Ontario
Securities CommissionIntroduction
Securities law is body of law that regulates the sale of company shares and various other securities to the public. Ontario Securities law includes the regulation of the sale of various securities, initial public offerings and private placements, the TSE and the rights and duties of brokers and clients.
Sources of Securities Law in Ontario
The sources of law consist of statutes, regulations, judicial and the OSC decisions. The sources of law are the products of diverse government bodies, the Ontario Legislature, courts and the OSC that have the authority to make law.
Subject Headings for Securities Law in Ontario
I. Ontario Securities Law
The sources of securities law in Ontario is the Securities Act, R.S.O. 1990, c.S.5, as amended, and the product of various government bodies, the Ontario Legislature, courts and the Ontario Securities Commission that have the authority to make law. Thus, the Ontario securities law consists of statutes, regulations, Rules, judicial and the OSC decisions.
Other relevant legislation in Ontario is as follows:
Commodity Futures Act, R.S.O. 1990, c.C.20
Toronto Futures Exchange Act, R.S.O. 1990, c.T.14
Toronto Stock Exchange Act, R.S.O. 1990, c.T.15
Business Corporations Act, R.S.O. 1990, c. B-16
In Canada, securities law and the regulation of securities markets is governed primarily by provincial statutes. There is no single federal law that governs or regulates the trade in securities except for those federal Acts that regulate matters within jurisdiction of the Federal government that also involve some aspects of sale of the securities, such as the Canada Business Corporations Act, R.S.C. 1985, c.C-44.
III. Internet Sources of Ontario Securities Legislation
The Internet provides one with an easy access to the Consolidated Statutes and Regulations of Ontario including, of course, all fairly current versions of the Securities Act, R.S.O. 1990, c.S.5. and of the relevant regulations. The goal of the Government of Ontario for these sites is that they be up to date within 14 days of a change in law.
See www.e-laws.gov.on.ca and/or www.attorneygeneral.jus.gov.on.ca
A. Case Law: Ontario and Canada
Judicial decisions are an important primary source of law. Case law developed by judges and the Ontario Securities Commission has the force of law to the extent that it can and it does affect the way in which people, businesses and the Province of Ontario conduct their affairs. Courts may under certain circumstances declare statutes and regulations invalid.
In the circumstances of securities law, the decisions and orders made by the Ontario Securities Commission are very important to companies and businesspersons wishing to publicly trade in securities. Consequently, it is important to research not only judicial decisions, but also decisions and orders made by the Ontario Securities Commission, which regulates securities transactions in Ontario.
Set out below are a list of resources providing full-text judicial decisions and decisions and orders of the Ontario Securities Commission
Supreme Court of Canada Decisions (i) the Internet version:
The English Internet version service is provided at: http://www.lexum.umontreal.ca/csc-scc/en/index.html through a joint project between the Supreme Court of Canada and the LexUM team of the Centre de Recherche en Droit Public at the University of Montreal. The collection available at the present time goes back to 1985. The search at this site allows searching cases by dates, names of parties, abstract, judges present, cases cited, statutes and regulations cited, authors cited, and, of course, full text. One can look up decisions by subject or concept. Decisions on securities law can be found by simply searching on the keyword "securities".
Ontario Courts Decisions are also available on the Internet at: http://www.ontariocourts.on.ca
Law Reports Decisions (ii) the version in print:
(a) One can easily search the Canada Supreme Courts Reports in print, for example, in the Bora Laskin Law Library of the U of T Law School. Same place also the Dominion Law Reports either in print or in CD-ROM version (from 1912-present) are available.
(b) The Dominion Law Reports are a national reporter consisting of cases on all subject areas from all levels of courts in every Canadian jurisdiction. At the present time in its fourth series, each series has a cumulative index that provides summaries of cases along with the citation. Cases on securities law are indexed under securities legislation.
(c) Business Law Reports is a national reporter consisting of cases from all levels of courts in every Canadian jurisdiction.
(d) Canadian Cases on the Law of Securities (Carswell)
This printed a reporter series ended in 1998. However, it does contain important decisions on securities law.
(e) Canadian Securities Law Reporter (CCH)
Printed reports. This is a loose-leaf reporter available from CCH. It provides extensive coverage on securities law decisions.
