Canada: Significant Amendments To The Ontario Securities Act Expand The OSC's Powers To Share Information And Prosecute Insider Trading And Fraud-Related Offences

Last Updated: July 18 2013
Article by Wendy Berman, Daniel Waldman and Jonathan Wansbrough

Recent amendments to the Ontario Securities Act ("OSA") significantly enhance the ability of the Ontario Securities Commission (the "OSC") to share information across borders and to prosecute and penalize insider trading and fraud violations. These amendments reflect the Ontario government's ongoing commitment to strengthen enforcement and investor protection. Canadian companies (and their officers and directors) involved in cross-border regulatory investigations may be impacted by these amendments which were incorporated as a schedule to Ontario's most recent budget legislation, the Prosperous and Fair Ontario Act (Budget Matters), 2013 ("Bill 65"). In particular, the significant changes to the OSA are as follows:

  • Expansion of the OSC's power to disclose compelled information to another securities regulatory authority.
  • Expansion of insider trading violations to include situations where an issuer is "considering or evaluating" a take-over bid.
  • Expansion of fraud and market manipulation offences to include "attempts" at fraud or market manipulation.

Expansion of Power to Disclose Compelled Information

The OSA is amended with the addition of section 17(2.1) as contained in Bill 65, to enable the OSC to disclose information gathered during an investigation, including compelled testimony and documents, to another securities regulatory authority or other government or regulatory authority (for example the US Securities and Exchange Commission (the "SEC")), without  giving notice or an opportunity to be heard to the provider of that information where it would be in the "public interest" to do so. Previously the OSC was able to order disclosure of compelled information only  after the provider of the information had been given notice and an opportunity to be heard. In determining whether to order disclosure, the OSC previously balanced the competing interests of the integrity and efficacy of the investigative process with the right of those investigated to privacy, confidence and assurance that investigations will be conducted with due safeguards. This amendment gives the OSC discretion to share compelled information without any opportunity for the provider of such information to object or seek appropriate safeguards on the use of such information where it considers that it would be in the public interest to do so. The OSC has not provided any guidance on what circumstances would give rise to "no notice"  disclosure of compelled information. It is troubling to consider how the OSC will balance the rights to privacy and confidence without the voice of the provider of the information. Given the stark differences between the regimes in Canada and the US for the protection against self-incrimination, this amendment raises the spectre of potential erosion of a witness' safeguards and protections in cross-border investigations and proceedings. In the absence of enforceable terms or limitations as to use, there is a real risk that information shared with the SEC could be used against the witness in securities regulatory or civil proceedings or "forward-shared" with US criminal authorities for use in a US criminal proceeding.

Canadian companies, and their officers and directors, should carefully consider the approach to securities regulatory interviews given the risk that any information provided may be shared with others. In particular, any witness that is compelled to testify should, in addition to asserting the protections against self-incrimination available under Canadian law, consider expressly asserting his or her expectation of confidentiality at the commencement of the interview and objecting to the disclosure of his or her testimony to any regulatory authority or agency without advance notice and a reasonable opportunity to make submissions and seek appropriate terms to safeguard against self-incrimination. Although the effect of any such assertion is not known, it may provide some protection against the risk of "no notice" disclosure.

Expansion of Insider Trading Violations

Another recent change to the OSA is the expansion of the insider trading violations beyond situations where an issuer is "proposing to make a take-over bid" to include situations where an issuer is "considering or evaluating" a take-over bid. In particular, Bill 65 has amended the insider trading provisions of the OSA by expanding the definition of a person or company in a "special relationship" with a reporting issuer. Prior to the amendments, section 76(5) of the OSA provided that a person or company in a "special relationship" with a reporting issuer included, among other things, persons or companies who were "proposing" to make a take-over bid of a reporting issuer. Last year in Re Donald, an OSC panel found that an insider of RIM was not "in a special relationship" with a potential target company as RIM was not proposing to make a take-over bid at that time, despite the fact that a bid was being evaluated. Bill 65 has now expanded the "special relationship" definition to include persons or companies who are "considering or evaluating whether to make a take-over bid". For more details on the Re Donald decision see our previous e-LERT here. This is an important distinction which expands the circumstances in the M&A context, where officers and directors of a potential bidder will be exposed to insider trading violations for trading on information acquired regarding potential targets. Companies should review their insider trading and blackout policies to ensure that they comply with the amendments.

Expansion of Fraud and Market Manipulation Offences

The fraud and market manipulation provisions have been expanded to include "attempts". In particular, s.126.1 of the OSA now includes a prohibition that "a person or company shall not, directly or indirectly, attempt to engage" in any fraud or market manipulation violation. This is an unusual provision in the securities regulatory context and the first time the OSC has created an offence of "attempting" to commit another violation. It is unclear what conduct will be sufficient to constitute an "attempt to engage" in fraud.


It remains to be seen in what circumstances the OSC will exercise its new powers and how these new powers relate to the recent establishment of a new serious offences unit by the OSC which will focus on criminal violations of securities laws. The power to share information, including compelled testimony, with other regulators or government agencies, and the expansion of insider trading and fraud offences, are important developments which raise the possibility of both increased prosecutions and increased likelihood of liability in multiple proceedings arising from statements given in Ontario.

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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Wendy Berman
Jonathan Wansbrough
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