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OSC – Proposed process for distributing disgorged funds to harmed investors

Letter Summary:

The Ontario Securities Commission (OSC) published for comment a rule proposal that would establish a new process for returning money to harmed investors.

The proposed process would apply when disgorgement is ordered in an enforcement proceeding before the Capital Markets Tribunal or the Ontario Superior Court of Justice and the OSC receives sufficient funds to make a distribution feasible.

The OSC is publishing the rule proposal to address recent legislative amendments to the Ontario Securities Act, the Commodity Futures Act, and the Securities Commission Act, 2021. Upon proclamation, the legislative amendments will create a statutory framework for the distribution of money received by the OSC under disgorgement orders. 

Overview of the Council’s Comments:

The Ontario Securities Commission (OSC) published for comment a rule proposal that would establish a new process for returning money to harmed investors – known as disgorgement.

The proposed process would apply when disgorgement is ordered in an enforcement proceeding before the Capital Markets Tribunal or the Ontario Superior Court of Justice and the OSC receives sufficient funds to make a distribution feasible.

The CAC expressed their support for the proposed rules, particularly:

•           The OSC’s ability to distribute funds without a court-appointed administrator in certain cases

•           The potential for a more efficient and timely process for harmed investors

•           Consideration of other jurisdictions’ frameworks in developing the rules

• Allowing investors to also seek redress through civil claims or OBSI complaints, without necessarily impacting their rights to seek disgorged amounts

The CAC offered several suggestions to the OSC to enhance the proposed framework around collection and distribution, including:

•           Consider taking on a larger role in distributions to save third-party administrative costs

•           Consult with organizations like the Ombudsman for Banking Services and Investments (OBSI) for expertise in claims adjudication

•           Provide published notice with reasons if the OSC decides not to distribute funds due to cost concerns

•           Set a high threshold for deciding against funds distribution

Regarding notice to harmed investors, the CAC advises that the OSC:

•           Expand beyond website postings to direct notification of potential claimants

•           Implement a notice delivery obligation when investor information is available

•           Amplify awareness through investor protection clinics and outreach initiatives