Topic: Other developments

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Findings of Fraud Constitute “Other Good Reason” to Order Security for Costs

Hung v Ontario Securities Commission, 2018 ONSC 6729 (Div Ct)

The Divisional Court has released yet another chapter in the saga of one of the largest frauds in Canadian history.  In 2017, after a 188-day merits hearing, the Ontario Securities Commission (the Commission) released its decision concerning allegations of fraud against Sino-Forest Corporation (Sino-Forest) and its senior officers.  In that decision, the Appellants, as senior officers of Sino-Forest, were found to have authorized, permitted, or acquiesced in the company making misleading statements in its disclosure documents and to have misled Staff of the Commission during their … Continue Reading

Stop the presses! Canadian securities regulators raise concerns about press releases and other promotional activities

The Canadian Securities Administrators (CSA) have issued a notice regarding misleading promotional activities by issuers.  The notice includes examples such as press releases, presentations, social media posts and other marketing materials that provide insufficient or unbalanced information or that include unsubstantiated claims about the issuer.

Problematic Promotional Practices

Examples of potentially misleading promotional activities identified by the CSA include:

  • describing early-stage plans with “unwarranted certainty”, or making unsupported predictions about growth of the market or future product demand;
  • issuing multiple press releases that do not disclose any new material facts;
  • compensating third parties for promotion through social media
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Divisional Court Upholds OSC Finding that Trading Software License Contracts are Securities Within Meaning of Securities Act

The Ontario Superior Court of Justice in Furtak v Ontario (Securities Commission), 2018 ONSC 6616, has upheld the Ontario Securities Commission’s (OSC) merits and sanctions decisions with respect to the Strictrade Offering, which we previously reported on here.

Background

In 2015, OSC Staff brought enforcement proceedings against Edward Furtak, Axton 2010 Finance Corp., (Axton), Strict Trading Limited (STL), Strictrade Marketing Inc. (SMI), Trafalgar Associates Limited (TAL), Ronald Olsthoorn, and Lorne Allen (collectively the Strictrade Parties) arising out a scheme that involved the marketing and offering of … Continue Reading

The Hard Way – SEC announces first penalties and compliance roadmap for unregistered ICOs

On November 16, 2018, the Securities and Exchange Commission (SEC) announced consent orders settling actions in respect of two unregistered initial coin offerings (ICOs), including the first fines levied against non-compliant ICO issuers made by the SEC to date.

The consent orders demonstrate the SEC’s willingness to follow through with enforcement proceedings against issuers of ICOs not in compliance with securities laws, and provide a roadmap for how existing ICOs can bring themselves into compliance going forward.

The parties – Airfox and Paragon

The issuers charged in the two SEC enforcement actions each raised substantial amounts … 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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Re Fauth: A Primer on ss. 75(1)(a), 92(4.1) and 93(b) of Alberta’s Securities Act

The Alberta Securities Commission (ASC) recently released its decision in the matter of Re Fauth, finding the respondent, Vernon Ray Fauth (Fauth), in breach of ss. 75(1)(a), 92(4.1) and 93(b) of Alberta’s Securities Act, RSA 2000, c S-4 (the Act). The decision offers some important insight on issues regarding limitation periods, illegal dealing, misrepresentations, and fraud under the Act. The decision also discusses the use of hearsay evidence in proceedings before the Commission; specifically, the use of transcripts of witness interviews conducted by the Alberta Securities Commission Staff (Staff) in the … Continue Reading

MFDA Publishes Principles-Based Sanction Guidelines

The Mutual Fund Dealers Association of Canada (MFDA) has published new Sanction Guidelines which will take effect on November 15, 2018.  The Sanction Guidelines, which replace the MFDA’s Penalty Guidelines, in place since 2006, are intended to promote consistency, fairness and transparency while focusing on a principles-based approach to sanctioning.  While the Sanction Guidelines are not binding on MFDA Hearing Panels, they are intended to provide a summary of the key factors that Hearing Panels may refer to in exercising their discretion in imposing sanctions.

The Sanction Guidelines identify the following Key Factors to be considered in determining … Continue Reading

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

Supreme Court of Canada Rules that Proposed Canadian Cooperative Capital Markets Regulatory System is Constitutional

Today the Supreme Court of Canada (the Supreme Court) released its much-anticipated decision on the reference regarding the proposed Canadian Cooperative Capital Markets Regulatory System, finding that the proposed national regulatory system is constitutional.

