In Sutton (Re), the Investment Industry Regulatory Organization of Canada's (IIROC) found that individuals with regulatory functions in securities industry may not enjoy immunity for errors where they acted in good faith and with reasonable diligence.

Sutton was a specialist in the field of securities industry regulation. From March 2003 until July 2012, he acted as the CFO for First Leaside Securities Inc., which was a part of the First Leaside Group of Companies. As part of his role, Sutton was required to monitor First Leaside Securities Inc.'s policies and procedures to ensure that it complied with the financial rules about the pricing of its unlisted securities.

For financing, the First Leaside Group issued fund units at $1.00. The issue before IIROC was whether Sutton, as CFO of First Leaside Securities, breached IIROC Dealer Member Rule 38.6(c) by failing to ensure that these fund units were properly priced on client account statements.

Sutton's position was that there was an active market for the fund units and that the securities' $1.00 price was the result of that active market. He opined that he did not need to take any further steps to determine a price. The Hearing Panel was unpersuaded :

61 [...] Infrequent transactions at a fixed price, offered by the issuer of the Fund Units, for the ultimate purpose of maintaining the price and utilizing funds which were obtained from other investors for such purchases has none of the hallmarks of an active market.

In responding to the argument that individuals with regulatory functions in the securities industry should enjoy a degree of immunity from errors, the Hearing Panel acknowledged SEC statements and sentiments that compliance officers should not have to fear enforcement actions if they perform their responsibilities diligently, in good faith, and in compliance with the law.

Nevertheless, the Hearing Panel found that Sutton breached the IIROC Dealer Member Rule 38.6(c) because the fund units were not properly priced. The Hearing Panel opined that if immunity were afforded, it would be contrary to the purpose of having a CFO supervise pricing. As such, the absence of intentional wrongdoing or mens rea, or the fact that Sutton may have acted with reasonable diligence were not considered a defence by the Hearing Panel.

The Hearing Panel ruled that, if required, a Sanction Hearing will take place at a date and place to be determined.

The authors would like to thank Saam Pousht-Mashhad, Articling Student, for his contribution to this article.


About Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.

Law around the world
nortonrosefulbright.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.