Securities Commission confirms statutory confidentiality provisions apply to Staff and witnesses

A hearing panel of the Ontario Securities Commission (the Commission) held that Staff improperly disclosed testimony of a compelled witness in its pursuit of a judicial remedy contrary to the Securities Act (the Act). In a unique decision [PDF] released on March 30, 2022, an adjudicative panel of the Commission (the Commission Panel) found that Staff cannot publicly disclose compelled evidence, or other similarly protected materials, in the context of a receivership application without first obtaining an order under section 17 of the Act authorizing such disclosure.

Background

On September 11, 2020, the Commission issued an order under section 11 of the Act authorizing the investigation relating to Bridging Finance Inc. (Bridging). As part of that investigation, David Sharpe (Sharpe), who at the time was the CEO of Bridging, apparently was compelled to attend a series of investigative interviews pursuant to a summons issued under section 13 of the Act. Following the final interview of Sharpe in April 2021, Staff commenced an application in the Ontario Superior Court of Justice under section 129 of the Act for the appointment of PwC as a receiver and manager of Bridging.

In support of its application for a receivership order, Staff made two public disclosures of Sharpe’s compelled testimony. On April 30, 2021, Staff filed Sharpe’s compelled testimony as part of its application record. The following day, on May 1, 2021, Staff published a news release announcing the appointment of the receiver. This news release included a link to the receiver’s website on which the application record — including the compelled testimony — was posted.

Section 16(1) of the Act provides that no person or company shall disclose, among other things, any testimony provided pursuant to a section 13 summons. Section 16(2) states that all testimony provided under section 13 is for the exclusive use of the Commission, and “shall not be disclosed or produced to any other person or company or in any other proceeding except in accordance with subsection (1.1) or section 17.” Section 17 permits the Commission to make an order authorizing the disclosure of testimony given under section 13. Section 17(2) provides that no such order shall be made except, where practicable, after giving notice and an opportunity to be heard to the person who gave the testimony.

Staff did not seek an order under section 17 of the Act authorizing such disclosure, nor was any notice provided to Sharpe of this course of action.

By application to the Commission Panel dated September 22, 2021, Sharpe sought an order revoking or varying the section 11 order against Bridging.

The hearing

During the December 16, 2021 hearing, the Commission Panel heard submissions on two questions:

1. Can Staff publicly disclose compelled evidence obtained under a section 11 order to support its application to the Court to appoint a receiver without first obtaining a section 17 order?
2. If the answer to the first question is no, is revocation or variation of the section 11 order an available remedy?

On the first question, the Applicant argued that the legislature intended that disclosure be carried out through section 17 of the Act (as paraphrased above). In short, as argued by the Applicant, section 17 exists to allow Staff to bring an application to disclose compelled evidence where it would be a reasonable incursion on the privacy and confidentiality of the compelled witness.

In response, Staff took the position that there is nothing expressly included in the language of section 16 (as paraphrased above) that suggests that the legislature intended to restrict the use and disclosure of compelled evidence by Staff. Rather, Staff argued that the Act states that testimony under section 13 is for the exclusive use of the Commission, with restrictions on available uses flowing exclusively from the Commission’s mandate and statutory authorities. Given that section 129 authorizes Staff to apply to the Superior Court for a receivership order, the permission for using compelled evidence is part of the encompassing scheme.

Turning to the second question, the Applicant argued that section 144 of the Act, which allows the Commission to make an order revoking or varying a decision of the Commission if the order would not be prejudicial to the public interest, exists to allow the Tribunal to vary or revoke a section 11 order if new facts emerge that make revocation or variation desirable. From Sharpe’s position, Staff’s improper disclosure met that threshold. Conversely, Staff argued that Sharpe had not met the test under section 144, emphasizing that the alleged improper disclosure was unrelated to the legality of obtaining the section 11 order.

