In Fischer, a group of mutual fund managers had made
arrangements with third parties who engaged in market timing
practices. These third parties profited from such market timing
practices and the mutual fund managers benefitted from the market
timing by earning commissions. The Ontario Securities Commission
began proceedings and ultimately settled the matter with an Order
requiring the mutual fund managers to pay the investors $205.6
The issue on appeal to the SCC was whether the OSC proceedings
and the resulting settlement were the preferable procedure to
resolve the investors' claims, thereby precluding certification
for a class action suit under the provincial Class Proceedings Act.
The investors' argued the $205.6 million settlement with the
OSC was not sufficient and that a class action suit was the
appropriate procedure to recover to damages above and beyond what
was already awarded by the OSC.
The Ontario Court of Appeal decided that the regulatory
proceedings run by the OSC were not the preferable procedure for
recovering damages. Two elements were fundamental to its decision.
First, the role of the OSC is protective and preventative,
rather than remedial or punitive. In other words, the OSC's
role is regulatory and while it has the jurisdiction to award
compensation, it may only do so within the context of the failure
to comply with the applicable legislation and regulations.
Securities Regulators do not have the jurisdiction to award
compensation for any breach of fiduciary duty, or negligence.
Second, the Court of Appeal took the view there was a
"total lack of participation by investors in the OSC
proceedings" (at para 71). Notwithstanding the general notice
provided by the OSC, none of the affected investors were notified,
none of the investors or their counsel attended or made
submissions, and all of the substantive portions of the hearing
were held in camera. Most important however, was the fact that the
amount of the settlement and compensation was determined without
any investor participation or any opportunity of the investors to
participate. The OSC did not provide any details as to how the
amount of the settlement was calculated.
Notably, the settlement agreements expressly allowed for a civil
suit with respect to the same proceedings and section 128 of the
Securities Act allows the court to make an order despite an order
made by the OSC pursuant to section 127.
The Supreme Court's decision will be of interest as the
Court of Appeal allows for multiple proceedings in the same matter
between the parties. The Court of Appeal cited the following
affidavit evidence of the applicant investors in support of its
Public enforcement by securities regulators and criminal
enforcement by criminal law authorities, as well as private
enforcement by investors through private suits and class action
proceedings all play an important role in ensuring that public
company managers and mutual fund managers act in the best interests
of shareholders and unit holders, respectively. None of these
mechanisms is mutually exclusive (at para 48).
Although Fischer suggests the threat of a proliferation of
claims against parties already involved in regulatory proceedings,
attempts to contact investors directly by the securities
commissions, more fulsome disclosure with respect to settlement
calculations, and restricting in camera sessions to only when
necessary will go a long way towards reducing the possibility of
multiple proceedings generally, and class proceedings in
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.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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