(f) Ontario Securities Commission: Enforcement
The enforcement section of the Ontario Securities Commission (OSC) website sets outs notices of enforcement hearings and recent decisions and settlement agreements rendered or entered into by the OSC. In addition, the Ontario Securities Commission Bulletin includes orders and rulings made by the OSC.
(g) Additionally, among excellent resources for legal research belong legal encyclopedias, such as Canadian Encyclopedic Digest (Carswell) Print: Dig. Can. A2 C42 (Ontario Edition). Next textbooks, legal journals and case law digests all provide discussion and analysis of the legal issues arising from the topic under discussion.
1.) The function, purpose and practice of the Ontario Securities Commission
i) function of the Ontario Securities Commission
In the recent case of the Ontario Securities Commission v. Wilder and Cassels Brock & Blackwell reported at (2000), 47 O.R. (3rd) 361 the Divisional Court stated at p. 368 that the function of the OSC is:
"that of protecting investors and the proper functioning of Ontario's capital markets. Ensuring proper disclosure and maintaining the integrity of its processes are an important part of the role."
ii) purpose of the Ontario Securities Commission
On appeal from the Divisional Court judgment the Court of Appeal for Ontario stated in paragraph [21] of its decision that:
"The paramount object of the Act is to ensure that persons who, in the province, carry on the business of trading in securities or acting as investment counsel, shall be honest and of good repute and, in this way, to protect the public, in the province or elsewhere, from being defrauded as a result of certain activities initiated in the province by persons therein carrying on such a business."
See judgment released 2001, 03, 22 DOCKET: C34363
iii) the Court of Appeal for Ontario described in the above case practice of the Ontario Securities Commission as follows:
"[22] The OSC is charged with the statutory obligation to do its best to ensure that those involved in the securities industry provide fair and accurate information so that public confidence in the integrity of capital markets is maintained. It is difficult to imagine anything that could be more important to protecting the integrity of capital markets than ensuring that those involved in those markets, whether as direct participants or as advisers, provide full and accurate information to the OSC.
[23] The remedial and enforcement provisions of the Act must be read in light of the fundamental purpose and aim of the legislation. [Emphasis added]? The legislature has quite clearly manifested its intention to provide the OSC with a range of remedial options to assist the OSC in carrying out its statutory mandate. The Act provides the OSC with three different enforcement tools: prosecution before the Ontario Court of Justice pursuant to s. 122; administrative sanctions before the OSC itself pursuant to s. 127; and declaratory, injunctive, and other orders from the Superior Court of Justice pursuant to s. 128. These enforcement tools provide the OSC with a range of remedial options to be deployed in the OSC discretion to meet the wide variety of problems and issues that it must confront."
2.) Judicial interpretation of an intention of legislature by the Court of Appeal for Ontario
"?To the extent one can discern a legislative intention from this scheme ? the overwhelming message is one of remedial variety and flexibility? A court should be loath to prefer a rigidly narrow and literal interpretation over one that recognizes and reflects the purposes of the Act." See judgment of the Court of Appeal for Ontario the last 6 lines of paragraph [23]; DOCKET: C34363, Date: 2001,03,22.
3.) The Ontario governing statute is the Securities Act, R.S.O.1990, c.S.5., as amended.
4.) The Basic Public Mandate, Aim or Purpose of the Securities Act
The Securities Act grants an important public mandate on the OSC to regulate capital markets. Most important part of that supervisory function is need to insure that the public is given fair and accurate information regarding securities. In Pacific Coast Coin Exchange of Canada v. Ontario (Securities Commission), [1978] 2 S.C.R. 112 at p. 126 the Supreme Court of Canada adopted the following description of the basic aim or purpose of the Securities Act: "[T]he protection of the public through full, true and plain disclosure of all material facts relating to securities being issued."
The Act provides in Part XXII for three methods of enforcement that are available to the OSC in carrying out its mandate to regulate the securities industry.
(i) The first enforcement method is a quasi-criminal proceeding in the Ontario Court of Justice, pursuant to s. 122(1), leading to conviction and fine or imprisonment.
(ii) In this paper I will deal briefly only with the second enforcement method, which is an administrative proceeding before the OSC pursuant to s. 127 for an "order in the public interest". The section 127(1) provides as follows:
127.(1) The Commission may make one or more of the following orders
if in its opinion it is in the public interest to make the order or orders:
company under Ontario securities law be suspended or restricted for such
period as is specified in the order or be terminated, or that terms and
conditions be imposed on registration or recognition.
cease permanently or for such period as is specified in the order.
not apply to a person or company permanently or for such period as is
specified in the order.
practices and procedures and institute such changes as may be ordered by
the Commission.
complied with, an order that a release, report, preliminary prospectus,
prospectus, return, financial statement, information circular, take-over bid
circular, issuer bid circular, offering memorandum, proxy solicitation or
any other document described in the order,
practicable.
holds as a director or officer of an issuer.
