Directors who rely in good faith on advice from professional
advisors, such as accountants and lawyers, may have a due diligence
defence to certain legal claims in some situations. However, a
recent decision of the British Columbia Securities Commission (the
Commission) in Photo Violation Technologies Corp. (2013 BCSECCOM 276 and
2012 BCSECCOM 284) makes it clear that reliance on legal
counsel doesn't allow directors to avoid liability under
securities laws when a company issues shares without appropriate
exemptions from the registration and prospectus requirements.
Background
Photo Violation Technologies Corp. (PVT) raised approximately
$5.2 million from 322 investors between 2005 and 2008. In respect
of 272 investors, who invested approximately $3.6 million during
the relevant period, PVT purported to rely on the friends, family
and business associates and accredited investor exemptions from the
prospectus and registration requirements of the BC Securities Act,
