Securities Law Enforcement

• Author: Christopher C. Nicholls, Jeffrey G. Macintosh
• Pages: 345-366

CHAPTER

11

SECURITIES

LAW

A.

INTRODUCTION

The

regulatory framework created

by

Canadian securities laws

is

formi-

dable. But, without

effective

enforcement,

the

protections that

should

be

afforded

by

such

laws would

be

only

so

many words

on a

page.

Securities regulators, such

as the

Ontario Securities Commission

(OSC),

play

a

pivotal role

in

enforcing securities laws. Enforcement

is

a

central part

of the

OSC's mandate

and

commands

a

material share

of

the

OSC's time

and

resources.

In

fact,

when

the OSC

first

became

an

autonomous,

self-funded

agency

in

1997,

one of the top

priorities iden-

tified

by the

chairman

was the

expansion

of

staff

"with

the

focus

on

increasing resources

in the

compliance

and

enforcement

areas."1

B.

FORMS

OF

ENFORCEMENT

ACTION

When

securities laws

are

alleged

to

have been breached, enforcement

actions typically take

one or

more

of

four

forms:

Criminal

Code

prosecution

for

certain

specific

violations

Quasi-criminal prosecution

1

Ontario Securities Commission, 1998 Annual

Report

at 9.

Available

online

at

.

on.ca/en/About/Publications/annual_report_1998.html>

(site accessed:

28

March

2001).

345

ENFORCEMENT

346

SECURITIES

LAW

Administrative

enforcement action

Civil

court proceeding

Although only

one of

these avenues

of

enforcement involves

a

hear-

ing

before

the

OSC,

the OSC

plays

a

critical

"gatekeeping"

and

quasi-

"prosecutorial"

role with respect

to the

other enforcement channels.

Closely related

to the

enforcement mechanisms

referred

to

above

are

securities

law

provisions authorizing investigations

and

examina-

tions into

possible

infractions,

including measures

for

interprovincial

reciprocal enforcement

and

assistance.

Of

course, many securities industry participants

are

subject

to the

jurisdiction

of

stock exchanges

or

other recognized self-regulatory

organizations, such

as the

Investment Dealers Association

of

Canada.

These bodies also play

a

role

in

policing

the

markets.

Finally,

it

should

be

remembered that

the

OSA2

provides certain

civil remedies that

are in

addition

to any

remedies that might otherwise

be

available

at

common law. These statutory civil remedies

may be

pur-

sued

by

private

plaintiffs

who

have been harmed

by

particular securi-

ties

law

infractions.

The

most important

of

these statutory civil

remedies

are

found

in

section

130

(civil liability

for

misrepresentations

in a

prospectus), section 130.1 (liability

for

misrepresentations

in an

offering

memorandum),3

section

131

(liability

for

misrepresentations

in a

take-over

bid

circular,

an

issuer

bid

circular,

or a

director's circu-

lar),

section

133

(liability

for

nondelivery

of a

required prospectus

or

bid

document),

and

section

134

(liability

for

certain insider-trading

violations). These civil remedies

are

discussed

in the

chapters dealing

with

the

obligations that these remedies

are

designed

to

enforce

and,

accordingly,

are not

dealt with

further

here.

1)

Criminal

Code

There

are at

least

six

sections

of the

Criminal

Code

that describe

offences

that relate

to

trading

in

securities. Perhaps

the

most important

of

these

is

section 400, which provides that

it is an

indictable

offence

to

engage

in the

following activities:

[make,

circulate,

or

publish]

a

prospectus,

a

statement

or an

account,

whether written

or

oral,

[known

to be]

false

in a

material particular

with intent

2

Securities

Act

(Ontario),

R.S.O.

1990,

c.

S.5

[OSA].

3 For a

discussion

of s.

130.1,

see

Chapter

7.