Court Of Appeal Of Alberta Affirms Broad Definition Of 'Security'

In R. v. Stevenson1, the appellant was charged with a number of offences under the Securities Act2 (the Act) in connection with the raising of money from the public through "loan agreements". He was acquitted at trial3 on the basis that the loan agreements did not constitute "securities" as defined in the Act.4

The loan agreements were for a term of six months and provided a return to the lender of between 400 and 2,000 per cent, payable from the borrower's profits. The borrower represented to the lenders that he had contracted with the sole beneficiary of a valuable Philippine estate to assist in gaining access to the estate assets and would be paid a portion in exchange. The loan proceeds were to finance the costs of that work.

The trial judge found that the loan agreements were "simply contracts between the parties and should be enforced in accordance with the intention of the parties and the normal rules of contract law". Each loan agreement was a "separate, distinct, and private transaction" and did not create any securities.

The summary conviction appeal court judge overturned that ruling, noting the lengthy and complex definition of "security" in the Act, including any of the following:

(ii) any document constituting evidence of title to or interest in the capital, assets, property, profits, earnings or royalties of any person or company; ...

(v) any bond, debenture, note or other evidence of indebtedness; ...

(ix) any profit-sharing agreement or certificate; ...

(xiv) any investment contract ...

The summary conviction appeal court judge found that the loan agreements were clearly "evidence of indebtedness", and also met the other three branches of the definition of security noted above.

Decision of the Court of Appeal

The Court of Appeal of Alberta was quick to reject the appellant's argument that the loan agreements were not securities but rather "simply contracts", reiterating that "[t]he regulation of the raising of funds from members of the public has at its core the regulation of particular investment contracts."5 The Court went further, finding that the "entire process of raising money from the general public is ... regulated under the [Act]". The Court strongly rejected the argument that the loan agreements were not securities because they reflected "private transactions". Further, provisions of the loan agreements stating that the investment was not subject to securities law and did not constitute a transaction in securities...