Lexpert US Guides

26 | LEXPERT • December 2014 | www.lexpert.ca SECURITIES ENFORCEMENT one headache, and move on while continuing your battle with the civil ligation, it's a great option. "Civil litigation is civil litigation. at's a whole diff erent ball game." Now that the OSC has introduced no-admission settlements, she says, it's probably just a matter of time until the other provin- cial securities regulators follow suit. "Ontario's is usually quite a leader, things usually start there." Most securities litigators agree the emergence of no-admission settlements tops most lists of key developments in enforcement in Canada. But one prominent lawyer who spoke on condition he not be identifi ed says something in the US proved to be a real game changer north of the border: Bernie Madoff . He says it punctured the SEC's almost mythical status among Canadian market participants and helped level the playing fi eld for the Ontario Securities Commission. "Before the Bernie Madoff debacle, the OSC was constantly being criticized about being a patsy relative to the US regulators," he says. " e SEC was always aggressive, they were always chasing a er people – even Canadians – apparently with more alacrity and success that our own regulators, and the OSC was really under pressure. e OSC was bringing cases and losing. " e OSC won a couple of cases including a mutual-fund case where defense counsel was running around saying the OSC was going to get killed, and they started to get greater confi dence. en the US got a big fi nger in its eye over Madoff , where the hell was the SEC? And suddenly the OSC was breathing a sigh of relief." e post-Madoff honeymoon didn't last long, however. Just before Labor Day 2014, an OSC panel handed the staff a high- profi le defeat in an enforcement action involving Baffi nland Iron Mines Corp. e decision sets out important guidance for the test for insider trading in M&A negotiations but just as importantly, according to several senior securities litigators, it appears to herald a new era of restraint by the OSC commissioners who preside over many enforcement prosecutions. > Baffi nland involved insider trading and tipping allegations against two well-connected mining executives: Jowdat Waheed, a former chief executive of Sherritt International, and Bruce Walter, a friend and veteran deal maker involved in the forma- tion of Barrick Gold in the 1980s. Baffi nland retained Waheed as a strategic consultant in the fi rst half of 2010 to advise the CEO and board on developing its mining property. During that time he learned the junior miner was negotiating a potential strategic partnership with ArcelorMittal S.A. and that the negotiations were not going well. In July, his retainer ended, he approached Walter about making a potential acquisition involving Baffi nland. ey formed Nunavut Iron Ore Acquisition, acquired a toehold position in the company and, in September that same year, launched an unsolicited take-over bid. Waheed was the acquisition company's president and chief executive, Walter its chairman. In it, the OSC argued that settlement regimes are very diff erent in Ontario than in the US, and the factual basis for a settlement order is more transparent to the Ontario tribunal required to approve it than it is to a US judge. It said the province – home jurisdiction to the Toronto Stock Exchange – needs a no-admission settlement regime to speed up staff 's heavy load of investigations and prosecutions, allowing enforcement to concentrate on the most serious cases. While the Ontario Securities Commission is just one of 13 provincial and territorial market regulators in Canada, the decision has implications for listed companies right across the country. "It aff ects any company that could fall under the OSC enforce- ment initiative, which is potentially any company that trades on the TSX," says Julie-Martine Loranger, a litigation partner at McCarthy Tétrault LLP in Montréal. Loranger points out the OSC is not throwing the door open to secretive deals. Under the new system, staff will have to explicitly agree on the facts at the settlement hearing. And the new regime stipulates that no-admission settlements will not be available to anyone who has engaged in abusive, fraud- ulent or criminal conduct, to any market participant who has not satisfactorily addressed investor harm, or in cases where they have misled or obstructed staff in the investigation. Loranger sees it as a positive development for Canada. "I'm a strong believer. I'm always making the distinction between a breach of securities regulation and fault. Sometimes you want to settle with the regulator but you're stopped because of pending civil litigation. So if you have a chance to get rid of Julie-Martine Loranger > McCarthy Tétrault LLP "[ADOPTING A no-admission settlement regime] affects any company that could fall under the OSC enforcement initiative, which is potentially any company that trades on the TSX."

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