Investigations under the Ontario Securities Act
Section 11 of the OSA equips the OSC with a powerful investigative tool.Under section
11, the OSC may order an investigation:
a) for the due administration of Ontario securities law or the regulation of the capital
markets in Ontario; or
b) to assist in the due administration of the securities laws or the regulation of the
capital markets in another jurisdiction.
Pursuant to a section 11 order, one or more persons may be appointed to conduct the
investigation and the matter to be investigated must be set out.
Section 13 of the OSA provides the investigator(s) with broad powers in conducting their
investigation including the power to compel testimony, enter business premises, and
inspect and seize documents upon application to a judge.
A person or company compelled to testify may be represented by counsel, may claim any
privilege to which the person or company is entitled, and any such testimony may not be
admitted in evidence against the person from whom the testimony was obtained in a
prosecution under the OSA or any other proceeding governed by the Provincial Offences
Act.2
Section 16 of the OSA provides further statutory protections restricting the disclosure of
information relating to the investigation, including any information obtained under a
section 13 order compelling testimony.
Generally, the disclosure of the existence and nature of an investigation either by OSC
staff or the issuer itself is prohibited. In the OSC Staff Notice 15-703 Guidelines for Staff
Disclosure of Investigations, five general circumstances, or exceptions to the general
policy of non-disclosure, are provided for that lead to compelled disclosure of the
existence of an investigation. While such exceptions ostensibly exist for the protection of
the investing public and maintaining confidence in the public markets, they have been
criticized for contributing to potential prejudice to those under investigation if no
proceedings are ultimately taken.
In addition to these exceptions, issuers must continue to conform to disclosure
obligations under securities law and exchange requirements and therefore, disclosure may
be necessary if the issuer determines that the fact of an investigation is a “material fact”
or “material change.”
The person or company that is the subject of the investigation does not have any right to
participate in the process of the investigation. The Supreme Court of Canada, in British
Columbia Securities Commission v. Branch 3 stated:
Although those conducting an investigation are always under a duty to act
fairly, this court has held that fairness in the context of such hearings does
not require that the persons who are the “subjects” of the investigation
participate in the examination of other witnesses, or that they be provided
with an opportunity to adduce evidence or make submissions to the
investigator.
The rights of persons or companies who are the subjects of government investigations are
further limited in the context of informal investigations. In Barry v. Alberta (Securities
Commission) 4, the Supreme Court of Canada determined that the Alberta Securities
Commission has an implied authority to conduct informal investigations without the
formality of issuing an investigative order. The Court reasoned that requiring the
Commission to issue an order before commencing an investigation may stifle necessary
fact-finding activities and paralyze the operations of the Commission.As these informal
investigations do not carry with them the same procedural safeguards that attach to
formal investigations, they have been heavily criticized by the legal community.
Compounding this criticism is the OSC's Credit for Cooperation policy5 which is
intended to encourage self-reporting behaviour and allow market participants to benefit,
in the form of more favourable consequences for potential violations, from cooperating
with OSC Staff during an investigation. Critics suggest that such a policy is coercive in
nature given the possible repercussions of a refusal to cooperate. Possible repercussions
of non-cooperation include a loss of status under the OSA and the removal of available
exemptions. In considering whether to cooperate, a person or company must be aware of
the numerous disadvantages such cooperation may entail, including the absence of
procedural safeguards relating to confidentiality and self-incrimination, as well as the
uncertainty that cooperation will lead to a more favourable outcome.
groiaco.com  |
