Mark Evans, a partner in the FMC Toronto office, was invited to speak at the Second Annual Securities Symposium this month about current issues in the area of Securities Regulation.

1. Current Issues in Regulatory Proceedings
• To settle or not to settle in face of civil risk…
• Protecting elderly investors
Mark Evans, Partner, Fraser Milner Casgrain LLP
Susan Kushneryk, Senior Enforcement Counsel, IIROC*
* The opinions set out in this presentation are the personal opinions of the presenters and do not reflect
policies or views of IIROC.
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2. To settle or not to settle in face of civil risk…
Regulatory admissions are likely admissible in subsequent civil actions
• Hill v. Gordon‐Daly Grenadier Securities, [2001] Ont. Div. Ct.
– Admissions made in settlement agreements are “in the public domain.”
– “What is admissible, is what the appellants admitted to doing, not what they are alleged
to have done.”
• Buckingham Securities Corp. (Receiver of) v. Miller Bernstein LLP, [2008] O.S.C.J.
– Court bound by Hill in determining whether settlement agreement was inadmissible due
to a claim of settlement privilege.
– “…I see no difficulty with the proposition that persons, who make admissions for the
purpose of settling a public prosecution for offences under legislation designed to
protect members of the public, should not – if the admissions would otherwise be
admissible in civil proceedings by, or on behalf of such members – be permitted to
exclude them simply by asserting that this is to be the case [in a privative clause]….”
• Hill has been criticized (most prominently by Nordheimer, J. in Moyes), however the prevailing
judicial view remains that expressed in Hill and Buckingham.
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3. IDA (IIROC) settlement admitted as evidence in 2012 civil action
• National Bank Financial Ltd. v. Potter, [2012] N.S.S.C.
Court cited the “fundamental distinction” between settlement agreements involving private
litigants and those involving securities regulators. Unlike private agreements, regulatory
agreements:
• have the regulatory purpose of public protection and maintaining market efficiency,
• are approved in a public settlement process, and
• are required by securities law to be published for regulatory purposes.
• Court also noted that confidence in regulatory process is an important public policy factor:
noted that “public confidence in the governmental and self‐regulation of investment dealers in
Canada […] would suffer if respondents to such regulatory proceedings could resile from their
admissions the moment a settlement agreement is concluded.”
• Thus, we have recent judicial recognition of the unique nature of regulatory settlements.
Respondents may take that factor into account in their responses to regulatory proceedings.
Court in Potter recognized that admitting regulatory settlement agreements “has policy
implications for the prospect of future settlement agreements between securities regulators
and respondents.”
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4. An alternative…?
• Depending on the nature of the regulatory proceedings and the potential repercussions it may be tactically advantageous not
to assert a position in the regulatory proceeding but decline to call evidence, rather than entering into a public settlement
agreement containing admissions of wrongdoing that could be used against the same professional in parallel civil
proceedings.
• DEFENCE COUNSEL PERSPECTIVE
– Not bound by admissions. By disputing the allegations but declining to call evidence in the regulatory proceedings, the professional may
preserve his or her right to fight the allegations of wrongdoing in subsequent civil proceedings by leading evidence in those proceedings
rebutting or explaining the regulatory findings (if any).
– Flexibility – preserve litigation war chest for civil proceedings
– Res Judicata? – Supreme Court in Toronto (City) v. CUPE Local 1979, [2003] 3 S.C.R. 77:
• “There may be instances where relitigation will enhance, rather than impeach, the integrity of the judicial system, for example: …when
fresh, new evidence, previously unavailable, conclusively impeaches the original results, or…when fairness dictates that the original result
should not be binding in the new context […]”
• “There are many circumstances in which the bar against relitigation, either through the doctrine of res judicata or that of abuse of
process, would create unfairness. If, for instance, the stakes in the original proceeding were too minor to generate a full and robust
response, while the subsequent stakes were considerable, fairness would dictate that the administration of justice would be better
served by permitting the second proceeding to go forward than by insisting that finality should prevail. An inadequate incentive to
defend, the discovery of new evidence in appropriate circumstances, or a tainted original process may all overcome the interest in
maintaining the finality of the original decision.”
– May be able to negotiate favourable sanction terms (on basis of saved regulatory time and resources)
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5. An alternative…?
• REGULATORY COUNSEL PERSPECTIVE
– There does not immediately appear to be any significant advantage to enforcement counsel by
having a respondent who does not object to allegations, and thus no apparent reason to compromise
on penalty and no demonstration of contrition.
– We are required to proffer sufficient evidence and establish a legal basis for a Hearing Panel to make
findings and any resulting orders, regardless of whether a respondent objects and/or proffers
evidence in support of a defence.
– Without a Response to the Notice of Hearing, respondents run the risk of the alleged facts being
accepted without any evidence being called: Rule 7 of IIROC’s Rules of Practice and Procedure
provides that if a respondent fails to serve a response, the Hearing Panel may accept the facts and
violations alleged as proven and impose penalties and costs.
– If a respondent decides to take this approach, for reasons outside the regulatory proceeding, it is not
apparent that there will be much advantage in a regulatory proceeding.
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6. Protecting the vulnerable: Seniors as investors
IIROC prioritizing cases involving seniors
• In IIROC’s 2012 ‐ 2015 Strategic Plan (published August 2012), one of the goals identified is to “[s]trengthen
the fairness, integrity and competitiveness of Canadian capital markets”. One of the ways identified to
accomplish that goal is to “actively pursue those engaging in unfair, misleading and/or abusive practices”
by, among other things, “continu[ing] to prioritize enforcement cases involving unsophisticated investors
and seniors”.
• Recent IIROC Hearing Panel decisions – e.g., Jones (August 2012), Gareau (2011 and 2012), Harding (2011)
and Phillips (2011) – reflect the concern for the vulnerability of seniors.
• In these decisions (including approval of a settlement agreement in Jones), the Hearing Panels confirmed
that advisors are required to know the reality of their clients’ financial positions, investment experience,
risk tolerances and objectives. Further, advisors are required to know these factors as they change over
time. Information on client account forms provides guidance, but cannot be relied upon as a substitute for
knowing your clients or to transfer responsibility for suitability assessments on to investors.
• The Hearing Panels also noted that seniors necessarily have a more limited time frame than younger
investors and that they are likely to need income from their investments. Advisors are required to take
these factors, unique to seniors, into account when assessing the suitability of investment
recommendations.
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7. Risk Management Tips for Clients
• Carefully consider whether taking on this new client is worth the risk. Providing advice to a
client who lacks capacity may have repercussions if there are losses in the client’s account
• Don’t mail it in – meet client face‐to‐face before accepting as a new client and periodically as
appropriate
• Have the client fill out account agreements (and any future updates) in your presence
• Write it down – memorialize initial meeting (impressions, understanding, etc.)
• Always take notes (dated and timed) of conversations with clients and of instructions
received, especially of any advice or information you provide regarding the risks of the
investment
• Confirmation letters / email – particularly where advice not taken
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8. The preceding presentation contains examples of the kinds
of issues companies dealing with Securities Regulation could
face. If you are faced with one of these issues, please retain
professional assistance as each situation is unique.

9. Questions?
Mark Evans
416 863 4453
mark.evans@fmc‐law.com