In February 2020, we blogged about a then recent decision by Romaine J. of the Court of Queen’s Bench of Alberta relating to the interplay between the personal bankruptcy regime and administrative penalties. In Alberta Securities Commission v Hennig, 2020 ABQB 48 (Hennig), the Alberta Securities Commission (ASC) levied an administrative penalty against an individual who, among other things, was responsible for misrepresentations in a public company’s financial statements. That individual then made an assignment in bankruptcy and ultimately sought his discharge. Romaine J. ruled that the administrative penalty was imposed as a consequence of … Continue Reading
In 2002, the Supreme Court of Canada developed a protocol to be applied whenever a search warrant was executed and some of the documents seized could potentially contain privileged information, in the case of Lavallee, Rackel & Heintz v. Canada (Attorney General), 2002 SCC 61, known as the Lavallée Protocol. As since adapted in Quebec, it essentially allows the target of a search warrant to assert privilege over all or part of the documents seized, which triggers the appointment of an amicus curiae (Latin for “friend of the court”) whose responsibility is to review all potentially privileged documents to … Continue Reading
In a previous post, we discussed the new standard of appellate review of tribunal decisions described in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 (Vavilov) and its implications for the Ontario Securities Commission (the OSC). In Quadrexx Hedge Capital Management Ltd. v. Ontario Securities Commission, 2020 ONSC 4392, the Divisional Court considered for the first time the application of Vavilov to a decision of an OSC Hearing Panel.
After a contested hearing, a Hearing Panel of the OSC (the Panel) found that Miklos Nagy and Tony Sanfelice, … Continue Reading
On October 1, 2020 the Ontario Superior Court approved a securities class action settlement agreement in the amount of $700,000 and a plan of allocation providing for the distribution of the settlement amount, net of legal fees, disbursements and taxes, to two investor protection legal clinics.
The Cy-près Distribution of the “Uneconomic” Net Settlement Amount
During the class period, the defendant’s securities traded on both the Nasdaq and the TSX, with trading volumes on the TSX accounting for less than 1% of the trading volume on the US exchanges. Most class members in the Ontario … Continue Reading
In iAnthus Capital Holdings, Inc.(Re), Gomery J. of the Supreme Court of British Columbia, approved an amended plan of arrangement (the Amended Plan) after he invited the petitioners to narrow the release and injunction clauses of the first plan the petitioners had applied for (the First Plan).
The initial release clause was broad enough to make Gomery J. declare that he did not have the power to make it an ancillary order under British Columbia’s Business Corporations Act (BCA), and that it rendered the otherwise acceptable plan unfair and unreasonable. The clause had the effect … Continue Reading
COVID-19 continues to pose unique challenges to Canada’s legal system, including questions about how the Ontario Securities Commission (OSC) will conduct its proceedings. In a recent decision, a Hearing Panel of the OSC ordered a merits hearing to proceed by videoconference (First Global Data Ltd (Re), 2000 ONSEC 23), despite the respondents’ strenuous objections. This decision, which follows a determination on March 23, 2020 that an unrelated merits hearing would continue partly in writing (discussed in our previous post), highlights the evolution of the OSC’s response to COVID-19 in conducting its proceedings.
Commission’s Current … Continue Reading
On July 8, Bill 161, the Smarter and Stronger Justice Act, 2020 (the SSJA), passed a third reading in the Ontario provincial legislature and received royal assent, becoming law.
The SSJA includes significant amendments to Ontario’s Class Proceedings Act, 1992 (CPA), marking the first time that Ontario’s class action legislation has undergone major changes since its enactment over 27 years ago.
In a judgment dated June 9, 2020, the Superior Court of Quebec in Autorité des marchés financiers v. Descheneaux, 2020 QCCS 1779 (Justice R. Mongeon) confirmed that passive reliance on a fellow director, more knowledgeable and experienced with the legal requirements of raising capital under applicable securities laws, is insufficient to ground a due diligence defence to a strict liability offence such as breaches to the Quebec Securities Act.