The decision

The Commission Panel found that Staff acted contrary to the Act by disclosing compelled evidence without first obtaining an order under section 17(1). The Commission Panel rejected Staff’s submission that the prohibition in section 16(1) was inapplicable to the Commission. In addition, the Commission Panel held that the language in section 16(2) limits, rather than expands, the use that can be made of compelled evidence. In considering the Act, the Commission Panel noted that both sections 16(1) and 16(2) provide three exceptions to the prohibition against disclosure, all of which are contained in section 17. Disclosure may be made

• pursuant to an order of the Tribunal under section 17(1)
• pursuant to an order of a court having jurisdiction over a prosecution under the Provincial Offences Act initiated by the commission (section 17(5))
• in connection with an existing or contemplated proceeding before the Tribunal or before certain designated Staff by a person appointed under section 11 as an investigator (section 17(6))

The Commission’s authority to issue an order under section 17(1) is subject to two limitations: reasonable notice must be given to the person who provided the compelled evidence and the Tribunal must determine it is in the public interest to make the disclosure.

As Staff did not seek an order under section 17(1), the Applicant was not provided with sufficient notice of the disclosure, nor an opportunity to make responding submissions. Rather, the Commission Panel stated that Staff made its own independent decision about the appropriate level of disclosure, thereby failing to consider whether the public disclosure might violate Sharpe’s privacy interests before filing its materials. This process effectively bypassed any Tribunal oversight, and thus failed to appropriately consider the public interest.

Turning to privacy interests, the Commission Panel held that Staff’s actions were contrary to Sharpe’s reasonable expectations of privacy. While the Commission, and by practice its staff, indeed possesses broad and extensive powers of compulsion, these powers contain a corresponding obligation to maintain all compelled evidence in the “highest degree of confidence.” In fact, it was noted that one of the main purposes of sections 16 and 17 is to provide compelled witnesses with the comfort that the information they give will remain confidential, subject to terms of the Act. In its reasons, the Commission Panel referenced Deloitte & Touche LLP v. Ontario (Securities Commission)^[1] for the proposition that the desired approach is one that minimally impairs the compelled witness’ privacy interests. In aid of this, the Act provides the mechanism through which the Commission (as tribunal) can balance the competing interests of minimal impairment against allowing the Commission to carry out its mandate.

The Commission Panel held that the only reasonable expectation that Sharpe, as a compelled witness, could have in the circumstances was that the Commission and its Staff would limit the extent of the disclosure to only that necessary to carry out the Commission’s mandate. Based on Staff’s course of action in this case, it ultimately failed to do so.  

Interestingly, for the remedy of revoking or varying the section 11 order, the Commission Panel stated that the granting of section 144 orders of this kind in such circumstances are rare. The grounds upon which Sharpe relied required that new facts came to light that were not discoverable when the order was issued and that, if known, would have impacted the original decision to issue the order. The Commission Panel determined that, as Sharpe relied on the public disclosure of compelled evidence rather than a possible future intention to disclose at the time the order was made, there was no fact at the time of making the section 11 order that would have changed the decision to issue the order.

The Commission Panel further held that while it is possible for them to consider facts that arise after the making of the section 11 order, the remedy proposed by Sharpe remained inappropriate, as it was not sufficiently connected to the conduct complained of. Revocation of a section 11 order in circumstances like this could only be considered punitive, as it would not operate to reverse the public disclosure.

The Commission Panel therefore concluded that Staff cannot publicly disclose compelled evidence without first obtaining an order under section 17 of the Act authorizing the disclosure. However, in the circumstances of this case, revocation or variation of the section 11 investigation order was not an appropriate remedy.

Key takeaways

In the context of the protection of privacy rights, this decision sends an important message that OSC Staff have a considerable obligation to maintain the confidentiality of compelled evidence obtained pursuant to section 11 orders. Pursuant to this decision, Staff have the responsibility to obtain orders authorizing disclosure if they wish to undertake this course of action. Despite this obligation, this case interestingly suggests that the remedies imposed must be sufficiently connected to the infringement in order to apply. While the Commission Panel determined that termination of an investigation was not warranted in this case, it is not clear whether termination of an investigation might be appropriate in another case. As such, this case serves as an important indicator of the role a tribunal independent of Staff has to play in overseeing the conduct of investigations by Staff. It will be interesting to watch such developments as the OSC embarks on the establishment of its own arm’s length tribunal.