An Ontario appeal court has found that the Ontario Securities Commission’s power to impose monetary penalties of up to $1 million for securities law violations is not excessive.
The Court of Appeal for Ontario Thursday dismissed an appeal of a Divisional Court decision, which upheld the OSC’s disciplinary decision against brokerage firm, Watt Carmichael Inc., its president and chief operating officer, Roger Rowan, and its chairman and CEO, Harry Carmichael.
According to the appeal court decision, in 2010, the Divisional Court dismissed an appeal of the OSC’s orders against the firm and the two executives, following an administrative hearing, which found that the appellants had breached Ontario securities law, and engaged in conduct contrary to the public interest.
The OSC’s findings followed allegations that Rowan failed to report a large volume of trades in Biovail Corp., where he served as director; and that the firm and Carmichael failed to supervise that trading. The commission dismissed allegations of insider trading however.
As a result of the hearing, the OSC ordered that Rowan pay a penalty of $520,000, Carmichael was ordered to pay $250,000, and the firm was ordered to pay $450,000, among various other sanctions. They were also ordered to pay costs of $140,000.
They appealed the penalties, arguing that the ability of the commission to impose administrative monetary penalties of $1 million for each transaction in a single course of infractions, means the potential size of a penalty is so large that it amounts to a penal sanction, and thereby violates the Charter of Rights and Freedoms. An argument that was rejected by the OSC and the Divisional Court. Rowan and Carmichael appealed that decision, arguing that the sanctions violate the Charter.
Additionally, Rowan and Carmihael appealed the OSC decision on a variety of other grounds. The appeal court’s decision says Rowan also argues that the commission erred by taking into account breaches of the public interest in awarding a penalty against him. The firm and Carmichael contend that the commission didn’t find that they breached Ontario securities law, so they argue that it had no jurisdiction to impose a penalty against them. Carmichael also argues that there was no basis to find that he was under any duty under Ontario securities law to supervise Rowan and that the commission’s sanctions imposed against him on that account should be set aside. And, they argue that the finding that they failed to adequately supervise Rowan was unreasonable. They also appealed the award of costs against them.
Court dismisses Watt Carmichael’s appeal of OSC penalties
The appeal court sided with the lower court and the commission, saying they correctly concluded that the penalties do not reach levels that qualify as penal sanctions. It dismisses the constitutional challenge, and the other grounds of appeal, “on the basis that Divisional Court properly concluded that the commission’s reasons are to be reviewed on a standard of reasonableness, and that they met that standard. The commission provided careful and detailed reasons for its decision, making all the necessary findings to support the sanctions it imposed. I agree with the Divisional Court that the appellants have failed to show any basis for appellate intervention.”
“Penalties of up to $1 million per infraction are, in my view, entirely in keeping with the commission’s mandate to regulate the capital markets where enormous sums of money are involved and where substantial penalties are necessary to remove economic incentives for non-compliance with market rules,” the appeal court decision says.
The appeal court dismissed all of the appeals.