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OSC proposes 'no-contest' settlements Add to ...

The Ontario Securities Commission plans to allow people to settle cases without admitting wrongdoing, as part of a package of reforms to speed up its investigations.

The regulator announced a series of proposals Friday to encourage people to co-operate more readily in cases and provide evidence against others involved in wrongdoing. The commission said it will provide immunity from prosecution in certain non-criminal cases where people come forward early to self-report violations of securities rules. It will also offer people more credit for co-operating in investigations.

The OSC is also proposing U.S.-style settlement agreements in which people can settle cases without having to admit wrongdoing, arguing the change will clear the way for more settlements to be reached more quickly with people who currently fear their admissions will be used against them in lawsuits.

“We want to be able to resolve things in the marketplace when they’re important to the marketplace,” said OSC enforcement director Tom Atkinson. “Some of these larger cases can go on for years without the issue being resolved.”

The U.S. Securities and Exchange Commission concludes most of its settlements on a “no-contest” basis without requiring admissions of wrongdoing. Officials defend the practice by noting few settlements would be possible otherwise because of fear of lawsuits.

Critics of the U.S. process argue that it weakens the administration of justice if corporations or wealthy individuals can pay a financial penalty while proclaiming they did nothing wrong.

But Mr. Atkinson said the OSC is proposing to lay out conditions that have to be met for such settlements, including allowing them only for those who co-operate during investigations and barring them from people who have been the subject of previous cases.

The proposed policy, which is open for public comment until Dec. 20, says examples of acceptable co-operation include self-reporting misconduct; taking steps to correct the wrongdoing; and co-operating with OSC staff in cases against others involved in the same activity.

Toronto securities lawyer Kelley McKinnon, former deputy director of enforcement at the OSC, said many people will settle cases readily if they do not have to admit wrongdoing, which should speed the conclusion of cases.

The policy would likely apply only to “bona fide market participants” who are in trouble because of omissions or negligence, Ms. McKinnon said. People who commit outright frauds or more serious wrongdoing would be unlikely to meet the test for co-operation with the OSC.

“People committing fraud don’t usually self-report, as opposed to those who may have made a mistake and want to resolve it.”

University of Toronto business professor Richard Powers said the proposals would bring needed streamlining to drawn-out OSC investigations. He said he would be concerned, however, if a push to reach settlements were to end up creating a financial motive for commission staff to pursue too eagerly a new source of revenue.

Mr. Powers said he is impressed by OSC chairman Howard Wetston, who joined the regulator last November, because he is acting on his commitments to improve enforcement. He believes Mr. Wetston would not let a no-contest settlement policy be abused.

“Based on what he’s done so far, they are stepping up their game,” he added. “To the extent it works, great. And if it doesn’t I think you can count on them taking a look at it and changing it.”

The OSC also said Friday it is weighing a policy to give whistleblowers financial compensation or protection from retaliation, a move that would be unique for a securities regulator in Canada. But it said the idea is still under study, with issues such as financing still being considered.

Ermanno Pascutto, executive director of investor rights group FAIR Canada, said the OSC should only sparingly allow settlements without admissions of wrongdoing so that victims of wrongdoing feel justice has been done for them.

While such agreements may be necessary in some cases, he said the deals will make it harder for victims to recover money they have lost because they will not be able to rely in court on admissions made to the OSC by wrongdoers.

“These [agreements]should be very much the exception rather than the rule,” he said.

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