Executive Summary: Key Legal and Evidentiary Issues

• Characterization of Peblik’s cryptocurrency token marketing as “fraud” under s. 126.1 of the Securities Act, focusing on false claims that tokens were secured by an interest in the Thierry Mine.
• Evidentiary treatment of investor loss and whether actual deprivation versus risk of deprivation is required to establish the actus reus of fraud.
• Causation on the deprivation element of fraud, including whether proof of individual investor reliance on specific misrepresentations is necessary.
• Proper application of established Supreme Court fraud jurisprudence (Olan, Vézina, Théroux, Drabinsky, Riesberry) to a crypto-asset offering.
• The legal threshold and framework for granting leave to appeal under s. 131 of the Provincial Offences Act, including what constitutes “special grounds” and public interest/administration of justice.
• Impact of R. v. Hodgson on when an appellate court may substitute a conviction for an acquittal in Provincial Offences Act prosecutions.

Facts and procedural history

Peblik Inc. marketed a cryptocurrency token to investors based on information provided by its founder and directing mind, Stephan Katmarian, who served as founder, executive director, chair, and managing director. The marketing campaign represented that the Peblik token was “backed” or “secured” by Peblik’s interest in a copper mine in northern Ontario called the Thierry Mine. Those representations appeared on Peblik’s website and in associated marketing materials aimed at potential token purchasers. Following a 16-day trial in the Ontario Court of Justice, the trial judge found as a matter of fact that Peblik did not, in reality, have any interest in the Thierry Mine. The statements on its website and in its marketing documents asserting such an interest were found to be deceitful or false. The evidence also showed that 32 individuals collectively invested approximately $484,000 in Peblik tokens and ultimately lost their entire investment. Despite these factual findings, the trial judge acquitted Mr. Katmarian on the fraud count under s. 126.1 of the Securities Act. The trial judge took the view that to establish the actus reus of fraud, the Ontario Securities Commission (OSC) had to prove that the investors suffered an actual loss or deprivation as a result of relying on a misrepresentation, and that they were specifically induced to invest by particular false statements about the Thierry Mine. On the evidentiary record, the judge concluded the OSC had not shown that investors purchased Peblik tokens because of any specific misrepresentation about Peblik’s supposed interest in the mine.

Appeal judge’s decision and substitution of conviction

The OSC appealed the fraud acquittal to the Superior Court of Justice under the Provincial Offences Act. The appeal judge held that the trial judge committed an error of law in her understanding of the deprivation element of criminal fraud. Relying on Supreme Court of Canada authorities, he concluded that deprivation can be made out either by proof of an actual economic loss or by proof that the accused’s dishonest conduct placed the victim’s pecuniary interests at risk; proof of individual reliance on specific statements is not always required. On the record as found by the trial judge, Peblik had falsely represented that its token was backed by a real-world asset (the Thierry Mine) when it had no such interest. The appeal judge concluded that these false asset-backup representations placed investors’ economic interests at risk and thereby satisfied the deprivation component of the actus reus. The judge further found that the mens rea for fraud was established. On the trial judge’s own findings, Mr. Katmarian knew Peblik did not have an interest in the Thierry Mine, knew the representations were false, and understood that describing the token as backed by the mine exposed investors’ funds to risk. Because the trial judge had already made all factual findings necessary to prove each element of the fraud offence, the appeal judge determined that a new trial was unnecessary. Applying the Provincial Offences Act power to vary the result on appeal, he set aside the acquittal and entered a conviction for fraud against Mr. Katmarian.

Issues on leave to appeal to the Court of Appeal

Mr. Katmarian sought leave to appeal the conviction to the Court of Appeal for Ontario. Under s. 131 of the Provincial Offences Act, a defendant requires leave on “special grounds,” limited to questions of law alone, and leave will only be granted where it is essential in the public interest or for the due administration of justice that the appeal proceed. Against this stringent threshold, he advanced two proposed questions of law. First, he asked the Court of Appeal to clarify the standard for causation on the deprivation element of the actus reus of fraud, suggesting that the case law left ambiguity over whether reliance and actual loss must be proved and whether authorities such as R. v. Kazman and R. v. Nowack altered the analysis. Secondly, he argued that the Supreme Court of Canada’s recent decision in R. v. Hodgson modified the test governing when an appellate court may substitute a conviction for an acquittal, including in the context of regulatory or provincial-offence prosecutions, and that this required clarification by the Court of Appeal. He also advanced a broader fairness-based argument that “special leave” should be granted because, without appellate review, he would effectively have no further avenue to challenge his conviction after the OSC’s successful appeal.

