Vertical farming company did not mislead investors, B.C. regulator rules

The B.C. Securities Commission logo in an undated file photo.

A Vancouver company that spent 92 per cent of the funds it raised in a 2018 sale of shares on consultants – and opted not to disclose this fact in public communications about the fundraising – did not mislead investors, a B.C. regulator has ruled.

The executive director of the B.C. Securities Commission alleged in 2022 that Affinor Growers Inc. and three of its officials had misrepresented its plans for the roughly $4 million it raised in the 2018 "private placement." 

Specifically, the executive director alleged that the company's failure to disclose that it would not be keeping all of the funds meant that Affinor made statements to investors that it knew – or reasonably ought to have known – were misrepresentations.

As people responsible for the company's communications, Affinor CEO Nicholas Gordon Brusatore, of Abbotsford, director Brian Kent Whitlock, of Langley, and CFO Usama Zafar Chaudhry, of Surrey, were accused of committing the same violations of the B.C. Securities Act.

In a decision published this week, a panel of the BCSC dismissed the executive director's allegations. 

While the panel found it was true that the company and its officers had omitted information in two news releases they issued about the private placement, panelists concluded that this omission was not necessarily misleading.

The panel reached this conclusion by reviewing Affinor's other communications around the time the news releases were issued. Panelists found that the company was presenting itself as being in a transitional period – moving from a "development phase" with a high level of spending to an "operational phase" of licensing its vertical farming technology and beginning to generate revenue.

In this context, according to the panel, the market's expectations about Affinor "included the possibility that a substantial proportion of the funds raised in this private placement would be paid to consultants who might be contracted to assist Affinor as it moved from a development stage to an operational stage."

Thus, the omission was not misleading, according to the panel.

Further, even if the omission were misleading, the panel found, it was not an omission of a "material fact," again because of the expectations the company had created in the market about itself.

A material fact, in this context, is one that would have a significant impact on the market price of a company if disclosed.

"Given the expectations which Affinor had communicated to the market, we do not see a basis to conclude that reasonable investors would have expected a significant impact on market price had Affinor disclosed what it chose to omit," the panel's decision reads.

"An individual looking only at the raw percentages of how much Affinor had spent of what it had announced had been raised, might have been shocked. However, the respondents asked us to look deeper into the evidence regarding the market expectation which Affinor had created and it is proper for us to do so."