Stock brokers - Disciplinary proceedings - Investigations - Penalties and suspensions; Judicial review - Compliance with legislation - Natural justice - Procedural requirements and fairness - Evidence - Standard of review - Reasonableness simpliciter

British Columbia (Securities Commission) v. Alexander

The Appellant, Mr. Alexander, was not successful in his appeal of a disciplinary hearing conducted by the Respondent Securities Commission.

[2013] B.C.J. No. 452

2013 BCCA 111

British Columbia Court of Appeal

C.A. Ryan, D.M. Smith and A.W. MacKenzie JJ.A.

March 14, 2013

The Appellant, James Alexander, was a director and officer of an oil and gas company called Arakis. In 1999, the Executive Director (the “Executive Director”) of the Respondent (the British Columbia Securities Commission) commenced an investigation into Mr. Alexander’s trading of shares in Arakis. Mr. Alexander was accused of contravening provisions of the Securities Act (the “Act”) when he sold his shares in Arakis in 1995. In 1999, Mr. Alexander negotiated a settlement with the Executive Director and that agreement included a provision whereby he waived his right to a hearing. Mr. Alexander and the Executive Director signed a Consent Order pursuant to section 161(1) of the Act. The Consent Order required Mr. Alexander to resign any position he held as a director or officer of any company. He was not allowed to become a director or officer for 20 years and he was also prohibited from engaging in investor relations.

In September 2002, the Executive Director initiated an investigation into Mr. Alexander’s activities since the Consent Order. In December 2003, the Executive Director issued a Notice of Hearing for several allegations made against Mr. Alexander, including an allegation that he acted as the de facto director for a company (Pinewood Resources Ltd.). In 2006, a hearing was held and the Commission focused on Mr. Alexander’s involvement with Pinewood between May 2000 and June 2001.

The Executive Director’s case against Mr. Alexander was based largely on correspondence between Mr. Alexander and one of his business partners (Mr. Ian Neilson) in a project being pursued by Pinewood. The majority of a hearing panel of the Commission found that Mr. Alexander had acted as the de facto director of Pinewood, in contravention of the Consent Order signed in 1999. At the penalty phase, a different hearing panel of the Commission replaced the Consent Order with a new penalty pursuant to sections 161 and 162 of the Act. The penalty permanently prohibited Mr. Alexander from trading in securities, engaging in investor relations, and from serving as a director and officer of a company. Mr. Alexander was also fined $200,000.

Mr. Alexander obtained leave to appeal the decisions of the Commission.

On appeal, Mr. Alexander first argued that the Commission erred in law by rejecting his argument that the Consent Order itself was invalid. The Court of Appeal held that the Act contemplated Consent Orders like the one entered into in this case. The Court specifically distinguished the case of Salway v. Assn. of Professional Engineers and Geoscientists of British Columbia, 2009 BCCA 350.

Mr. Alexander’s second argument was that the Commission erred in relying on the correspondence to and from Mr. Nielson because Mr. Nielson did not testify at the hearing. He argued it was procedurally unfair because the documents were unauthenticated and therefore unreliable. He also argued he was denied natural justice because Mr. Nielson was not called to testify and therefore Mr. Alexander did not get a chance to cross-examine him before deciding whether to testify himself.

The Court reviewed the sequence of events relating to the use of the hearsay evidence contained in the correspondence from Mr. Nielson. The Court first held the documents were sufficiently authentic, in part because Mr. Nielsen himself authenticated many of the letters that he purportedly wrote to Mr. Nielson. The Court next determined that the hearsay evidence was sufficiently reliable because the evidence was corroborated to some extent by other evidence in the case. The Court also held it was not procedurally unfair for the Commission to rely in part on hearsay evidence.

Finally, the Court held it was not a denial of natural justice when the Commission failed to call Mr. Nielson to testify. Mr. Alexander had the option of issuing a subpoena to Mr. Nielson for cross-examination and he chose not to do so.

Mr. Alexander’s third argument was that the Commission erred in finding that he was acting as the de facto director of Pinewood, in contravention of the Consent Order. The standard of review on this issue was reasonableness and the Court held the decision was reasonable.

Mr. Alexander’s final argument was that the Commission erred in imposing a $200,000 fine because the maximum fine was only $100,000 at the time he entered the Consent Order. The Court rejected this argument in part because the Commission held that the impugned conduct continued from February 23, 1999 to August 2005.

The Court dismissed the appeal.