If you are a director, officer, auditor, or even an employee of a public corporation, one day you could receive an official letter from a Securities Commission ("Commission"). In Alberta the letter would most likely be from the Alberta Securities Commission. If the public company trades on a U.S. exchange, you may also receive a letter from the Securities and Exchange Commission ("SEC"), which regulates trading of public securities in the United States.
The first thing that you should do upon receiving any such letter is seek legal advice. Responding to official inquiries from Commissions is a serious matter. If the responses are not complete or misleading, then you could be facing a separate charge under the relevant Securities Act for failing to comply with the Act or regulations.
Disclosure Inquiry Letters
These letters typically raise questions about the public disclosure or nondisclosure of information, events or documents by the corporation. When these letters are received they should be disclosed immediately to the corporation's auditors and the corporation's lawyers. A response should be drafted with the assistance of the external auditors and legal advisors. Drafts of the response letter should be marked "privileged and confidential." There should be sign-off by the external auditors and legal counsel on the final letter before it goes to the Commission.
Confidential Nature of the Investigation
Where the Commission decides to proceed with an investigation, the Director of Enforcement will issue an Investigative Order. The Order outlines the scope of the investigation and the persons who are appointed to complete the investigation.
Under section 45 of the Alberta Securities Act, all information or evidence obtained pursuant to an investigation is confidential. However, the Securities Act does permit disclosure to corporate counsel and where authorized by the Executive Director of the Commission. Further, the Commission will provide the Investigative Order to external counsel on strict confidentiality terms that limits disclosure of the Order.
If the public corporation trades on a US exchange, the SEC may also commence investigations. The initial letter received from the SEC is known as a "voluntary disclosure letter." Unlike investigations by the Alberta and Ontario Securities Commissions, there is no requirement of confidentiality imposed by the SEC about the fact of an investigation or the voluntary disclosure letter.
Claims of Privilege
Where Commissions are investigating public corporations it is often the case that the corporations are in financial difficulty. For example, there may be CCAA proceedings that are underway, bankruptcy proceedings or a receivership. Further, there are often class actions against the company for alleged misrepresentations which are typically brought under the provisions of the Securities Act.
Where a Commission investigation is concurrent with ongoing litigation, all parties must be vigilant about not providing commissions with documents over the corporation, or other parties, may be claiming privilege. Trying to address potential privilege claims can be challenging. Again, it is highly recommended that the corporation seek the consent of the Director of Enforcement to allow limited disclosure to attempt to deal with such privileged claims.
Production of Documents and Examination
Under section 42 of the Alberta Securities Act, the ASC may require an individual or corporation to produce all relevant documents. The order to produce documents is often very broad in scope. In our experience, however, the Commission is quite prepared to identify sections of working papers or time periods in which it is particularly interested. This can significantly limit the documents which are required to be provided to the Commission in response to the subpoena, summons or voluntary disclosure letter.
Once documents have been produced, the Commission may require an individual to attend before the Commission to be examined under oath. It is open for the individual to attend represented by counsel. However, neither the examined party nor the lawyer will receive a copy of the transcript made at the examination unless the Commission later calls the individual as a witness.
Conclusion
Securities Commissions are continually increasing their activities surrounding enforcement of the Securities Act. Therefore, it is increasingly common that public corporations, their directors, employees, and auditors receive letters from securities Commissions. Where inquiry letters or notices from securities Commissions are received, it is prudent for all persons to seek experienced legal counsel to assist in responding appropriately.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
