Litigation Brief

BC Court of Appeal grants leave to appeal securities commission's interpretation of "interesting" provisions

The Court of Appeal today granted Patricia McLean leave to appeal from a decision of the B.C. Securities Commission that she had argued was procedurally unfair and based on a misinterpretation of a limitation period in the B.C. Securities Act. 

BC Securities Commission imposes sanctions for fraud on Panterra

On October 7, 2010, a panel of the British Columbia Securities Commission (the “BCSC”) ordered that Giuliano Angelo Tamburrino, Andrew Gordon Walker, and Dale Michael Paulson pay over $350,000 in penalties and be prohibited from engaging in certain activities in securities market, as a sanction for their role in perpetuating a fraud on Panterra Resources Corp. (“Panterra”).  In the case of Mr. Tamburrino, who acted as a signing officer for Panterra despite being prohibited by the TSX-V from doing so, the bans are permanent. 

BC Securities Commission finds Steven Kyllo committed fraud

On October 7, 2010, a panel of the British Columbia Securities Commission (the “BCSC”) found Steven Peter Kyllo guilty of perpetrating a fraud when he sold three different securities to investors – promising them incredibly high returns with no risk.  Mr. Kyllo was found to have lied about how he would use their funds and that he used them for his own purposes.  Submissions on the appropriate sanction are scheduled to be made later this month and in November.

BC Securities Commission overruled by Court of Appeal, ordered to reconsider disclosing investigation documents to Appellant

Michael Hu has successfully appealed two decisions of the British Columbia Securities Commission concerning the disclosure of documents from an investigation into alleged insider trading. The investigation was undertaken by the Alberta and British Columbia Securities Commissions. In June 2009, Mr. Hu applied to the British Columbia Securities Commission for orders to produce certain investigation-related documents to him in their possession and in the possession of the Alberta Securities Commission. The British Columbia Securities Commission disclosed some documents and refused to disclose others to Mr. Hu on the basis that they were not relevant.

Court of Appeal affirms Securities Commission's decision in Lions Gate v. Icahn

In Lions Gate Entertainment Corp. v. Icahn Partners LP, 2010 BCCA 231, Lions Gate Entertainment Corp., (“Lions Gate”) appealed a cease trade order issued by the British Columbia Securities Commission (“Commission”) ordering that trading in securities in a rights offering of Lions Gate cease. The Commission’s order was made on application by Icahn Partners LP (“Icahn”) on the basis that a cease trade of the shares of the rights offering was in the public interest. The effect of the order was a termination of the rights offering that allowed a bid for Lions Gate shares by Icahn to proceed. Icahn was the second largest shareholder of Lions Gate, and had commenced a bid to acquire more shares in Lions Gate.

On appeal, Lions Gate argued that the cease trade order was unreasonable, particularly since it was issued prior to the shareholder vote on the rights offering and deprived the shareholders of the opportunity to respond to Icahn’s bid. The Court of Appeal held that the Commission’s decision was consistent with the policy objectives of National Policy 62-202 which favours unrestricted auction prices in take-over bids, and was therefore not unreasonable. It also reiterated that the Commission has a very wide discretion to decide what is in the public interest, albeit not an unlimited discretion. The appeal was accordingly dismissed.

To read the full decision of the Court of Appeal, click here.

BC Securities Commission declines to review executive director's decision to NOT issue prohibition

A Russian mining company sought and was denied review of a refusal by the executive director of the British Columbia Securities Commission to issue a temporary order prohibiting a Vancouver-based merchant bank from trading in the securities of a Yukon-based mining company listed on the TSX and the Oslo Bors in Norway.  The case required the Commission to consider whether a decision not to take action by the executive director is reviewable by the Commission, and whether the Russian company had standing to bring such a matter before the Commission.

In Severstal Gold NV, Bluecone Limited, Endeavour Financial Luxembourg SARL, Endeavour Financial Corporation and Crew Gold Corporation, 2010 BCSECCOM 181, 
Severstal Gold NV and Bluecone Limited (together, "Severstal") asked the executive director to issue a temporary order prohibiting Endeavour Financial Luxembourg SARL and Endeavour Financial Corporation (together, "Endeavour"), a merchant bank, from trading in the securities of Crew Gold Corporation, a Yukon-based mining company  (“Crew”).  Crew’s shares were listed for trading on the TSX and the Oslo Bors in Norway.  In support of its request for orders, Severstal alleged that Endeavour's purchase of newly issued common shares in Crew constituted a "take-over bid." The executive director denied the request, stating that Endeavour's conduct did not fall within the definition of a take-over bid. Severstal then asked the Commission to review the executive director's refusal to issue a temporary order against Endeavor, and alternatively asked the Commission to issue the orders.



Court of Appeal examines its jurisdiction to substitute a live person for a deceased appellant

The Court of Appeal has declined to substitute a live person for a deceased appellant in proceedings concerning an appeal from a decision of the British Columbia Securities Commission.

