Topic: Legislation, rules and policies

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Managing Securities Litigation Risks in the Age of Uncertainty

The price at which securities of many Canadian issuers are trading has been significantly affected by the global coronavirus pandemic. This will almost certainly impact their risk of litigation arising from the accuracy their public disclosures. For companies that are dual listed in the United States, the risks are likely enhanced.

These risks appear to be exacerbated for issuers whose shares trade on Canadian exchanges as a result of the recent suspension of Ontario limitation periods, giving security holders a longer time within which to commence litigation.

With this in mind, issuers are well advised to continue to work closely … Continue Reading

Landmark Changes to the BC Securities Act are Set to Take Effect March 27

As previously reported, on October 21, 2019, the BC provincial government announced sweeping and significant changes to the BC Securities Act which are intended to give the BC Securities Commission (BCSC) the strongest powers in the country to impose tougher consequences for wrongdoers.  The provincial government recently issued an order in council confirming that these changes will take effect on March 27.

The amendments not only broaden the types of misconduct the BCSC regulates, but provide for expanded powers to collect financial sanctions through enhanced abilities to freeze property and new powers to seize registered retirement savings … Continue Reading

US federal court holds unsponsored ADRs may be subject to US securities laws

On January 28, 2020, in a case that potentially expands the liability of foreign companies, the US District Court for the Central District of California denied a foreign defendant’s motion to dismiss securities law claims brought by US purchasers of its unsponsored, unlisted American Depository Receipts (ADRs). Specifically, in Stoyas v. Toshiba Corp., — F. Supp. 3d —, No. 15-cv-4194, 2020 WL 466629 (C.D. Cal. Jan. 28, 2020), the District Court held that Plaintiffs sufficiently pled that their purchases of Defendant’s unsponsored ADRs on the over-the-counter (OTC) market constituted domestic transactions in securities, as well as alleging the Defendant’s … Continue Reading

Blockchain law: Laying down the law for digital assets

Federal legislators, regulators and enforcers have been making enforcement pronouncements and new proposals to try to keep up with the social, economic, political and legal issues posed by the issuance, use and trading of digital assets built on blockchain technologies. In this edition of his Blockchain Law column, Robert A. Schwinger describes some of the recent developments.

Read the entire column.… Continue Reading

White Collar Criminals Beware – BC strengthening Securities Commission investigation and enforcement powers

On October 21, 2019, the BC provincial government announced sweeping and significant changes to the BC Securities Act which are intended to give the BC Securities Commission (BCSC) the strongest powers in the country to impose tougher consequences for wrongdoers.

Bill 33-2019, the Securities Amendment Act, 2019, sets out over 100 proposed amendments, many of which are new to securities regulators in Canada.  These include:

  • expanding the BCSC’s investigative powers;
  • broader powers to collect financial sanctions when there are assets to collect, including enhancements to the current ability to freeze property and new measures, such as seizing
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Alberta Securities Commission signs Enhanced Memorandum of Understanding to strengthen cross-border enforcement cooperation

In July 2019, the Alberta Securities Commission (ASC) joined other signatories, including the Ontario Securities Commission and the United States Securities and Exchange Commission (SEC), by signing the International Organization of Securities Commissions’ (IOSCO) Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (EMMoU).

This step by the ASC reflects an ongoing increase in cooperation among Canadian and foreign securities regulators in the context of increasingly globalized capital markets.

IOSCO

IOSCO was established in 1983 when 11 securities regulators from North and South America agreed to build … Continue Reading

IIROC’s 2018 Enforcement Report: Strengthening Enforcement Authority Across Canada

Overview

On May 16, 2019, the Investment Industry Regulatory Organization of Canada (IIROC) published its 2018 Enforcement Report (the Report).  The Report summarizes IIROC’s enforcement activities in 2018 and provides an update on the progress of IIROC’s enforcement priorities, chief among which has been the strengthening of IIROC’s legal authority and enforcement powers across Canada.

Enforcement Activities

IIROC conducted 127 investigations in 2018, 40% of which resulted in prosecutions.  The number of prosecutions increased from 44 in 2017, to 52 in 2018. Of those 52 prosecutions, 42 were against individuals and 10 were against firms.  Ontario had … Continue Reading

MFDA Annual Enforcement Report: Trends in Mutual Fund Dealer Regulation

The Mutual Fund Dealers Association of Canada (MFDA) recently published its 2018 Annual Enforcement Report (the Report), highlighting key enforcement activities and developments over the past year.

The MFDA commenced 136 enforcement proceedings in 2018 by Notice of Hearing or Notice of Settlement Hearing, a record number for the self-regulatory organization (SRO). The SRO attributes the record number, in part, to enhanced detection and reporting by its mutual fund dealer members (the Members). The Report highlighted the following trends:

Primary sources of cases to be assessed. Roughly 65% of the cases opened in 2018 … Continue Reading

Alberta Securities Commission Introduces Whistleblower Program

On November 19, 2018, the Alberta Securities Commission (ASC) implemented its first whistleblower program (the Program) through the release of ASC Policy 15-602 Whistleblower Program (the Policy) and simultaneous amendments to the Alberta Securities Act (the Act).

