The Second Circuit recently determined that the criminal securities fraud provisions that were enacted as part of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) have less onerous requirements for proving insider trading than under the general antifraud provisions of the Securities Exchange Act of 1934 (Exchange Act), specifically Section 10(b) of the Exchange Act. Section 10(b) has been the traditional way for prosecutors to charge insider trading. Pursuant to Supreme Court rulings, an insider must breach a duty of confidentiality and receive a “personal benefit” in order to have engaged in the illegal tipping of material, non-public information to others. Similarly, … Continue Reading
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.
The Ontario government’s recent announcement of proposed changes to Ontario’s class proceedings legislation bodes well for defendants and their insurers. If the amendments become law, they would provide greater latitude to defendants seeking to narrow or dismiss claims prior to certification, make certification a somewhat steeper hill for class counsel to climb, and provide mechanisms to prevent duplicative multi-jurisdictional class actions from proceeding in Ontario. Details of certain of these proposed changes include the following:
Early dismissal motions and dismissal for delay
Prior to the motion for certification, motions by defendants that may dispose of the proceeding in whole or … Continue Reading
In BDO Canada LLP (Re), 2020 ONSEC 2, a panel (the Panel) of the Ontario Securities Commission (OSC) considered a motion brought by Staff alleging that BDO Canada LLP (BDO) failed to meet the standard imposed by the Ontario Securities Commission Rules of Procedure and Forms (Rules) in the preparation of its witness summaries. The motion is part of a larger proceeding against BDO related to alleged breaches of the Securities Act, RSO 1990, C S.5 in connection with audits conducted by BDO. As a part of pre-hearing disclosure, Staff and BDO … Continue Reading
The decision of the Supreme Court of Canada in Canada (Minister of Citizenship and Immigration) v. Vavilov (2019 SCC 65) and its companion decision in Bell Canada v. Canada (Attorney General) (2019 SCC 66), both released on December 19, 2019, breathe new life into the statutory right of appeal contained in section 9 of the Ontario Securities Act, R.S.O. 1990, c. S. 5. Section 9 allows a person or company directly affected by a final decision of the Ontario Securities Commission (OSC) to appeal to the Divisional Court. Following the decisions in … Continue Reading
In a judgment released on December 10, 2019, the Court of Quebec, Criminal and Penal Division, in R. v. Morris, 2019 QCCQ 7635, confirmed that when the Crown chooses to disclose its evidence in a criminal or regulatory proceeding in an electronic format, it has a duty to organize the evidence and format it in a way that makes it accessible to the defendant.
In this case, in connection with alleged breaches of the Tax Administration Act, the Crown disclosed most of its evidence – roughly 50,000 items – in electronic format, on CDs, DVDs and USB … Continue Reading
New Reporting Requirements
On November 14, 2019, the Investment Industry Regulatory Organization of Canada (IIROC) amended its Dealer Member Rules (the Rules) to address reporting of cybersecurity incidents. The amendment, which takes effect immediately, requires all investment dealers regulated by IIROC to report all cybersecurity incidents.
The Rules define a “cybersecurity incident” as “any act to gain unauthorized access to, disrupt or misuse a Dealer Member’s information system, or information stored on such information system, that has resulted in, or has a reasonable likelihood of resulting in:
(i) substantial harm to any person
(ii) a material … Continue Reading
Trust and transparency have been challenging in the cannabis industry: whether related to product trust and transparency or to public disclosure of conflicts of interest and the need for trust and transparency has not gone unnoticed by securities regulators. In reviewing disclosure relating to M&A and other significant corporate transactions by cannabis issuers, the Canadian Securities Administrators (CSA) suggested that there was inadequate transparency and disclosure of financial and other interests.
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In June 2013, the AMF laid two penal charges against Mr. Forget, the president and CEO of Clemex Technologies, a public company, alleging that he would have manipulated its stock close to five years earlier in 2008. A few weeks later, the AMF published a press release announcing the filing of the charges and specifying that “its investigation had revealed that the president and CEO conducted securities transactions in a bid to boost the market price of the securities” of Clemex.
The AMF press release did not specify that the trades at issue would have been executed close to five … Continue Reading
On July 3, 2019 the Ontario Securities Commission (“OSC”) released its decision in Re Natural Bee Works Apiaries Inc., 2019 ONSEC 23 (“Natural Bee”). Natural Bee provides useful guidance concerning proof of falsity and participation in a fraudulent scheme under section 126.1(1) of the Ontario Securities Act (the “Act”).
In Natural Bee, OSC Staff alleged that Natural Bee Works Apiaries Inc. (“NBW”), Rinaldo Landucci (“Landucci”), its sole director, and Tawlia Chickalo (“Chickalo”), an employee of NBW who was at one point identified as its President, … Continue Reading
Two ordained ministers are among the five named individual Respondents who have settled with the Alberta Securities Commission (the Commission) in Re Lutheran Church-Canada, the Alberta-British Columbia District, 2019 ABASC 140. The individual Respondents were all involved in investment funds run by the Lutheran Church-Canada, Alberta-British Columbia District (the District), which became insolvent in 2015. The individual Respondents admitted that they authorized statements in promotional literature from 2008 to 2014 about the investment funds that they knew or ought to have known were misleading contrary to section 92(4.1) of the Alberta Securities Act (the Act).… Continue Reading
The Alberta Court of Appeal has provided helpful analysis relating to personal liability of actors in investment schemes: personal liability of principals and claims under the Securities Act.
