As there is almost never direct, ‘smoking gun’ type evidence of insider trading, securities regulators often rely on circumstantial evidence in enforcement proceedings, from which they invite the specialized securities tribunals to draw inferences.

What is the line not to cross for these inferences to become unreasonable and contrary to rules of procedural fairness?

Referring to the Alberta Court of Appeal judgment in Walton v Alberta (Securities Commission), 2014 ABCA 273 (CanLII), the Court of Quebec, sitting in judicial review of the Financial Markets Administrative Tribunal’s decision in Dionne-Bourassa v. Autorité des marchés financiers, 2018 QCCQ 5749 (CanLII) , reminds us where that line is drawn:

  • In administrative enforcement proceedings before a securities tribunal, a breach of securities legislation must be proven on a balance of probabilities, based on clear, convincing and cogent
  • Speculation – described as the drawing of an inference when there is an evidentiary gap, based on an “educated guess”, or in situations where there is no “air of reality” to the inference ‑ and conjecture are not the equivalent of proper inferences.
  • The tribunal cannot make unreasonable inferences from the regulator’s circumstantial evidence and then shift the burden of proof to the defendants. In this instance, the Court found that the Tribunal only analysed the circumstantial evidence favorable to the regulator, failing to consider, even summarily, the evidence put forth by the defendants. This was found to have tainted the integrity of the Tribunal’s decision.

The Court also holds that in its written pleadings, the securities regulator must make clear, precise and specific allegations as to when and how the Securities Act would have been breached in order for the defendants to know what they are facing and to have a real opportunity to respond and defend themselves. This is a basic tenant of procedural fairness.

In closing, the Court writes that while the confidence of investors in the financial markets does rest on compliance with the rules set out in the Securities Act and their enforcement, it also rests on there being a fair process before someone is found to have breached the rules.

Leave to appeal by the Autorité des marchés financiers of the Court of Quebec decision was recently denied (2018 QCCA 1468).

The drawing of inferences from circumstantial evidence in insider trading cases has also been discussed in matters before the Ontario Securities Commission. To read recent cases, see

If you are interested in reading more on decisions in securities matter addressing the issue of what constitutes sufficient or insufficient evidence, we also invite you to read

The author would like to thank Dan Ton-That, student, for his contribution to this article.