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Securities - Securities Act (2). Marrone v. Ontario Securities Commission
In Marrone v. Ontario Securities Commission (Div Court, 2024) the Divisional Court dismissed an appeal from an OSC hearings panel "that he breached his duty as a registered mutual fund salesperson".
Here the court considers whether the OSC has jurisdiction to decide issues of breach of regulations by a separate but related body:Analysis of the Issues
I) Did the Merits Panel lack jurisdiction to make findings concerning breaches of MFDA and IPC Rules?
[20] Mr. Marrone submits that the MFDA had sole jurisdiction to determine questions of breach of its Rules, by virtue of s. 21.1(3) of the Securities Act, which provides:21.1.(3) A recognized self-regulatory organization shall regulate the operations and the standards of practice and business conduct of its members and their representatives in accordance with its by-laws, rules, regulations, polies, procedures, interpretations and practices. [21] Mr. Marrone submits that the Merits Panel’s jurisdiction is limited to only making orders arising from breaches of “Ontario securities law” pursuant to ss. 127 and 127.1 of the Securities Act. He submits that the definition found in section 1 of the Securities Act of “Ontario securities law” does not include rules enacted by self-regulatory organizations such as the MFDA.[3] Thus, he argues that the MFDA is the only body empowered to make findings as to the scope and extent of its rules.
[22] We disagree. First, Ontario securities law as defined includes Commission Rule 31-505, which requires registrants to deal fairly honestly and in good faith with their clients. This was the overarching allegation before the Merits Panel, and it found that Mr. Marrone breached this Rule. He did so by failing to follow MFDA Rules and IPC policies in a manner that the Merits Panel found was serious and that in all the circumstances amounted to a breach of Rule 31-505. The question of his breach of the duty within Rule 31-505 was intertwined with the underlying facts and his obligations under the Rules to which he was subject. This was squarely within the Merits Panel’s jurisdiction.
[23] Second, in what we are told are unusual, if not unique, factual circumstances in this case, the Merits Panel heard evidence that after receiving the complaint about Mr. Marrone’s conduct, the MFDA sought the assistance of the Commission. The MFDA sought that assistance to compel the estates lawyer who drafted the will and POAs to produce MU’s client file. The MFDA did not have the power to compel production of that file. The MFDA and the Commission worked together to address the issues of misconduct before the Merits Panel and the Tribunal.
[24] This choice aligns with the regulatory scheme by which self-regulatory organizations such as the MFDA are “recognized” by the Commission pursuant so s. 21.1(1) of the Securities Act and made subject to terms and conditions imposed by the Commission, as part of its legislative mandate. Further, within that same section, the Commission is specifically empowered to “make any decision, if it is satisfied that to do so would be in the public interest, make any decision with respect of any by-law, rule, regulation, policy, procedure, interpretation or practice of a recognized self-regulatory organization.” This subsection gives the Commission jurisdiction to take the steps it did here as part of its mandate under the Securities Act.
[25] This interpretation of s. 21.1 accords with the purposes of the legislation as defined in s. 1.1 of the Securities Act, which are:(a) to provide protection to investors from unfair, improper or fraudulent practices;
(b) To foster fair, efficient and competitive capital markets and confidence in capital markets;
(b.1) to foster capital formation; and
(c) to contribute to the stability of the financial system and the reduction of systemic risk. [26] In addition, the MFDA’s regulatory functions were governed by the Commission’s Order recognizing the MFDA as an SRO in accordance with ss. 21.1(1) and (2) of the Securities Act. The MFDA Recognition Order is consistent with our finding that the MFDA and the Commission have concurrent and overlapping jurisdiction with respect to the MFDA’s regulatory functions:7. Compliance by Members with MFDA Rules
(A) The MFDA shall enforce, as a matter of contract between itself and its members, compliance by its members and their Approved Persons with the rules of the MFDA and, to assist the Commission with carrying out its regulatory mandate, the MFDA shall cooperate with the Commission in ensuring compliance with applicable securities legislation relating to the operations, standards of practice and business conduct of members and Approved Persons, without prejudice to any action that may be taken by the Commission under securities legislation [Emphasis added]. [27] Further, among the fundamental principles that the Commission is to consider in pursuing these purposes, are the requirements for “the maintenance of high standards of fitness and business conduct to ensure honest and responsible conduct by market participants.”: Securities Act, s. 2.1. 2. By definition, a registrant such as Mr. Marrone is a “market participant”: Securities Act, s. 1(1).
