If you are a director, officer, auditor, or even an employee of
a public corporation, one day you could receive an official letter
from a Securities Commission
("Commission"). In Alberta the letter
would most likely be from the Alberta Securities Commission. If the
public company trades on a U.S. exchange, you may also receive a
letter from the Securities and Exchange Commission
("SEC"), which regulates trading of
public securities in the United States.
The first thing that you should do upon receiving any such
letter is seek legal advice. Responding to official inquiries from
Commissions is a serious matter. If the responses are not complete
or misleading, then you could be facing a separate charge under the
relevant Securities Act for failing to comply with the
Act or regulations.
Disclosure Inquiry Letters
These letters typically raise questions about the public
disclosure or nondisclosure of information, events or documents by
the corporation. When these letters are received they should be
disclosed immediately to the corporation's auditors and the
corporation's lawyers. A response should be drafted with the
assistance of the external auditors and legal advisors. Drafts of
the response letter should be marked "privileged and
confidential." There should be sign-off by the external
auditors and legal counsel on the final letter before it goes to
Confidential Nature of the Investigation
Where the Commission decides to proceed with an investigation,
the Director of Enforcement will issue an Investigative Order. The
Order outlines the scope of the investigation and the persons who
are appointed to complete the investigation.
Under section 45 of the Alberta Securities Act, all
information or evidence obtained pursuant to an investigation is
confidential. However, the Securities Act does permit
disclosure to corporate counsel and where authorized by the
Executive Director of the Commission. Further, the Commission will
provide the Investigative Order to external counsel on strict
confidentiality terms that limits disclosure of the Order.
If the public corporation trades on a US exchange, the SEC may
also commence investigations. The initial letter received from the
SEC is known as a "voluntary disclosure letter." Unlike
investigations by the Alberta and Ontario Securities Commissions,
there is no requirement of confidentiality imposed by the SEC about
the fact of an investigation or the voluntary disclosure
Claims of Privilege
Where Commissions are investigating public corporations it is
often the case that the corporations are in financial difficulty.
For example, there may be CCAA proceedings that are underway,
bankruptcy proceedings or a receivership. Further, there are often
class actions against the company for alleged misrepresentations
which are typically brought under the provisions of the
Where a Commission investigation is concurrent with ongoing
litigation, all parties must be vigilant about not providing
commissions with documents over the corporation, or other parties,
may be claiming privilege. Trying to address potential privilege
claims can be challenging. Again, it is highly recommended that the
corporation seek the consent of the Director of Enforcement to
allow limited disclosure to attempt to deal with such privileged
Production of Documents and Examination
Under section 42 of the Alberta Securities Act, the ASC
may require an individual or corporation to produce all relevant
documents. The order to produce documents is often very broad in
scope. In our experience, however, the Commission is quite prepared
to identify sections of working papers or time periods in which it
is particularly interested. This can significantly limit the
documents which are required to be provided to the Commission in
response to the subpoena, summons or voluntary disclosure
Once documents have been produced, the Commission may require an
individual to attend before the Commission to be examined under
oath. It is open for the individual to attend represented by
counsel. However, neither the examined party nor the lawyer will
receive a copy of the transcript made at the examination unless the
Commission later calls the individual as a witness.
Securities Commissions are continually increasing their
activities surrounding enforcement of the Securities Act.
Therefore, it is increasingly common that public corporations,
their directors, employees, and auditors receive letters from
securities Commissions. Where inquiry letters or notices from
securities Commissions are received, it is prudent for all persons
to seek experienced legal counsel to assist in responding
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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