Fraud causation, deprivation, and established jurisprudence

On the first proposed question of law—causation and deprivation in fraud—the Court of Appeal reviewed the established Supreme Court line of authority. Those cases state that the deprivation element of fraud is met by proof of detriment, prejudice, or risk of prejudice to the victim’s economic interests and that it is not essential to show actual economic loss. The jurisprudence in Olan, Vézina, Théroux, Drabinsky, and Riesberry confirms that fraud may be established either where a deceit leads to an actual deprivation or where it places the victim’s pecuniary interests at risk, and that inducement and reliance are possible but not invariant routes to proving causation. In Drabinsky, for example, misstatements in a company’s balance sheet as part of an IPO were held to expose the investing public to risk even though there was no direct evidence investors relied specifically on the false balance sheet. Similarly, in Riesberry, fraud was upheld where the accused’s dishonest doping of racehorses created a risk of economic prejudice to bettors, despite the absence of proof that any bettor actually lost money or relied on the rigged conditions. Against this backdrop, the Court of Appeal found no genuine uncertainty or novel point of law concerning causation in fraud. The judge concluded that Kazman and Nowack were case-specific applications of broadly settled principles, not conflicting statements of law. Any error the appeal judge might arguably have made by analogizing this case more closely to Drabinsky and Riesberry, or by using website versions dated after investments as part of his causation analysis, would at most be an error in applying settled law to the facts—i.e., an issue of mixed fact and law. Such issues cannot form the basis for leave under s. 131. The Court of Appeal also rejected the submission that the OSC had impermissibly shifted its causation theory on appeal contrary to authorities such as R. v. Varga. On the record before it, the court saw no basis to interfere with the appeal judge’s rejection of that argument. Accordingly, the Court of Appeal refused leave on the first proposed question, holding that the standard for causation in fraud’s deprivation element was already clear and that further appellate intervention was not essential in the public interest or for the due administration of justice.

Impact of Hodgson and standards for substituting convictions in provincial offences appeals

On the second proposed question, the Court of Appeal reached a different conclusion. The motion judge examined how the appeal judge had characterized the test for entering a conviction following a successful Crown or prosecutor appeal. Relying on Provincial Offences Act s. 121(b)(ii) and earlier appellate authority, the appeal judge had recited that he could substitute a conviction if the trial judge made an error of law and the accused would have been found guilty but for that error, provided the trial judge had already made all necessary factual findings for each element of the offence. He elaborated that the appeal court must be satisfied, to a reasonable degree of certainty, that the verdict of acquittal would not necessarily have been the same if the error had not occurred, describing the burden as “heavy” and citing R. v. Hodgson. The Court of Appeal pointed out that Hodgson frames the Crown’s burden in appeals from acquittals in particularly stringent terms, emphasizing that acquittals are not overturned lightly, that the Crown must show to a reasonable degree of certainty that the acquittal would not necessarily have been the same absent the error, and that this is a “very heavy” burden. The motion judge observed that the appeal judge’s brief formulation arguably understated the force and nuance of the Supreme Court’s language. More fundamentally, the Court of Appeal noted that Hodgson, and the earlier decisions it builds upon (such as Graveline and Morin), were decided under the Criminal Code regime, where Crown appeals from acquittals are limited to questions of law under s. 676(1)(a). By contrast, the Provincial Offences Act does not confine prosecutor appeals of acquittals to questions of law alone and includes a separate, stringent leave requirement for any further appeal by the accused to the Court of Appeal. This creates a different systemic and procedural context. In particular, where a prosecutor succeeds on appeal in a Provincial Offences Act prosecution and a conviction is entered, the resulting conviction may effectively escape any further appellate review if leave is later refused, raising distinct fairness and finality considerations. In these circumstances, the Court of Appeal considered it important to clarify whether and how Hodgson’s articulation of the very heavy burden for overturning acquittals and substituting convictions applies in Provincial Offences Act matters. The court therefore held that it was essential in the public interest and for the due administration of justice to grant leave on a narrowed version of Mr. Katmarian’s second question. Specifically, it framed the question for the appeal as whether Hodgson modifies the test for entering a conviction on appeal in the context of a Provincial Offences Act prosecution. Having decided to grant leave on this refined question, the court found it unnecessary to rule on Mr. Katmarian’s broader “special leave” argument based on his desire for a day in court.

Outcome, successful party, and monetary consequences

In the result, the Court of Appeal for Ontario granted Mr. Katmarian leave to appeal on a single, tailored question: whether R. v. Hodgson modifies the test for entering a conviction on appeal in the context of a prosecution under the Provincial Offences Act. Leave was denied on the proposed question regarding the standard for causation and deprivation in fraud, leaving intact the appeal judge’s application of settled fraud jurisprudence to the facts of Peblik’s token offering. At this leave stage, no insurance policy language or other contractual policy terms were in issue or construed; the case turned instead on securities-fraud principles and appellate standards under the Provincial Offences Act. For present purposes, the successful party in this leave motion is Stephan Katmarian, whose application was granted in part. The decision does not award or quantify any damages, restitution, administrative penalties, or costs in his favour or against him. The only monetary figure mentioned is the approximately $484,000 lost by investors as background, not as an ordered recovery. Accordingly, while Mr. Katmarian succeeded in obtaining limited leave to appeal, the total amount of any monetary award, costs, or damages ordered in favour of the successful party cannot be determined from this decision.