[28] We conclude that none of the purposes, principles or statutory framework suggest that the legislature intended to create a bifurcated, exclusive jurisdiction for a self-regulatory organization (“SRO”) independent of the Commission. This ground of appeal must fail. . Binance Holdings Limited v The Ontario Securities Commission
In Binance Holdings Limited v The Ontario Securities Commission (Div Court, 2023) the Divisional Court reviewed some Securities Act administrative procedures, here were the OSC has issued summons and an investigation order against a cryptocurrency enterprise:The Statutory Framework and the Issues on Judicial Review
[40] This application for judicial review concerns the Investigation Order and Summons. Both are provided for in the Act.
[41] The purpose of the Act, stated in s. 1.1 is,(a) to provide protection to investors from unfair, improper or fraudulent practices;
(b) to foster fair, efficient and competitive capital markets and confidence in capital markets;
(b.1) to foster capital formation; and
(c) to contribute to the stability of the financial system and the reduction of systemic risk. [42] These purposes are informed by a list of principles in s. 2.1 including the principle that “Effective and responsive securities regulation requires timely, open and efficient administration and enforcement of this Act by the Commission.”
[43] The Commission uses investigation orders as a key component of carrying out its duties under the Act. An investigation order may be issued pursuant to s. 11 of the Act, which provides:11 (1) The Commission may, by order, appoint one or more persons to make such investigation with respect to a matter as it considers expedient,
(a) for the due administration of Ontario securities law or the regulation of the capital markets in Ontario; or
(b) to assist in the due administration of the securities or derivatives laws or the regulation of the capital markets in another jurisdiction. 1994, c. 11, s. 358; 2010, c. 26, Sched. 18, s. 4 (1).
Contents of order
(2) An order under this section shall describe the matter to be investigated. 1994, c. 11, s. 358.
Scope of investigation
(3) For the purposes of an investigation under this section, a person appointed to make the investigation may investigate and inquire into,(a) the affairs of the person or company in respect of which the investigation is being made, including any trades, communications, negotiations, transactions, investigations, loans, borrowings or payments to, by, on behalf of, or in relation to or connected with the person or company and any property, assets or things owned, acquired or alienated in whole or in part by the person or company or by any other person or company acting on behalf of or as agent for the person or company; and
(b) the assets at any time held, the liabilities, debts, undertakings and obligations at any time existing, the financial or other conditions at any time prevailing in or in relation to or in connection with the person or company, and any relationship that may at any time exist or have existed between the person or company and any other person or company by reason of investments, commissions promised, secured or paid, interests held or acquired, the loaning or borrowing of money, stock or other property, the transfer, negotiation or holding of stock, interlocking directorates, common control, undue influence or control or any other relationship. 1994, c. 11, s. 358. Right to examine
(4) For the purposes of an investigation under this section, a person appointed to make the investigation may examine any documents or other things, whether they are in the possession or control of the person or company in respect of which the investigation is ordered or of any other person or company. 1994, c. 11, s. 358.
Minister may order investigation
(5) Despite subsection (1), the Minister may, by order, appoint one or more persons to make such investigation as the Minister considers expedient,(a) for the due administration of Ontario securities law or the regulation of the capital markets in Ontario; or
(b) to assist in the due administration of the securities or derivatives laws or the regulation of the capital markets in another jurisdiction. 1994, c. 11, s. 358; 2010, c. 26, Sched. 18, s. 4 (2). Same
(6) A person appointed under subsection (5) has, for the ose of the investigation, the same authority, powers, rights and privileges as a person appointed under subsection (1). 1994, c. 11, s. 358. [44] Once an investigation order is in place, the Commission may issue a summons pursuant to s. 13 of the Act, which reads:Power of investigator or examiner
13 (1) A person making an investigation or examination under section 11 or 12 has the same power to summon and enforce the attendance of any person and to compel him or her to testify on oath or otherwise, and to summon and compel any person or company to produce documents and other things, as is vested in the Superior Court of Justice for the trial of civil actions, and the refusal of a person to attend or to answer questions or of a person or company to produce such documents or other things as are in his, her or its custody or possession makes the person or company liable to be committed for contempt by the Superior Court of Justice as if in breach of an order of that court. 1994, c. 11, s. 358; 2006, c. 19, Sched. C, s. 1 (1).
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