The Program is effective as of November 19, 2018.  Its protections apply retroactively to securities misconduct but only in relation to tips communicated to the ASC on or after November 19, 2018.

According to the ASC, the highlights of the Program include the following:

  • the facilitation of simple reporting by providing a dedicated telephone “tip” line and access
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DOJ provides additional insight on compliance and investigations matters

On October 25, 2018, John Cronan, Principal Deputy Assistant Attorney General of the Criminal Division of the US Department of Justice (DOJ), delivered an important speech that touched on several key issues for legal and compliance counsel trying to balance business realities with regulator expectations, particularly with respect to compliance with the US Foreign Corrupt Practices Act (FCPA).[1] Of particular note, Cronan discussed:

  • The application of the DOJ’s FCPA Corporate Enforcement Policy;
  • The DOJ’s expectations as to what constitutes full cooperation in the course of an investigation;
  • The use of coordinated resolutions; and
  • The recent update to the DOJ’s
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What auditors need to know about blockchain

The implications of blockchain and other disruptive technologies for many legal areas have been addressed by a variety of regulators. While much attention has been focused on the pronouncements by bodies such as the US Securities and Exchange Commission, other regulators have been looking at these matters as well. A recent speech by a member of the Public Company Accounting Oversight Board (PCAOB) discusses implications of such technology for auditing, accounting and investors.

As noted on the PCAOB’s website, the PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect … Continue Reading

Nova Scotia Bill 67 – IIROC expands its enforcement authority

On October 12, 2018, Bill 67 was proclaimed into force in Nova Scotia. Bill 67 expands the enforcement powers of the Investment Industry Regulatory Organization of Canada (IIROC) in Nova Scotia in the interest of strengthening investor protection, with a focus on safeguarding the financial interests of seniors and vulnerable retail investors.

Bill 67 amends the Nova Scotia Securities Act to give IIROC broad investigatory and enforcement powers, including the ability to collect fines through the courts in Nova Scotia against wrongdoers found guilty of misconduct, the authority to collect and present evidence during investigations and at disciplinary … Continue Reading

U.S. Securities and Exchange Commission Proposes “Best Interest” Standard for Retail Broker Dealers

On April 18, 2018, the U.S. Securities and Exchange Commission (“SEC”) announced proposed rules that would require broker-dealers to act in the best interests of their retail clients when recommending investments. The SEC opened the proposed rules to a 90 day comment period.

This announcement follows a March 15, 2018 decision by the U.S. Fifth Circuit Court of Appeals that vacated the so-called “Fiduciary Rule” promulgated by the U.S. Department of Labor (“DOL”) covering retirement fund investment advice. The Fiduciary Rule, in actuality a package of seven rules that broadly reinterpret the term “investment advice fiduciary” and related exemptions codified … Continue Reading

The OSC’s Jurisdiction on an Appeal from a Decision of a Director: Re Dhillon (2018) ONSEC 14

In Re Dhillon, the Director of Compliance and Registrant Regulation (“Director”) of the Ontario Securities Commission (“OSC” or “Commission”) refused Dhillon’s application for registration under s. 27 of the Ontario Securities Act (the “Act”) on the ground that Dhillon lacked both the proficiency and integrity for registration, and that his registration would otherwise be objectionable (the “Director’s Decision”).  Thereafter, Dhillon applied to the OSC for a hearing and review of the Director’s Decision under s. 8  of the Act. Between the time of the Director’s Decision and the time of the hearing and review by the OSC, Dhillon’s sponsor … Continue Reading

Supreme Court Holds Individuals Must Report to the SEC to Qualify as Whistleblowers under Dodd-Frank

On Wednesday, February 21, 2018, the Supreme Court resolved a circuit split by unanimously holding that an employee must report suspected securities law violations to the SEC in order to qualify as a whistleblower entitled to protection from retaliation under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”).  Dodd Frank’s anti-retaliation protections do not extend to employees who only report such concerns internally to their employer.

In 2010, Congress passed Dodd-Frank, which, among other things: (1) provides for the payment of monetary awards to whistleblowers under certain circumstances whose tips to the SEC lead to the … Continue Reading

Ontario provides protection to “whistleblowers” against reprisals

In December 2017, Ontario instituted a civil cause of action for employees who experience reprisals from their employers for providing information or assisting in certain other ways in regulatory or criminal investigations or proceedings involving contraventions of securities or commodity futures laws (whistleblowing).

