Quasi-Criminal Proceedings: OSC Raises Stakes and Grapples With Results

A survey of the past year shows that the Ontario Securities Commission (OSC) has markedly increased its focus on quasi-criminal court proceedings, indicating a new willingness by the regulator to aggressively prosecute securities offences. At the same time, however, the collapse of one of the OSC’s marquee cases in late 2022 vividly illustrated the long-standing difficulty that Canadian securities regulators have faced in trying to obtain criminal or quasi-criminal convictions.

CHANGING TREND IN OSC PROCEEDINGS

The OSC’s increased willingness to use its quasi-criminal powers is clearly shown in comparative enforcement statistics for recent years. Between 2017 and 2021, the OSC averaged a little over two quasi-criminal proceedings per fiscal year. During the 2021–22 fiscal year, by comparison, the OSC commenced seven quasi-criminal proceedings against a total of 12 defendants.

As these figures reflect, the OSC has historically favoured bringing cases administratively rather than before the courts, for the simple reason that it is relatively easier and quicker for the OSC to obtain convictions using the administrative process. As a trade-off, the sanctions that the OSC’s adjudicative tribunal (recently reconstituted as the Capital Markets Tribunal) can impose under the administrative process are limited to relatively lower monetary penalties, with no possibility of imprisonment. The extensive use of the administrative process has led to criticism in the past that Ontario, and Canada generally, are too “soft” on white-collar crime.

QUASI-CRIMINAL PROCEEDINGS: PROS AND CONS

In contrast to administrative proceedings, defendants who are charged and convicted of a quasi-criminal offence in proceedings brought by the OSC before the Ontario Court of Justice face exposure to fines of up to C$5-million per offence and, most significantly, potential imprisonment for up to five years. On the other hand, defendants will also be afforded greater rights than they would have received in an administrative proceeding. Most notably, whereas proceedings before the administrative tribunal require the OSC to prove its case on a balance of probabilities, quasi-criminal cases must be proven beyond a reasonable doubt. Defendants to a quasi-criminal proceeding will also be entitled to other protections under the Canadian Charter of Rights and Freedoms, including a right against self-incrimination and the right to a due diligence defence.

ONGOING DIFFICULTY OBTAINING QUASI-CRIMINAL CONVICTIONS

While Canadian securities regulators have historically struggled to obtain quasi-criminal convictions, in 2021 the OSC successfully prosecuted quasi-criminal charges against two individuals for fraud and other offences under the Ontario Securities Act, obtaining jail and probation sentences for the defendants. Unfortunately for the OSC, a recent case vividly demonstrated the continued difficulty of obtaining quasi-criminal convictions. In December 2022, the OSC moved to abruptly withdraw its fraud and insider trading charges against three former directors and officers of CannTrust Holdings Inc., a former publicly traded cannabis company, in a quasi-criminal trial before the Ontario Court of Justice. The OSC concluded in the middle of the highly publicized trial that it had no reasonable prospect of conviction under the heightened criminal burden of proof described above, and the court entered acquittals for the defendants.

As 2023 unfolds, it will be interesting to see whether the OSC will continue to bring new quasi-criminal charges in the face of its recent setback, or whether it will revert to the more limited, but less onerous, administrative forum.

For further information, please contact:
 
Doug McLeod                +1-416-863-2705
Daniel Szirmak              +1-416-863-2548

or any other member of our Securities Litigation group.