As the Ontario Securities Commission considers adopting U.S.-style "no-contest" settlements, the practice is facing more scrutiny south of the border.
First it was a scathing ruling from U.S. federal judge Jed Rakoff turning down a $285-million (U.S.) "no-contest" settlement between the Securities and Exchange Commission and Citigroup Inc. that allowed the bank to neither admit nor deny allegations related to the sale of toxic mortgage debt.
Judge Rakoff said the November settlement would give the SEC nothing more than a "quick headline," while the public would never know the truth of any of its allegations.
Now, Congress intends to probe the SEC's regular practice of offering those facing allegations this kind of deal. According to the New York Times, Spencer Bachus, chairman of the House financial services committee, says he intends to hold hearings on the topic in the new year.
This kind of “no-contest” settlement is currently not an option for people or companies being investigated by the OSC for financial wrongdoing.
But the OSC said in October that is was considering adopting the practice in select cases. The OSC said the move was meant to speed up settlement talks, which tend to bog down over admissions of wrongdoing as respondents fear the effects on other lawsuits they may face.
Many lawyers who appear as defence counsel before the OSC agree that this would speed up settlement talks. But Dimitri Lascaris, a class action lawyer with Siskinds LLP who launches lawsuits on behalf of investors, disagrees with the move. He said allowing "no-contest" deals will only make it even harder for victims of fraud or other financial wrongdoing to recoup losses.
The OSC says it is accepting public comments on the proposal until Dec. 20.