Reasons: Decisons, Orders and Rulings

Transcription

1 Chapter 3 Reasons: Decisons, Orders Rulings 3.1 Reasons Judith Marcella Manning, Timothy Edward Manning, William Douglas Elik, Mary Martha Fritz Jill Christine Bolton COURT FILE NO: 784/95 787/95 ONTARIO COURT OF JUSTICE (GENERAL DIVISION) DIVISIONAL COURT O'DRISCOLL, BORKOVICH, CORBETT JJ. JUDITH MARCELLA MANNING, TIMOTHY EDWARD MANNING, WILLIAM DOUGLAS ELIK MARY MARTHA FRITZ Linda L. Fuerst for the THE ONTARIO SECURITIES COMMISSION James D.G. Douglas Benjamin T. Glustein for the s JILL CHRISTINE BOLTON Appellant THE ONTARIO SECURITIES COMMISSION HEARD: SEPTEMBER 16, 1996 at Toronto October 11, 1996 (1996) 19 OSCB 5557

2 Reasons: Decisions, Orders Rulings O'DRISCOLL J. (ORALLY) In In the Matter of Mithras Management Ltd. et al (1988), 11 OSC 1600 at 1610, the The Ontario Securities Commission, (OSC), during Commission set out the relevant considerations September 1995, held twelve (12) days of hearings during as follows: which the panel heard nineteen (19) witnesses viva voce reviewed the affidavits of five (5) witnesses. The hearing "Under sections 26, [now concerned the Amended Statement of Allegations of the Staff section 127] of the Act, the role of this of the Enforcement Branch of the OSC, dated December 9, Commission is to protect the public 1994; the Amended Notice of Hearing, dated December 9, interest by removing from the capital 1994, set the hearing date for February 27, Besides the markets -- wholly or partially, permanently enumerated grounds set out in the Amended Statement of or temporarily, as the circumstances may Allegations, the following is also found: warrant -- those whose conduct in the past leads us to conclude that their Such further other allegations as staff may conduct in the future may well be advise the Commission may permit. detrimental to the integrity of those capital markets. We are not here to punish past In the Amended Notice of Hearing, there is specific mention of conduct; that is the role of the courts, s. 127(1) 3, of the Securities Act, R.S.O. (1990), c.s.5 (the particularly under Section 118 of the Act); the subsection deals with exemptions. We are here to restrain, as best we can, future conduct that is likely to be None of the evidence called by the staff of the OSC was prejudicial to the public interest in having contested by any appellant; indeed, all parties named capital markets that are both fair absented themselves from the hearings. On November 6, efficient. In so doing we must, of 1995, the OSC released a seventy-seven (77) page decision necessity, look to past conduct as a guide wherein it was found that the appellants had engaged in to whether we believe a person's future numerous abusive sales practices in violation of the Ontario conduct might reasonably be expected to securities law. The OSC found that the appellants had be; we are not prescient, after all. And in indulged in stock manipulation. They had indulged in abusive so doing, we may well conclude that a sales techniques while involved in the Manning sales person's past conduct has been so process this included the use of "qualifiers" "openers", abusive of the capital markets as to "loaders", 'cooling"; it was a "boiler room" operation. The OSC warrant our apprehension found that these appellants made misrepresentations about intervention, even if no particular breach issuers, failed to adequately disclose commissions, failed to of the Act has been made out. Equally, adequately disclose principal selling, failed to adequately however, even if there has been a disclose risks, made representations as to future prices, made technical breach of the Act, we may well representations as to inside information, utilized what is known conclude that, in the circumstances, no in the industry as "wooden orders", failed to comply with "know sanction is necessary to protect the your client" "suitability" requirements, failed to permit public interest. It may well be the rare customers to sell shares, counselled Manning staff to deceive case in which we reach such a the OSC were in breach of their fiduciary duties. There conclusion, but in our view this case (or, were other breaches of the Act: at least, this branch of it) is one of them. Even if the s' modified (i) the appellants failed to establish structure did violate clause 14(g), we are supervise adequate compliance convinced that they would not have procedures as required by subsection adopted it but for the reassurance they 114(1) of the Regulation; gained ( reasonably so, in our view) from what they said Mr. Steen told them. (ii) the appellants failed to issue monthly Accordingly, there is no basis upon which statements as required by subsection 123 we can fairly say that the public interest of the Regulation. requires us to intervene here. I think it is fair to say that a reading of the reasons of Similarly, in In the Matter of Gregory the OSC indicates that the panel found the conduct of the McGroarty et al (1990), 13 OSCB 3887 at 3934, appellants was egregious. the Commission stated: The panel of the OSC concluded is decision as follows: "we would say first that this present proceeding is not, as respondent's Imposition of Sanctions counsel seemed to characterize it, the trial of a provincial or criminal offence in Like the panel in Trend, we have no doubt which the prosecutor must make out whatsoever that the conduct complained of in every element of the offence charged fact occurred. The question which must then be before a conviction can be registered. determined is whether sanctions are appropriate Ours is an administrative proceeding, the, if so, what the sanctions should be. focus of which is the protection of the October 11, 1996 (1996) 19 OSCB 5558

