On September 30, 2014 the OSC approved a no-contest settlement
agreement in a hearing held before vice-chair James Turner.
Pursuant to the approved agreement between OSC Staff and Ernst
& Young LLP ("Ernst & Young"), Ernst & Young
will pay $8 million to settle allegations of negligence in regard
to its audit work related to Sino-Forest Corp.
("Sino-Forest") and Zungui Haixi Corp ("Zungui
No-contest settlements were
introduced by OSC Staff to allow, in limited circumstances for
OSC Staff to settle with alleged wrongdoers, without the
alleged wrongdoers having to admit to any facts or liability.
Specifically, no-contest settlements were not to be available when
a party engaged in abusive, fraudulent or criminal conduct; when a
party's misconduct has resulted in investor harm that has not
been addressed to the satisfaction of the OSC; or when a party has
misled or obstructed Staff during its investigation. Additionally,
OSC Staff say that they may consider several factors when
determining the appropriateness of entering into a no-contest
settlement, including broadly, factors related to cooperation, the
degree of investor harm, and the deterrence effect of the
settlement agreement on the alleged wrongdoer and others.
In determining the amount for the Ernst &
Young settlement in this case, OSC Staff considered the fact
that Ernst & Young has agreed to pay $119 million to settle a
shareholder class action claims in regard to Sino-Forest and Zungui
Haixi. Additionally, OSC Staff considerations included, the fact
that it found no evidence of dishonest conduct on the part of Ernst
& Young; the enhanced auditing procedures Ernst & Young has
now put in place for companies in emerging, high risk markets; and
Ernst & Young's cooperation with OSC Staff during the
investigation and ongoing hearing against Sino-Forest. Both the OSC
Staff and Ernst & Young expressed satisfaction with the
settlement. For OSC Staff, the settlement may be seen as a useful
deterrent to future wrongdoers, while also allowing the OSC to
avoid the prospect of lengthy and complex hearings that may not
result in a finding of liability.
The introduction and now use of "no-contest"
settlements has been seen by many as a major advance. They allow
securities enforcers to move on with outstanding matters based on a
satisfactory resolution, in the public interest, freeing up
valuable resources to be deployed more strategically. It can be
seen, therefore as more efficiently protecting investors and
safeguarding the capital markets. Future hearings for approval will
hopefully provide greater clarity as to how OSC Staff will exercise
its prosecutorial discretion and the weight it gives to various
factors when evaluating whether it is appropriate to recommend a
no-contest settlement. How Commission panels address these matters
in the future may also advance a useful dialogue as to enforcement
priorities and efficiencies.
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