CANADA Trends and Developments Contributed by: Linda Fuerst and Melissa MacKewn, Crawley MacKewn Brush LLP
Securities Fraud in Canada: A Perilous Situation Canadian legal landscape In Canada, persons who are suspected of having engaged in fraudulent activity relating to the capital markets may be prosecuted and sanctioned in a varie - ty of ways. Which procedural avenue is pursued has a significant impact on the rights of persons suspected of having engaged in the prohibited activities and on the consequences of a finding of wrongdoing. Increasingly, provincial securities regulators are tak - ing the lead in commencing regulatory proceedings alleging fraud under provincial securities legislation rather than laying a quasi-criminal charge or leaving it to police authorities to lay criminal charges. This may be highly prejudicial to suspected perpetrators due to: • the broad powers of investigation granted to secu - rities regulators; • diminished procedural protections available to sus - pects during investigations by securities regulators in circumstances where it is likely that only regula - tory proceedings will be commenced; • the lower standard of proof that applies at a securi - ties regulatory hearing; and • the extensive array of sanctions that can be imposed at the conclusion of a securities regula - tory proceeding in which a breach of the legislation is established. Procedural Routes for Prosecuting Securities Fraud Currently, there are three principal procedural routes for prosecuting securities fraud in Canada: • a prosecution under Section 380 of the Criminal Code, RSC 1985, c C-46; • a prosecution under provincial securities legislation (Canada does not have a federal securities regula - tor); or • a regulatory proceeding before a provincial securi - ties regulatory tribunal. Criminal and Quasi-Criminal Prosecution of Securities Fraud Criminal Code fraud offence and penalties A charge of fraud alleging the offence of fraud under the Criminal Code (a federal statute) may be laid by
police authorities. It is a criminal offence under the Criminal Code for a person or company to defraud the public or any person of any property, money, valuable security or service using deceit, falsehood or other fraudulent means, and to affect the public market price of stocks or shares by deceit or other fraudulent means with intent to defraud (Section 380 (1), (2)). The maximum penalty upon conviction is up to 14 years’ imprisonment and/or imposition of a fine (Section 380 (1)(a), (2)). Conviction for the Criminal Code offence of fraud requires the prosecution to prove that the accused has dishonestly deprived someone else of something of value. However, proof of fraud does not always require showing that the alleged victim relied upon the fraudulent conduct or was induced by it to act to their detriment: “[w]hat is required in all cases is proof that there is a sufficient causal connection between the fraudulent act and the victim’s deprivation” ( R v Riesberry , 2015 SCC 65). Quasi-criminal prosecutions under provincial securities legislation Alternative to the foregoing, Canadian securities regu - lators can lay a charge alleging breach of a fraud pro - vision under provincial securities legislation. In Ontar - io, Section 126.1 of the Securities Act, RSO 1990, c S5 (the “Act”) prohibits any person or company from directly or indirectly engaging or participating in any practice or course of conduct relating to securities or derivatives that the person or company knows or reasonably ought to know “perpetrates a fraud on any person or company” (Section 126.1 (1)(b)). Breach of this provision constitutes an offence under Section 122 of the Act. The maximum penalty is incarceration for five years less a day and/or a fine of up to CAD5 million per breach (Act, Section 122 (1)). A charge laid under Section 122 for breach of Section 126.1 con - stitutes a “quasi-criminal” offence that is created by a regulatory statute and attracts penal liability. As is the case with prosecution of the Criminal Code fraud offence, in the context of such “quasi-criminal” pro - ceedings for breach of Section 126.1, inducement or reliance by the alleged victim is not required to be proven. Rather, “what is necessary is that the dishon - est conduct is the cause of the risk of deprivation to
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