Recently, the Alberta Securities Commission ("ASC") released its decision in Re CMS Financial Management Services Ltd. The ASC panel (the "Panel") considered an appeal from certain investors (the "Appellants") of a decision of the Executive Director of the ASC to hold certain material, namely a report by the ASC staff, in confidence under section 221(4)(b) of the Securities Act (Alberta). The Panel concluded that the Executive Director had the authority to hold materials in confidence if it would not be prejudicial to the public interest to do so. The Panel also concluded that reports obtained by the Executive Director should not be used in private litigation or private disputes.
As background, the Appellants filed a complaint with the ASC in respect of the business of CMS Financial Management Services Ltd. ("CMS"), a registered investment fund manager, restricted portfolio manager and exempt market dealer. The Executive Director had appointed the ASC staff to examine the financial affairs, books, records and other documents of CMS and to prepare a report ("Report"). As a result of the examination and the Report, staff demanded that CMS's activities be restricted to certain securities, clients and services, and that CMS be subject to "special supervision" in respect of its activities in the capital market. The Appellants, who had filed a complaint with the ASC about CMS, subsequently learned about the terms and conditions placed on CMS referenced in the Report and requested an opportunity to review the Report based on "the ASC's Access to Information provisions". The Executive Director decided not to release the Report and explained that the disclosure of confidential materials or reports obtained by the Executive Director for use as evidence in private litigation or private disputes was ulterior to the purpose of the Securities Act and disclosing such materials would hinder the efficacy of compliance reviews.
The Appellants did not dispute the Executive Director's authority under s. 221(4)(b) to hold material in confidence, but were of the view that the Executive Director's two stated justifications were "insufficient to justify the decision". The Appellants argued that they had not threatened, and had no interest in, civil litigation against CMS, and that there was no evidence that they had initiated, or intended to commence, any such litigation. However, while there was no evidence of civil litigation, the Appellants had initiated the complaint procedures against CMS through the Ombudsman for Banking Services and Investments ("OBSI").
The Panel first considered the authority of the Executive Director under the Securities Act and noted that section 221(4) of the Act which provided that "with respect to any material provided to or obtained by the Executive Director, the Executive Director may hold the material in confidence if the Executive Director considers that it would not be prejudicial to the public interest to do so". The Panel concluded that the Executive Director did have the authority to determine whether holding the Report in confidence would not be prejudicial to the public interest.
The Panel dismissed the Appellants appeal and noted that while there was no evidence that the Appellants had initiated civil litigation against CMS, the record was clear that the OBSI proceeding was underway. The Panel concluded that the Executive Director's public interest assessment under s. 221(4)(b) did not need to include assisting the prosecution of a private dispute resolution process, whether through civil litigation or alternative means, such as through the OBSI. Accordingly, it was reasonable for the Executive Director – in exercising his discretion to hold the Report in confidence – to disregard the Report's potential utility to advance the Appellants' private litigation or dispute interests, including the OBSI proceeding.
The Panel also noted that future examinations in this matter could be adversely affected if the Report were to be publicly disclosed and the public interest should be interpreted "to enable the Commission to conduct fair and effective investigations and to give those investigated assurance that investigations will be conducted with due safeguards to those investigated, thus encouraging their cooperation in the process".