Former CannTrust CEO Peter Aceto, center, leaves Old City Hall with his lawyer, Frank Addario, left, Toronto, on Dec. 14.Eduardo Lima/The Globe and Mail
An Ontario judge ruled Thursday that three former high-ranking officials from CannTrust Holdings Inc. CNTTQ were not guilty of any charges brought against them by Ontario’s securities regulator, bringing an abrupt and final close to a trial that ended almost as soon as it began.
The quasi-criminal trial of former CannTrust chief executive officer Peter Aceto, former chairman Eric Paul and former director Mark Litwin was scheduled to take place over 50 days, but instead only required eight days of evidence before lawyers for the three men asked Justice Victor Giourgas to issue a verdict.
“Acquittals shall be entered for all of the defendants,” Justice Giourgas said Wednesday, officially ending the failed enforcement case brought by the Ontario Securities Commission.
When the trial ended shortly before noon, family members and supporters of the three men shared hugs and handshakes in the courtroom at Toronto’s Old City Hall. Mr. Paul, who is one of the founders of CannTrust and 81 years old, smiled widely as he shook hands with his legal team.
“It’s come to an end because our justice system ultimately worked the way it should,” Gerald Chan, a lawyer for Mr. Paul, said outside the courtroom.
“The prosecution can make allegations but our system demands they be backed up by evidence in court, and when that evidence is found to be wanting … the trial and prosecution must end as it did today with a verdict of acquittal.”
Outside court, Mr. Aceto’s lawyer, Frank Addario said his client had suffered greatly since 2019, when allegations first surfaced that unlicensed growing had been taking place at a CannTrust production facility.
“Mr. Aceto is not a criminal or a fraudster. He did not conceal material facts from investors and he never stood to gain from doing so,” Mr. Addario said. “The acquittal he got today was a late-arriving, richly deserved recognition that he did nothing wrong.”
The trio were charged with fraud and other securities offences, accusations that flowed from the central allegation that, over several months from late 2018 to April, 2019, CannTrust grew cannabis in eight unlicensed rooms at the company’s Niagara-area production facility.
Mr. Litwin and Mr. Paul were also accused of insider trading for selling company stock while having alleged knowledge of the unlawful growing. And Mr. Litwin and Mr. Aceto were charged with issuing a false prospectus that failed to mention the alleged unlawful growing.
The charges all stemmed from a June, 2019, Health Canada inspection at the facility, where inspectors learned the company had been growing in those rooms before April, when the company had been given explicit ministerial approval to do so.
A cascade of consequences flowed from that finding: a suspension of the company’s cannabis production licence by the federal government, an investigation by a special committee of CannTrust’s board, the termination of Mr. Aceto from his role, class action lawsuit settlements and, eventually, the company seeking bankruptcy protection.
The OSC charged the men in 2021, and elected to try them in court, rather than one of its less-punitive administrative tribunals. There were 29 witnesses who could potentially have been called on by the prosecution, but the OSC’s case collapsed just two witnesses in.
Under questioning by lawyers for the three defendants, Graham Lee, a former CannTrust compliance manager, said that he had repeatedly and mistakenly referred to the growing in those rooms as “unlicensed” while being questioned by the OSC’s lawyer, and in internal CannTrust e-mails while he was employed there. In fact, he conceded, the highly secured facility was licensed during the growing in question, and at worst, the company was guilty of non-compliance for not waiting for its ministerial approvals to begin growing in those rooms.
Mr. Graham’s shifting evidence prompted OSC lawyer Dihim Emami, on Wednesday, to ask permission from Justice Giourgas to withdraw the charges, but the three men opposed that move, and instead called upon the judge to acquit them.
The distinction is important, lawyer Scott Fenton argued at Thursday’s hearing. Without a full acquittal, there were no guarantees the OSC would not try and reignite the case, and obtain a “green light to reprosecute these men for the same thing.”
Justice Giourgas agreed that the men were entitled to a verdict, and acquitted them.,
The OSC declined to answer detailed questions about its decision making in the case. But in an e-mailed statement, OSC spokesperson JP Vecsi said: “In light of the significant investor losses following the issuance of CannTrust’s press release on July 8, 2019, the OSC is considering the implications of [Justice Giourgas’s] decision and assessing its options.”
That CannTrust release made four references to growing taking place in “unlicensed rooms.”
Despite the outcome of the trial, Health Canada continues to use the phrase “unlicensed rooms” to explain its decision to suspend CannTrust’s licence in September, 2019. In an e-mailed statement sent Thursday to The Globe and Mail, it summarized the reasons behind the suspension: “producing cannabis in unlicensed rooms before obtaining approval from Health Canada, providing false and misleading information to inspectors during the course of the inspection, and inadequate record keeping.”
Health Canada spokesperson Tammy Jarbeau said, however, that the government changed its policy in May, 2020, that obligated producers, such as CannTrust, to seek approval before making site changes within a licensed facility. That is no longer required.
In Ottawa, Health Minister Jean-Yves Duclos said the department was reviewing the court decision.
“This court case did lead Health Canada to take notice of aspects of the regulatory process that could be improved. And I do know that Health Canada did improve some of its processes based on that litigation,” he told reporters. He did not specify which improvements.
– With a file from Marieke Walsh