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The scope of the Securities Act

The Court of Appeal of Quebec recently ruled on the illegal practice of the securities brokerage profession and the scope of the term "security" under the Securities Act.

The appellants are a natural person and a company who have made certain investments for close friends. They appealed a judgment of the Superior Court which convicted them of having made investments without having a prospectus required by the Autorité des marchés financiers, for having unlawfully exercised the activity of representative of securities broker and to have provided misleading information about a security transaction.

Mr. Doyon encouraged his close friends to give him money so that he can invest it in an investment program providing a 2 to 7% interest rate per month. The lenders sign a "Loan Contract" with Doyon’s company. A few months after their investments, the lenders file a complaint with the AMF, having lost the total value of their initial investment ($ 650,000).

The Court considers that these investments are in fact titles recording a loan and that the LVM must be interpreted broadly and liberally to cover the innumerable plans employed by those who wish to evade the obligations of the Securities Act. This interpretation achieves the legislative purpose of the legislator, which is to protect investors.

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