When a U.S. federal judge rejected the Securities and Exchange Commission’s $285-million (U.S.) settlement with Citigroup, lawyers north of the border took notice. The ruling comes as Ontario’s securities watchdog considers the same SEC practices slammed in a court decision Monday.
Last month, the Ontario Securities Commission asked for public feedback on a proposal to allow “no contest” settlements of the kind at the centre of the Citigroup deal. The OSC currently does not give those with whom it is negotiating settlements the option of neither admitting or denying guilt, which is the SEC’s standard practice.
The OSC said it would only use “no-contest” settlements for first offenders who co-operate with the regulator, and that the idea was to resolve cases more quickly. Settlement talks now bog down over admissions of liability, as defendants fear they will be used against them by angry investors in court.
Ontario securities lawyers say Monday’s U.S. court ruling should give the OSC plenty to think about.
“It’s hard to ignore this,” said Kelley McKinnon, a former OSC official and now a partner at Gowling Lafleur Henderson LLP in Toronto.
She said that although the judge, in rejecting the deal, “has bluntly drawn a line in the sand,” no-contest deals can reduce the time it takes to settle cases.
Dimitri Lascaris, a plaintiffs’ lawyer with Siskinds LLP in London, Ont., said no-contest settlements can make it harder for burned investors to get their money back: “By allowing settlements that don’t contain admissions, you are prejudicing the ability of injured investors to recover compensation.”