The identical amendments to s. 121.5 of Ontario’s Securities Act and s. 54.1 of the Commodity Futures Act are wide in scope and protect “whistleblowers” as follows:

  • The new civil cause of action may entitle the employee to reinstatement or to payment of two times the amount of any remuneration they were denied as part
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Alberta Securities Commission Policy 15-601: Credit for Exemplary Cooperation in Enforcement Matters

In October 2017, the Alberta Securities Commission (ASC) released ASC Policy 15-601: Credit for Exemplary Cooperation in Enforcement Matters.  According to the ASC, Policy 15-601:

… provides clarity and transparency regarding the circumstances under which ASC staff will consider exercising their discretion to grant credit to those individuals or entities that provide exemplary cooperation to ASC staff in the course of enforcement matters. This exemplary cooperation is cooperation above and beyond mere compliance with obligations under Alberta securities laws.[1]

Policy 15-601 follows the issuance of the ASC Three-year Strategic Plan F2018-2020[2], which had … Continue Reading

SEC action against hedge fund raises difficult questions for investment advisers

The SEC recently extracted a settlement from a hedge fund that raises difficult compliance-related questions for investment advisers. On August 21, 2017, Deerfield Management Company L.P. (“Deerfield”), a hedge fund and registered investment adviser, paid approximately $4.6 million to settle SEC charges that Deerfield failed to create and enforce policies and procedures reasonably designed to prevent the misuse of material, nonpublic information in violation of Section 204A of the Investment Advisers Act of 1940. The allegations centered on confidential information that Deerfield analysts had obtained from a political intelligence firm. The SEC had previously charged certain of those analysts with … Continue Reading

Canadian Securities Regulators Announce Prohibition of Binary Options

Securities regulatory authorities for all Canadian jurisdictions, save for British Columbia, (the Participating Authorities) announced the implementation of Multilateral Instrument (the Instrument) and Companion Policy 91-102 on the Prohibition of Binary Options on September 28, 2017.

Binary options are defined in the Instrument as a contract or instrument that provides for only a predetermined fixed amount if the underlying interest meets one or more predefined conditions, and zero or another predetermined amount if it does not. Essentially, this definition captures a range of products that are based on the outcome of a yes/no proposition, also referred to as … Continue Reading

The OSC Explores the Elimination of Embedded Commissions

The Ontario Securities Commission (OSC) hosted a roundtable discussion on September 18, 2017 (the Roundtable Discussion) to help evaluate potential regulatory changes to discontinue embedded commissions in investment funds. The term “embedded commission” refers to the remuneration of dealers and their representatives for mutual fund sales through a commission paid by investment fund managers (for example, deferred sales commissions and annual trailing commissions). The Roundtable Discussion built on the Canadian Securities Administrators’ (CSA) Consultation Paper 81-408, released January 10, 2017, which identified a number of investor protection and market efficiency issues resulting from the … Continue Reading

BC Court of Appeal clarifies use of disgorgement remedy under the Securities Act

In Poonian v. British Columbia Securities Commission[1] the BC Court of Appeal recently found that the BC Securities Commission (BCSC) may, in limited circumstances, make orders pursuant to s. 161(1)(g) of the BC Securities Act (the Act)  holding persons jointly and severally liable for a disgorgement order where there is evidence showing control and direction between them.

Pursuant to s. 161(1)(g) of the Act, after finding a  breach of securities law, the BCSC may make a disgorgement order requiring that a person or company  “pay to the commission any amount obtained, or payment or loss avoided, directly or indirectly, … Continue Reading

Investment advisors’ legal duties fall under the spotlight

In a decision released July 6, 2017- Shinoff v BMO Nesbitt Burns Inc et al.Justice France Dulude of the Québec Superior Court provided helpful guidance on the duties owed by investment advisors to their clients.  The plaintiff claimed that the defendants had failed to provide investment advice that was appropriate for his financial objectives.  He claimed that the defendant’s negligent decision to make significant investments in preferred shares led to a loss of $5.3 million, for which he sought damages pursuant to Article 1463 of the Civil Code of Québec.

The plaintiff was unsuccessful at trial. According … Continue Reading

Another Kick at the Canadian Effort to Create a National Securities Regulator

In a recent decision, a majority of the Quebec Court of Appeal held that the latest proposal to create a national securities regulator was unconstitutional.

The Spectre of Federalism

Unlike every other G-20 country, Canada does not have a national securities regulator. There is a long history of attempts to change this.  As early as 1935, the Royal Commission on Price Spreads recommended the formation of a national securities board.  In 2011 the issue came before the Supreme Court of Canada in the Securities Reference. The Supreme Court held that a draft Canadian Securities Act was outside of … Continue Reading

#needsimprovement: CSA releases report on social media disclosure practices by Canadian public companies

The Canadian Securities Administrators (CSA), concerned by the increased prevalence of corporate disclosure through social media, have issued guidance for Canadian public companies. Their notice follows a review of the tweets, blogs, posts and videos of 111 public companies on various social media websites, as well as the companies’ own websites.  The three key areas identified for improvement are: (i) ensuring that material company information is not released on social media before being generally disclosed; (ii) providing sufficient and balanced information so as not to be misleading or inconsistent; and (iii) putting in place adequate social media governance policies.

  1. Selective
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