3 Reasons: Decisions, Orders Rulings public not the punishment of an Ted Manning Fritz under individual." Ontario securities law be terminated. We agree with these statements. Like in the panel in Mithras, we are not prescient. The b. the registration granted to Bolton only way in which we can realistically look at the under Ontario securities law be question of what may happen in the future in a suspended for the period of ten case of this sort is to consider what the actions years. of the s have been in the past. On the evidence, we are satisfied that it is C. the registration granted to Finance necessary to impose sanctions under clauses under Ontario securities law be 127(1) 1. I. To permit the conduct of the suspended for the period of five s to continue would be to seriously years; detract from the credibility of the capital markets in Ontario, as well as to permit investors to d. the exemptions contained in continue to be victimized. Ontario securities law do not apply to the s named in a. There has been a lengthy continuous permanently, to Bolton for the course of conduct by Manning which exhibited a period of ten years to Finance complete callous disregard for Ontario for the period of five years; securities law, the obligations of a registrant, the interests of the investing public in particular in this order, "Ontario securities law" has the the customers who Manning was supposed to be meaning ascribed to that term in the Act. serving, the capital markets of this Province, even common decency. The Commission has The statutory jurisdiction of the OSC to make an order been advised that Manning filed an assignment terminating registration /or an order removing the in bankruptcy on October 6, However, the exemptions contained in Ontario securities law for individuals deficiency shown by its Statement of Affairs is a when the OSC is of the view that it is in the public interest to relatively small one, a company which goes do so, is found in s. 127(1) of the Act. into bankruptcy can come out of it. s.127(1): The Commission may make one or more Manning's actions were directed by its of the following orders if in its opinion it is officers, Judith Manning, Elik Fritz, as well in the public interest to make the order or as by Ted Manning, each of whom, in addition, orders; was guilty of other serious personal behaviour which would, itself, justify the 1. An order that the imposition of the most serious sanctions by us to registration or recognition protect the investing public the capital granted to a person or markets of this Province, company under Ontario securities law be Bolton aided assisted in the carrying suspended or restricted for on of these operations, as did Finance, to a such period as is specified lesser but still serious extent, each was, in in the order or be addition, guilty of other serious personal terminated, or that terms behaviour which would, itself, justify, the conditions be imposed imposition of sanctions by us to protect the on the registration or investing public the capital markets of this recognition. Province. 3. An order that any Unless the s are removed exemptions contained in from the capital markets, then based on their Ontario securities law do past performance there is, in our view, every not apply to a person or reason to believe that they will continue to act in company permanently or the same manner, in the case of the individual for such period as is s, however, probably carrying on specified in the order. their activities through another dealer. Under s. 9 of the Act, the appellants appeal to this court from The Staff has made out its case that it is the s. 127(1) 3 order of the OSC removing their exemptions in the public interest for us to make the following under Ontario's securities law. The only issue before this court orders. is whether the OSC, on the evidence, properly exercised its discretion to remove the appellants' exemptions. The grounds Accordingly, we order that: of appeal are: a. the registration granted to each of (1) Whether the Commission erred in law or Manning, Judith Manning, Elik, in principle in removing the ' October 11, 1996 (1996) 19 OSCB 5559

