When the Going Gets Tough: Emerging Trends in Securities Litigation
| Author | Kent E. Thomson and Shara N. Wright |
| Pages | 273-292 |
When
the
Going Gets Tough:
Emerging Trends
in
Securities Litigation
Kent
E.
Thomson
and
Shara
N.
Wright
A.
INTRODUCTION
Securities
violations have come
to the
forefront
of the
public conscious-
ness with widely publicized scandals such
as
Enron
and
WorldCom
and
sensational prosecutions like that
of
Martha Stewart. Disparate trends
in
civil
actions
and
enforcement measures have begun
to
emerge
to
deal
with these violations
and
restore investor
confidence
in the
capital mar-
kets. Although
the
measures
are
quite
different,
they have
the
common
effect
of
deterrence.
In
order
to
restore public confidence
in the
market,
measures have
been
taken
to
ensure that
these
types
of
violations
do not
happen
in the
future.
Those
responsible
for
administering
and
enforc-
ing
securities laws
in
Canada
and the
United States have taken
the
posi-
tion that those
who
have committed past violations must
be
punished,
and
that
the
punishment meted
out
should
be
sufficient
to
serve
as a
warning
to
others that this type
of
behaviour will
not be
tolerated
in the
future.
Further, investors
are
demanding that corporate impropriety,
even
if it
cannot
be
proven
in a
court
of
law,
be
addressed
and
eradicat-
ed. In
examining
the
Enron
scandal,
Joan MacLeod Hemingway recent-
ly
noted:
"It
seems that actual legal compliance [with securities laws]
is
Mr.
Thomson
is a
partner
and Ms.
Wright
is a
student-at-law
at
Davies Ward
Phillips
&
Vineberg LLP.
The
authors would like
to
thank
Mr.
Robert Murphy
for
his
input into this paper.
273
274
KENT
E.
THOMSON
AND
SHARA
N.
WRIGHT
not
socially
sufficient
...
where
an
imbalance
of
power
is
perceived
to
exist.
In the
post-Enron
environment,
the
perception
of
inappropriate-
ness
in the
public
eye is
often
more important than legal
reality."1
We
have therefore seen
a
trend towards investors taking matters
into
their
own
hands through
civil
actions,
finding
new and
innovative
ways
to
have their complaints
addressed
by the
courts. There have also
been
a
series
of
high-profile prosecutions
in the
United States
of
indi-
viduals
for
securities violations,
or for
obstructing
the
investigation
of
those violations. Further,
in
Ontario,
the
Ontario Securities Commission
(OSC)
has
abandoned
its
practice
of
remaining silent about investiga-
tions
and has
recently confirmed publicly that certain
of its
investiga-
tions
are
ongoing.
We
will examine each
of
these trends
in
turn
and ask
whether they serve
the
goals
of
securities regulation.
B.
THE
GOALS
OF
SECURITIES
REGULATION
Securities
regulation
has the
same purpose
in
both
the
United States
and
Canada:
to
ensure that companies meet certain minimum standards
of
timely
and
accurate disclosure
when
offering
publicly traded securities
to
investors
in
order
to
promote investor confidence.
The
stated purpos-
es of the
Securities
Act of
19332
and the
Securities
Exchange
Act of
19343
are as
follows:
(1)
Companies publicly
offering
securities
for
investment
dollars must tell
the
public
the
truth about their
businesses,
the
securi-
ties they
are
selling,
and the
risks involved
in
investing;
and (2)
People
who
sell
and
trade securities
—
brokers, dealers,
and
exchanges
—
must
treat
investors
fairly
and
honestly, putting
investors'
interests
first.4
Sim-
ilarly,
the
stated goals
of the
Ontario
Securities
Act5
are
"(1)
to
provide
protection
to
investors
from
unfair,
improper
or
fraudulent
practices;
and (2) to
foster
fair
and
efficient
capital markets
and
confidence
in
cap-
ital
markets."6
These goals emanate
from
the
Kimber Report, which
1
Joan
MacLeod
Hemingway, "Enron's Tangled Web: Complex Relationships;
Unanswered
Questions"
(2003)
71 U.
Cin.
L.
Rev. 1167
at
1184.
2
15
U.S.C.
77a
(2000).
3 15
U.S.C.
78a
(2000)
[SEA].
4
"How
the SEC
Protects
Investors/'
online:
The
Securities
Exchange
Commis-
sion
5
R.S.O.
1990,
c. S.5
[OSA].
6
Ibid.
ats.
1.1.
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