Canada: Proposed Reforms to Ontario Securities Laws

Article by Dennis Lopes (Associate) and Jonathan Lampe (Partner)

In a speech on October 10, 2002, the Ontario Finance Minister, Janet Ecker, announced proposed reforms to Ontario securities laws that would increase the accountability of senior executives with respect to their companies’ public disclosure and the penalties that could be imposed by the Ontario Securities Commission for breaches of those standards and other misconduct. The proposed reforms appear to be a response to the recent corporate scandals that have shaken public confidence in the capital markets and an apparent effort to keep Ontario securities law in line with the standards received in the United States as a result of the Sarbanes-Oxley Act of 2002.

Although the reforms have not been detailed in any written materials Minister Ecker indicated in her speech that they will include amendments to Ontario’s legislation that would:

• Authorize the Ontario Securities Commission to impose fines of up to $1 million for breaches of Ontario securities laws.
• Increase the maximum fines for violations of Ontario securities laws processed in the criminal courts from $1 million to $5 million.
• Create a new class of penalties that could require violators of Ontario securities laws to repay any profit arising from their illegal conduct.
• Increase the maximum penalty for insider trading from the greater of $1,000,000 or triple the profit made or loss avoided to the greater of $5,000,000 or triple the profit made or loss avoided.
• Increase the maximum prison sentences for violations of Ontario securities laws from two years to five years, which could result in those sentenced to prison terms exceeding two years serving their time in a federal penitentiary instead of a provincial jail.
• Prescribe certain new offences such as "securities fraud" and "market manipulation".
• Authorize the Commission to require chief executive officers to certify their company’s financial statements (following Sarbanes-Oxley).
• Authorize the Commission to establish detailed rules concerning the composition and function of audit committees.

Draft legislation has not been released, nor has Minister Ecker or the Commission issued a formal written statement on the proposed changes. Calls to Minister Ecker’s office and the Commission have confirmed that additional details regarding the reforms are not available at this time. According to the Minister’s staff, a formal press release and draft legislation likely will be released concurrent with the Fall budget bill.