The Ontario Securities Commission (OSC) is to consider its first-ever no contest settlement, involving accounting firm, Ernst & Young LLP, and two cases of alleged audit failures.

The OSC issued a notice Friday indicating that it will hold a hearing on September 30 to consider a proposed settlement with E&Y, which faces allegations that its audits of two, now-bankrupt Chinese issuers, Sino-Forest and Zungui Haixi Corp., fell short of Canadian standards and violated securities laws as a result.

Back in 2012, the OSC brought allegations against E&Y alleging that it violated securities laws by failing to conduct audits of Sino-Forest “in accordance with relevant industry standards”, and by attesting that its audits were in compliance with audit standards.

Specifically, the commission alleged that the firm failed to verify Sino-Forest’s ownership of its most significant assets; failed to verify the existence of those assets; and, failed to display “a sufficient level of professional skepticism” in its audit of the Chinese forestry firm.

The, in 2013, the commission again alleged that the firm’s audit of Zungui, ahead of its initial public offering, was deficient as well. It said that auditors ignored red flags in the company’s financials and failed to conduct a sufficient review of the audit evidence; thereby violating audit standards and securities laws.

The allegations have not been proven in either case. Instead, the commission indicated Fridayd that it will hold a hearing to consider a settlement that would resolve both cases.

The contents of settlement agreements are not generally disclosed until the commission approves a proposed agreement between its staff and the respondent in the case; although the notice does indicate that the settlement “was entered into on a no contest basis”.

The OSC only recently decided to start allowing settlements that don’t include admissions of wrongdoing, in the hope that this will speed up the settlement process specifically, and enhance enforcement generally. The decision was controversial with plaintiffs lawyers and investor ad vocates who worry that it could make it easier for firms to escape civil liability if they can resolve regulatory allegations without making admissions. (See OSC proceeding with no contest settlements, investmentexecutive.com, March 11, 2014.)