The Securities Commission had found that Ms. Eilers acted contrary to the public interest and imposed restrictions on when she could return to serve as an officer or director of an issuer. After filing for appeal, Ms. Eilers died. In British Columbia (Securities Commission) v. Eilers, 2010 BCCA 134, the Court of Appeal considered whether her husband could be substituted in the appeal for the purpose of vindicating Ms. Eilers.

The Court held that it has jurisdiction to make the requested substitution, but whether to do so was discretionary and the decision should be based on the factors relevant to whether a moot appeal should be allowed to proceed. The Court outlined and considered each of those factors, including the appeal’s strength and grounds, adversarial nature, circumstances transcending the death of the appellant, what relief is available, and whether the appeal would constitute legislating.

The Court noted that the general test is whether there exists “special circumstances that make it in the interests of justice to proceed.” The Court found such circumstances did not exist in this instance and denied the request for substitution filed by Ms. Eilers’ husband.

To read the full decision of the Court of Appeal, click here.

BC Securities Commission refuses to extend prohibition where staff have "concerns" but not prima facie evidence of misconduct

The BC Securities Commission (the “BCSC”) has dismissed an application by BCSC staff (“Staff”) to extend temporary orders where Staff failed to adduce evidence that shares had been illegally distributed.

The BCSC’s executive director had issued a temporary order prohibiting the trading in the securities of Microline Veneer & Forest Products Corp. (“Microline”) and prohibiting Peter William Arthur Wise from performing a variety of actions related to investor relations activities.  Two weeks later, in a decision reported as Microline Veneer & Forest Products Corp. and Peter William Arthur Wise, 2010 BCSECCOM 170, the BCSC dismissed the application to extend the order until a hearing because Staff had failed to provide prima facie evidence that misconduct had occurred.

The evidence provided by Staff included affidavits that Staff had telephone conversations with three investors, who Staff stated were not accredited at the time they made investments in Microline.  However, Staff did not provide any factual basis for these conclusions.  The Commission held that the conclusions alone were insufficient to constitute prima facie evidence of misconduct.  Further, Staff alleged “concerns” that illegal trades may occur, but failed to provide a solid factual basis for their concern, when all of the trades at issue except one occurred in 2007.

To read the full BCSC decision, click here.

BC Securities Commission holds that it does not have power to award cost to successful applicant in review of TSX decision

The BC Securities Commission (the “BCSC”) has denied Geosam Investments Limited's (“Geosam”) application for costs.  Geosam had previously asked for a BCSC review of the TSX Venture Exchange's (the “TSX”) decision to approve a private placement by Cordy Oilfield Services Inc. (“Cordy”).  As Geosam had been successful in that application under section 27 of the Securities Act, RSBC 1996, c. 418 (the “Act”), it next sought an order requiring the TSX and Cordy to pay the legal costs Geosam had incurred. 

Section 27 of the Act gives the BCSC public interest-based powers to make a decision concerning, among other things, a decision made under a by-law, rule, regulatory instrument or policy of an exchange, the procedures of an exchange, or the manner in which an exchange conducts business. Section 27 does not contain an explicit reference to costs.  The BCSC noted that as an administrative tribunal it possesses only the powers conferred on it by the Act. In a decision reported as Geosam Investments Limited and TSX Venture Exchange Inc., 2009 BCSECCOM 749, it considered the legislative framework as a whole, held that the power to order costs was not expressly or impliedly granted in section 27, and denied the application.

To read the full BCSC decision, click here.

BC Securities Commission holds it has power to review governance of self-regulatory body

Partners in Planning Financial Services Ltd. (“Partners”) applied under s. 28(1) of the Securities Act, RSBC 1996, c. 418 (the “Act”) for a hearing and review of the Mutual Fund Dealers Association of Canada (the “MFDA”)’s procedure for approving amendments to its bylaws.  Among other allegations of procedural impropriety, Partners maintained that the MFDA's board sought to increase term limits for directors during a time in which the board was composed in part by directors whose term limits had since expired, and that the MFDA pressured members to provide proxies for a special meeting through the participation of compliance staff in the proxy solicitation process.  

In a decision report as 2009 BCSECCOM 665, the British Columbia Securities Commission (the “BCSC”) held that "it is essential that  [regulatory organizations] operate, and are seen to operate in a manner that leaves no room to question the integrity of their governance, procedures and practices".  It held that the allegations at issue were precisely those that could raise such concerns, and allowed the hearing under s. 27(1) of the Act, which permits the BCSC to initiate such reviews when in the public interest to do so.  The BCSC did not make a decision as to the applicability of s. 28(1) of the Act, which enables a person to apply to the BCSC for a hearing and review if a person is affected by, among other things, a decision of a self-regulatory body.

To read the full BCSC decision, click here.