and that they used high-pressure sales tactics when selling these securities to members of the public.
 While there is some evidence on the record to support Staff’s submissions, it is, in our view, anecdotal, mostly in the form of uncorroborated hearsay evidence. Hence, we find that Staff has not established these allegations.
 By engaging in trades in securities of Andromeda without appropriate registration, the Respondents have violated section 25(1) of the Act, and have engaged in conduct contrary to the public interest.
 By engaging in a distribution of securities of Andromeda to investors who did not qualify as accredited investors and for which no other exemption was available under the Act, the Respondents violated section 53 of the Act and have engaged in conduct contrary to the public interest.
 By failing to disclose commissions received in connection with his trades in securities of Andromeda, the respondent Allen violated section 36 of the Act and acted contrary to the public interest.
 As a result of this Decision, the parties shall contact the Secretary’s office within the next 10 days in order to set time limits for the filing of written submissions and to set a date for a hearing relevant to the matter of sanctions .
DATED at Toronto this 12 th day of October, 2005.
“Robert L. Shirriff”
Robert L. Shirriff
“David L. Knight”
David L. Knight