Double Jeopardy at the Ontario Securities Commission?

In a series of recent Ontario Securities Commission (OSC) administrative proceedings, enforcement staff of the OSC (Staff) have sought to present the allegations against respondents in a manner that would, if accepted, effectively double the size of monetary penalty that can be imposed.

BACKGROUND: THE OSC ENFORCEMENT FRAMEWORK

The Ontario Securities Act (Act) contains specific operative provisions — such as those establishing rules for offerings, take-over bids and other matters — and also contains a series of “basket” provisions, which set out general prohibitions. As an example of a “basket” provision, the quasi-criminal offence provision in section 122 of the Act serves to generally make it an offence to make misrepresentations in securities-related documents, or to contravene Ontario securities laws. Procedurally, Staff must proceed through the courts, rather than through an OSC panel, in order to initiate quasi-criminal prosecutions under section 122. Sections 126.1 and 126.2 of the Act also establish general contraventions related to misleading information under the Act, although enforcement of these sections does not have to proceed through the courts.
 
While Staff must prosecute quasi-criminal cases through the courts, it is more common for Staff to proceed through the administrative process established under section 127 of the Act. Administrative proceedings can be initiated in relation to any violation of a provision under the Act, and can result in a number of sanctions including administrative monetary penalties (AMPs). The Act, however, caps the size of AMP that can be imposed at C$1-million per contravention of the Act.

OVERLAPPING BREACHES IN OSC ALLEGATIONS

In a series of recent administrative proceedings, in addition to the conventional presentation of allegations in which Staff alleges contraventions of specific operative provisions of the Act that have been allegedly contravened, Staff have also cited an overlapping, duplicative contravention of various of the “basket” provisions set out in sections 122, 126.1 or 126.2.
 
For example, in MOAG Copper Gold Resources Inc (Re), 2020 ONSEC 3 (Moag), a recent administrative proceeding against a corporation and two of its directors related to the breach of a cease trade order, OSC staff argued that two separate AMPs could be ordered. One of these AMPs would be for breaching the specific cease trade provisions in the Act, while the second — arising out of the exact same conduct — would be imposed for breaching the general offence provision in section 122.
 
The effect of Staff’s approach would, if accepted by the OSC, be to turn what would historically have been regarded as a single contravention of the Act into two contraventions, and, as a result, expose the respondents to double the monetary penalty. Staff have structured a number of recent administrative proceedings in this manner, indicating that the approach is part of a concerted attempt by Staff to increase their de facto enforcement power.

RESISTANCE FROM RESPONDENTS

For their part, respondents have sought to import “double jeopardy” principles from the criminal law, arguing that even in an administrative context, a person cannot be prosecuted twice for the same act on separate but overlapping charges. These defence arguments appear to have found some traction in recent OSC panel decisions.

In Natural Bee Works Apiaries Inc (Re), 2019 ONSEC 23 (Natural Bee Works), an OSC panel declined to accept duplicative allegations under sections 38(3) and 126.1 of the Act, and acknowledged the principle that “the same misconduct should not form a basis for separate overlapping contraventions.” Similarly, in its decision in Moag, the OSC panel expressed “uncertainty as to whether [the section 122] allegations are properly brought in an enforcement proceeding before the OSC, as opposed to in a prosecution before the Ontario Court of Justice.” The panel in Moag concluded however that the “Commission may need to consider the question more thoroughly in a future case,” illustrating that the issue remains unsettled.

WHERE DO WE GO FROM HERE?

Although, as noted above, there are indications that OSC panels will be hesitant to permit duplicative sanctions against respondents, the issue remains to be definitively addressed by an OSC panel, and ultimately by the courts. Given that respondents are certain to continue to strenuously resist “double jeopardy,” it is likely that there will be further contests over the OSC’s penalty power in the future.

For further information, please contact:

Doug McLeod               416-863-2705
Theo Milosevic              416-863-2477
 
or any other member of our Securities Litigation group.