New Enforcement Initiatives
On March 10, 2014, the Commission released OSC Staff Notice 15-702 – Revised Credit for Cooperation Program. Most notably, the Notice introduced no-contest settlements, whereby Staff would enter into settlement agreements with respondents without admissions of fact or liability and non-prosecution agreements for market participants deemed to be satisfactorily cooperative by OSC Staff. To read more about the OSC's Revised Credit for Cooperation Program please click here.
OSC Enforcement Proceedings
Alka Singh and Mine2Capital Inc. (Re)
On March 27, 2014, the Commission approved a settlement agreement entered into with Alka Singh and Mine2Capital Inc. ("Mine2Capital") regarding the sale by Singh and Mine2Capital of research reports in which they made recommendations to buy certain securities. It was agreed that they were engaging in the business of advising while not registered to do so and while not qualifying for any exemption from registration. A more detailed description of the settlement agreement can be found here.
IIROC Enforcement Proceedings
Failure to Adequately Supervise
An IIROC Hearing Panel approved a settlement agreement between IIROC Staff and Gordon Bruce Dickson on February 27, 2014 whereby Dickson acknowledged that, as a Branch Manager, he failed to adequately supervise three Registered Representatives and client accounts. One Registered Representatives purchased junior exploration companies in two accounts in excess of the stated risk tolerance on the new client application forms. Two Registered Representatives recommended, but failed to adhere to, an unsuitable index option strategy. The Hearing Panel imposed a five year prohibition on Dickson being registered as a Branch Manager or in any supervisory capacity and a fine of $60,000. A summary of the settlement agreement can be found here.
An IIROC Hearing Panel accepted a settlement agreement that imposed a one month suspension, a fine of $20,000, and disgorgement of $10,724 on Daniel Dubois as a sanction for executing trades in offshore accounts of five clients held by Crèdit Agricole Suisse Bahamas while he was employed by Desjardins Securities Inc., off-book and without the knowledge of his dealer, Desjardins. A summary of the settlement agreement can be found here.
On March 6, 2014 an IIROC Hearing Panel imposed penalties on Lucy Marie Pariak-Lucic related to her recommendation and facilitation of off-book investments for clients without the approval or knowledge of her employer firm and without ensuring that a prospectus had been filed or that the investment qualified for a prospectus exemption. A summary of the Hearing Panel's decision was previously reported in the January 20th edition of Securities Snapshot and can be found here. The Hearing Panel ordered that Pariak-Lukic pay a fine of $50,000, and costs of $45,000 and that she rewrite the Canadian Securities Course and the Conduct and Practices Handbook examinations.
Proposed Guidance on Underwriting Due Diligence Published for Comment
On March 6, 2014, IIROC published for comment proposed guidance outlining common due diligence practices and suggestions for IIROC dealers involved in the offering of securities to the public as underwriters. The proposed guidance includes the expectation that every Dealer Member have written policies and procedures in place relating to all aspects of the underwriting process, due diligence plans that reflect the context of the offering and are sufficient to ensure the Dealer Member understands the business of the issuer and key factors affecting the issuer's business. The proposed guidance also notes that Dealer Members should clearly understand the boundary between business due diligence and legal due diligence such that matters that should be reviewed by the underwriter are not delegated to underwriter's counsel. Comments are due June 4, 2014.
Final Guidance Issued on the Use of Business Titles and Financial Designation
IIROC issued Guidance Note 14-0073 on March 24, 2014 on the Use of Business Titles and Financial Designations. The Guidance Note indicates that IIROC expects all firms to have policies and procedures relating to the use of business titles and financial designations that may be used by Approved Persons who deal with retail clients, the restrictions or prohibitions on these titles and pre-approval requirements. The Guidance Note further provides that particular scrutiny should be given to the use of business titles that convey an expertise in senior's issues or retirement planning. For a summary of the Guidance Note please click here.
2013 Enforcement Report
The MFDA released its 2013 Enforcement Report on March 27, 2014. The MFDA's priorities continue to be suitability, outside business activities, signature irregularities, matters of a serious nature including theft and fraud, and matters involving seniors and other vulnerable groups. Member supervision of Approved Persons is assessed in each of the above cases. The highlights of the report can be found here.
MFDA Enforcement Proceedings
An MFDA Hearing Panel approved a settlement agreement between Duane Roy and MFDA Staff on March 24, 2014 whereby Roy acknowledged using 57 blank or partially completed account forms to complete transactions involving 21 clients between 2007 and 2012, contrary to MFDA Rule 2.1.1. Roy agreed to a fine of $5000 and costs of $2500.
Unsuitable Leveraged Investments
An MFDA Hearing Panel considered the appropriate penalty to be imposed on Saifur Sarker in a case involving unsuitable leveraged investments. Sarker admitted that he induced two clients to borrow, while he infl ted their assets and investments knowledge on their application forms and had a poor understanding of leveraging as an investment strategy. The Hearing Panel ordered a three year prohibition on registration, a fine of $20,000 and costs of $2500 against Sarker, taking into account personal mitigating circumstances. A more detailed description of the case can be found here.
Directors And Officers
Drug Mart Inc. v. 6470360
 O.J. No. 476 (C.A.)
In Shoppers Drug Mart Inc. v. 6470360 Canada Inc., the Ontario Court of Appeal considered appeals of two cross motions for summary judgment brought by 6470360 Canada Inc. ("647") and Shoppers Drug Mart Inc. ("Shoppers"). One of the issues considered by the Court was the circumstances in which it is appropriate to pierce the corporate veil to find a director of a corporation personally liable. The Court of Appeal again confirmed that a corporate veil may be pierced where those in control expressly direct a wrongful thing to be done. A more detailed summary of the case can be found here.
Financial Corp. et
 O.J. No. 981 (Div. Ct.)
Manulife Financial Corporation ("Manulife") and the individual defendants brought a motion for leave to appeal a decision granting the plaintiffs leave to pursue claims under Part XXIII.1 (civil liability for secondary market disclosure) of the Ontario Securities Act and certifying the action as a class proceeding. The plaintiffs alleged that during the class period, Manulife misrepresented its equity market risk arising from its segregated fund/guaranteed products when it consistently advised class members that it had "effective, rigorous, disciplined and prudent" risk management systems, policies and practices.
On appeal, Manulife argued that the motions judge had erred in certifying the common law negligent misrepresentation claims because he ignored the underlying premise of Part XXIII.1 of the Securities Act, namely the unsuitability of common law misrepresentation claims for certification. Sanderson M.A. disagreed and dismissed the motion for leave, finding that the motions judge had not erred in certifying the negligent misrepresentation claims because in the case at bar there was a core misrepresentation alleged and the common issues trial judge would not be required to deal with multiple representations over a multi-year timeframe.
The Court of Appeal's decision is somewhat in contrast to the recent decision of Perell J. in Millwright Regional Council of Ontario Pension Trust Fund (Trustees of) v. Celestica Inc., released on February 19, 2014, where Perell J. found that where there is a statutory misrepresentation claim and a common law misrepresentation claim for the same misrepresentation, the statutory claim is the "preferable way to resolve the Class Members' claims". Perell J. commented that the statutory claim was introduced precisely to overcome the difficulties of a class action for negligent misrepresentation with respect to the distribution of debt and equity instruments in the primary and secondary market for securities. Perell J. declined to certify the common law negligent misrepresentation claims in that matter as a result, finding they did not meet the preferrable procedure test under the Class Proceedings Act.
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