Ontario Securities Commission has power to impose financial penalties: court

TORONTO – The Ontario Securities Commission’s power to impose large monetary penalties on people or companies has been confirmed by the province’s top court, which rejected appeals by a broker for a prominent Canadian businessman.

A three-judge panel of Ontario Court of Appeal ruled unanimously that penalties of up to $1 million per infraction are in keeping with the commission’s mandate.

The court rejected a constitutional challenge by a Toronto stock brokerage and three of its senior officers who were fined in June 2008 and December 2009 for their roles in managing investments for Ottawa Senators owner Eugene Melnyk.

They argued, among other things, that fines of such a large magnitude would violate Canada’s Charter of Rights and Freedoms because the commission doesn’t have to apply the same strict levels of proof required by a criminal court.

Writing for the Ontario Court of Appeal, Justice Robert Sharpe said that the penalties levied against the men and company, totalling more than $1.3 million including costs, weren’t large enough to violate the charter.

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“Penalties of up to $1 million per infraction are, in my view, entirely in keeping with the commission’s mandate to regulate the capital markets where enormous sums of money are involved and where substantial penalties are necessary to remove economic incentives for non-compliance with market rules,” Sharpe wrote.

“Given the very large number of infractions involving over a billion dollars worth of securities and over $2 milion in commissions, fines totalling $1,220,000 were within the constitutionally permissable range.”

The largest administrative monetary penalty levied in the case was $520,000 charged to Roger Rowan, who had been president and chief operating officer of Watt Carmichael Inc.

He acted on behalf of Melnyk, at the time head of Canada’s largest publicly traded drug maker. Rowan was also a director of Melnyk’s company, Biovail Corp.

Rowan made numerous trades in Biovail shares on behalf of trusts set up by Melnyk for of his wife and family. Rowan was cleared of allegations that he conducted illegal insider trading of the stock, but the OSC decided he had acted against the public interest.

Harry Carmichael, the firm’s chairman and chief executive, was fined $250,000 for failing to properly supervise Rowan, who was the brokerage’s president and chief operating officer.

The commission also sought $140,000 to defray costs of the proceeding and imposed non-monetary sanctions on those two men as well as Michael McKenny, the firm’s chief compliance officer.


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