The OSC will now offer no-contest settlements. These allow respondents to accept sanctions without admitting to charges of misconduct.
According to a recent release about newly adopted enforcement initiatives, OSC says the settlements will be available to respondents:
- who haven’t engaged in abusive, fraudulent or criminal conduct;
- whose misconduct hasn’t resulted in investor harm which hasn’t been addressed in a satisfactory manner; and
- who don’t obstruct the OSC staff during its investigations (see page two of the OSC’s release for more details).
The Commission adds that no-contest settlements will only be granted to few respondents.
- Pros and cons of no-contest settlements
- Finally, common sense from the SEC, for more on U.S. settlements
Also, firms and advisors will be required to go through the same adjudicative process either way because independent Commission hearing panels have to consider all evidence before approving the use of the settlements.
Further, all Commission findings will still be released in public agreements.
Good or bad news?
In today’s release, OSC assures that “staff…will continue to hold persons appropriately accountable for their misconduct” whether they have to admit or deny guilt.
This statement was necessary since investor groups slammed the regulator’s no-contest settlement proposal when it was first introduced in 2011, and at a June 2013 enforcement forum.
In particular, the Canadian Foundation for Advancement of Investor Rights (FAIR) questioned OSC’s motives. In a comment letter from 2011 (the document was also referenced at the forum) the group said, “Reaching settlements quickly doesn’t assist OSC in…protecting investors or fostering fair and efficient capital markets beyond [the fact that the use the settlements] increases the number of matters that don’t require a hearing…We have sympathy for the OSC’s constrained resources, [but] we question whether this is an appropriate solution.”
It added many firms and advisors are likely wary of admitting guilt since they don’t want investors to use settlement agreements to prove allegations during civil proceedings—if convicted in civil court, they face charges and sanctions twice.
This is uncommon, though, said a lawyer from London-based Siskinds LLP at the June forum. He’s found victims are often unable to use regulatory settlements to support their cases due to evidence collection restrictions.
One of the downfalls of the use of no-contest settlements, he added, is investors can’t properly evaluate a firm’s or advisor’s past conduct if it’s not clear whether they’ve broken securities laws.
But despite all arguments against no-contest settlements, OSC has stood firm. At the opening of its June enforcement hearing (and in the current release), the regulator adopted the attitude that the settlements aren’t a free pass. Instead, they’re a tool that’ll speed up hearings and administrative processes.
So far, it’s unclear how OSC will redistribute any cost savings, as well as whether other provincial regulators will adopt the same practice.
**Industry reaction to come. To share your views on the issue, comment below or email me at firstname.lastname@example.org.