Ontario Securities Commission Willing to Accept “No-Contest” Settlements

On March 11, 2014, the Ontario Securities Commission (the “OSC”) adopted the following enforcement initiatives aimed at encouraging cooperation from market participants and streamlining its dispute resolution process:

  1. A new program to facilitate the settlement of appropriate enforcement cases in circumstances where the respondent does not make formal admissions respecting its misconduct (sometimes referred to as no-contest settlements);
  2. A new program for explicit no-enforcement action agreements;
  3. A clarified process for self-reporting under Staff’s credit for cooperation program; and
  4. Enhanced public disclosure by Staff of credit granted to persons for their cooperation during enforcement investigations.[1]

Perhaps most noteworthy among these four new initiatives, which are set out in OSC Staff Notice 15-702, is that the OSC is now willing to resolve certain enforcement matters on the basis of a settlement agreement in which the respondent does not make formal admissions regarding its alleged misconduct or contravention of Ontario securities law. [2]

Historically, the OSC, and other regulatory organizations, refused to enter into settlement agreements without an acknowledgment of wrongdoing. This approach often stymied settlement discussions as formal admissions could (and likely would) be admissible in any related civil proceeding.

This new policy to accept no-contest settlements fosters the efficient resolution of regulatory disputes and is ultimately a positive development. It enables market participants to enter into settlement agreements, in proper circumstances, without the risk of admissions against interest (a constant feature of all settlement agreements in the old regime) being used against them in subsequent civil proceedings.

However, the OSC indicated that no-contest settlement agreements would not be appropriate in serious cases where:

  1. the person has engaged in abusive, fraudulent or criminal conduct;
  2. the person’s misconduct has resulted in investor harm which has not been addressed in a satisfactory manner; and
  3. the person has misled or obstructed Staff during its investigation. [3]

In the United States, the Securities and Exchange Commission has entered into no-contest settlements for many years. Yet, this approach has been controversial. In U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., for example, Judge Rakoff refused to approve a $285 million no-contest settlement agreement as it was “neither reasonable, nor fair, nor adequate, nor in the public interest.” [4]

One hopes that the OSC’s adoption of no-contest settlement agreements reflects a trend among regulatory bodies. It remains to be seen whether other provincial securities regulators and/or the Investment Industry Regulatory Organization of Canada—the national, self-regulatory organization charged with the oversight of investment advisors and trading activity on Canada’s debt and equity marketplaces—will follow suit.

 

[1] Ontario Securities Commission, News Release, “OSC Proceeds with New Initiatives to Strengthen Enforcement” (11 March 2014), online: OSC

[2] Ontario Securities Commission, “OSC Staff Notice 15-702, Revised Credit for Cooperation Program” 37 OSCB 2583 (13 March 2014), online: OSC 

[3] Ibid at para 20.

[4] U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., 11 Civ. 7387 (2011).

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Mark G. Evans

About Mark G. Evans

Mark is the Practice Lead for the Litigation and Dispute Resolution Group of Dentons’ Toronto office and the Co-Global Lead for Dentons Fraud and Asset Recovery Group. Mark is a leading banking and commercial litigation lawyer and acts as lead litigation counsel for a number of Canadian and multinational clients on significant class action briefs.

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Ara Basmadjian

About Ara Basmadjian

Ara Basmadjian is a Senior Associate in the Litigation and Dispute Resolution group at Dentons Canada LLP. His practice involves a variety of complex corporate, commercial and civil litigation matters.

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