Court rules in favour of IIROC costs order

The hearing panel, which found that he had violated IIROC’s rules due to his undisclosed interests in trading accounts opened in the names of his aunt and father-in-law, and that he used the account opened in the name of his aunt for his own personal benefit, also ordered him banned from the industry and levied a $350,000 fine.

The decision notes that Vitug appealed the case first to the Ontario Securities Commission (OSC), and then to Divisional Court. Both those appeals were dismissed.

Ontario court dismisses Vitug’s appeal of IIROC penalty

IIROC has since sought payment of the costs order, and is now claiming that he owes the $80,000 for breach of contract for failure to pay the costs order.

According to the decision, both sides in the case agreed that the issues raised by IIROC’s motion turns upon an analysis of the regulatory framework. There are no material facts in dispute, and no need for a trial.

The court then found that IIROC has contractual jurisdiction over its members and their registered employees, and cites precedents which it says, “supports a conclusion that an IIROC costs order is enforceable as a matter of contract.”

“Vitug’s agreement to the terms of his registration includes a promise to pay any lawful costs awards made against him in disciplinary proceedings. This term is a contractually binding obligation that may be sued upon in a civil action. The absence of specific statutory authority in that regard does not serve to alter that conclusion,” it says.

It also rejects the argument that the IIROC rules don’t allow respondents to recover costs of unsuccessful disciplinary actions against them; and the argument that any agreement to IIROC’s terms of registration should not be binding because there is no opportunity to negotiate or modify those terms. “This argument has already been considered by a court and rejected,” it says.

“A regulated person’s agreement to IIROC’s by-laws, rules and regulations provides the person with substantial benefits – the ability to participate in the securities markets. However, given the significant harm that can be done to investors and public confidence in the intergrity of the markets by the misconduct of market participants, it is a necessary component of the contractual agreement between the parties that IIROC be able to deploy significant resources to police its public interest obligations,” the decision says. “It is only fair that regulated persons who have been found to be guilty of misconduct be required to pay a portion of the costs they have imposed on IIROC and its membership as a result of their breach of IIROC’s by-laws, rules and regulations, if the hearing panel in the proper exercise of its discretion considers that to be appropriate.”

“If an individual does not wish to be so bound by the rules and regulations which are clearly designed to protect the public, that individual may decline to seek registration,” it adds.

The court also notes that the IIROC hearing process “provides regulated persons with adequate procedural protections”, including the ability to lead evidence, cross-examine all prosecution evidence, and make arguments and submissions on liability, penalty and costs, and it provides appeal mechanisms.

Ultimately, it concludes, “In my opinion, it is evident that Vitug submitted to the rules of this regulatory scheme of which he was a member. He went through a fair and legitimate disciplinary proceeding and was found guilty of having breached IIROC’s rules for its proper conduct of its members. The very reasonable order for costs pursuant to the IIROC rules made by the hearing panel, which represents only a fraction of IIROC’s actual costs of this investigation and prosecution which I am satisfied it has incurred, must therefore be paid by him.”