4 Reasons: Decisions, Orders Rulings exemptions under Ontario securities law in addition to the removal of their registration; (2) In the alternative, whether the Commission erred in law or principle (a) (b) in making a blanket order removing all exemptions contained in Ontario securities law; or in failing to consider whether it was in the public interest to remove from the some, rather than all, of the exemptions contained in Ontario securities law. In Pezim v. British Columbia (Su perintendent of Brokers, [1994]2 S.C.R. 557, 589, 591,609, lacobucci J., for the court, spoke of the courts giving curial deference to decisions of a securities commission, decisions which go to the core of its regulatory mate expertise even where a statutory right of appeal exists. Many parts of the judgment were read to us during the course of the submissions; I refer to three ecerpts: [S]ecurities regulation is a highly specialized activity which requires specific knowledge expertise in what have become complex essential capital financial markets. Consequently, even where there is no privative clause where there is a statutory right of appeal, the concept of specialization of duties requires that deference be shown to decisions of specialized tribunals on matters which fall squarely within the tribunal's expertise. The majority of the Court of Appeal [of British Columbia] erred in failing to appreciate the Commission's role in an area requiring special knowledge sophistication. It also failed to recognize the Legislature's intent to confer a broad public interest mate on the Commission to carry out its role. We are not persuaded that there is any ground upon which to reverse or interfere with the decision of the OSC. We find that the OSC acted in good faith. We find that the OSC acted in accordance with the objects of the Act. The mate of the OSC is both to protect the investing public protect the integrity of capital markets. Section 1.1 of the Act states: The purposes of this Act are (S.C. of Q. We find that considerable deference must be given to the impugned decision orders of the OSC because of the its expertise in that area because the matters it was deciding came squarely within its expertise. We find that under s. 127(1) 3 of the Act, the OSC'S power to remove "any" exemption includes the power to remove "all" exemptions the OSC is not required to give individual consideration as to whether each exemption applies to a particular appellant. [See: Aer Lin gus (1990), 68 D.L.R. (4th) 220, 225,' (Fed. C.A.) per Heald J.A.]. In our view, the amendment to s.127 of the Actfrom the predecessor, where the OSC had the power to remove "any or all" of the exemptions, to the present wording of s. 127 where the OSC has the power to remove "any" of the exemptions, is entirely consistent with the inclusive definition of the term "any" in no way restricts the ability of the OSC to remove all exemptions without an individual consideration of each exemption. We agree with paragraphs of the 's Factum: 47. There is no right of any individual to participate in the capital markets in Ontario. Section 35 of the Act provides certain exemptions which allow individuals to make certain trades without being registered, however the OSC has explicit jurisdiction to remove the exemptions if an individual engages in conduct contrary to the letter or spirit of the Act, whether such conduct causes damage to investors or is detrimental to the integrity of the capital markets. The OSC found that such conduct existed on the facts of the present case. 48. The OSC exercised its public interest discretion in a manner within the core of its regulatory jurisdiction. Its decision was based on voluminous evidence, made in good faith, for the purposes of the Act on the basis of relevant factors. It is a matter that falls within the OSC's exclusive jurisdiction one with which the Court should not interfere. The removal of the exemptions of the appellants, in our view, falls within the OSC's exclusive jurisdiction. On this record, we are not persuaded that there is any basis upon which to interfere. In the result, the appeals are dismissed. O'DRISCOLL J. (a) to provide protection to investors from unfair, improper or fraudulent practices; BORKOVICH J. (b) to foster fair efficient capital markets confidence in capital markets We find that the Commission considered all relevant factors in making its decision. [See: Ma ple Lodge Farms Ltd. Government of Canada et al (1982), 137 D.L.R. (3d) 558, 562; Released: October 2, 1996 CORBETT J. October 11, 1996 (1996) 19 OSCB 5560

5 Reasons: Decisions, Orders Rulings ONTARIO COURT OF JUSTICE (GENERAL DIVISION) DIVISIONAL COURT COURT FILE NO: 784/95 787/95 O'DRISCOLL, BORKOVICH, CORBETT JJ. JUDITH MARCELLA MANNING, TIMOTHY EDWARD MANNING, WILLIAM DOUGLAS ELIK MARY MARTHA FRITZ THE ONTARIO SECURITIES COMMISSION JILL CHRISTINE BOLTON Appellant THE ONTARIO SECURITIES COMMISSION ORAL JUDGMENT O'DRISCOLL J. RELEASED: OCTOBER 2, 1996 October 11, 1996 (1996) 19 OSCB 5561