Court upholds Securities Commissions’
power to compel and share evidence
Background
In April 2012, the Alberta Securities Commission (ASC) issued an investigation and a
Summons to a Witness (the "Summons") pursuant to section 42 of the Securities Act,
requiring Scott Beaudette, the CEO and sole employee of Sunpeaks Ventures Inc., to attend
for examination at the ASC and to produce documents, for potential contraventions of the
Securities Act. Following receipt of the Summons, counsel for Mr. Beaudette wrote the ASC
and took the position that the proposed examination would violate Mr. Beaudette's Charter
rights unless the ASC could provide written assurances that any evidence compelled from
Mr. Beaudette would be kept confidential and would not be shared with US law enforcement
agencies such as the SEC and the US Department of Justice. Mr. Beaudette chose not
attend the ASC for the examination and the ASC commenced proceedings in the Court of
Queen's Bench seeking various orders. Mr. Beaudette brought an application challenging
the constitutionality of sections 42 and 46 of the Securities Act.
The wording of section 42, briefly stated, empowers the ASC to summon a witness, to
compel that witness to give testimony and to compel that witness to produce documents.
Section 46 provides the power to the ASC to share information with other securities or
financial regulatory authorities, law enforcement agencies or other governmental or
regulatory authorities in Canada and elsewhere.
The Alberta Court of Queen's Bench dismissed Mr. Beaudette's application and confirmed
that effective securities law enforcement demands that there be inter-jurisdictional
cooperation and reciprocal assistance between the regulatory agencies including between
Canada's regulatory enforcement agencies and the United States regulatory enforcement
agencies (the decision is found here). We had previously commented on the Court of
Queen's Bench decision (found here).
Decision
On appeal, Mr. Beaudette again argued that the requirement to provide information
concerning his securities activities in North America, coupled with the possibility that the
ASC might share that information with the SEC and the US Department of Justice, would
infringe on his right to liberty as guaranteed under section 7 of the Canadian Charter of
Rights and Freedoms.
The Alberta Court of Appeal upheld the constitutionality of the summons and information
sharing powers under the Charter and held that sections 42 and 46 of the Securities Act did
not violate Mr. Beaudette's Charter rights. The Court of Appeal held that section 7 of the
Charter is engaged “where state compulsions or prohibitions affect important and
fundamental life choices” and such choices did not include the election to participate in a
highly regulated industry.
While immunity from the use of self-incriminating evidence in subsequent proceedings is
recognized in Canada to prevent such evidence from being used in the criminal law context,
the Court of Appeal noted that an ASC investigation is not by its very nature, criminal. The
Court of Appeal also noted importance of Canadian securities regulators and found that
even though securities legislation allows for the investigation of offences committed both in
Canada and elsewhere, the ASC has a legitimate regulatory purpose. The regulatory
purpose and objectives of securities regulation is to protect investors, to facilitate capital
market efficiency, and to ensure public confidence in the capital markets, and this could not
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be achieved without the ASC being able to compel testimony and share information with
other regulatory authorities.
The Court of Appeal held that section 42 and the Securities Act as a whole "strike a balance
between the privilege against self-incrimination and the principle that relevant evidence
should be available in a search for the truth". Even though evidence could potentially be
used in American proceedings, Canadian courts are not authorized to evaluate or control the
investigative and judicial processes of a foreign authority.
Implications
The decision by the Court of Appeal again confirms that in a highly regulated industry, such
as the securities market, the individual is aware, and accepts justifiable state intrusions. The
purpose of the securities legislation and enforcement agencies are to regulate the market,
something that often requires inter-jurisdictional sharing of information. This decision
highlights that even the Charter does not prevent the ASC from sharing information with
foreign authorities.
AUTHOR
Andrew Pozzobon
T 403.232.9520
[email protected]
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