What is securities fraud in Canada?

What is securities fraud in Canada?

Securities fraud refers to any deceptive or fraudulent activity in connection with the buying or selling of securities. It can take various forms but typically involves misleading investors or manipulating the securities market for personal gain.

Common examples include:

• Misrepresentation: Providing false or misleading information about a company's financial health, operations or future prospects to investors or regulators.
• Insider trading: Buying or selling securities based on material, non-public information about a company, which gives the trader an unfair advantage over other investors.
• Market manipulation: Engaging in activities that artificially inflate or deflate the price of securities such as executing trades to create a misleading impression of market demand.
• Accounting fraud: Manipulating financial statements or accounting records to misrepresent a company's financial position or performance.
• Churning: Excessive buying and selling of securities in a client’s account by a broker to generate commissions, without regard to the client’s investment goals.

Who monitors securities fraud?

Securities fraud is regulated primarily by provincial and territorial securities regulators such as the Ontario Securities Commission, the Autorité des marchés financiers in Quebec and the British Columbia Securities Commission. These regulators enforce securities laws and regulations designed to protect investors and maintain the integrity of the capital markets.

The RCMP and provincial police forces investigate commercial crimes, including financial market fraud.

Provincial and territorial attorneys-general can bring contraventions of securities laws, as well as Criminal Code violations, before a court. The sanctions available to courts for securities law violations are also more extensive than those available to securities regulatory authorities, including imprisonment.

What are the penalties for securities fraud?

Penalties for securities fraud in Canada can be severe depending on the nature and severity of the offence, as well as other factors such as the amount of money involved and the impact on investors. Penalties include:

• If someone is criminally convicted of securities fraud under s.380 (1) of Criminal Code, the maximum sentence is a 14-year prison term.
• Individuals and corporations convicted of securities fraud can face significant fines based on the amount of money involved and the impact of the fraud.
• Courts may order individuals or corporations to repay victims of securities fraud for any financial losses incurred.
• In addition to criminal penalties, securities regulators can impose administrative sanctions such as fines, disgorgement of profits and restrictions on future trading or participation in the securities market.
• Victims of securities fraud can pursue civil remedies through lawsuits to recover damages suffered due to the fraud.
  Regulators can impose bans or restrictions on individuals or companies involved in securities fraud from participating in the securities market.

How common is securities fraud in Canada?

According to the Year in Review report published by the Canadian Securities Administrators – an umbrella group for Canada’s provincial and territorial securities regulators – 758 investor alerts, cautions and warnings were issued between July 1, 2022 and June 30, 2023. More than half (422) were related to cryptocurrencies.

The report notes this total represents a 221-per-cent increase over the previous year when 236 alerts were issued.

What are common defences to securities fraud charges?

The best legal defence will vary depending on the circumstances of each case. Here are some common legal defences that can be mounted.

• Lack of Intent: To obtain a fraud conviction the Crown must prove the accused intended to deceive or defraud someone else.
• Mistake of fact: A misunderstanding or an honest mistake led to actions that were viewed as fraudulent. However, the mistake or misunderstanding must be reasonable and not the result of negligence or recklessness.
• Lack of knowledge: The accused may be able to demonstrate that they were unaware of the fraudulent nature of their actions or were misled by others.
• Infringement of Charter rights: Securities fraud charges are typically laid after lengthy probes during which investigators may make serious errors or infringe on the accused’s rights to privacy. If such an error or overstepping can be detected, that may be a reason to have evidence excluded.
• A lack of proof: It is often difficult to determine who in a corporation ordered actions that led to securities fraud being committed. 

What are some high-profile cases in Canada?

Here are a few notable examples of securities fraud convictions in Canada or involving Canadians.

• Former media baron Conrad Black was convicted in the United States in 2007 on charges related to fraud and obstruction of justice. While not convicted in Canada, the Ontario Securities Commission ruled that he cannot hold executive positions at listed companies or investment funds in Ontario.
• The founders of the live theatre company Livent, Garth Drabinsky and Myron Gottlieb, were convicted of manipulating financial statements and inflating revenues to deceive investors and lenders in 2009.
• Several executives of Sino-Forest Corporation were convicted of securities fraud in 2018. The company’s former CEO was ordered to pay a $5-million administrative penalty, disgorge nearly $60.3 million and pay $2 million in costs to the commission.

Contact me for assistance

Any fraud allegation can seriously affect your job, reputation and personal freedom. Upon conviction, you could be jailed, fined or otherwise disciplined. Before speaking to police, contact me for a free consultation in French or English. I appear regularly before the Ontario Court of Justice and the Superior Court of Justice in Ottawa, L’Orignal, Brockville, Perth and Pembroke.