Copyright 2011, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Litigation & Dispute Resolution / Securities, October 2011
On October 21, 2011, the Ontario Securities Commission (OSC) published Staff Notice 15-704 Request for Comments on Proposed Enforcement Initiatives highlighting proposals for resolving enforcement matters more efficiently.
In an effort both to promote the OSC's Credit for Cooperation program, which is designed to promote self-policing by market participants, and to respond to civil litigation impediments to early regulatory settlements, the OSC is proposing several amendments to its existing enforcement practices.
The staff notice consists of four initiatives: no-enforcement action agreements; no-contest settlement programs; clarified process for self-reporting; and enhanced public disclosure of credit granted for co-operation.
No-Enforcement Action Agreements
This is essentially an immunity for co-operation initiative. It bears some of the hallmarks of SEC "whistleblower" procedures.
All parties who self‑report will be eligible for consideration. This will include market participants, insiders of public companies, reporting issuers, as well as their directors and officers. OSC staff believe that No-Enforcement Action Agreements should only be available to parties that provide relevant, reliable, useful and timely information, and co-operate with the OSC. Co-operation must begin before, or shortly after, an investigation commences. If there are multiple persons self-reporting in a multi-party non-compliant activity, generally only the first individual to self-report will be eligible for a No-Enforcement Action Agreement.
These Agreements are intended to provide a self‑reporting incentive in a wide range of situations and, in appropriate cases, may be tied to obligations to disgorge benefits, complete other remedial measures and/or implement further internal controls to assure any misconduct will not reoccur.
A key element of the No-Enforcement Agreements will be the self‑reporter's active and ongoing co-operation with the OSC. Reporters must provide detailed information and continue to co-operate with the OSC staff, including providing testimony. Failure to do so may result in revocation of the agreement and the commencement of any appropriate proceedings. Furthermore, the immunity only relates to actions open to the OSC and will not apply to criminal or civil proceedings.
No-Contest Settlement Program
In the past, no settlements involving penalties could be approved by the OSC without an express admission of liability. Under this proposal, this will change. The intention behind this initiative is to facilitate settlement without prejudice to other proceedings to which a settling respondent is or could be a party.
In order to be eligible for "no contest" settlement, the responding party must have co-operated with OSC staff during the investigation. Here again, co-operation may include self-reporting in a timely manner, taking remedial steps to address the non-compliance and providing full assistance with any enforcement activities directed at other parties. Other prerequisites include that the settlement be in the public interest and the respondent not have been the subject of prior enforcement action.
Clarified Process for Self-Reporting
In order to increase the efficiency of the existing Credit for Cooperation process, the OSC intends to take steps to ensure that all parties are more clearly informed on how best to self-report. This will also serve to alleviate concerns about lingering risk of enforcement action or third-party litigation as a result of their self-reporting.
Elements of the new process referred to by the OSC as a proffer process will include: the ability to initiate the self-reporting process anonymously or through an intermediary such as legal counsel; a framework for OSC staff to obtain more detailed information while allowing the self-reporter one of several forms of immunity; and providing all parties with an opportunity for settlement discussions through no recourse proffer agreements.
Enhanced Public Disclosure of Credit Granted for Co-operation
The OSC has determined that to encourage more market participants and other parties to co-operate, further clarity and greater certainty in the results of the process is needed. This involves providing information to the public about the credit granted by the OSC to co‑operating persons in other or comparable circumstances.
This practice will apply to proceedings before hearing panels, traditional and the new no-contest settlements and to matters under the new No-Enforcement Action Agreements. Disclosure methods will vary as the individual factual circumstances dictate, ranging from generic, anonymous reports to detailed news or report releases.
The OSC has provided a comment period to December 20, 2011. All comments will be posted to the OSC website.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.