On June 21, 2013, amendments to the Ontario Securities Act (the Act) contained in Bill 65—the Prosperous and Fair Ontario Act (Budget Measures), 2013—were brought into force. Certain of the amendments have the potential to impair the rights of persons under investigation by Staff of the Commission to object to the disclosure of information obtained to other regulatory or law enforcement entities.
Investigations Under the Act and the Disclosure of Obtained Information
The investigation regime under Part VI of the Act gives the Commission the power to compel testimony and the production of documents from any person or company subject to the Act, but it also imposes strict confidentiality requirements.
In that regard, the Act provides that any information or testimony obtained through an investigation are for the exclusive use of the Commission, or of any other regulators specified in an investigation order, and may not be disclosed except as permitted under section 17. Pursuant to subsection 17(1), compelled evidence may be disclosed to any person or company where the Commission considers that it would be in the public interest to make an order authorizing disclosure.
Previous cases relating to the disclosure rights in section 17 of the Act have considered the meaning to be ascribed to the term public interest. Those decisions indicate that public interest should be interpreted in the context of the investigation regime of the Act, and therefore should seek 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."1 The Supreme Court of Canada has similarly held that in making a disclosure order under section 17, the Commission has a duty to protect the privacy interests and confidences of the investigated person. It must balance the interests of disclosing the obtained information to achieve its investigative objectives with the protection of the confidentiality interests of the investigated.2
Amendments to the Disclosure Provisions
Prior to the recent amendments, in addition to the requirement that disclosure be in the public interest, no disclosure order under section 17 could be made unless notice and an opportunity to be heard was given to the persons and companies named by the Commission or that provided the relevant testimony or information. The amendments to section 17 of the Act provide the Commission with an avenue to circumvent the notice requirement if it is of the view that the circumstances warrant it.
Despite the requirement to give notice and an opportunity to be heard to the affected persons, the subsection added by the amendments (s. 17(2.1)) enables the Commission to make an order authorizing the disclosure of any information or documents obtained under its investigation regime to other governmental, regulatory or law enforcement authorities, without providing the affected persons with notice or an opportunity to be heard.3 The Commission can do so as long as it considers that it would be in the public interest. Given the caselaw regarding the Commission's public interest jurisdiction in the context of disclosure specifically, one of the important objectives to be considered will include international co-operation in the enforcement of securities laws. The Commission should, to the extent it reasonably can, comply with the principles of comity and assist other regulatory or law enforcement entities by disclosing relevant information obtained through its investigations.4
Accordingly, the legislature has apparently provided through the amendments the following. In balancing the effectiveness of the investigative process against the rights of those investigated to their privacy and confidences, it is within the Commission's discretion to determine that effective domestic prosecution of conduct that negatively affects the capital markets, or efficient international cooperation in the enforcement of securities laws, may trump the normal procedural and privacy rights of those investigated. If the Commission is of the view that providing notice or an opportunity to be heard to those investigated may compromise or thwart the investigative efforts of domestic or foreign regulatory or law enforcement authorities, it can draw upon its public interest jurisdiction to circumvent the notice requirements intended to protect the privacy interests of the investigated.
Potential Effects of the Amendments
As the wording of the provision makes clear, the amendments to section 17 significantly broaden the Commission's disclosure powers. They give the Commission the authority to release potentially inculpating information and documents to a variety of domestic and foreign entities without providing the affected persons with an opportunity to contest the disclosure.
Historically, courts have intervened in situations where it determined that the Commission had taken too liberal an approach to its public interest jurisdiction. This right to appeal to the courts provides some comfort to persons subject to an investigation under the Act. However, when an order is made under the new subsection 17(2.1), a person or company affected by the secret disclosure of the investigative documents is not likely to be in a position to appeal to a court to prevent disclosure. That person or company would probably not be aware that the disclosure occurred until it was too late, if ever. The very nature of this broad new power afforded to the Commission may effectively render the court's oversight capabilities in the circumstances meaningless.
The amendments to the Act therefore appear to be an indication that the legislature is seeking to tip the balance in favour of effective domestic and borderless investigations and prosecution of behaviour that negatively impacts the capital markets—potentially at the expense of the privacy and confidentiality rights of those investigated. Whether this will be the actual effect of these amendments, only time will tell.