Charles Ryan promoted a plan to develop land through various corporate vehicles. Markus Abt invested $800,000 after speaking with an investment advisor with Sun Life. Mr. Abt believed he would receive 70% return on the investment and monthly payments of $2,600.
When the developer corporation became insolvent, the Abts sued numerous people involved in the investment. Prior to trial, the Abts settled with Sun Life for $360,000.
The trial judge … Continue Reading
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 was established in 1983 when 11 securities regulators from North and South America agreed to build … Continue Reading
On May 21, 2019, in Ontario Securities Commission v York Rio Resources Inc., 2019 BCSC 776, the British Columbia Supreme Court (BCSC) enforced Ontario Securities Commission (OSC) disgorgement orders as court judgments from another province.
A joint investigation was conducted by the OSC and the British Columbia Securities Commission (BC Commission) into an $18.2 million fraudulent investment scheme. On March 25, 2013, a panel of the OSC found that Mr. York, Mr. Runic, Mr. Schwartz, and the companies they controlled had committed a fraud, and on March 31, 2014, the OSC issued … Continue Reading
In his Blockchain Law column, Robert A. Schwinger writes: When parties interact in transactions conducted via blockchain technology, they may find themselves in relationships to one another that the law has not yet had the opportunity to clearly define. Courts, commentators, governmental officials, litigants and legislatures are now exploring which participants in various kinds of blockchain-based activities might be subject to liabilities for injuries or wrongs allegedly arising from those activities.
In Hung et al v Ontario (Securities Commission), 2019 ONSC 3423, the Divisional Court dismissed an appeal brought by four senior officers of Sino-Forest Corporation (the Appellants) in one of Canada’s largest frauds in history. The Appellants sought to set aside the decision on the merits of a panel of the Ontario Securities Commission (OSC) dated July 13, 2017 (Merits Decision), and set aside or amend the decision of a second Panel on sanctions dated July 9, 2018 (Sanctions Decision). In the alternative, the Appellants sought to remit the matter back … Continue Reading
In (Re) El-Bouji, 2019 ONSEC 19, the Ontario Securities Commission (OSC) determined that the test on a motion to strike portions of an affidavit filed by Staff in response to the respondent’s motion challenging the Commission’s jurisdiction to adjudicate certain allegations in a Notice of Hearing and Statement of Allegations is essentially the same as the test set out in Rule 25.11 of the Ontario Rules of Civil Procedure. Orders by the OSC to strike evidence in advance of a hearing or another motion should be made only for “special reasons”, based on the criteria set … Continue Reading
In a recent class action settlement approval hearing, Justice Belobaba of the Ontario Superior Court affirmed the value of early “ice breaker” settlements in complex class actions involving multiple defendants. In such a settlement, one defendant settles ahead of the rest for what may be viewed as a “token” amount, along with a pledge to provide cooperation to the plaintiffs. (Di Filippo and Caron v. Bank of Nova Scotia et al, 2019 ONSC 3282).
In the case in issue, the proposed settlement would resolve two class actions each involving substantially the same group of defendants, all … Continue Reading
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.
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
In AMF v. TMF, Baazov, et al. (Court File No. 500-11-052989-171), the Quebec Superior Court confirmed that the Financial Markets Administrative Tribunal (the Tribunal) has the power to order the Autorité des marchés financiers (AMF), Quebec’s securities regulator, to disclose documents to individuals against whom the AMF is seeking freeze orders and cease-trade orders in the course of an ongoing confidential investigation.
Freeze orders essentially prohibit a person from spending a single penny in his/her possession while cease-trade orders prohibit a person from trading on any and all securities he/she holds. These draconian orders are typically … Continue Reading
In its recent decision (AMF v. Desmarais), the Court of Appeal upheld the conviction of a Montreal lawyer who played a central role in the distribution of investment contracts without a prospectus and who acted as a dealer without being registered as such, while reducing his prison sentence and fine.
Facts of the case
Jean-Pierre Desmarais, a partner at a Montreal law firm, assisted Fondation Fer de Lance (FFDL) – a private not-for-profit foundation co-founded by Messrs. Desmarais and Gélinas – in recruiting and convincing 23 “sponsors” to sign a contract requiring them to make sums … Continue Reading
On December 31, 2018, the Ontario Superior Court of Justice dismissed an application by Harrington Global Opportunities Fund (Harrington) for a Norwich order against the Investment Industry Regulatory Organization of Canada (IIROC). Harrington sought the order to compel IIROC to provide information that would identify parties which had allegedly been involved in manipulating the market price of shares of a reporting issuer, to permit it to determine the viability of a civil action against them.
Justice Perell’s decision highlights the fact that the issuance of a Norwich order is “a rarely exercised extraordinary discretion”. “[T]he protection … Continue Reading
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
On July 14, 2016, the Ontario Securities Commission (OSC) launched the Whistleblower Program (the Program). Under the Program, individuals that provide information on violations of Ontario’s securities law to the OSC are eligible for awards of between 5% and 15% of total monetary sanctions or voluntary payments. The maximum amount a whistleblower can collect is $1.5 million when sanctions and/or payments are not collected and $5 million when sanctions and/or payments are collected. By June 2018, the Program had generated 200 tips. Tips may be submitted anonymously through counsel and the OSC makes all reasonable efforts … Continue Reading