The Ontario Securities Commission (OSC) recently published OSC Staff Notice 33-738. The Staff Notice contains commentary regarding Internet platforms and other "matchmaking" services that are run by persons who are not dealers or advisers in the conventional sense. This might include, for example, "angel networks" that connect start-up companies with angel investors, either through on-line matchmaking sites or more traditional methods. OSC Staff caution that persons engaged in this activity may be "in the business" of trading or advising in securities. If so, they are required to register as dealers or advisers.
The Staff Notice provides examples of entities which are considered in the business of trading or advising (and therefore must register). These examples include:
- An internet platform that seeks to showcase investment opportunities to investors in return for fees from issuers and dealers that advertise on the platform;
- An angel investor organization or investment club that identifies investment opportunities for members, assists with due diligence on investments, and provides updates on the performance of investments in return for membership fees and, in some cases, fees and/or broker warrants granted as compensation on investments (collectively broker-type compensation); and
- “Finders” who participate in private placements in return for broker-type compensation.
Unless registered or granted exemptive relief by the OSC, entities that offer these services may not be operating in compliance with Ontario’s securities laws. Start-ups should also be aware of this when considering the appropriate use of on-line platforms, angel groups or finders to work with when raising capital.
OSC Staff also emphasized that the Commission continues to support innovative business models, and that the Commission is open to considering exemptive relief from dealer requirements if investor protection concerns can otherwise be adequately addressed.
Andrea Johnson is a partner in FMC's Ottawa office. Her practice focuses on corporate and securities law, with an emphasis on technology and emerging growth companies.