Canada: Securities Litigation Snapshot 29 May 2014

Last Updated: June 2 2014
Article by Kristen Riess, Maureen Doherty and Laura Paglia

Most Read Contributor in Canada, September 2016


IIROC Enforcement Proceedings

Research Reports

Re Toll Cross Securities Inc.

A Settlement Agreement was approved relating to a contravention of Dealer Member Rule 3400 (Research Restrictions and Disclosure Requirements) and specifically the requirement that any research reports issued by Members state information regarding it or its analyst's relationship to the issuer that is the subject of the report. Rule 3400 further provides that those involved in the preparation of a research report cannot trade in any securities issued by the subject of the report for a period of 30 days prior and 5 days after the release of the report (the "Research Quiet Period").

The Respondent admitted that an analyst employed by the Respondent traded in securities, which were the subject of a research report, on their own behalf and on behalf of others within the Research Quiet Period and, furthermore, traded contrary to the recommendations in the report.

The Respondent further admitted it failed to supervise its employees and failed to ensure that the research reports disclosed potential conflicts of interest.

The Hearing Panel approved a fine of $15,000 and costs to Staff in the amount of $5,000.


Re Moldovan & Holmes

The Panel released its decision in this matter following a hearing comprised of an Agreed Statement of Facts and 3 witnesses, being former clients of the Respondents who provided, in essence, victim impact statements.

The Panel found that the harm to clients/witnesses exceeded their financial losses (those intending on retiring now were working full time again, plans to pay for children's education abandoned and depression diagnosed). The Panel further derived that their settlements with the dealer comprised only partial compensation of their losses.

The Respondents were registered representatives, neither of whom were employed in the industry at the time of the hearing. They had operated an investment program known at the "Strategy". The Strategy involved clients investing in TBills and other low risk securities and then writing uncovered puts and calls on major indices. Profits were derived from premiums received from the sale of options that expired unexercised.

According to the Agreed Statements of Facts, 25 accounts (as opposed to individuals) had complained to IIROC about the conduct of the Respondents. These accounts represented $8.8 million in assets as at July 31, 2008. The Agreed Statement of Facts focused on the 2008 period only and the losses arising in the summer and fall of that year, in the context of a global economic crisis.

It was agreed that the Respondents were required to purchase protective puts and options that would have the effect of limiting losses suffered by clients in volatile markets, which they did not do. The Agreed Statement of Facts also stipulated that the Respondents' failure to do so would have been clear from the clients' review of their monthly statements.

It was also agreed that the Respondents did not understand the complexities and risks associated with the strategy.

IIROC Staff had recommended a 24 month suspension which was rejected by the Panel who imposed a 3 year suspension on the rationale that should the Respondents choose to become employed again in their registered capacity, they would be required to requalify and successfully complete all exams in the same manner as a nonindustry participant.

A fine of $100,000.00 was imposed.

Highlights From 2014 IIROC Enforcement Report

IIROC's second Annual Enforcement Report was released last month. IIROC's area of focus, from an enforcement perspective in 2013 were as per below:

Seniors and Suitability

Cases involving seniors and suitability-related issues account for more than one-third of all IIROC disciplinary cases. As in past years, suitability complaints comprise the most common complaints received by IIROC through the public and ComSet and opened by case assessment. The Report emphasizes that in reviewing suitability related issues, supervision is an issue.

The Report highlights three cases last year where Registrants were suspended for failing to understand or appreciate the risk tolerance of exchange traded fund products (ETFs) – Frederic Lavoie (Disciplinary Hearing, Quebec), Steven Frank Carinci (Settlement, Ontario) and Derek George Laidlaw Axford (Settlement, Ontario).

In two of the cases, Lavoie and Carinci, IIROC found that the advisors failed to conduct adequate research on the products prior to advising the purchases to their clients. The Report noted that in both cases, the advisors failed to read the products' prospectuses and did insufficient independent research. In Axford, the advisor stated that he did not believe that certain inverse ETFs were speculative. They were described in the prospectus as being medium- high risk investments.

Direct Market Access

IIROC conducted several trade supervision cases regarding DMA clients.


MFDA Enforcement Proceedings

Blank/Presigned  Forms

Re Durotoye, File No. 201328

A Settlement Agreement was approved relating to the use of partially completed or whited-out signed forms to process trades for 3 clients. Adeolu Durotoye also admitted to approving the use of 30 blank or partially completed KYC forms in his role as Branch Manager. There were no client complaints as a result of his conduct.

Durotoye was suspended from acting as a Branch Manager for a period of 6 months and agreed to pay a global fine and costs award of $5,000.

