Ontario’s Capital Markets Tribunal refused to stay an enforcement proceeding against a day trading platform, Oasis World Trading Inc., and two of its executives, after they alleged that the Ontario Securities Commission (OSC) repeatedly breached its disclosure obligations to them — but the panel didn’t completely dismiss the concerns, ordering the regulator to review, and if necessary, make additional disclosure in the case.
The ruling came in the midst of an ongoing enforcement hearing into allegations of market manipulation and unregistered trading by Oasis and its foreign-based day traders, who are active on the Toronto Stock Exchange (TSX) and the Australian Securities Exchange (ASX).
The OSC alleged that, between 2018 and 2020, “Oasis and its traders engaged in extensive and repeated manipulative trading on Canadian and foreign stock markets…”
Those allegations have not been proven.
Closing arguments in the case were scheduled to take Friday — and, at the end of the day, the tribunal published its reasons for refusing to stay the case following a hearing last July.
At that hearing, the company and its executives brought a motion seeking a permanent stay of the proceedings against them, alleging abuse of process by the commission, based on its alleged disclosure failures.
According to the tribunal, they alleged that the OSC, “repeatedly withheld relevant documents and information that ought to have been disclosed to them, has sought ways to limit disclosure and has taken positions throughout this proceeding that are contrary to the commission’s disclosure obligations.”
These alleged disclosure failures amounted to an abuse of process, and offend “society’s notions of fair play and decency” they argued in seeking a stay of the proceeding.
The disclosure deficiencies in question included English translations of Chinese documents that were provided shortly before the enforcement hearing was due to start, and after the deadline set for the commission; spreadsheets of trading data; along with other evidence that was allegedly disclosed late.
The tribunal heard the stay motion while in the midst of the hearing to determine whether the allegations against Oasis and the traders could be proven.
In deciding to hear arguments on the stay motion in the middle of the merits hearing, the tribunal said it concluded that the issues it raised, “could be properly resolved without us first having to hear the remaining evidence to be tendered in the merits hearing.”
And, it said that, if the allegation that the commission fundamentally breached its disclosure obligations proved correct, the prejudice this creates for the defence “would be perpetuated or aggravated by continuing the merits hearing and deferring the stay motion until after the merits hearing is complete.”
However, the tribunal ultimately found that the disclosure issues weren’t severe enough to justify a stay of the proceeding.
It noted that the OSC and the respondents “fundamentally disagree about the scope of the commission’s disclosure obligations,” and that the respondents viewed the regulator’s “conduct around disclosure reflected a pervasive, systemic problem that was widespread and endorsed by senior counsel at the commission…”
The commission disagreed, arguing that some of the disclosure sought by the respondents may be privileged, and that there’s no obligation to disclose notes taken during witness prep sessions, unless that reveals new, relevant information.
The tribunal sided with the commission on that point, concluding that these notes may be privileged, and that the regulator only has to disclose new information that arises during these sessions — but that the disclosure doesn’t have to include the actual notes taken during the sessions.
It also found that the respondents didn’t prove that the OSC’s conduct “was offensive to societal notions of fair play and decency,” and that the hearing should be stayed as a result.
The panel did criticize a couple of the regulator’s disclosure decisions, but said that they didn’t rise to the level of abuse of process, nor did they justify a stay.
“Where we did have concerns about particular disclosure issues raised by the respondents, we found that the errors in disclosure and errors in judgment calls relating to disclosure were not established to be likely to continue in the future and were not so egregious that they warranted a stay,” it said.
However, the tribunal did order the commission to take steps to make additional disclosure, citing its “concerns that there may have been other disclosure-related errors in an admittedly complex matter.”
“In the interests of ensuring that the respondents have had the opportunity to make full answer and defence to the commission’s allegations, we ordered a review of disclosure be undertaken by the commission, and specifically identified the commission’s obligation to disclose additional relevant non-privileged documents and information notwithstanding that the document or information may exist in another form that has already been disclosed,” it said.