Secondary market liability under OSA s.138.3, the leave requirement, Capital Markets Tribunal and OSC enforcement, insider trading and market manipulation, and class action certification and settlement for Ontario securities and class action lawyers.
Ontario is Canada's largest capital market. The Securities Act (Ontario) (RSO 1990, c S.5) is administered by the Ontario Securities Commission (OSC), which was renamed the Capital Markets Authority in some contexts after the 2022 legislative amendments creating the Capital Markets Act framework. The OSC administers the Securities Act, the Commodity Futures Act, and the Business Corporations Act (securities provisions).
The Capital Markets Tribunal (CMT) — formerly the Ontario Securities Commission hearing panel — is the adjudicative arm of the OSC. It hears enforcement proceedings, registration matters, and other securities law adjudications.
Part XXIII.1 of the Securities Act (ss.138.1-138.14) creates statutory civil liability for secondary market misrepresentations. This allows investors to recover losses caused by material misrepresentations in a reporting issuer's public disclosure documents or oral statements by authorized persons.
Key feature: Unlike common law fraud or negligent misrepresentation, s.138.3 does not require individual plaintiffs to prove actual reliance on the misrepresentation. The plaintiff need only establish the misrepresentation and their loss — reliance is presumed from the "fraud on the market" theory. This makes s.138.3 claims well-suited to class actions.
A plaintiff must obtain leave of the court before commencing a s.138.3 action. The leave test requires: (1) the action is brought in good faith; and (2) there is a reasonable possibility that the action will be resolved at trial in the plaintiff's favour. The "reasonable possibility" standard is lower than a balance of probabilities — it requires a plausible claim, not a probable one. The Supreme Court of Canada confirmed this standard in IMAX Corp v Silver, 2021 SCC 62.
OSC Staff investigate potential breaches; subpoenas for documents and evidence; examination under oath of witnesses; coordination with RCMP (capital markets investigations team) for criminal referrals
Many OSC matters resolved through negotiated settlement before hearing; respondent may negotiate sanctions with OSC Staff; approved by Capital Markets Tribunal
OSC Staff file Statement of Allegations (SOA) setting out alleged breaches; respondent may request a hearing; case management proceedings
Evidentiary hearing before Capital Markets Tribunal panel; OSC Staff presents case; respondent may call evidence and cross-examine; Tribunal issues findings
If breach found, separate sanctions hearing; OSC Staff proposes sanctions; respondent submits on mitigating factors; Tribunal issues sanctions order
Appeals from Capital Markets Tribunal to Divisional Court on questions of law or jurisdiction; further appeals to Court of Appeal with leave
Under s.138.8 of the Ontario Securities Act, a plaintiff must obtain leave of the court before commencing a class action for secondary market misrepresentation under s.138.3. The plaintiff must demonstrate: (1) the action is being brought in good faith; and (2) there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff. The leave test is a 'reasonable possibility' standard — lower than a balance of probabilities.
Secondary market liability under Part XXIII.1 of the Ontario Securities Act (ss.138.1-138.14) allows investors who purchased or sold securities on the secondary market to sue reporting issuers, directors, officers, and influential persons for misrepresentation in public disclosure documents or public oral statements. Unlike common law fraud, s.138.3 does not require proof of reliance — the plaintiff need only show a misrepresentation and their loss.
The OSC has broad enforcement powers: administrative hearings before the Capital Markets Tribunal; cease-trading orders; suspension or revocation of registrations; disgorgement of profits; administrative penalties up to $15 million per failure to comply; and third-party bans. The OSC can also refer matters to the Attorney General for criminal prosecution.
Ontario securities class actions proceed under the Class Proceedings Act, 1992. Certification requires: an identifiable class; a common issues question; class proceedings as the preferable procedure; a workable plan; and a suitable representative plaintiff. Settlements must be approved by the court — the court considers whether the settlement is fair, reasonable, and in the best interests of class members. Notice to class members and a fairness hearing are required before approval.
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