Wrongdoers may no longer have to admit guilt when settling with OSC.
The regulator is adopting several enforcement measures to help boost efficiency, including no-contest settlements.
That’s because it has struggled with processing cases over the past few years. During a June 2013 forum, OSC director of enforcement Tom Atkinson revealed that OSC staff often spend more than 300 hours sitting on panels each year due to prolonged proceedings.
The regulator’s four new enforcement initiatives (proposed in 2011) “will potentially allow [OSC] to resolve enforcement matters more quickly and issue more protective orders earlier,” says Atkinson in a release.
But investor advocacy groups say no-contest settlements, in particular, will fail to properly assign blame to wrongdoers.
In the release, Atkinson counters, “When heightened accountability from respondents is paramount, we’ll continue to seek admissions as part of any proposed settlement agreement.”
The Commission’s release used broad, imprecise language to describe its new initiatives, says Jay Naster, a securities lawyer at Rosen Naster LLP in Toronto.
It’s not clear who will be granted no-contest settlements, nor how often OSC plans to use them, he adds. Though “clause 20 [of OSC’s release] prescribes when [no-contests] won’t be available,” the regulator simply says that those who harm investors through “abusive, fraudulent or criminal conduct,” as well as those who are uncooperative, will still have to admit guilt.
There’s a major difference between abusive and criminal acts, says Naster, since any respondent who breaks securities laws has abused markets.
The use of confusing language, he predicts, will make it hard for people to know when to pursue no-contest settlements. In contrast, U.S. guidelines are clear, says Naster, since all respondents are eligible for no-contests unless they’ve committed criminal acts.
“What concerns me,” he adds, “is this seems to be a wide-ranging proposal” and we won’t know if no-contest settlements will be common.”
Laura Paglia, a securities lawyer with BLG in Toronto, suggests OSC is being cautious since it’s not sure how best to incorporate no-contest settlements.
“In theory, [no-contests] are good for both regulators and respondents,” she says. The language used in settlements has been a roadblock up to this point, so adopting a no-admit, no-deny approach for difficult cases is a step towards quicker resolutions.
But it’s too soon to tell whether no-contests will work, says Paglia. There may be cases where firms or advisors don’t agree with “inflammatory language” in settlement agreements, so they won’t want to use no-contests.
“The first few cases where no-contests are granted will receive lots of attention,” she adds.
Both Naster and Paglia wonder whether regulators and SROs will also pick up no-contest settlements.
So far, “the world is the same” for firms and advisors under IIROC supervision, says Paglia. Yet, she suggests OSC’s policy change may signal other bodies to adopt no-contests.
Naster adds that other provincial regulators may follow suit since they often reciprocate orders made by OSC, and may not be able to “mirror orders if don’t have same rule systems.” Instead, they’d likely have to launch separate investigations at higher cost.
Further, OSC’s release suggests the regulator may consider a respondent’s ability to pay fines when deciding whether to grant no-contests, he says.
Clause 17(e) says hearing panel decisions will partially depend on whether a person or firm can compensate wronged investors. And clause 17(h) states that “the agreement of the person to pay monetary amounts, if any” will also be a factor.
This means that “people who can’t afford to pay penalties [could be] disadvantaged,” says Naster.
Further, he wonders about the after-effects of being granted a no-contest. “If no admissions are made,” he says, “will respondents still have to list [the OSC’s findings] when they report prior incidents for [E&O] insurance purposes, for example?” Also, it’s not yet clear whether no-contest settlements, which will still be public, can be used in Canadian civil court cases as supporting evidence.
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