The Alberta Securities Commission (ASC) has always had the power to compel Registrants, Reporting Issuers, and others to produce records in the course of an investigation. Section 93.4 of the Securities Act (Alberta) has also previously required that persons not destroy records required for an ASC investigation. Recently, however, the ASC set out new and explicit obligations for those who receive a production order from the ASC.
ASC Rule 15–503 now codifies how recipients of a production order from the ASC must respond to the demand, and the format in which responsive documents must be produced. Passage of this Rule means that anyone receiving such a production demand must act quickly and carefully to ensure compliance with the Rule, and ensure that a clear, effective, and efficient process is in place to preserve and gather the records required in the appropriate format. Creating a clear and convincing trail of compliance will be important to satisfy the ASC that the Rule has been complied with.
Legal holds (typically in the form of formal letters to IT personnel and relevant individuals to preserve documents and halt normal-course document destruction policies) have always been best practice once a demand for production has been received from an investigative body. However, the effect of Rule 15–503 is to make such formal holds effectively mandatory. Section 4 of the Rule requires the recipient of a production order to halt all destruction or deletions of records, either by deliberate action or by failing to take reasonable steps to preserve records, including records that are subject to scheduled or periodic deletion, overwriting, or replacement. Further, section 4 of the Rule requires that the recipient take reasonable steps to promptly and clearly notify affected third parties, including employees, agents or contractors to halt destruction, deletion, disposal, damage or alteration of records. This includes an obligation to notify third parties who are operating servers which might contain such records. Affected IT departments, remote technology providers, and employees must be notified of the obligation to preserve records in their original form. The obligation to maintain those records for the recipient and third parties is in effect for a period of two years from the date the production order is received.
The Rule is clearly aimed at ensuring that recipients of a production order comply with it, and effectively requires that recipients of production orders be able to clearly demonstrate to the ASC that every effort has been made to preserve records to comply with the Rule.
Interestingly, section 4 of the Rule extends the preservation obligations to “remote electronic custodians”, which suggest that operators of servers or “clouds” are caught by the Rule. Once a production order is received, the Rule obligates the recipient to provide notification to such third parties. When those third parties, including remote electronic custodians, receive notification of a production order from the original recipient of the production order, the Rule purports to require the third party recipients of the notification to comply with the obligations in the Rule. It will be interesting to see how this purported obligation applies in reality when remote servers or cloud services are located in jurisdictions outside of Alberta, or even outside of Canada.
Format of Production
In an apparent adoption of civil litigation procedure, the ASC now requires that any document production made in response to a production order be accompanied by an “electronic cover letter”, which is strikingly similar in substance and form to an affidavit of records. In particular, the respondent to a production order must now list each piece of media or other storage device through which documents are produced, identified by a unique identifier; list unique record numbers for the records produced, cross-referenced to the media from which the documents were obtained; provide a list of sources from which or from whom the records were obtained; and declare that the records produced represent all the records specified in the demand for production, are true copies of those records, and that the records have been provided and numbered in accordance with the Rule.
The Rule also provides that a respondent must provide a “true copy” of any particular record. A true copy is one where colors and all text, notations, highlighting, marginal notes, and other similar markings are reproduced. Documents containing removable notes and removable flags must also be reproduced both with and without such removable notes and flags.
Electronic records must be provided in their native format, and a respondent must make available to the ASC the systems or software to enable review and interpretation of the record, and metadata must be accessible. Passwords must be provided. Respondents must generally provide the means for the ASC to access the records provided.
This new Rule indicates a clear attempt by the ASC to preserve and receive documents in a way that will enhance its ability to investigate, and to put in place clear and unequivocal document preservation obligations. The most important obligation for corporate respondents will likely be the mandatory litigation hold, which will make the prompt and effective distribution of timely, meaningful and effective litigation hold letters incredibly important.