Previous Attempts to Create National Securities Regulator

It has been suggested by the a number of governments, academic commentators and others that a national securities system in Canada would protect investors, foster fair, efficient and competitive capital markets, and contribute to the integrity and stability of Canada’s financial system.  As a result, various attempts have been made to centralize the regulation of securities in Canada … Continue Reading

A tough break for third party litigation funding in Ontario? Not so fast.

The Ontario Superior Court (ONSC) issued two back-to-back decisions on acceptable litigation financing agreements, both involving the same third party funder.  While the ONSC continues to approve classic litigation financing arrangements, uncertainty remains as to whether third party financiers may profitably fund counsel fees in the context of class actions.

Classic funding schemes continue to receive unfettered court approval

In David v. Loblaw, 2018 ONSC 6469, Morgan J. approved IMF Bentham’s funding agreement in a class action regarding the alleged price-fixing of bread without modifications, recognizing litigation financing as a potential tool for access to justice.

The … Continue Reading

The Securities and Exchange Commission’s Long Reach

You are a third-party witness to a potential breach of U.S. securities laws, living in Québec, if you think that you are out of reach of the SEC, think again.  In United States Securities and Exchange Commission v. Ouellet, 2018 QCCS 4239, the Québec Superior Court did just that and granted an order compelling a resident living in Québec to produce documents and produce themselves for questioning in relation to an investigation in the U.S.

Background

As discussed in our previous post, the founders of PlexCoin token issuer PlexCorps are under investigation by securities regulators on both … 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

From boom to busted: TMF deems PlexCoins as investment contracts

The legal noose is tightening around the necks of rogue cryptocurrency issuers in Quebec. PlexCorps’s legal troubles, as covered in our previous post, have deepened.

In Autorité des marchés financiers c. PlexCorps, 2018 QCTMF 91, the Tribunal des Marchés Financier (TMF) qualified PlexCoin as an investment contract within the meaning of Quebec’s Securities Act. This should come as no surprise as all TMF decisions to date have qualified cryptocurrency products as investment contracts.[1]

Background: a Burgeoning Crypto-Fraud Business

PlexCorps offered a cryptocurrency called PlexCoin along with financial services such as the PlexCard, PlexWallet and PlexBank. It … Continue Reading

Ontario Court Imposes Custodial Sentence for Securities Act Offences

The Ontario Superior Court of Justice has released what appears to be the final chapter in the Ontario Securities Commission’s (OSC) prosecution of Daniel Emerson Tiffin and Tiffin Financial Corporation.

Background

In July 2014, the Ontario Securities Commission’s administrative proceedings against Rezwealth Financial Services Inc., Pamela Ramoutar, Justin Ramoutar, Tiffin Financial Corporation, Daniel Tiffin, 2150129 Ontario Inc., Sylvan Blackett, 1778445 Ontario Inc. and Willoughby Smith, resulted in an order under s. 127 of the Securities Act (the Act) prohibiting Daniel Emerson Tiffin (Mr. Tiffin) and TFC from trading in securities or relying upon any exemption … Continue Reading

When do inferences become unreasonable and contrary to the rules of procedural fairness?

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) … Continue Reading

CSA Proposes Rule Regarding Non-GAAP and Other Financial Measures

Introduction and Background

On September 6, 2018, the Canadian Securities Administrators (CSA) issued a notice and request for comment on Proposed National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure (the Proposed Instrument), Proposed Companion Policy 52-112 Non-GAAP and Other Financial Measures Disclosure (the Proposed Companion Policy) and related proposed consequential amendments and changes to various other instruments and policies.[1]

Currently, CSA staff guidance on non-GAAP and other financial measures is contained in CSA Staff Notice 52-306 (Revised) Non-GAAP Financial Measures (SN 52-306), which was first introduced in 2003. Although SN 52-306 has … Continue Reading

Court of Appeal for Ontario expands on auditors’ duty of care

Key take-aways

On September 5 the Court of Appeal for Ontario issued its decision in Lavender v. Miller Bernstein LLP, 2018 ONCA 729.

