Back in March of 2014, the Ontario Securities Commission (OSC) published Staff Notice 15-702 Revised Credit for Cooperation Program (the Program) in order to encourage market participants to "self-police, self-report and self-correct" matters that might be contrary to securities law. Under this Program, cooperation with the regulator could result in settlements where the market participant does not make any admission of fact or admit to a violation of securities law. Under such settlements, known as "no-contest" settlements, Staff of the OSC lays out the facts resulting from their investigation, which are neither admitted nor denied by the market participant.
Staff of the OSC set out certain eligibility criteria for no-contest settlements, including:
- the timeliness of self-reporting;
- the degree of investor harm, and compensation to investors;
- the degree of cooperation with the OSC;
- any remedial steps taken by the person/company;
- and agreement to pay monetary amounts, if any.
No-contest settlements are not available in instances of fraudulent conduct, criminal activity, or when the person or company has misled or obstructed Staff's investigation.
To date, there have been six no-contest settlements entered into between market participants and the OSC, generally relating to compliance system failures. Under these settlements, market participants have agreed to compensate investors from $8 million to as high as $156 million, made voluntary payments to the OSC ranging from $250,000 to $8 million, with costs ranging from $20,000 to $2.1 million.
In approving these settlements, the OSC has touted the efficiencies gained by resolving enforcement proceedings more quickly and at a reduced cost, in addition to freeing up staff resources to pursue other enforcement matters. Nocontest settlements can also give market participants an incentive to settle matters expeditiously, offer compensation to investors where appropriate.
Notably, the resolution of a matter by way of a no-contest settlement may also result in less reputational damage for market participants than would otherwise occur in respect of a contested public hearing. No-contest settlements may also limit the exposure of market participants to civil suits, often in the form of class actions, arising from any admissions of liability.
The U.S. Securities and Exchange Commission (SEC) has a long history of settling most enforcement actions without requiring admissions, though this practice has come under fire recently. Opponents to no-contest settlements take the position that they are harmful to public policy as they lessen the deterrent effects of regulatory proceedings.
Whatever your views on these kinds of settlements, they appear to be here to stay. It is also important to note that the OSC commends market participants that self-report and self-correct compliance issues upon completion of internal compliance reviews.