Cassels Brock & Blackwell LLP has prepared this brief practical guide for market participants who receive a notice of hearing and statement of allegations from the Ontario Securities Commission (the "Commission").

  1. THE INVESTIGATION

If staff of the Commission ("Staff") has reason to believe you may have acted against the public interest or breached Ontario securities laws, it may take steps to protect the investing public. Below is a brief description of what to expect.

  • The Commission appoints investigators under s. 11 of the Securities Act who have the power to look into the affairs of the person or company under investigation, summon and enforce the production of documents and attendance of persons, and to compel persons to testify.
  • The Securities Act protects the confidentiality of the investigation by prohibiting the disclosure of the nature or content of an investigation order, the names of summoned persons, their testimony, and the production or content of any documents produced at any time pursuant to the investigation to any person other than that person’s "counsel."
  • Despite the confidentiality provisions in the Securities Act, the Commission may, if it determines that it is in the public interest to do so, order the disclosure of the information noted above. In such a case, persons named in the investigation or persons who were summoned to testify will receive notice of Staff’s intention to disclose and will have an opportunity to be heard to object to the disclosure of those facts or their testimony. An important limit on the power of the Commission to order disclosure is that no disclosure may be made to criminal law authorities pursuant to this power without the written consent of the person compelled to testify.
  • Failure to attend or produce documents in accordance with a summons can result in citations for contempt, which in severe cases can, and has, resulted in jail time for the respondent.
  • Voluntary attendance and testimony can be looked on favourably and result in: Staff narrowing the allegations against a respondent, choosing to proceed by its administrative rather than quasi-criminal powers, recommending reduced sanctions, or not issuing a notice of hearing and allegations and proceeding otherwise. However, evidence voluntarily given can be used against you in a subsequent matter (eg. civil litigation or criminal proceedings) which is why it is almost always recommended to insist on receiving a summons to compel your evidence.
  • Evidence given on a compelled basis cannot be used against a person in subsequent prosecutions (for example, where the Commission elects to proceed pursuant to its quasi-criminal powers or a concurrent criminal investigation). However, no credit for co-operation will be given by Staff where a respondent indicates they are only prepared to co-operate on a compelled basis.
  • Be aware of any cross border issues if operating in multiple jurisdictions as there is increasing co-operation and collaboration between regulatory organizations. The Commission’s investigation order may be made to “assist the due administration of the securities laws or the regulation of the capital markets in another jurisdiction”. Therefore Staff may be sharing some information with securities regulators in other jurisdictions (provincial securities regulators or the United States Securities and Exchange Commission), as well as vice versa.
  • If the investigation uncovers evidence Staff believes requires a hearing, Staff will send an Enforcement Notice announcing the likely intention to commence proceedings (commonly referred to as a "Wells Letter").
  • The respondent may respond to the Enforcement Notice on a "with prejudice" basis to provide information and documentation with a view to attempting to persuade Staff not to initiate proceedings or narrow the allegations; and affords the respondent the opportunity to initiate settlement discussion – however, settlement discussions will not be entered into until the investigation is complete.
  • If Staff is not convinced by the response to the Wells Letter and decides to proceed, it will publish a statement of allegations and notice of hearing which will be posted on the Commission’s website and released to the media.
  1. THE HEARING
  • The Commission has its own rules of practice and procedure governing timelines, etc.
  • A respondent may appoint counsel or represent him or herself before the Commission.
  • Staff has disclosure obligations akin to those in a criminal proceeding – it must produce all relevant information to the respondent, where relevance is to be generously interpreted – any information of some usefulness to the defence, whether relied on by Staff or not, must be disclosed, and must be disclosed in a meaningful way (not just "dumped" in no logical order on a respondent).
  • There is no corresponding duty on the respondent to provide disclosure to Staff, but if a respondent plans to call witnesses at the hearing, the respondent must provide a witness list in accordance with the Commission’s Rules of Practice.
  • There are no powers permitting a respondent to compel production of documents from third parties in advance of the hearing.
  • The evidence gathered in the investigation will be used to build a case against the respondent through calling and examining witnesses. The respondent or respondent’s counsel may cross-examine those witnesses.
  • Any relevant testimony or document may be admitted, and the standard of proof is on "a balance of probabilities."
  1. WHAT IS AT STAKE?
  • The Commission’s Practice Guidelines on settlement procedures note that Staff will "enter into and carry on settlement discussions with a respondent, at the request of a respondent, where staff is of the view that in the circumstances an appropriate result may be achieved by doing so." The parties may settle any time up to the final disposition of the matter.
  • If agreed to before a notice of hearing on the merits is issued, Staff may settle a matter with a respondent, with the approval of the executive director if appropriate. Otherwise, an order from the Commission is necessary to implement the settlement. In that case, the written settlement will be submitted and a notice of hearing will be issued for a Settlement Panel to hear and approve the settlement. There is no guarantee the Panel will bless the settlement agreement, particularly if it is not in the public interest to accept it, and the Panel will issue reasons for its decision. Settlement hearings may be held in-camera so as not to prejudice further proceedings on the merits of the matter, should there be any.
  • The settlement agreement contains admissions of fact and is typically made public immediately after the OSC panel blesses it. There is case law that suggests certain terms, if included in the settlement, may exclude the admissibility of the terms of settlement in a subsequent matter (civil or criminal) but there is no such guarantee.
  • If the matter is not settled, on the conclusion of the hearing the Commission may make administrative orders in the public interest which may include bans on trading and acting as a director or officer of reporting issuers, and, if satisfied Ontario securities laws have been breached, fines up to $1 million and disgorgement to the Commission of amounts obtained from non-compliance with Ontario securities laws.
  • If Staff elects to proceed by the Commission’s quasi-criminal powers, sanctions on conviction may be as much as $5 million and the respondent may face imprisonment for not more than five years
  • In any case where the public interest is breached or Ontario securities laws contravened, the respondent will also likely be liable for costs of the hearing and investigation - a successful respondent before the Commission does not have recourse for costs.
  • Following the order, the Commission will issue written reasons for its decision.