Administrative fines are are regularly imposed by the Ontario Securities Commission (the OSC) in enforcement proceedings as sanctions for violations of Ontario securities law. Less well-known, but equally important, is the ability of the OSC to require wrongdoers to forfeit to the Crown the ill-gotten proceeds of unlawful activities. This post outlines the process by which proceeds derived from securities law violations may be forfeited to the Crown and ultimately returned to victims of securities law breaches.

The OSC cannot on its own compel a civil forfeiture to the Crown. That power belongs to the Attorney General of Ontario (the AG), which is statutorily authorized under the Civil Remedies Act, 2001 (the Act) to commence proceedings before the Ontario Superior Court for an order requiring a wrongdoer to forfeit property in Ontario to the Crown in right of Ontario where the court finds that the property is the “proceeds of unlawful activity”. “Unlawful activity” is broadly defined as “an act or omission that is an offence under an Act of Canada, Ontario or another province or territory of Canada” and clearly includes violations of securities law in Ontario.

The Act explicitly states that all findings of fact in proceedings under the Act are to be made on a balance of probabilities. Accordingly, the AG must only prove that it is more likely than not that certain targeted property is “proceeds of unlawful activity.” Importantly, the Act contains provisions protecting property held by “legitimate owners”.

Following a court forfeiture order, the forfeited money or property is held by the Crown in a “special purpose account”, and the Crown is required to release a notice which conforms to prescriptions found in regulations made in O. Reg. 498/06, Payments Out Of Special Purpose Account. Among other things, the notice must:

  • identify the proceeding under the Act as a result of which the money was deposited into the special purpose account;
  • state that any direct private victim who suffered pecuniary or non-pecuniary losses as a result of the unlawful activity in relation to which the proceeding was commenced is entitled to make a claim for compensation;
  • describe the steps to be taken to make a claim;
  • name the final day for filing, which shall not be earlier than three months after the first publication of the notice; and
  • state that a claim that does not comply with the Regulation will be denied.

In Ontario, claims are made to the Civil Remedies for Illicit Activities Office (CRIA), in the Ministry of the Attorney General. An example of a statutory notice can be reviewed here.

While the ability to initiate court proceedings for a forfeiture order belongs solely to the AG by statute, this does not prevent the OSC from pursuing forfeiture remedies under the Act. The OSC has entered into a Memorandum of Understanding with the AG for the exchange of information and administration of the Civil Remedies Act (the MOU). The MOU allows the OSC to pursue civil forfeiture remedies where is it advantageous to do so. Using this mechanism, the OSC can supply vital information to the AG with a view to assisting it in discharging its burden of proof under the Act. On October 26, 2015, Monica Kowal, then the Vice-Chair of the Ontario Securities Commission, described the relationship in a keynote address at an Investor Recovery Conference:

In 2011, the OSC added a fourth mechanism through an information sharing memorandum of understanding (MOU) with the Civil Remedies for Illicit Activities Office (CRIA).

Under Ontario’s civil forfeiture law, CRIA can, with a court order, take possession of property that is determined to be a proceed of unlawful activity, search for people who have suffered losses as a result of that activity and use the property to compensate them.

Our partnership with CRIA allows us to leverage their capacity to advertise for harmed investors, process and adjudicate claims for lost money, and make large scale distributions – all under the auspices of the Office of the Attorney General of Ontario. (emphasis added)

If the AG can successfully prove to the court that, on a balance of probabilities, the defendant individuals or corporations hold property derived as proceeds of securities law violations, such proceeds may become subject to a forfeiture order by the Ontario Superior Court, and recoverable by victims pursuant to the claims procedure outlined above.

The author would like to thank Fahad Diwan, articling student, for his contribution to this article.