An Ontario Securities Commission (OSC) panel has partly upheld an appeal of a disciplinary decision made by an Investment Industry Regulatory Organization of Canada (IIROC) hearing panel, ruling that the IIROC panel made an error of law in its decision and setting aside the sanctions ordered in the case.
The OSC released its decision on an appeal brought by brokerage firm, Northern Securities Inc., and several Northern executives, who were found to have violated several IIROC rules following a hearing in 2012. (See Investment Executive, OSC extends stay of Northern penalties, February 21, 2013.)
Northern and the executives appealed that ruling, and today the OSC issued its decision setting aside the IIROC panel’s decision on one of the counts, after finding that the IIROC panel made an error of law: and, ruling that the sanctions hearing was unfair to the respondents in the case.
The decision indicates that the OSC found that it was unfair of the IIROC panel to proceed with a sanctions hearing before it had issued its reasons in the original hearing on the merits of the case.
“The IIROC panel should have provided reasons on the merits prior to the sanctions and costs hearing in order to permit the applicants to effectively make submissions,” the OSC panel said in its decision. “In our view, the failure of the IIROC panel to provide reasons on the merits before the sanctions and costs hearing was unfair to the applicants in the circumstances.”
In place of the IIROC panel’s sanctions, the OSC will hold a hearing of its own, “solely on the question of the appropriate sanctions and costs to be imposed… based on the findings of the IIROC panel,” it said. Both sides will be entitled to submit further evidence related to sanctions and costs.
As for the count set aside by the commission — which dealt with an allegations that Northern executives repeatedly failed to correct deficiencies uncovered in compliance reviews — it has referred the case back to the IIROC panel to decide whether to re-adjudicate the allegation in question or not. The decision notes that, given the practical challenges of rehearing the issue, and the sanctions imposed, it could have simply dismissed that count.
“However, we have concluded, on balance, that IIROC should have the option to decide whether [it] should be re-heard if IIROC considers that to be important from a regulatory perspective.” The decision gives IIROC until February 14, 2014 to make that decision and notify the respondents in the case.
The decision also rejected the suggestion that the IIROC panel was biased against the respondents in the case, saying that an “informed, reasonable person with knowledge of all the circumstances” would not reasonably perceive that the panel was biased, or had prejudged the matter of sanctions and costs. “Accordingly, those comments do not give rise to a reasonable apprehension of bias on the part of the IIROC panel,” it found.