8. An order that a person is prohibited from becoming or acting as
director or officer of any issuer.
(iii) The third enforcement method is an application pursuant to s.128 to the Superior Court of Justice for an order from that court. The OSC may apply to the Superior Court of Justice for a declaration that a person or company has not complied with or is not complying with Ontario securities law.
If the court makes a declaration under subsection 128.(1), the court may, despite the imposition of any penalty, imprisonment or both under subsection 122(1) and despite any "order in the public interest" made by the OSC under section 127, make any order pursuant to s. 128 that the court considers appropriate against the person or the company.
5.) Section 127(1) of the Securities Act applies
The Divisional Court in its recent decision, reported at (2000), 47 O.R.(3rd) 361 explained, at p. 367, the language of s. 127(1). The section in the court's view indicated a clear legislative intention "to broaden the powers of the [OSC] to make orders in the public interest".
The wording of the relevant provisions of the Securities Act would apply to any person or corporation alleged to have provided misleading or untrue information to the OSC. The role of the OSC, as stated by the Divisional Court at p. 368 is "that of protecting investors and the proper functioning of Ontario's capital markets. Ensuring proper disclosure and maintaining the integrity of its processes are an important part of the role."
6.) Statutory Interpretation of the Securities Act by the Ontario courts
On appeal from the Divisional Court the Court of Appeal for Ontario said also in "[23] That remedial and enforcement provisions of the [Securities] Act must be read in light of the fundamental purpose and aim of the legislation. ? The legislature has quite clearly manifested its intention to provide the OSC with a range of remedial options to assist the OSC in carrying out its mandate." See DOCKET: C34363; Date: 2001, 03, 22
7.) The relevant regulations under the Act
Regulations under the Ontario Securities Act, R.S.O. 1990, c.S.5, as amended which are promulgated under section 26. of the Statutory Powers Procedure Act, R.S.O. 1990, c.S.22 (the "SPPA") that provides: "The Lieutenant Governor in Council may make regulations prescribing forms for the purpose of section 12.
8.) The Statutory Powers Procedures Act applies to the Ontario Securities Commission
To determine whether the OSC is subject to the SPPA one must, at the very minimum, consider the following five criteria. Firstly, whether the OSC has been by subsection 3(2) of the SPPA specifically excluded from coverage of the SPPA; secondly, whether the Ontario Securities Act expressly states that the SPPA is to apply (From the reported OSC Decisions & Settlements Agreements it appears that it does. See, for example, orders pursuant to section 21 of the SPPA to adjourn the OSC hearing; or order pursuant to section 5.3(1) of the SPPA and the Rule 2 of the OSC Rules of Practice directing the parties to participate in a pre-hearing; or, orders pursuant to subsection 4(1) of the SPPA taken together with the Rule 1.5(3) of the Commission's Rules of Practice to determine whether the Commission has jurisdiction to hear the Application);
thirdly, whether the proceedings of the OSC satisfy the criteria of subsection 3(1) of the SPPA which states:
"Subject
to subsection (2), this Act applies to a proceeding by a tribunal in the exercise of a statutory power of a decision conferred by or under an Act of the Legislature, where the tribunal is required by or under such Act or otherwise by law to hold or to afford to the parties to the proceeding an opportunity for a hearing before making a decision".Fourthly, additionally, whether the Securities Act provides for the OSC that there be a hearing before a decision is made by the OSC. The Securities Act provides in numerous sections for the OSC to issue notice of hearings in respect of various issues that are in the opinion of the OSC "in the public interest to make".
For example, the OSC may issue an Amended Notice of Hearing pursuant to section 127(1) of the Securities Act; or subsection 8(2) of the Securities Act provides that a person is entitled to a hearing and review by the Commission of a decision of the Director where notice in writing requesting a hearing and review is sent to the Commission within 30 days after the mailing of the notice of a decision.
