On February 26, 2015, after a ten year hiatus, the Ontario Securities Commission finally resolved its long-standing proceedings against Conrad Black, the former Chairman and CEO of Hollinger Inc., and its former CFO, John Boultbee.
In 2013, following criminal proceedings and an SEC action in the U.S., the OSC amended its original Statement of Allegations – issued in 2005 – and sought orders against Black and Boultbee pursuant to section 127(10) of the Ontario Securities Act. That provision permits the OSC to order sanctions against anyone who, among other things, has been convicted in any jurisdiction of an offence arising from a transaction, business or course of conduct related to securities or derivatives.
The Commission had no difficulty finding that it had jurisdiction to order sanctions against Black and Boultbee based on their convictions in the United States for mail fraud, which it characterized as an offence arising from a transaction or course of conduct relating to securities. The finding was also based on Black's conviction for obstructing an investigation by the SEC, and his agreement with the SEC to be made subject to sanctions in the consent Judgment.
The Commission refused Staff's request that they be deprived permanently of the privilege of trading in securities or derivatives, and of the benefit of exemptions contained in Ontario securities law. This was notwithstanding the OSC's observations that a criminal conviction for fraud is "among the most serious offences for which a respondent can be convicted in a securities-related matter", that the fraud committed by Black and Boultbee entailed the breach of their fiduciary duties and abuse of their positions of trust as officers and directors of Hollinger. The OSC also found that both men demonstrated a "total disregard for and indifference to the findings of serious fraud by the U.S. courts".
Yet the Commission required only that Black and Boultbee resign all positions that they hold as director or officer of any issuer, registrant or investment fund manager, that they be prohibited from becoming or acting as a director or officer of any such entity, and be prohibited from becoming or acting as a registrant, investment fund manager or promoter. No costs of the Commission proceeding were ordered to be paid by either Black or Boultbee.
This result is at odds with the Commission's approval of the settlement agreement with Myron Gottlieb in September 2014, following his conviction of two counts of fraud over $5,000 and one count of forgery arising out of misrepresentations made in the financial statements of Livent Inc. Like Black and Boultbee, there was no suggestion that Gottlieb's conviction was based on abusive trading practices. However, in addition to permanent prohibitions on Gottlieb's ability to act as a registrant, investment fund manager or promoter and as an officer or director of any issuer or registrant, the OSC stripped Gottlieb of all exemptions under Ontario securities law and, subject to certain carve-outs, prohibited him from trading securities for 15 years. No reasons for the approval of the settlement agreement were released, nor was any reference made to this decision in the sanctions hearing against Black and Boultbee.
The lesson is that in proceedings under section 127(10) it is important for respondents to focus the Commission's attention on the precise conduct for which the respondent was found guilty in the prior criminal or regulatory proceeding, and seek to have the sanctions tailored to the conduct in issue. If Staff will not consent to such a resolution, there appears to be little downside to litigating the issue of sanction before the Commission.