On June 11, 2013 the OSC hosted an “investor” roundtable to hear from investors and potential investors on investing in start-ups and small and medium sized enterprises (“SMEs”). This event focused primarily on an OSC concept idea which contemplates allowing businesses to sell shares through equity crowdfunding. FAIR Canada’s Ermanno Pascutto represented investor interests on the OSC’s panel, along with long-time investor advocate and former OSC Commissioner Glorianne Stromberg. Both voiced serious concern over this concept idea and opposed the introduction of equity crowdfunding in Ontario. Brian Koscak of the Exempt Market Dealers Association of Canada represented the industry perspective and spoke in favour of allowing crowdfunding if certain regulatory protections are put into place. While billed as an “investor” roundtable, the event was attended primarily by industry representatives, including those involved in running or servicing SMEs, who stand to benefit from a potential crowdfunding exemption.
OSC Grants Questionable Crowdfunding Exemption
More recently, whilst the OSC has publicly stated that it has not decided on whether it will proceed with the crowdfunding concept proposal, it has taken a step in that direction by granting an exemption from know-your-client and suitability requirements to MaRS VX, permitting it to operate an online portal that will “bring together” accredited investors and issuers that are social impact and/or environmental impact issuers. This exemption was granted in the absence of public consultation, despite its direct relevance to the current debate about the appropriateness of current exemptions (especially the accredited investor exemption), crowdfunding and investor protection. In light of serious compliance deficiencies with the accredited investor exemption noted in recent regulatory reports, FAIR Canada is concerned that the OSC is permitting the operation of a portal model that relies upon an exemption that is flawed in principle and practice. FAIR Canada questions whether it was appropriate: (1) to grant an exemption to MaRS prior to a determination of the appropriateness of current and potential exemptions, and (2) for the OSC to remove investor protections (i.e. know your client and suitability) from over 350,000 Ontario retail accredited investors so that they can be solicited to invest in highly speculative ventures without any public process.