The Ontario Securities Commission's decision in Techocan International Co. Ltd. (Re), 2017 ONSEC 44 affirms that absent exceptional and compelling circumstances, a respondent cannot resile from a settlement agreement on the basis of a co-respondent's subsequent settlement on terms perceived to be more favourable.
Facts
On March 23, 2016, Staff of the Ontario Securities Commission commenced an enforcement proceeding against various entities and persons, including Techocan International Co. Ltd. and Haiyan (Helen) Gao Jordan (together, the Applicants). Staff alleged that the respondents in that proceeding, including the Applicants, had engaged in unregistered trading and illegal distributions of securities.
On March 24, 2017, the Commission approved a settlement entered into by the Applicants and Commission Staff (the Techocan Settlement) which included terms requiring the payment of an administrative penalty of $40,000, disgorgement of $110,000 and costs of $15,000, in addition to other terms affecting the Applicants' ability, inter alia, to trade securities and Jordan's ability to act as an officer or director of certain issuers. One month later, the Commission approved a settlement involving two other respondents (the Other Respondents). The terms of that settlement approval order did not include disgorgement of any amount nor any administrative penalty. Costs of $1,000 was ordered to be paid by each of the Other Respondents, among other non-monetary sanctions.
The Applicants sought an order under s. 144 of the Securities Act (the Act) to vary the Techocan Settlement to reduce the quantum of the amounts ordered to be paid by them, on the basis that there was a gross and unjustified disparity between the financial terms of the Applicants' settlement as compared to the financial terms of the settlement entered into by the Other Respondents and approved by the Commission.
Decision
The Commission dismissed the application, concluding that it would be prejudicial to the public interest to grant the relief requested. The Commission affirmed that relief to vary a settlement agreement under s. 144 should be granted only in the "rarest of circumstances", where there is a "compelling interest that does not undermine the public interest in the promotion of settlements and the certainty that results from approval of a settlement agreement."
In this case, there was no disparity between the two settlements that was not justified by the circumstances, nor any other overriding interest that warranted the Commission's intervention. The Commission underscored that differences between the terms of settlement agreements entered into by different respondents in the same proceeding are not necessarily contrary to the principle of proportionality or parity. In this case, the settlements were based upon different admitted facts and breaches of securities law. Further, while Jordan had previously been registered, neither of the other two settling respondents had been. "Registrants are rightly held to a higher standard".
The Commission also rejected the submission that Commission Staff had any obligation to disclose to the Applicants the status or particulars of settlement discussions with the Other Respondents due to the privilege that attaches to settlement discussions, which promotes settlements. Parties seeking to pierce that privilege must cite a compelling public interest that outweighs the public interest in encouraging settlement. The Applicants had failed to do so.
The Applicants also failed to discharge the onus on them of establishing that the information about settlement negotiations with the Other Respondents on terms similar to those ultimately approved would have caused them to have risked proceeding to a contested hearing.
Finally, the Commission concluded that even if it had decided that it was appropriate to grant relief under s. 144, the remedy would be to revoke the decision to approve the settlement agreement with the Applicants, not to impose different monetary sanctions over Staff's objection.
Remarks
The result in Technocan demonstrates that instances in which the Commission will be prepared to set aside a settlement under s. 144 of the Act or otherwise will be reserved for the rarest of cases. In general, the Commission will only make such an order where there is a compelling interest that does not undermine the public interest in the promotion of settlements and the certainty that results from approval of a settlement.
Even in cases where two settlement agreements are reached based on substantially similar facts and admitted contraventions, "the nature of the settlement process, the particular risk assessment that would be made by each respondent, and the latitude inherent in the Commission's assessment of a "reasonable range" can lead to different results that are in the public interest".
The authors would like to thank Blanchart Arun, articling student, for his contribution to this article.
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