CANADA Trends and Developments Contributed by: Linda Fuerst and Melissa MacKewn, Crawley MacKewn Brush LLP
Sanctions and costs awards The imposition of sanctions by the CMT for breach of securities legislation is stated to be for a protec - tive purpose and not for the purpose of punishment ( Committee for the Equal Treatment of Asbestos Minority Shareholders v Ontario (Securities Commis- sion) , 2001 SCC 37). Practically speaking, this is a distinction without a difference. In imposing sanctions, the CMT is entitled to and does consider the need for both general and specific deterrence ( Hogg (Re) , 2024 ONCMT 15), both of which are principles that apply to the sentences imposed by criminal courts in respect of Criminal Code offences (Section 718 (b)). While incarceration cannot be imposed by the CMT in a Section 127 proceeding, other available sanc - tions can have a crushing effect on a respondent. An order prohibiting a person from acting as an offic - er or director of any company can result in loss of employment. A finding of fraud by the CMT can make it impossible for an individual to find other employ - ment. Disgorgement orders are particularly problem - atic with potentially devastating consequences. The CMT’s power to order disgorgement is not limited to net profits obtained by the wrongdoers from the mis - conduct. Rather, the power extends to “any amounts obtained as a result of the non-compliance” (the Act, Section 127 (1)(10)). Such orders can be imposed on respondents jointly and severally, with the result that a respondent who gained little or nothing as a result of the wrongdoing may still be liable to repay the entire amount ( North American Financial Group Inc v Ontario Securities Commission , 2018 ONSC 136; Paramount Equity Financial Corporation (Re) , 2023 ONCMT 20). To further complicate matters, disgorgement orders made by the Ontario Securities Commission will sur - vive bankruptcy ( Poonian v British Columbia (Securi- ties Commission) , 2024 SCC 28). In addition, as any amount that must be disgorged is ordered to be paid to the regulator and does not necessarily end up in the pockets of persons who were injured by the fraud, compliance with the disgorgement order will not nec - essarily reduce the payor’s exposure to a damages award ordered by a court at the conclusion of a civil action relating to the same matter. Finally, a respondent who is found to have breached the securities fraud provision can be ordered to pay
provided it in a prosecution of that person under Section 122 of the Act (Section 18); and • a statutory prohibition on the disclosure of com - pelled testimony to police forces and persons responsible for the enforcement of criminal law in Canada or elsewhere, in the absence of the written consent of the person from whom the testimony was obtained (Section 17 (7)). Use of compelled testimony in enforcement proceedings Until the recent decision of the CMT in TeknoScan Systems Inc (Re) , 2024 ONCMT 32, a respondent’s compelled testimony given during such a compelled examination conducted pursuant to Section 13 of the Act could be filed in evidence against them at a sub - sequent regulatory hearing before the CMT, even if the respondent had asserted a statutory right available under a provincial evidence statute not to have their compelled evidence used against them to establish their criminal or civil liability in a subsequent proceed - ing ( Eda Marie Agueci et al (Re) , 2013 ONSEC 45). It was the standard practice of the Ontario Securities Commission to “read in” portions of respondents’ compelled evidence gathered during its investigation for use against the respondents in regulatory proceed - ings commenced under Section 127 of the Act, should those respondents elect not to testify in their own defence ( Eda Marie Agueci et al (Re) , 2013 ONSEC 45; Kitmitto (Re) , 2022 ONCMT 12). In TeknoScan , the CMT reversed course, finding that, when the com - pelled evidence sought to be filed for use against a respondent is an admission against interest, it is inad - missible where the respondent has properly invoked the statutory prohibitions against self-incrimination (in Ontario, these protections are found in Section 9 of the Evidence Act, RSO 1990, c E 23). In so finding, the CMT noted that it would remain open to the Ontario Securities Commission to consider summoning a respondent to testify as part of its own case. As an administrative tribunal, the CMT is not bound by its own decisions. It is therefore unclear whether the Ontario Securities Commission will attempt to revert to past practice and seek to file excerpts of compelled evidence for use against respondents who elect not to testify, notwithstanding the decision in TeknoScan .
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