A recent decision of the Ontario
Securities Commission (OSC) concerning the responsibility of a CEO
for his company's 2003 press release, which contained
information concerning an accident and its effect on third-quarter
earnings results, has received considerable press comment.
The press treated as novel the OSC's finding that Eugene
Melnyk, who was CEO of Biovail Corporation at the time of the
release, had acted contrary to the public interest in allowing the
release of information even though no violation of the
Securities Act had been demonstrated. (Before Mr.
Melnyk's case was heard, Biovail had settled the charges
brought against it by the OSC.)
In fact, the OSC's finding is not a novel development at
all. The OSC has a very well-established jurisdiction under the
Securities Act to impose penalties in the public interest,
and it has been established for decades that the OSC can exercise
its public interest jurisdiction in the absence of a Securities
What the Melnyk decision does do is clarify that lawful
conduct which falls short of being abusive of capital markets can
support the exercise of the public interest power. Prior to
Melnyk, it was generally believed that the only lawful
conduct that could attract a public interest penalty had to be
abusive of capital markets. The OSC rejected that proposition
The decision also underlines the risks to public company
officers, particularly CEOs, who are treated as pivotal players in
coordinating the corporate disclosure process. Biovail's
admissions about its press releases in the settlement it had
arrived at long before Melnyk's hearing were found to bind Mr.
Melnyk. Mr. Melnyk was involved in the issuance of the press
release in question and could not escape responsibility by claiming
good-faith reliance on subordinates (para 401) or ignorance of
facts known to them, because he had his own quite separate
responsibility to ensure accuracy. The OSC also made it clear that
this responsibility is not just engaged when a CEO has seen red
flags and ignored them.
Note that at the time of Biovail's press release in 2003,
the Securities Act did not contain provisions creating
statutory liability for secondary market disclosure (now found in
Sections 138.3 and following of the Securities Act). Under
such provisions, directors and officers of public companies may, in
certain circumstances, be directly liable for misrepresentations
contained in the company's press release or other disclosure
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