The British Columbia Court of Appeal has shot down an attempt by the B.C. Securities Commission (BCSC) to impose a reciprocal order echoing a trading ban that was handed down by the U.S. Securities and Exchange Commission (SEC).
The B.C. Court of Appeal has allowed the appeal of two brothers, Scott and Brian Lines, who entered settlement agreements with the SEC in September 2010 concerning allegations that were brought against them in late 2007. Among the sanctions they agreed to, while not admitting or denying the SEC’s allegations, were bans on trading penny stocks. In April, the BCSC issued a reciprocal order imposing bans on trading securities in B.C., too.
According to the appeal court decision, the Lines appealed the order on various grounds, including that in the absence of evidence (or admissions) of wrongdoing, the BCSC did not have an evidentiary basis to impose an order substantially more onerous than the orders they ‘voluntarily’ agreed to with the SEC. The appeal court agreed with them.
The appeal court found that while the practice of issuing reciprocal orders based solely on the fact that sanctions were handed down in other provinces makes sense within the Canadian regulatory system, it does not when the basis for the order is a U.S settlement that includes no admissions (noting that these sorts of settlements are often reached in the U.S. and are likely to be introduced in Canada, too).
The appeal court says that the BCSC order imposes a severe sanction on the two men for entering into a settlement agreement in which no wrongdoing was admitted. “The evidence relied on did not, and could not, justify the more onerous order,” it said.
The decision says that it’s not that the commission can never impose this sort of sanction, but that “justice… transparency and intelligibility” require that it have evidence or an admission of a defendant’s wrongdoing, and that the defendant be allowed to challenge the evidence at a hearing, before such an order could reasonably be made.