Mr. Descheneaux, an officer and director of delSECUR, faced 18 counts of breaches of the Securities Act, for distributing securities without a prospectus and for acting as an … Continue Reading
The recent decision of the Ontario Court of Appeal in Wright v. Horizons ETFS Management (Canada) Inc. (2020 ONCA 337) is significant for two reasons. First, it recognizes the existence of a duty of care owed by a fund manager to purchasers of units of the fund in relation to the allegedly negligent design of the fund. In addition, it opens the door to potential claims under s. 130 of the Ontario Securities Act against fund managers in relation to misrepresentations in the fund’s prospectus notwithstanding that the funds are sold over a stock exchange.
The proposed class … Continue Reading
On May 28, 2020, the Autorité des marchés financiers, Quebec’s securities regulator, published its Enforcement Report for the period April 2019 to March 2020 (https://lautorite.qc.ca/en/general-public/publications/amf-publications/enforcement-report/)
Here are the highlights:
On the Sanctions front:
- $17,648,318 in fines and administrative penalties were imposed in proceedings brought by the AMF, 75% of which were fines under the Act respecting the distribution of financial products and services
- 83 individuals and firms were sanctioned for various offences
- 6 individuals were given a total of more than 6 years of jail time in penal proceedings
On the Surveillance and Investigations front:
- 16 cyber crime
If you are involved in securities litigation, you know how important it is to distinguish between regulatory audit and penal investigation.
If the regulator is conducting an audit to ascertain whether a corporation or its officers comply with securities legislation, it may usually rely on broad investigative powers to obtain documents and information upon request.
However, if the dominant purpose of the investigation is to determine whether a penal offence has been committed, then the protection afforded by the Canadian Charter of Rights and Freedoms kicks in, including the right of every person to be secure against unreasonable search … Continue Reading
As COVID-19 continues to impact capital markets around the world, securities regulators in North America are responding to an increasing number of securities-related scams. Provincial securities regulators across Canada, as well as the United States Securities and Exchange Commission, have now issued official warnings about fraudulent investment offerings and other scams that target investors.
Many of the alleged scams involve “pump and dump” tactics, where the perpetrators artificially inflate the price of a stock by releasing false information, then sell their stock before the market learns that the information was false. For example, on April 23, 2020, the Ontario Securities … Continue Reading
As we discussed in a previous post, administrative penalties levied by securities commissions may survive a discharge in bankruptcy. A recent decision of the Supreme Court of British Columbia (Court), Poonian (Re), 2020 BCSC 547 (Re Poonian), highlights that in addition, such administrative penalties may also prevent a discharge from bankruptcy altogether.
In Re Poonian, the Court denied an attempt by Thalbinder Singh Poonian and Shailu Poonian (the Applicants) to obtain a discharge from bankruptcy under the Bankruptcy and Insolvency Act, RSC 1985, c. B-3 (BIA).
The Applicants made a … Continue Reading
On March 16, 2020, the Ontario Court of Appeal released its highly anticipated decision in the saga concerning the Ontario Securities Commission’s (OSC) prosecution of Daniel Tiffin (Mr. Tiffin). The Court’s decision helps clarify the analysis used to determine whether a financial instrument falls within the meaning of “security” under the Ontario Securities Act (the Act), and confirms that certain promissory notes are considered “securities” under the Act.
The Quebec Superior Court, in California States Teachers’ Retirement System v. Bausch Health Companies Inc. (2020 QCCS 275), recently clarified the rules applicable to limitation periods in the context of secondary-market liability actions under the Quebec Securities Act (QSA).
