The Alberta Court of Appeal has recently released a decision that adds much needed clarity to when an officer or director of a corporation will be personally liable for torts committed by a corporation. In Hogarth v. Rocky Mountain Slate Inc., 2013 ABCA 57, the Court was tasked with determining whether certain promotional materials created to solicit investments constituted negligent misrepresentations, and to what extent the individual directors who assisted in the preparation of those promotional materials could be personally liable for their actions.
At trial, the Alberta Court of Queen's Bench held that the statements made in the promotional materials were negligent misrepresentations and where an individual director or officer was involved in communicating the misrepresentations, the 'corporate veil' could not shield that individual from liability.
Insider Trading - Better Safe Than Sorry
A series of recent Alberta Securities Commission
decisions recently underscored the inherent dangers of buying or
selling securities of companies in which one is an insider. The
risk is that while the insider may legitimately believe they have
no undisclosed material information when they trade, a regulator
can later take a different view of the same
information.
In its April 10, 2013 decision Re Stan, the respondent insiders
were acquitted of insider trading or tipping after a 14-day
hearing, but incurred defence and expert witness costs reputed to
be in seven figures. The allegedly undisclosed material information
involved internal sales and production forecasts. ASC staff
believed the internal information to be sufficiently material to
preclude trading but the respondents (and the Panel) disagreed.
The Roles of the UDP and CCO - Perfection is not the Standard
The importance of a working understanding of compliance and supervisory obligations of IIROC-regulated entities or Dealer Members cannot be underestimated. In particular, the roles and responsibilities of the Ultimate Designated Person (the "UDP") and the Chief Compliance Officer ("CCO") have been scrutinized in recent decisions of the Investment Industry Regulatory Organization of Canada ("IIROC"). For example, IIROC released two decisions in 2012 in which the UDP and/or the CCO of IIROC-regulated entities faced disciplinary proceedings in relation to compliance and supervision. BLG was involved in both decisions including securing an acquittal on behalf of top officers of an investment firm. The first, Re Carbonelli & Conway, 2012 IIROC 56 ("Conway & Carbonelli"), was decided on October 5, 2012 and featured the BLG-represented UDP and the CCO of Evergreen Capital Partners Inc. ("Evergreen"). The Notice of Hearing alleged failures on the parts of the UDP and the CCO to establish and maintain adequate internal controls for the use and operation of Evergreen's client accumulation accounts, contrary to IIROC's Dealer Member Rule 17.2A.
Conway & Carbonelli involved a complex fact scenario. In brief, Evergreen, through its Carrying Broker, conducted a large volume of trades with relatively high purchasing costs, for institutional clients. The time to fill each trade order would customarily extend over a period of time, resulting in partially filled trade orders being recorded in an average price inventory account (an "API"). The ordinary process would be for the partial orders to stay in the API accounts until they were filled and booked out through the Carrying Broker. This became problematic when large sums began to remain in the API accounts and were not being booked out. The growing value of the un-booked amounts in the API accounts, combined with the significant economic downturn in 2008 proved disastrous when the securities were eventually marked to market and the clients rejected the trades as unauthorized. Ultimately, it was discovered that the head trader of Evergreen had perpetrated a fraud that, together with the un-booked trades accumulated in the API accounts and the market downturn, created the "perfect storm" for Evergreen's collapse.
Edited by
David Di Paolo 
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.
