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Critics debate over proposed OSC no-guilt policy shift (Peter Power/The Globe and Mail)
Critics debate over proposed OSC no-guilt policy shift (Peter Power/The Globe and Mail)

Regulation

Critics debate over proposed OSC no-guilt policy shift Add to ...

An Ontario Securities Commission proposal to allow people to settle enforcement cases without admitting wrongdoing is based on an incorrect premise that the settlements are needed because admissions of guilt will be used against people in parallel civil lawsuits, one of Canada’s leading class-action lawyers said Monday.

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Lawyer Dimitri Lascaris of Siskinds LLP, who specializes in representing shareholders in class-action cases, said his firm has done a review of class-action lawsuits filed in Ontario since 2006, and has found little evidence that civil lawsuits involving securities violations make use of any admissions of wrongdoing from OSC cases.

The OSC has tabled a controversial proposal to begin allowing no-contest settlements – in which people make no admission of wrongdoing – in some of its enforcement cases, saying it will lead more people to settle cases more quickly and speed up the administration of justice. The OSC said many people do not currently settle their cases because they are concerned that any admissions of wrongdoing will be used against them in civil lawsuits.

At an OSC public hearing Monday seeking input on the proposal, Mr. Lascaris said his research shows most people facing OSC charges don’t have to worry about their civil liability, with only 8 per cent of OSC settlements between 2006 and 2012 coinciding with class-action proceedings. In six of eight parallel cases settled in that period, the class-action lawsuit was settled before the OSC case was resolved, which means the civil case could not have relied on any admissions made to the OSC.

Indeed, Mr. Lascaris said he is only aware of two cases in Canada – one of them in Alberta – in which admissions before a securities commission were used in a class-action lawsuit. He said the OSC should do its own study of the evidence before shifting its policy so profoundly.

While admissions of wrongdoing made in OSC cases rarely help him win lawsuits, Mr. Lascaris said he is still opposed to allowing no-contest settlements because they allow wrongdoers to escape accountability for their actions. He said the practice would erode the OSC’s mandate to protect investors.

“What is the point of achieving less investor protection more expeditiously,” he asked.

OSC enforcement director Tom Atkinson told Monday’s hearing the commission needs to reach more settlements with wrongdoers because it does not have sufficient staff to litigate every case through a hearing process.

“Our resources are limited,” Mr. Atkinson told the panel of OSC commissioners. “We cannot realistically prosecute and litigate every matter that comes to our attention.”

Mr. Atkinson said the OSC has 80 cases being contested, and said it creates a huge workload for staff. Five recent cases that would have been appropriate for a no-contest settlement instead went to hearings that required staff time equal to 19 staff members working full time for five years, he said.

“The possibility of a no-contest settlement could have resulted in an early resolution of these cases,” Mr. Atkinson said. “The resource savings could have been redirected to investigate and pursue other matters.”

The OSC has proposed allowing no-contest settlements in cases involving less serious matters, but says it would not allow them in cases involving significant or criminal wrongdoing. It says it will weigh how much someone has co-operated and whether there has been restitution in cases where investors have been harmed.

An ad-hoc group of 13 securities lawyers who regularly represent clients before the OSC – led by Toronto lawyer Jim Douglas – told the hearing panel the no-contest settlements would add a valuable new tool to the OSC’s toolkit to help get more cases settled more quickly.

Mr. Douglas said the OSC concluded many settlements in the past without admissions of guilt, but staff’s practice has evolved over the years to become less flexible and to no longer allow them. He said there is no legal reason why they could not be reintroduced.

Lawyer Lynda Fuerst said it is unfair that many people feel obliged to defend a case they would otherwise settle because they don’t want to make admissions of guilt that could be used against them. She added it is “extremely naïve” of critics to suggest no-contest settlements allow people to avoid damage to their reputations because every proceeding leads to stigma for the people involved.

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