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Securities - Enforcement. Binance Holdings Limited v. Ontario Securities Commission
In Binance Holdings Limited v. Ontario Securities Commission (Div Court, 2023) the Divisional Court considered a JR against a Capital Markets Tribunal (CMT) decision that it lacked jurisdiction to order the revocation of an "(i)nvestigation Order under s. 144(1) of the Securities Act" (which was initiated "under s. 11(1)(a) of the Securities Act, R.S.O. 1990, c. S.5").
In these quotes, the court considers whether an enforcement 'undertaking', negotiated between the OSC and the JR applicant (and entered into before the CMT investigation order) operated to bar such an order. Under the specific terms of the undertaking in this case it didn't bar statutory orders, but these passages are an interesting illustration of how 'undertakings' in this situation are essentially treated as a settlement contract as an enforcement technique:(1) Whether the Investigation Order and Summons are foreclosed by the Undertaking
[34] Binance describes the Undertaking as a settlement and submits that, due to its terms, the OSC cannot pursue the investigation. In turn, Binance submits as follows:(i) that the Investigation Order is an abuse of process and is also precluded by issue estoppel; and,
(ii) that the monitoring terms of the Undertaking do not permit the investigation. [35] If the Investigation Order should be quashed, as submitted by Binance, the Summons issued under it must also be quashed.
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[39] Binance submits that it would be manifestly unfair and contrary to the interests of justice to permit the investigation to proceed given the agreement made in the Undertaking. An ample record has been put forward regarding the events surrounding the making of the Undertaking and steps taken under it.
[40] The issues raised by Binance relate to the wording of the Undertaking, and whether or not it precludes the Investigation Order. Binance’s characterization of the Undertaking as a “settlement” does not materially change the analysis. If the Undertaking precludes the Investigation Order, the Order should be quashed in this case.
[41] The Undertaking has an express reservation of rights. In the Undertaking, the OSC and OSC Staff expressly retained “the right to bring enforcement proceedings or seek temporary orders” “for any past, present or future conduct contrary to the Act or the public interest”, with an exception. This reservation of rights is obviously broad. Binance must show that the Investigation Order falls within the exception.
[42] The exception precludes enforcement proceedings or temporary orders “arising from the facts set out …in the ‘Facts’ section” of the Undertaking so long as Binance “remains in compliance with the Undertaking and, has not made any misrepresentations to Staff in respect of the Undertaking”. In addition, the Undertaking provides “for certainty” that the OSC and OSC Staff may bring enforcement proceedings or seek temporary orders for “any breach” of the Undertaking or “any misrepresentation made to OSC Staff” in respect of the Undertaking.
[43] Binance submits that the Investigation Order does arise from the facts set out in the “Facts” section of the Undertaking. Paragraph 1 of the Investigation Order sets out a lengthy series of statements. There is an overlap between those statements and the “Facts” in the Undertaking. However, paragraph 1 must be read in its entirety. It set out a chronology of events and went well beyond the overlap include material matters. Paragraph 1 included, for example, these statements of fact that do not form part of the “Facts” section of the Undertaking:(i) that Binance operated and continues to operate the crypto currency trading platform [website] through which it offers clients the ability to trade in products that include crypto assets, instruments and contracts, described as Security Tokens and Crypto Contracts;
(ii) that Ontarians traded Security Tokens and Crypto Contracts on the Binance trading platform and, since the Undertaking was given, the Binance trading platform continued to have a significant presence in Ontario;
(iii) that Binance had never been registered with the OSC, had no exemption from registration, had not filed a prospectus, and had no exemption from the prospectus requirement; and,
(iv) that on March 27, 2023, the CFTC Complaint was filed again Binance and others, including allegations that Binance and others had taken steps to circumvent U.S. regulatory requirements and relevant compliance controls. [44] Reading the entirety of paragraph 1, along with the entirety of the Undertaking, we do not conclude that the Undertaking precludes the Investigation Order because of the overlap relied upon by Binance. The statements of fact in the Investigation Order go well beyond and include that above serious factual statements, giving rise the investigation.
[45] Further, even that part of the exception to the reservation of rights in the Undertaking did apply, it must be read along with the rest of the exception to the reservation of rights. The exception also does not apply where Binance has made a misrepresentation to Staff in relation to the Undertaking. The Investigation Order includes an allegation that Binance has made misleading statements to the OSC.
[46] Binance submits that this Court should have regard for evidence about the circumstances surrounding the Undertaking in interpreting the Undertaking. That evidence includes, for example, the draft notice of application for a cease trading order and dialogue with OSC Staff. The OSC disagrees. We find, as submitted by the OSC, that the Undertaking is clear and that, in any event, the surrounding circumstances support the OSC’s position on interpretation.
[47] Binance further submits that the reporting requirements in the Undertaking were intended to be comprehensive, precluding any additional monitoring mechanisms such as the Investigation Order or the Summons. Again, the words of Undertaking and its reservation of rights do not support this submission.
[48] The Undertaking contains an express, broad, reservation of rights, under which the OSC retained the right to bring enforcement proceedings for any past, present or future conduct contrary to the Act or the public interest. The exception to that reservation does not apply here. Binance has not shown that the Investigation Order is precluded by the Undertaking, let alone that it is an abuse of process.
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[50] The Investigation Order will therefore not be quashed. ...
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