And, finally, fifthly whether the OSC is acting in the exercise of a "statutory power of decision". "Statutory power of decision" is defined in section 1(1) of the SPPA as follows:
"statutory power of decision" means a power or right, conferred by or under a statute, to make a decision deciding or prescribing,
The Commission when it is of the opinion that it is in the public interest to make the Order makes various orders including orders pursuant to clause 2 of subsection 127(1) of the Securities Act where the registrants are: a) prohibited from trading in securities either permanently or for a period of time; b) reprimanded; c) the registration is suspended; d) the registrants are ordered to pay the amount of fine; e) ordered to make restitution e.g. to any relevant mutual fund.
Having considered the above five criteria I believe that the OSC is subject to the SPPA.
9.) The OSC was given the power to determine its own practice and procedure
The SPPA does give the OSC power to determine its own practice and procedure. Section 25.1 (1) of the SPPA states:
"A tribunal may make rules governing the practice and procedure before it."
Section 25.1(3) states:
"The rules shall be consistent with this Act and with the other Acts to which they relate."
and Section 25.1(4) states:
"The tribunal shall make the rules available to the public in English and in French."
10.) Kind of hearings the OSC may hold
Section 6.(1) of the SPPA states:
"The parties to a proceeding shall be given reasonable notice of the hearing by the tribunal."
The OSC may hold hearings pursuant to section 127 of the Securities Act, as amended, to consider whether, in the opinion of the Commission, it is in the public interest to make one order or more orders enumerated in section 127.1 clauses 1 to 8 inclusive. See supra page 5
11.) Representation by counsel in proceedings before the OSC
Section 10. of the SPPA provides as follows:
"A party to a proceeding may be represented by counsel or by an agent."
In fact every Notice of Hearing states the following: "TO CONSIDER whether, in the opinion of the Commission, it is in the public interest to make order:
- and it ends with -
AND TAKE FURTHER NOTICE that any party to the proceeding may be represented by counsel if that party attends or submits evidence at the hearing;
Everyone has the right on arrest or detention to retain and instruct counsel without delay and to be informed of that right. Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, being Schedule B of the Canada Act 1982 (U.K.), 1982, c.11, s. 10(b).
12.) The OSC can make the following orders:
See supra page 5 section 127.(1) of the Securities Act that in clauses 1 to 8 inclusive list one or more orders that the Commission may make if in its opinion it is in the public interest to make the order or orders.
13.) The OSC is required to give written reasons for decisions
Section 16.1(3) titled Reasons of the SPPA states:
"An interim decision or order need not be accompanied by reasons."
And section 17.(1) titled Decision of the SPPA provides:
"A tribunal shall give its final decision and order, if any, in any proceeding in writing and shall give reasons in writing therefor if requested by a party."
Since I do believe that the OSC is bound by the provisions of the SPPA it follows that the OSC is obliged to give reasons for its decisions upon request.
14.) There is a right of review of the OSC's decision
The OSC's decisions are governed by the SPPA. The SPPA in section 21.2(1) provides for power to review: "A tribunal may, if it considers it advisable and if its rules made under section 25.1 deal with the matter, review all or part of its own decision or order, and may confirm, vary, suspend or cancel the decision or order."
And in section 21.2(2) in respect of time for review states: "The review shall take place within a reasonable time after the decision or order is made."
For example, the OSC may hold a hearing and review under subsection 8(2) of the Securities Act of a decision of the Director where notice in writing requesting a hearing and review is sent to Commission within 30 days after mailing of the notice of a decision.
Conclusion
The OSC made recently Settlement Agreements with the registrant whose virtually all business consisted of it acquiring stock for its own account and selling that same stock to its clients at mark-ups above acquisition costs ranging from approximately 56% to approximately 324%. These mark-ups were considered by the OSC excessive. The registrant's gross revenue i.e. revenue from sale of stock less acquisition costs was approximately $31 million. The Settlement Agreement did not require the registrant to disgorge the amounts obtained as a result of non-compliance with the securities law.
No wrongdoer should benefit from his wrong. Someone must bear the loss, and I think it better that this loss should rest on the persons who are intentionally at fault than on the innocent victims on whom it happens to fall. This must be so because the persons wronged feel resentment. The resentment of the victims can be satisfied by reparation i.e. by granting of financial compensation. Further, the demand for justice here appears to be demand for action, and necessity for acting lies somehow in the fact that inaction signifies an acceptance of the wrong, which is to say toleration of it.
Olaf A. Macko, JD (can be reached by email at [email protected])