Much like its Ontario counterpart, s. 225.4 QSA provides for an authorization mechanism whereby applicants wishing to institute a secondary-market liability claim against a public issuer must convince the court that their actions are taken in good faith and have a “reasonable possibility of success”. While such actions can take on the form of class … Continue Reading
Canadian securities regulators have jurisdiction to lay charges under provincial securities legislation, and have prosecuted serious securities offences criminally. The persons so charged have a right to be tried within a reasonable time. Questions have arisen as to whether or not a court’s deliberation time was to be factored in the timelines identified in the now seminal case R. v. Jordan, 2016 SCC 27 (“Jordan”). Despite the fact that the R. v. K.G.K., 2020 SCC 7 (“KGK”) case is a criminal case, the teachings of the Supreme Court of Canada described below are transposable … Continue Reading
In a decision released on March 23, 2020, a Hearing Panel of the Ontario Securities Commission (OSC) ruled, over the objections of the respondents, that an oral hearing that had commenced under s. 127 of the Ontario Securities Act into allegations of fraud, misleading investors, unregistered trading and the illegal distributions of securities would continue at least partly in writing due to the COVID-19 pandemic (Re Paramount, 2020 ONSEC 9).
History of the Proceeding
The merits hearing began on March 10, 2020 and had been scheduled to resume on March 23. It had proceeded for … Continue Reading
The Quebec Court of Appeal recently dismissed the appeals launched by directors and officers of a reporting issuer, Nstein Technologies, against two judgments rendered by the Court of Quebec in a statutory appeal of a judgment by the Quebec securities tribunal, the Tribunal administratif des marchés financiers (the TMF).
The TMF had granted an application by the Quebec securities regulator, the Autorité des marchés financiers (the AMF), to impose administrative penalties against the appellants for breaches to insider trading and tipping provisions under the Québec Securities Act (the QSA). The AMF’s application essentially stemmed from a decision … Continue Reading
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
On March 18, 2020, the Delaware Supreme Court reversed the Delaware Court of Chancery and held that Delaware corporations can adopt federal-forum selection provisions (FFPs) requiring that claims arising under the federal Securities Act of 1933 (1933 Act) be brought in federal court. The case is styled Salzberg et. al v. Sciabacucchi, No. 346, 2019, 2020 WL 1280785 (Del. Mar. 18, 2020). Companies should strongly consider using the Salzberg decision as an opportunity to adopt an FFP. Absent such a provision, 1933 Act class actions – which are frequently filed after initial and secondary public offerings – may be … Continue Reading
The Yukon Court of Appeal recently allowed an appeal from a Supreme Court decision that awarded dissenting shareholders US$71.46 per share as fair value of their InterOil shares, a 43% premium over the transaction price of US$49.98. The trial court decision had generally been viewed as an outlier in fair value case law, given that the award represented a significant premium over the transaction price. The Court of Appeal found the transaction price reflected fair value and reduced the award to that amount.
It made a number of highly relevant and important remarks regarding the probity of evidence of fair … Continue Reading
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
In the last 5 years, investigators with the Quebec securities regulator, the Autorité des marchés financiers (AMF), have more and more often turned to authorizing judges to secure search warrants allowing them to enter people’s homes and collect evidence. The hearings before the authorizing judges are held ex parte and authorization is granted on the basis of the affidavit filed by the AMF investigator.
Despite the Zalat v. R. (2019 QCCA 1829) being a criminal case, the teachings of the Quebec Court of Appeal, described below, are easily transposable to a securities litigation setting.
The … Continue Reading
In January 2020, Madam Justice B.E. Romaine of the Court of Queen’s Bench of Alberta (Court) ruled that an administrative penalty levied against the Respondent by the Alberta Securities Commission (ASC) survived his discharge from bankruptcy. (See Alberta Securities Commission v Hennig, 2020 ABQB 48)
The administrative penalty was levied in 2008 against the Respondent after the ASC found that he was responsible for misrepresentations in the financial statements of a public company of which he was a director and officer; that he financially benefited from the misrepresentations; that he participated in market manipulation; … Continue Reading