  • The decision is now the leading judgment by Ontario’s highest court on the duty of care owed by auditors.
  • The Court of Appeal held that an auditor does not owe a duty of care to account holders with a securities dealer simply by virtue of auditing the dealer’s annual registration renewal requirements filed with a securities regulator.
  • The decision confirms that the legal determination of the class of persons to whom an auditor owes a
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Quebec Court of Appeal clarifies the essential elements of the offences of market manipulation and complicity under the Quebec Securities Act

On September 5, 2018, the Quebec Court of Appeal rendered a unanimous judgment in Autorité des marchés financiers c. Forget, 2018 QCCA 1419 (Forget) clarifying the essential elements of the mens rea offence of market manipulation set out at section 195.2 of the Quebec Securities Act (QSA):

195.2. Influencing or attempting to influence the market price or the value of securities by means of unfair, improper or fraudulent practices is an offence.

and of the offence of complicity set out at section 208 QSA :

208. Every person who, by act or omission, aids a

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Quebec Superior Court dismisses action for damages against Autorité des marchés financiers

In Mallat c. Autorité des marchés financiers de France, 2018 QCCS 3867, Cohen J. granted a motion to dismiss an action brought by three Ubisoft executives (Plaintiffs) against the Autorité des marchés financiers de France (AMFF) and the Autorité des marchés financiers du Québec (AMFQ).

Among many demands[1], the Plaintiffs requested declarations that the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (the MMoU) ‑ to which more than one hundred securities regulators world-wide are parties ‑ was invalid, that the subpoena sent by the … Continue Reading

Stay of proceedings based on AMF failings in its disclosure of evidence : Baazov v. AMF, 2018 QCCQ 4449

In the recent decision Baazov v. AMF, Mascia J. of the Quebec Court, Criminal and Penal Chamber granted a stay of proceedings in respect of all tipping, insider trading and market manipulation charges laid against the accused based on the repeated failings of the prosecutor, the Autorité des marchés financiers (AMF), the Quebec securities regulator, in its disclosure of evidence to the accused. The AMF has decided not to appeal the judgment, which is now final.

Background to the Decision

In March 2016, the AMF laid 23 penal charges against David Baazov, Benjamin Ahdoot, Yoel Altman and … Continue Reading

The Importance of Cooperation Among Interjurisdictional Securities Regulators: United States Securities and Exchange Commission v. Autorité des marchés financiers, 2018 QCCQ 4417

In the recent decision of United States Securities and Exchange Commission v. Autorité des marchés financiers, 2018 QCCQ 4417, the Quebec Court, Criminal and Penal Chamber held that the United States Securities and Exchange Commission (SEC) had the required interest under section 122 of the Code of penal procedure (CPP) to be allowed to examine materials seized by the Autorité des marchés financiers (AMF), the Quebec securities regulator, from persons under investigation. The CPP applies with respect to proceedings in view of imposing a penal (as opposed to criminal) sanction for an … Continue Reading

Ontario Securities Commission confirms test for severance

In a decision issued on July 24, 2018, the Ontario Securities Commission held that the test to determine whether a respondent’s case should be severed and heard separately is the same test used in criminal proceedings.

The decision, Hutchinson (Re), 2018 ONSEC 40, is available here.

Allegations of insider trading and insider tipping

The OSC commenced proceedings against four individuals alleging insider trading and insider tipping with respect to the securities of eight companies.

Commission staff alleged that Donna Hutchinson, a legal assistant at a law firm, provided material non-public information to her friend Cameron Edward Cornish regarding … Continue Reading

Copy and Paste Securities Fraud? The U.S. Supreme Court to Decide

Last month, the U.S. Supreme Court granted certiorari to hear a case where an investment banker copied and pasted misstatements from his boss into emails that, at his boss’s request, he sent to prospective debenture purchasers.  In Lorenzo v. Securities and Exchange Commission, 872 F.3d 578 (D.C. Cir. 2017), a divided United States Court of Appeals for the District of Columbia held that the investment banker was not the “maker” of the misstatements, but nevertheless affirmed the SEC’s determination that he committed securities fraud under a fraudulent scheme theory.  The Supreme Court will thus be faced with the … Continue Reading

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