Overview
The Ontario's Capital Markets Tribunal's (the "Tribunal") recent decision in Go-To Developments Holdings Inc (Re), 2025 ONCMT 8, provides important guidance on the bounds of capital raising activities undertaken by real estate development companies. The Ontario Securities Commission (the "OSC") alleged that:
- the real estate development company had defrauded investors in their capital raising activities for the purchase and development of real estate projects; and
- this type of conduct fell within the definition of being in the business of "trading in securities" which requires registration under the Securities Act, S.O. 1990, c. S.5 (the "Act").
The Tribunal found that fraud had occurred, but the specific conduct did not constitute "trading in securities" and therefore did not require registration under the Act.
Facts
Go-To Developments Holdings Inc. ("Go-To Developments") is a real estate development company that operates through corporate subsidiaries and project-specific limited partnerships. It was founded and is operated by the sole director and officer, Oscar Furtado.
One of the projects at issue in this matter is the Adelaide Project. It was undertaken by Go-To Developments as a proposed acquisition and development of a land assembly of two properties in downtown Toronto (the "Adelaide Project"). In order to pursue the Adelaide Project, Go-To Developments formed the Adelaide LP. Furtado and Go-To Developments began seeking financing, partners and investors for the Adelaide Project in fall of 2018. On April 5, 2019, Adelaide LP acquired Adelaide Properties.
Adelaide LP continued capital raising activities into 2020. The OSC got involved between April 30, 2019 and December 10, 2020 when they sought investigation orders regarding Furtado and Go-To Developments' conduct.1
The OSC alleged that Furtado and the Corporate respondents defrauded investors in their capital raising for, and activities related to, limited partnerships for the purchase and development of real estate projects.
Decision
Issue 1: The Tribunal finds that the respondents had engaged in fraud
- The respondents perpetrated fraud in each of the five
ways alleged by the OSC.2For
each of the five allegations the Tribunal undertook a two-step
analysis that looked first at the objective and then the subjective
element of the fraud. Ultimately, for each allegation, they found
that on both steps the Commission had established the fraud:
- First, Furtado did not disclose to potential investors of his intent to profit.3
- Second, it was fraud to redeem the units of one investor, in contravention of representations made to other investors.4
- Third, the defendants used assets of two other limited partnerships created by Go-To Developments, in order to secure obligations for the Adelaide GP and LP.5
- Fourth, when soliciting a further $12 million
investment from Marek, Furtado made further dishonest acts
including making misrepresentations about the Adelaide LP's
financial picture.6 Furtado provided Marek with an
Updated Deck that materially understated the Adelaide LP's debt
and overstated its equity.7
- Though Marek received the disclosure document with material misstatements, the Updated Deck, after making his $12 million investment, the Tribunal reiterated that reliance is not a necessary element of a finding of fraud.8
- Fifth, Furtado's acts, which were undertaken to obtain a personal benefit from the Adelaide LP's acquisition of the Adelaide Properties, constituted a fraud on the Adelaide LP itself.9
- Furtado gave misleading statements contrary to s. 122(1)(a) of the Act (which makes it an offence to make misleading statements in submissions to the OSC).10
Issue 2: The Tribunal finds that registration was not required in the circumstances
- Furtado and Go-To Developments did not engage in the business of trading securities without registration. Furthermore, it was not required that they be registered.11In support of this finding, the Tribunal stated that capital raising was for a defined underlying business in respect to a particular property development.12 Go-To Developments and Furtado were acting primarily as a real estate developer, rather than being in the business of trading securities.13 Soliciting investments only represented a small fraction of management's time.14
- Since the respondents were not required to be registered, the Tribunal did not go on to consider whether the respondents made false or misleading statements to investors about the use of invested funds.15
Takeaways
- Reliance is not a necessary element of fraud: The Tribunal confirmed that the case law demonstrates that reliance is not a necessary element of a finding of fraud.16
- The need for dealer registration depends on the circumstances:
- In this case, the Tribunal's analysis focused on the conduct of the developer and determined that selling project-specific LP units was a type of capital raising that did not require dealer registration under securities legislation.
- The Tribunal distinguished this case from a scenario involving pooled mortgage investment funds, where registration was required.17
- It remains to be seen how the Tribunal might rule in different scenarios outside of the project-specific limited partnership context, e.g. where capital raising is undertaken on a repetitive basis and/or where numerous properties are packaged into a collective investment vehicle. Given this remaining area of uncertainty, it is prudent to consult with legal counsel when undertaking capital raising activities.
Footnotes
1. Go-To Developments Holdings Inc (Re), 2025 ONCMT 8, at para 10 [Re Go-To Developments].
2. Re Go-To Developments, at para 182.
3. Re Go-To Developments, at paras 84 & 86.
4. Re Go-To Developments, at para 87.
5. Re Go-To Developments, at para 99.
6. Re Go-To Developments, at paras 113-114.
7. Re Go-To Developments, at para 115.
8. Re Go-To Developments, at paras 118-121.
9. Re Go-To Developments, at para 127.
10. Re Go-To Developments, at para 182.
11. Re Go-To Developments, at para 151.
12. Re Go-To Developments, at para 141.
13. Re Go-To Developments, at para 146.
14. Re Go-To Developments, at paras 143 & 147.
15. Re Go-To Developments, at para 151.
16. Re Go-To Developments, at para 58.
17. Re Go-To Developments, at para 147. See Paramount Equity Financial Corporation (Re), 2022 ONSEC 7.
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