Extract taken from 'The Securities Ligation Review – edition 5'
Public enforcementi Forms of action
Regulatory enforcement actions are generally brought by provincial securities commissions or SROs. There is a sharing and overlapping of responsibilities between securities commissions and SROs. In addition, a market participant may have overlapping responsibilities to multiple securities commissions and SROs and may face a number of investigations by different regulators for the same set of facts.ii Procedure
These securities regulators may bring allegations of securities misconduct to a hearing before an adjudicative panel of the securities commission or SRO and seek monetary sanctions, suspensions and prohibitions as market participants.
In some jurisdictions, staff of the provincial securities commission may directly prosecute cases of a quasi-criminal nature in court. In others, these cases may be referred to public prosecutors for prosecution in the courts.
Enforcement staff of provincial securities commissions investigate possible market misconduct or breaches of securities legislation under an investigation order issued by the chair (or a designate) of the Commission. The order sets out the scope of the investigation. To carry out their investigation, enforcement staff have the power to compel the production of documents and testimony.
Generally, when an investigation order or examination order is issued, information about the investigation or any examination or evidence of a person must not be disclosed to anyone, other than the counsel representing the examined person. The only exception is where a formal request is made to the provincial commission and the commission consents to disclosure by issuing an order.
Depending on the nature of the matter and the evidence they have gathered, enforcement staff may initiate a proceeding before the relevant commission, or prosecute a respondent for a breach of securities legislation by initiating a quasi-criminal proceeding in the court.
A public proceeding begins with the issuance of a notice of hearing regarding a statement of allegations, which must be proven at a public hearing or resolved by a public settlement agreement. Rules applicable to the conduct of hearings and related procedural issues are set out in rules of practice applicable to each commission.
Both the MFDA and IIROC also have their own rules of procedure applicable to their proceedings which vary, in some instances, from those of provincial securities commissions.iii Settlements
Enforcement staff of the multiple Canadian regulators negotiate settlement agreements under which respondents agree to sanctions. Settlement agreements usually involve an agreed statement of facts, admissions of a regulatory breach, and an agreed upon sanction (which can include a reprimand, fine, costs and bans on or suspension from trading and other activities). Further, settlement agreements act as a waiver of the right to appeal.
The process for approval of a settlement agreement may be set out in the applicable rules of procedure for that regulator. By way of example, Rule 12 of the Rules of Procedure of the Ontario Securities Commission sets out the process for settlements with that commission.
A settlement agreement is submitted for approval by a panel or a single commissioner. One or more confidential conferences may be held. A notice of hearing for a settlement hearing is then issued and a public settlement hearing takes place. If the panel is satisfied the agreement is in the public interest, the agreement will be approved. Reasons for the decision will also be provided.
In Ontario, the Revised Credit for Cooperation Program (released March 2014) allows for no-contest pleas with the Ontario Securities Commission (OSC). This does not exist in other provinces where no-contest pleas are not allowed by those commissions.
Though investor restitution is not directly within the power of these public remedies, it is a common element to public settlement agreements and a mitigating factor to sanctions.iv Sentencing and liability
In addition to monetary sanctions, provincial securities commissions may suspend or revoke registration. They may also issue cease trade orders, prohibit individuals from acting as officers or directors or prohibit individuals from trading in securities.
In the event of SRO rule violations, the SROs may impose administrative penalties, which include membership suspension or revocation, restrictions and fines. By way of example, IIROC has issued Sanction Guidelines. Its fines are limited to a maximum of C$5 million per contravention or an amount equal to three times the profit made or loss avoided. In general, either a disciplined individual or IIROC enforcement staff can appeal IIROC disciplinary decisions to the relevant provincial or territorial securities commission or the applicable reviewing body. An appeal will involve a review of the merits of the liability or penalty decision, or both.
In Alberta and Prince Edward Island, an SRO may register a 'decision' with the superior court with the result that it then has a civil judgment against the member that it can enforce, like all civil judgments.