Supreme Court defers to BCSC in trading ban case

The top court held that the B.C. commission’s interpretation that the limitation period started when it learned of the Ontario proceedings, rather than when the misconduct took place, was “a reasonable one because it furthers the legislature’s manifest goal of improving interprovincial cooperation [among securities regulators].”

Chris Wirth, a lawyer at Stockwoods who represented McLean, said the decision is notable for the investment industry, because it gives tribunals more latitude. “When they [regulators] are considering issues or questions of law that flow from the interpretation of their home statute, the court is going to give them a fair bit of latitude as long as the decision fits into the definition of what’s reasonable.”

Wirth warned that the ruling “hasn’t foreclosed the ability of securities commissions to go after people years down the road. That door has been left open.”

McLean, a former registered representative with the now-defunct Rampart Securities Inc. and director of Hucamp Mines Ltd., which traded on the Canadian Dealer Network, argued that the six-year limitation period in the B.C. Securities Act barred the commission from taking action against her.

McLean originally found herself the subject of an OSC hearing in July 2005, stemming from a number of private placements involving Hucamp in 2000 and 2001. The company was delisted in 2002. The OSC hearing notice included John Illidge, CEO of Hucamp and director of Rampart Mercantile Inc., the parent of Rampart, and David Cathcart, a registered representative at Rampart between 1999 and August 2001, as well as Toronto lawyer Devendranauth Misir and investor relations consultant, Stafford Kelley.

The irony is that McLean, who resigned from Rampart in February 2001, voluntarily went to the OSC in July 2001, raising concerns about improper activity at the miner, including concerns over the 2000 financial statements: as a result, many have referred to her as a whistleblower. According to the statement of facts, she met with the OSC in August 2001 and in January 2005 she provided commission staff with “a lengthy letter and a large binder of exhibits addressing their concerns regarding certain possible improper actions at Hucamp.”

In September 2008, McLean entered a settlement agreement with the OSC, acknowledging that she engaged in “conduct that was contrary to the public interest.” According to the agreed statement of facts, McLean, who denied admitting to any misconduct or wrongdoing, authorized erroneous press releases and her trading accounts “were used in connection with abusive trading practices” in Hucamp shares, including jitney trades, high closings and creating the appearance of high-volume trading.

In January 2010, the BCSC commenced an enforcement proceeding against McLean under s. 161(6)(d) of the B.C. Securities Act, on the basis that McLean agreed to sanctions with the OSC, and that order, which mirrored the Ontario order, was granted in May 2010. Under the various provincial securities laws, a commission can seek its own order when another regulator or court has imposed sanctions or restrictions on a person or when someone has agreed to be subject to sanctions or convicted of a securities offence.

McLean fought the commission’s ruling, arguing that the six-year limitation period set out in s. 159 should have applied to the date that the events took place, which was 2001, and not when the B.C. commission learned about the Ontario settlement in 2008. As such, she argued, B.C. was barred from taking any action after 2007. She also argued that the commission failed to issue written reasons.

The B.C. Court of Appeal dismissed the limitations argument, but agreed that the commission had to issue reasons, otherwise it “may have fettered its discretion by ‘merely reciprocally enforcing the Ontario order.'” (See Investment Executive, Court overturns BCSC reciprocal enforcement order, November 16, 2011.)

The appeal court directed the commission to provide a “short brief explanation of why an order is in the public interest.” The commission issued that in February 2012 and McLean appealed the limitation ruling to the Supreme Court.

McLean’s lawyers argued that the six-year limitation provision in s.159 applied to the conduct that was contrary to the public interest, and not when a regulator learned about it. The latter interpretation, the lawyers, argued in their legal brief, would undermine the limitation period’s purpose, because each adverse finding or settlement would “restart the limitation period clock in every other jurisdiction” and with 12 commissions “a person could be subject to serial proceedings for 74 years.”

Lawyers for the B.C. commission, however, argued that limiting the six-year period to the events that led to the sanctions “would defeat the purpose” of s. 161(6) of the legislation,” which allows a commission to seek a protective order based on an order issued by another commission, known as a secondary proceeding. “Persons who agree to market prohibitions in Ontario should know they may be similarly prohibited from participating in those activities in other provinces,” the commission’s lawyers wrote in their legal brief.

Justice Michael Moldaver wrote, “the difficulty with the appellant’s approach is that if each province and territory has to initiate proceedings before its limitations clock runs out — instead of relying on the outcome of the proceedings in the primary jurisdiction — overlapping cases would clog up the legal system and overburden the securities commissions. A multiplicity of simultaneous proceedings would also place a high burden on the target of the proceedings, who could well face multiple proceedings all across the country, all needing to be defended simultaneously.”

The court acknowledged the dangers of the commission’s interpretation, because it “significantly extends the duration of time for which a person may be subject to regulatory action,” and also noted that, “authorities will always want more time to go after law-breakers, but fairness demands their chase eventually come to an end.”

Moreover, the court said that other security commissions could interpret their limitation period differently, but that’s a “function of our Constitution’s federalist structure — not the administrative law standards of review.”

The decision also notes that, in administrative law matters, courts need to defer to the expertise of commissions, “because the choice between multiple reasonable interpretations will often involve policy considerations that we presume the legislature desired the administrative decision maker — not the courts — to make.”