A regulatory hearing panel mishandled allegations of abuse of process from the target of an insider trading investigation, a British Columbia court ruled. It ordered that a new panel should hear the case.
The Court of Appeal for B.C. unanimously upheld an appeal brought by Mark Morabito, former chair of Canada Jetlines Ltd. (now Global Crossing Airlines Group Inc.), of a decision from a B.C. Securities Commission (BCSC) hearing panel.
In 2018, the BCSC launched an insider trading investigation into a transaction by Morabito, after he transferred shares to his spouse and reported the trade to regulators. In 2021, the regulator filed enforcement allegations against him, alleging that the trade violated insider trading rules. Those allegations have not been proven.
In 2023, Morabito sought a stay of the BCSC’s proceedings against him, alleging that they amounted to an abuse of process. A BCSC hearing panel dismissed that application, and Morabito then appealed that decision to the courts.
Last December, the court granted leave to appeal, and it has now sided with Morabito. It ruled that the regulatory hearing panel was wrong when it held a “blended hearing” into the BCSC’s insider trading allegations, alongside the abuse of process claims from Morabito and his application for a stay.
“The result was that the appellants were prevented from advancing their abuse of process claims and exploring legitimate avenues of cross-examination relevant to the allegations they raised,” the court said.
Those allegations include claims that the regulator overstepped in its investigation; failed to disclose that a key witness who has since died (the company’s former chief executive officer) was diagnosed with a terminal illness and couldn’t be cross-examined; and that they were prevented from cross-examining the regulator’s investigators.
The claims of abuse of process were rejected, along with the application for a stay of the proceedings, by the original BCSC panel.
According to the court’s decision, on appeal, Morabito argued that the panel made multiple errors in its decision and the process it followed, which prevented them from providing evidence to support their claims.
The BCSC defended the panel’s decision and its procedure, arguing that any flaws in the procedure was due to the appellants’ legal tactics.
However, the court ruled that the structure of the hearing was unfair, and violated the rules of procedural fairness on two grounds. The panel didn’t allow Morabito to cross-examine BCSC investigators about evidence related to their abuse of process claims, it said. And, it found that the use of a “blended” hearing was fundamentally flawed.
“The executive director was to tender their evidence to prove the substantive charges against the appellants. At the same hearing, the appellants were to elicit evidence to prove their abuse of process claims. The two tasks were incompatible, in part because of the conflicting burdens of proof,” the court said — adding that this approach was, “ill-suited to a fair determination of the abuse of process claim.”
While Morabito asked the court to rule that an abuse of process had occurred, and for the enforcement case to be stayed, the court rejected that proposal and sent the case back to the BCSC for the stay application to be considered by a new hearing panel.
“[A] stay of proceedings is reserved for the clearest of cases,” it said. “If an abuse of process is found, the hearing panel can fashion the appropriate remedy informed by a fulsome evidentiary record.”