The Ontario Securities Commission (OSC) has published a rule proposal to establish a new process for returning funds to investors harmed by non-compliance with securities laws.
This proposed process will be effective when disgorgement is ordered in enforcement proceedings before the Capital Markets Tribunal or the Ontario Superior Court of Justice, provided the OSC receives sufficient funds to make a distribution feasible.
This proposal responds to recent legislative amendments to the Ontario Securities Act, the Commodity Futures Act, and the Securities Commission Act, 2021. Once proclaimed, these amendments will create a statutory framework for distributing money received by the OSC under disgorgement orders.
The rule proposal specifies several key elements, including the circumstances under which money received under disgorgement orders must be distributed, the eligibility requirements for investors seeking payments, the process for distributing disgorged amounts when a court-appointed administrator is not used, and the use of other monetary sanctions and settlement payments to cover certain administrative costs related to the distribution of disgorged amounts.
Disgorgement is a monetary sanction that requires respondents in enforcement proceedings to pay amounts they gained from non-compliance with securities or commodity futures laws. Currently, there is no prescribed process for distributing funds disgorged to the OSC to harmed investors. The proposed rule addresses this gap by outlining how and when these funds can be returned to investors who suffered direct financial losses due to the misconduct.
Although disgorgement orders are not specifically designed to compensate investors, the legislative amendments allow for the distribution of these funds to investors under certain conditions defined by the proposed rule.
Under the proposed rule, the OSC must publish a report on each completed distribution to promote transparency and awareness about the distribution process. Additionally, the OSC plans to develop plain-language resources to assist investors in understanding the new statutory distribution framework and the payment application process.
Stakeholders are invited to submit their comments in writing by October 9. This feedback will help refine the proposed rules to address the needs of harmed investors and maintain the integrity of Ontario’s capital markets.