Unsuitable Leveraged Investments

Re Gragasin, File No. 201249

At a hearing on the merits, Gragasin and MFDA Staff submitted an Agreed Statement of Facts whereby Gragasin admitted to preparing and submitting account and loan applications forms which he knew contained false or misleading information. He further admitted to failing to fully explain the risks associated with leveraged investments to clients and failing to ensure that a leveraging strategy was suitable for his clients.

Gragasin was suspended from acting as a mutual fund salesperson for a period of 3 years and ordered to pay a fine of $30,000 and costs of $5,000.

Offbook Transactions

Re Young and Andrews, File No. 201324

Two settlement agreements were approved relating to offbook transactions. Young, a branch manager, admitted that he was engaged in business dealings which involved recommending, referring or facilitating the sale of investments not disclosed to or approved by the dealer and without disclosing his personal interest in the investments.

Young was permanently prohibited from acting as a mutual fund sales person and agreed to a fine of $7,500 and costs of $5,000.

Andrews, who was newer to the industry and with whom Young often shared a joint advisor code and referral fees, agreed to a fine of $5,000 and a 3 year suspension.

Class Actions

Disbursement of Settlement Funds

Carom v. Bre-X Minerals Ltd, 2014 ONSC 2507

On April 23, 2014, Perell J., of the Ontario Superior Court, released his reasons on a series of motions and cross-motions in the Bre-X class action proceedings.

The issue facing Perell J. was how to dispense the money from the Settlement [for more background on these motions and the Settlement, click here] as the amount of Settlement funds available was less than the amount required to facilitate distribution and that distribution would therefore be impracticable. Class counsel proposed a cy-pres distribution whereby the funds would be given to a charitable institution related to either the class members or issues in the action. Class counsel proposed donating the money to the Access to Justice Fund operated by the Law Foundation of Ontario ("LFO") which would then distribute the funds to various organizations.

In a surprising decision, Perell J. disagreed with class counsel's recommendation and instead consented to one class member's proposal that the funds be given to the University of Ottawa where the class member was a member of the faculty. He noted that class counsel has an obligation to consider the wishes of individual class members in requesting a cy-pres award and that in the present case, the Telfer School at the University of Ottawa was the only specific recipient put forward. Accordingly, Perell J., noting that class counsel did not suggest that  the University of Ottawa was an unworthy candidate, determined that as it reflected the wishes of one of the class members, the funds should be distributed accordingly.

Other Court Proceedings

Motions for Summary Judgment Motion for Breach of Limitation Periods

Johnson v. Studley, 2014 ONSC 1732

In Johnson v. Studley, the Ontario Superior Court considered two related summary judgment motions brought by the defendants, John Studley ("Studley") and Armstrong & Quaile Associates ("Armstrong") which sought to dismiss two related actions as statue-barred.

The plaintiffs were clients of Studley. In 2001, they borrowed $150,000 and invested the monies in Olympus United Corp. ("Olympus"). They commenced a claim in January 2013 and argued that they only discovered that they had a potential claim when they learned that Studley no longer acted for them and had been sued by other Olympus investors. Perell J. found that a limitation period starts where a plaintiff learns that they have suffered from mistaken advice, as opposed to when a plaintiff learns of the likely success of a claim. Accordingly, the summary judgment motions were granted and both actions were dismissed as statue-barred.


OSC Publishes Draft 2014-2015 Statement of Priorities: An Enforcement Perspective

With respect to enforcement, the OSC indicated that it would continue to pursue more fraud cases before the courts where a jail sentence is available. In addition, the OSC reaffirmed its commitment and pledged to focus its resources on the Joint Serious Offences Team ("JSOT"), which was formed in conjunction with various law enforcement  agencies.

With respect to compliance, the report also suggests that the OSC would select registrants for compliance reviews that are likely to have compliance issues, are new registrants or are in a specific topic or industry that is of particular concern.

Insider Trading (based on rumours)

Re Schloen

A joint settlement recommendation was approved by the Commission whereby it was agreed that between May 30, 2011 and June 15, 2011, the Respondent was made aware of rumours within Bridgewater Systems Corp. ("Bridgewater") that constituted information of a material nature that was not generally disclosed and from which he deduced that Bridgewater was an imminent takeover bid. This information was inadvertently provided by an employee of Bridgewater whom the Respondent knew, or ought to reasonably have known, was in a special relationship with Bridgewater.

He purchased shares of Bridgewater based on the information and sold them immediately after its acquisition became public.

He had never purchased shares of Bridgewater before. He had never been a registrant. He did not consider whether the rumours within Bridgewater constituted information of a material fact or change which was not generally disclosed, nor did he consider whether his transactions would be a breach of securities law.

He believed the undisclosed information was likely to be true, and did his own research on Bridgewater, using publically available information.

He was required to disgorge his profits of $23,000.00 and pay fines and costs of $5,000.00 each. A 3 year suspension on trading was imposed.

About BLG

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.