Tom Atkinson, director of enforcement at the Ontario Securities Commission (OSC), speaking at a public policy hearing Monday in Toronto, made his case for the introduction of no-contest settlements in Ontario.
The OSC held a hearing to consider a proposal put forth by its enforcement staff in late 2011, that would allow them to utilize settlement agreements in which respondents don’t have to admit to violations in order to settle regulatory allegations against them. The notion has been criticized by investor advocates and lawyers that often represent plaintiffs in suits involving securities law violations, who argue that the move would harm investors’ ability to pursue their own civil suits. Whereas, defendants’ counsel have generally supported the idea.
Atkinson noted that OSC staff continue to believe that no-contest settlements, and several other proposed policy tools, will bolster enforcement. “We strongly believe that they will increase the effectiveness of enforcement,” he said. “The more quickly and effectively we are able to resolve enforcement matters, the better the outcome for investors and the capital markets.”
The prospect of faster settlements in certain cases means that enforcement will be more productive and able to issue a higher volume of protective orders earlier, he noted. “We can free up staff resources to take more actions, and focus more of our efforts on investigating serious financial crime,” he said, adding that it could also bring sanctions closer to the time of the misconduct, boosting deterrence.
Atkinson stressed that not only is enforcement currently dealing with a high volume of cases, but that those cases are becoming increasingly complex, which has also boosted its workload. And, fear of civil liability issues is currently one factor slowing possible resolutions in certain cases, he said, noting that it now has over 80 cases in litigation. And, he said that it expects this to continue growing in the years ahead.
“Our resources are limited. We cannot realistically prosecute and litigate every matter that comes to our attention. We have to deploy our resources as efficiently as possible. And we have to achieve the best outcome for investors and the markets,” he said. “We must be open to other ways of resolving enforcement actions. We believe that a no-contest settlement program – again with high hurdles – would be a key tool in helping us resolve matters more quickly and effectively in the public interest.”
Atkinson stressed that no-contest settlements would not represent “a free pass” for securities law violators, and that their use would be subject to a number of criteria, including the respondents’ cooperation, their efforts to redress wrongdoing, and to disgorge any ill-gotten gains. In particular, he said, “No-contest settlements would not be available in circumstances involving egregious, fraudulent or criminal conduct, or where the harm suffered by investors is not addressed.”
In cases where these sorts of settlements are used, they would still be subject to commission approval and exposed to a public hearing, he noted. “Again, this is not a free pass. Respondents would need to meet high hurdles. A public hearing would be held. Respondents would suffer reputational damage, be required to pay penalties and address investor harm,” he said.
In terms of how settlements that lack admissions could affect private civil cases, Atkinson said that the use of no-contest settlements would not hurt investors’ efforts to obtain compensation in class actions. He reported that class actions rarely use admissions from a commission settlement, and that admissions do not increase a respondent’s exposure to class actions.
“Enforcement staff believe that our no-contest settlement program would advance the OSC’s mandate of investor protection and fair and efficient capital markets,” he concluded. “There are no free passes in this program. The hurdles are high, but this gives us another tool we can use to achieve the best regulatory outcome for investors. This includes issuing more protective orders earlier, seeking compensation for investors, where possible, and sending a strong message of deterrence to those who violate securities laws.”