Ontario’s financial markets watchdog says that, in “limited circumstances,” it will allow alleged wrongdoers to pay to settle cases launched against them without admitting to any “facts or liability.”
The Ontario Securities Commission announced the policy on Tuesday, saying that this kind of “no-contest” settlement is needed to speed up its heavy load of investigations and prosecutions, and allow it to concentrate on the most serious cases.
The regulator says it will not offer no-contest settlements to anyone who has “engaged in abusive, fraudulent or criminal conduct,” who has failed to address any losses caused to investors, or who has obstructed or misled investigators.
But this type of settlement, commonly used by the U.S. Securities and Exchange Commission to levy multimillion-dollar fines in high-profile cases, has been controversial.
Just after the OSC first proposed adopting the idea in 2011, the SEC came under fire for its use of this kind of settlement. U.S. judges have blocked several such SEC deals, including a $285-million (U.S.) fine against Citigroup for allegedly misleading investors before the U.S. subprime mortgage crash.
But the OSC, and lawyers who act for those facing allegations before the commission, have long argued that allowing no-contest deals would speed up settlement talks. They say those talks now tend to stumble on the issue of admitting wrongdoing, as companies or individuals facing OSC allegations are usually also facing other litigation, such as a class action from investors.
Tom Atkinson, the OSC’s director of enforcement, said in an interview that no-contest settlements will not be offered to fraudsters, “boiler-room” operators or insider traders.
The typical case for a no-contest settlement would involve a “responsible” regulated market participant who came forward and co-operated with the OSC after discovering a violation of securities law and who has agreed to pay some sort of compensation to investors for losses.
Allowing this kind of settlement in these cases will allow the commission to redirect its limited resources to more serious alleged violations, Mr. Atkinson said.
The OSC, through a new task force aimed at fraud, has been laying more criminal and quasi-criminal charges in an effort to put more fraudsters in jail, he added, as well as cracking down on insider trading. “I think if you’ve looked at our actions over the last few years, no one can claim we’re not being aggressive enough.”
Lynda Fuerst, a Toronto lawyer with Lenczner Slaght Royce Smith Griffin LP whose clients include those facing allegations at the commission, said the policy’s effectiveness will depend on the details.
She warned in particular that the policy must not become a way for the OSC to charge those wishing to settle allegations at a premium to avoid admitting guilt and “effectively coerce respondents who don’t want to make admissions to pay greater settlement amounts.”
Mr. Atkinson points out that all such settlements will still have to be approved by an OSC hearing panel, which must deem the deal to be in the public interest.
“Bottom line is, it goes in front of a hearing panel that is supposed to make sure that we don’t do exactly that … that we are not destroying people’s businesses to get a headline.”
Dimitri Lascaris, a lawyer with Siskinds LLP in London, Ont., who regularly launches securities class actions, argues that no-contest settlements let wrongdoers off the hook.
He praised the OSC for pledging to limit the use of these settlements, but warned that “however frequently they are ultimately used, they will dilute what little remains of accountability in Canada’s capital markets.”