Securities Act Allows Disclosure of Information Obtained in OSC Investigations Without Notice to Affected Persons

by Bennett Jones LLP
Contact

On June 21, 2013, amendments to the Ontario Securities Act (the Act) contained in Bill 65—the Prosperous and Fair Ontario Act (Budget Measures), 2013—were brought into force.  Certain of the amendments have the potential to impair the rights of persons under investigation by Staff of the Commission to object to the disclosure of information obtained to other regulatory or law enforcement entities.

Investigations Under the Act and the Disclosure of Obtained Information

The investigation regime under Part VI of the Act gives the Commission the power to compel testimony and the production of documents from any person or company subject to the Act, but it also imposes strict confidentiality requirements.

In that regard, the Act provides that any information or testimony obtained through an investigation are for the exclusive use of the Commission, or of any other regulators specified in an investigation order, and may not be disclosed except as permitted under section 17. Pursuant to subsection 17(1), compelled evidence may be disclosed to any person or company where the Commission considers that it would be in the public interest to make an order authorizing disclosure.

Previous cases relating to the disclosure rights in section 17 of the Act have considered the meaning to be ascribed to the term public interest. Those decisions indicate that public interest should be interpreted in the context of the investigation regime of the Act, and therefore should seek to "enable the Commission to conduct fair and effective investigations and to give those investigated assurance that investigations will be conducted with due safeguards to those investigated."1 The Supreme Court of Canada has similarly held that in making a disclosure order under section 17, the Commission has a duty to protect the privacy interests and confidences of the investigated person. It must balance the interests of disclosing the obtained information to achieve its investigative objectives with the protection of the confidentiality interests of the investigated.2

Amendments to the Disclosure Provisions

Prior to the recent amendments, in addition to the requirement that disclosure be in the public interest, no disclosure order under section 17 could be made unless notice and an opportunity to be heard was given to the persons and companies named by the Commission or that provided the relevant testimony or information. The amendments to section 17 of the Act provide the Commission with an avenue to circumvent the notice requirement if it is of the view that the circumstances warrant it.

Despite the requirement to give notice and an opportunity to be heard to the affected persons, the subsection added by the amendments (s. 17(2.1)) enables the Commission to make an order authorizing the disclosure of any information or documents obtained under its investigation regime to other governmental, regulatory or law enforcement authorities, without providing the affected persons with notice or an opportunity to be heard.3 The Commission can do so as long as it considers that it would be in the public interest. Given the caselaw regarding the Commission's public interest jurisdiction in the context of disclosure specifically, one of the important objectives to be considered will include international co-operation in the enforcement of securities laws. The Commission should, to the extent it reasonably can, comply with the principles of comity and assist other regulatory or law enforcement entities by disclosing relevant information obtained through its investigations.4

Accordingly, the legislature has apparently provided through the amendments the following. In balancing the effectiveness of the investigative process against the rights of those investigated to their privacy and confidences, it is within the Commission's discretion to determine that effective domestic prosecution of conduct that negatively affects the capital markets, or efficient international cooperation in the enforcement of securities laws, may trump the normal procedural and privacy rights of those investigated. If the Commission is of the view that providing notice or an opportunity to be heard to those investigated may compromise or thwart the investigative efforts of domestic or foreign regulatory or law enforcement authorities, it can draw upon its public interest jurisdiction to circumvent the notice requirements intended to protect the privacy interests of the investigated.

Potential Effects of the Amendments

As the wording of the provision makes clear, the amendments to section 17 significantly broaden the Commission's disclosure powers. They give the Commission the authority to release potentially inculpating information and documents to a variety of domestic and foreign entities without providing the affected persons with an opportunity to contest the disclosure.

Historically, courts have intervened in situations where it determined that the Commission had taken too liberal an approach to its public interest jurisdiction. This right to appeal to the courts provides some comfort to persons subject to an investigation under the Act. However, when an order is made under the new subsection 17(2.1), a person or company affected by the secret disclosure of the investigative documents is not likely to be in a position to appeal to a court to prevent disclosure. That person or company would probably not be aware that the disclosure occurred until it was too late, if ever. The very nature of this broad new power afforded to the Commission may effectively render the court's oversight capabilities in the circumstances meaningless.

The amendments to the Act therefore appear to be an indication that the legislature is seeking to tip the balance in favour of effective domestic and borderless investigations and prosecution of behaviour that negatively impacts the capital markets—potentially at the expense of the privacy and confidentiality rights of those investigated. Whether this will be the actual effect of these amendments, only time will tell.

Notes

  1. In the Matters of X and A Co., An Application by Y under section 17(1) of the Act, Ontario Securities Commission, Reasons issued January 8, 2007 at ¶28.
  2. Deloitte & Touche LLP v Ontario Securities Commission, [2003] 2 S.C.R. 713 at ¶29.
  3. It should be noted that, pursuant to subsection 17(3) of the Act, compelled testimony may only be disclosed to a member of a police force or a person responsible for the enforcement of the criminal law of any jurisdiction with the consent of the person from whom the testimony was obtained. This requirement for consent in the context of compelled testimony remains unchanged with the recent amendments.
  4. In the Matter of X Inc, Ontario Securities Commission, Reasons issues March 25, 2010 at ¶14 and 38.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bennett Jones LLP | Attorney Advertising

Written by:

Bennett Jones LLP
Contact
more
less

Bennett Jones LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!