Misconduct in the securities industry can give rise to both criminal and regulatory liability. One problem that arises from this overlap is the potential for state-compelled self-incrimination. In the criminal context, an accused person is not a compellable witness. In the securities context, the situation is the opposite. An investigated person can be compelled to give incriminating evidence against themselves. Such testimony is generally protected from use in any subsequent criminal proceedings by the operation the Canadian Charter of Rights and Freedoms.
One area of continued controversy is the impact of entering into a settlement agreement with a securities regulator. Does an investigated member who settles give up their right to protection against self-incrimination?
Vimal Iyer and the Longest Jury Trial in Alberta History
A newly-released decision from the Alberta Court of Queen's Bench provides some guidance on this issue. In late 2016, after what was the longest jury trial in Alberta history, Vimal Iyer was sentenced to seven years in prison for fraud. This fraud related to a series of real estate investments. Mr. Iyer had also been earlier prosecuted by the Alberta Securities Commission (ASC). The ASC proceeding covered some of the same ground as the subsequent criminal proceedings. Prior to trial, Mr. Iyer had entered into a settlement agreement to resolve the proceedings brought by the ASC. Following sentencing, publication bans on a number of interim decisions rendered by the presiding judge at trial were lifted. Included among these recently-published decisions was a decision that considered whether the settlement agreement could be tendered into evidence at trial in the criminal proceeding.
The Court held that tendering the settlement agreement into evidence would not accord with the principle of fundamental justice protecting an individual against self-incrimination. The Court held that the agreement could not be tendered as evidence-in-chief by the Crown.
The Court's Decision and the Charter
In coming to its conclusion, the Court held that the Charter was in place to protect individuals from being indirectly compelled to incriminate themselves. In one sense, Mr. Iyer was under no obligation to enter into the settlement agreement, as he could have proceeded to a hearing under the Securities Act to have the allegations against him determined. The Court did not adopt such a narrow view of what it means to be compelled. The Court noted that Mr. Iyer had already been compelled to provide documents to, and be interviewed by, an ASC investigator. That investigation led to the issuance of a notice of hearing. In the face of that notice of hearing, Mr. Iyer entered into the settlement agreement. Ultimately, the ASC could have issued a notice to compel Mr. Iyer to testify at the hearing. The Court noted that the agreement accomplished what a hearing would have done. Given that situation, the statements contained in the settlement agreement were "compelled". They were therefore protected from being used against him in the subsequent criminal proceedings.
Lessons on Negotiating a Settlement Agreement
This decision provides some comfort and guidance in negotiating a settlement agreement where there is the prospect of future criminal prosecution, in that:
- Any statements made within a settlement agreement will likely be protected from use in subsequent criminal proceedings if the party's alternative to entering into a settlement agreement is to be subjected to a hearing in which he or she will be compelled to testify.
- Settling parties should therefore wait until a notice of hearing is issued by the securities regulator before entering into any settlement agreement.
- Settling parties should continue to insist that any settlement agreement contains clauses that qualify any admissions as being for the sole purposes of the regulatory proceeding. While such a clause is not necessarily binding, it may limit the evidentiary reliability of the settlement agreement.