Risk Management and Crisis Response Blog

Turning yourself in: the Alberta Securities Commission strengthens incentives for self-reporting

Dec 15, 2017 3 MIN READ
Tristram Mallett

Partner, Disputes, Calgary

Catherine Hamill

Associate, Employment and Labour, Calgary

With its recent implementation of the Credit for Exemplary Cooperation in Enforcement Matters policy (ASC Policy), the Alberta Securities Commission has created new incentives for individuals and companies to self-report violations of securities law. By implementing this policy, Alberta aligns itself with the Ontario Securities Commission and the United States Securities and Exchange Commission, which have had policies in place to encourage self-reporting and credit for cooperation for some time. British Columbia also has a similar policy; however, it is more limited in application than those discussed here. There are important differences among the policies, and participants in the Alberta capital markets should be aware that the ASC Policy sets a high bar for conduct considered to be “cooperative”, while limiting the range of potential benefits of that conduct.

The ASC Policy provides that credit may be given for exemplary cooperation with ASC Staff which goes above and beyond the conduct already required by Alberta securities laws. Examples of exemplary cooperation include self-reporting of any conduct which is illegal or harmful to Alberta investors, the prompt and complete disclosure of information and records to ASC Staff, full and voluntary internal investigations into any potential breaches, and the provision of appropriate compensation to anyone harmed by the misconduct. Where an individual or company has cooperated in an exemplary manner, ASC Staff may consider reducing the amount or duration of sanctions proposed in an administrative enforcement proceeding, or may, in very limited circumstances, agree to take no enforcement action at all.

While the ASC Policy provides important incentives for self-reporting and cooperation with the regulator, it takes a somewhat stricter stance than the Ontario policy, the Revised Credit for Cooperation Program (OSC Policy). First, the ASC Policy explicitly states that no credit will be given if it is in the public interest to proceed with a criminal or quasi-criminal investigation. Under the OSC Policy, OSC Staff have the discretion to recommend that a matter not proceed by way of a quasi-criminal prosecution.

Second, the ASC Policy allows for no-enforcement action agreements but not no-contest agreements. A no-enforcement action agreement is an agreement whereby ASC Staff agree to take no further action against an individual or company based on the facts known to them at the time. Such a decision would only occur in situations where there has been exemplary cooperation, misconduct of a minor or technical nature, no or minimal harm caused to investors, and corrective action taken.

However, and in contrast to the OSC Policy, the ASC Policy does not allow for settlement agreements in which the individual or company is not required to admit facts, contraventions of securities laws, or conduct contrary to the public interest (known as “no-contest settlement agreements”). The policy decision of the ASC not to allow for no-contest settlement agreements was likely informed by the debate in the United States in recent years regarding these types of agreements. In 2011, a US district court judge rejected a consent judgement proposed by the SEC in which Citigroup Global Markets Inc. stated that it “neither admitted nor denied” the wrongdoing. Although no-contest settlement agreements, and this type of language within them, are common in the U.S., the judge found that the agreement was a roadblock to the overriding public interest in knowing the truth, and hindered investors who would benefit from the use of admissions from enforcement proceedings in parallel civil litigation. Although this decision was eventually overturned, it created an ongoing public debate regarding the merits of no-contest settlement agreements which has spilled over the border.

By deciding not to entertain no-contest settlement agreements, and by carving out an exception for quasi-criminal or criminal proceedings, the ASC has signaled that any credit given for exemplary cooperation is not to stand in the way of the public interest in getting to the bottom of misconduct in the securities markets.