(November 6 – 13:00 ET) – The Canadian Securities Administrators want to give investors in the right to sue any public company and key related persons for making public misrepresentations about the company or for failing to make required timely disclosure.

The CSA says these remedies are needed to encourage improvement in the quality of continuous disclosure in Canada can and should be improved. “A failure to provide accurate and timely disclosure can hurt investors,” said Doug Hyndman, CSA and British Columbia Securities Commission chairman. “Our recommendations will provide investors an opportunity to seek damages if they believe they have been harmed by a company’s failure to provide adequate disclosure.”

The proposed remedy would provide investors with a limited right of action against an issuer, its directors, responsible senior officers, influential persons such as large shareholders, auditors and other responsible experts. Investors would have the right to seek compensation for damages when an issuer made, and not corrected, public disclosure that contained an untrue statement of a material fact or failed to make required material disclosure.

Investors would have the right to sue whether or not they actually relied on the misrepresentation or failure to make timely disclosure. This provision is intended to remove the necessity to prove reliance and to reflect the fact that they may suffer damage indirectly because of the effect a misrepresentation has on the market price of a security.

Plaintiffs launching the lawsuit will have to prove that the defendant knew about the misrepresentation in the document, deliberately avoided acquiring knowledge or was guilty of gross misconduct in making the statement containing the misrepresentation.

For an issuer, the liability cap is set at the greater of $1 million or 5% of market capitalization. For potential defendants other than the issuer, the liability caps do not apply if the person “knowingly” made the misrepresentation or “knowingly” failed to make required timely disclosure.

The amount of damages a defendant must pay are reduced by the amount of any prior award made against, or settlement paid by, the defendant relating to the same misrepresentation under a similar action in any Canadian jurisdiction.

To limit baseless litigation designed just to force a settlement plaintiffs would be required to obtain leave of the court to commence an action.

The CSA is not seeking further comment on the issue. Members of the CSA will ask their respective governments for legislation to enshrine this option.