Canadian CANNAINVESTOR Magazine October 2017 - Page 209

Mittal 3

Mr. Mittal provided the court with a business plan for such trading which he prepared in 2005. Among other items, the business plan set out his personal goals, financial goals, financial and time commitments and trading methodologies. Mr. Mittal stated that he read extensively (listing 16 finance related books) and used various sources (e.g. financial and business-related television programs, websites and seminars) to obtain the financial knowledge he deemed necessary to engage in his trading activity. He kept logs of the time he devoted to his trading activities, including time devoted to this research, as well as to his actual trades, his recordkeeping, his banking, and all incidental related activity. His logs showed an average of 25 hours a week devoted to this activity. Mr. Mittal financed his trading activities from his own savings (approximately $100,000), loans from family members (approximately $51,000 in total), an occasionally used line of credit and a rarely used margin account. He also invested for other family members including his wife, his sons and daughter-in-law, totalling investments of over $700,000.

The vast majority of Mr. Mittal’s trades in 2006 were short term holds, sold either the same day or within a few days. In 2006, he engaged in about 60 days of actual trading representing 160 trades with a value of approximately $3.2 million. The volume of trades in 2007 was considerably less (29 trades over 10 days of active trading). Mr. Mittal explained the lower volume of trading by referring to concerns with the U.S. market and household debt.

The issue to be decided by the court was whether. in 2006 and 2007, Mr. Mittal was a trader in securities or engaging in an adventure in the nature of trade, either of which would entitle him to deduct business losses against other sources of income.

The court set out the list of factors required to make a determination in these types of cases, being: frequency of transactions; duration of holdings; intention to acquire for resale at a profit; nature and quantity of securities; and time spent on activity. Citing the high frequency of trades and short hold periods, the court concluded that Mr. Mittal was engaged in an adventure in the nature of trade, stating:

“Mr. Mittal clearly attempted to become as steeped in the market as time permitted, not only on his own behalf but also for members of his family. This was not the occasional call or check the newspaper's listings, this was a daily devotion to following the market, studying the market and, as I have already characterized it, playing the market. It is a classic example of an adventure in the nature of trade.”

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