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Victoria’s Aviawest broke B.C. securities law, regulator says

The owners of a once-prosperous Victoria time-share company were well-regarded, diligent business operators, but ran afoul of British Columbia securities law for failing to consider that the promissory notes they were selling to raise capital were se
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Parkside Victoria Resort and Spa on Humboldt Street in Victoria is part of the troubled Aviawest's holdings.

The owners of a once-prosperous Victoria time-share company were well-regarded, diligent business operators, but ran afoul of British Columbia securities law for failing to consider that the promissory notes they were selling to raise capital were securities, a panel of the B.C. Securities Commission has ruled.

The panel ruled that four directors of Aviawest Resorts Inc. broke securities law by selling promissory notes without issuing a prospectus for the sales, which constituted an illegal distribution of securities.

The directors found to have illegally sold securities were company CEO Andrew Pearson, Susan Pearson, who dealt with company fiscal and regulatory matters, company marketing head James Pearson, and chief financial officer Rob DiCastri, who is also a chartered accountant.

The panel dismissed allegations against company operations manager Lawrence Pearson.

In its decision, the panel issued a cease-trade order against the now-dormant Aviawest, but levelled no penalty against the individual respondents on the basis they had not unjustly enriched themselves and had stopped selling the notes as soon as they realized they had a problem.

“In particular, we are satisfied that they pose no threat to investors or markets, and that orders are not required to deter them from future misconduct,” the panel wrote in the decision. However, some investors in the promissory notes lost money when Aviawest ran into financial difficulties in 2011 and sought court protection from its creditors under the Companies Creditors Arrangement Act. Restructuring under protection involved the sale of some of Aviawest’s assets to another company, and in March of 2012, Aviawest was forced into receivership.

Patrick Sullivan, legal counsel for the Pearsons and DiCastri in the BCSC hearings, said that payments are continuing to be made on some of the promissory notes, but he didn’t know how many.

“At the end of the day, I think this was a fair decision that recognizes how hard these people worked at complying [with regulations],” Sullivan said.

The panel noted that Aviawest did little to promote the sale of the notes, made almost exclusively to existing owners.

In the end, the panel decided that the violation applied to the transactions of 150 investors.

The amount of money involved was not stated.

BCSC enforcement staff started proceedings on a larger case against Aviawest in its August 2012 notice of hearing, which alleged the company and its directors illegally sold $12.7 million in securities to 214 investors by way of promissory notes.

However, the BCSC executive director conceded some of the transactions were exempt, leaving a case where $11.6 million in notes were sold to 206 investors.

In its decision, the panel said that it accepted that the testimony of the individual respondents, characterizing them as “articulate and credible.”

The panel ruled that one set of promissory notes worth $1.5 million, which offered existing time-share owners non-cash incentives to trade their time-share interests, were not securities.

And it further accepted that for some of the transactions, the business relationship between the directors and buyers was close enough that they were exempt from the prospectus requirement.