Securities Law Enforcement

• Author: Christopher C. Nicholls
• Profession: Faculty of Law, Western University
• Pages: 509-561

509

CH AP TER 11

SECURITIES LAW

ENFORCEMENT

A. INTRODUCTION

The regulatory framework created by Can adian securities l aws is for-

midable. But, without eective enforcement, the protections that should

be aorded by such laws would be only so many words on a page.

Canadian sec urities regulators play a pivotal role in enforcing secur-

ities laws. Enforcement is a central pa rt of most securities commissions’

mandates and comma nds a material share of their time and resources.

In 1997, for example, when the OSC f‌irst became an autonomous, self-

funded agency, one of the top priorities identif‌ied by the chairman was

the expansion of sta “with the focus on increasing resources in the

compliance and enforcement areas.”1

B. FORMS OF ENFORCEMENT ACTION

When securities laws a re alleged to have been breached, enforcement

actions typically take one or more of f‌ive forms:

• Criminal Code prosecution for certain specif‌ic violations

• quasi-cr iminal prosecution

1 Ontario S ecurities Commi ssion, 1998 Annual Report (Toronto: Ontar io Securities

Commission, 1998) at 9.

SECU RITIE S LAW510

• admini strative enforcement action

• civil court proceed ing

• self-regulatory organization (SRO) enforcement action

Although only one of these avenues of enforcement involves a hear-

ing before a provincial secur ities commission, securities regu lators may

nevertheless play a critic al “gatekeeping” and quasi-“prosecutorial” role

with respect to ma ny of 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.

Finally, in addition to these key avenues of public enforcement,

private enforcement also has a role to play in the Ca nadian securitie s

regime.2 It should be remembered that Canadian securitie s statutes

provide certain civil remedies that are in addition to any remedies

that might otherw ise be available at common law. These statutory civil

remedies may be pursued by pr ivate plaintis who have been har med

by particular securities law inf ractions. The most important of these

statutory civil remedie s relate to: civil liability for misrepresentations

in a prospectu s,3 liability for misrepresent ations in an oering memo-

randum used in connection wit h a private placement,4 liability for mis-

representation in a take-over bid circular, an issuer bid circular or a

director’s circular,5 liability for non-delivery of a required prospectus

or bid document,6 liability for misrepresentations in various continuous

disclosure documents,7 and liability for certain insider-trading viola-

tions.8 These civil remedies are discussed in t he chapters dealing with

the obligations that these remedies are designed to enforce and, accord-

ingly, are not dealt with further here.

1) Criminal Code

At the date of writing, t here are at least six sections of the Criminal Code

that describe oences t hat relate to trading in securities. It had origin-

ally been one of the goals of the proposed Cooperative Capital Markets

2 See Christopher C Nicholl s, “Civil Enforcement in Canad ian Securities L aw”

(2009) 9 Journal of Corporate Law Stu dies 367.

3 See, for example, OSA, s 130.

4 See, for example, ibid, s 130.1.

5 See, for example, ibid, s 131.

6 See, for example, ibid, s 133.

7 See, for example, ibid, s 138.3.

8 See, for example, ibid, s 134.

Securities Law Enforcement 511

Regulatory System (CCMR) initiative to consolidate the crimi nal law

provisions relating to mi sconduct in the capital markets. As a result,

the consultation draft of the Capital Markets Stability Act,9 a federal

statute that was part of the package of legislative instrument s related

to the proposed CCMR, would, if enacted, remove from the Criminal

Code the secur ities market cr iminal oences discussed below and place

them within t he Capital Markets Stability Act. However, as discus sed in

Chapter 4, the CCMR initiative now seems moribund, and so t he most

serious capital market oences are likely to remain for the foreseeable

future in the Criminal Code.

Perhaps the most important of these Criminal Code provisions is

section 400, which provides that it is a n indictable oence to engage in

the following activities:

[make, circulate, or publish] a prospect us, a statement or an account,

whether written or ora l, [known to be] false in a mater ial particul ar,

with intent

(a) to induce person s, whether ascertai ned or not, to become share-

holders or partners i n a company,

(b) to deceive or defraud the members, sh areholders or creditors,

whether ascert ained or not, of a company, or

(c) to i nduce any person to

(i) entr ust or advance anything to a c ompany, or

(ii) enter into any secur ity for the benef‌it of a company.10

A person convicted of an oence under section 400 is liable to a

maximum pena lty of ten years’ imprisonment.

The other relevant oences in the Criminal Code are found in sec-

tions 380 to 384. Among other things, t hese sections make it a crimina l

oence to engage in any of the following acts:

• “[Aecting] the public market price of stocks, [or] shares [among

other things]” “by deceit, falsehood or other fraudulent means . . .

with intent to defraud,”11

• Using the mails “for the pur pose of transmitting or delivering letters

or circulars concerning schemes devised or intended to deceive or

defraud the public, or for the purpose of obtaini ng money under false

pretences,”12

9 Online: http://ccmr-ocrmc .ca/wp-c ontent/uploads /cmsa-consultat ion-draft-

revised-en.pdf.

10 Criminal Code, RSC 1985, c C-46.

11 Ibid, s 380(2).

12 Ibid, s 381.