Litigation Brief

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.

Real estate developer's appeal dismissed for insufficient disclosure to condo purchasers

The Court of Appeal has dismissed an appeal by a real estate developer found to be non-compliant with the Real Estate Development Marketing Act, S.B.C. 2004, c. 41 (“REDMA”).  In Chameleon Talent Inc. v. Sandcastle Holdings Ltd., 2010 BCCA 300, it affirmed a lower court decision holding that the dates of construction and completion of a condominium project were material facts required to be disclosed in a real estate disclosure statement, a failure of which rendered an agreement for the purchase of a condominium project unenforceable.

5th class action lawsuit filed against BP

A shareholder class action lawsuit against BP Plc was filed in the Eastern District of Louisiana today. This is the fifth class action lawsuit filed against BP since the oil spill in the Gulf of Mexico several weeks ago. This latest class action, Greenfield v. BP Plc, alleges that BP's shareholders were misled by representations in BP's public disclosure documents regarding its commitment to safety and operational integrity, and risks of operation. BP is not the only defendant, however. Also named are several BP directors including CEO Tony Hayward, CFO Byron Grote and Chair Carl-Henrie Svanberg. The plaintiffs are represented by the New York firm of Zwerling, Schachter & Zwerling.  

Can Canadians sue other Canadians in US courts based on misrepresentations in securities disclosure documents filed with Canadian regulators?

Justices of the Supreme Court of Canada visited their US counterparts in Washington, DC last month as part of a legal exchange between the two countries.  During the visit, the United States Supreme Court heard oral argument in a case that could allow Canadian shareholders to sue in US courts Canadian companies for alleged misrepresentations in disclosure documents filed with Canadian authorities, even when no securities have been sold outside of Canada.

Alberta Securities Commission finds deficient disclosure violated securities laws

The Alberta Securities Commission has rejected arguments that deficiencies in certain public companies disclosure were mere “technical defects”.

Commission staff alleged the two corporate Respondents contravened Alberta securities laws by failing to file, or by filing deficient, continuous disclosure.  Staff further alleged the president of one of the corporate respondents, McLeod, was responsible for these deficiencies. The corporate Respondents argued that to the extent the filings were deficient, they contained mere “technical defects.”  In Flag Resources (1985) Limited, Re, 2010 ABASC 143, the Commission rejected this argument, stating, “We cannot overemphasize the importance we place on reporting issuers' scrupulous compliance with all continuous disclosure reporting obligations.”

BC Securities Commission further extends Sungro Minerals Cease Trade Order

The BC Securities Commission ("BCSC") had issued a temporary order to cease trading in the securities of Sungro Minerals Inc., an OTC Bulletin Board company, and thrice extended the order.  The executive director applied for a further extension until a hearing was held and a decision was rendered with respect to a dramatic increase in Sungro’s share price.  In Sungro Minerals Inc., 2009 BCSECCOM 585, the BCSC granted that extension, as it agreed that the dramatic increase in the trading price of Sungro shares in the absence of any disclosure that accounted for the increase was highly suspicious and strongly suggested market manipulation.  The BCSC held that the extension of the temporary order was necessary and in the public interest while staff continued their investigation into the source and nature of the wrongdoing evidenced by the suspicious trading.  In addition, the BCSC restated that trading abuses in the US over-the-counter markets conducted through BC securities dealers damages the reputation of BC capital markets.

To read the full BCSC decision, click here.

Executive Director of BC Securities Commission ordered to request information from Albertan counterpart on behalf of respondent

BC Securities Commission (“BCSC”) staff have alleged that Michael Kyaw Myint Hua Hu engaged in insider trading.  Mr. Hu applied for orders directing the BCSC’s executive director to disclose certain documents and classes of documents, including documents obtained in a joint investigation by BCSC staff and the Alberta Securities Commission (the “ASC”). In a decision reported as Michael Kyaw Myint Hua Hu, 2009 BCSECCOM 506, the BCSC directed the executive director to ask the ASC to provide the BCSC staff with all relevant information gathered under the ASC investigation and to disclose that information to Mr. Hu. The BCSC held that “Regulators have established, appropriately, flexible and cooperative mutual-assistance and information sharing arrangements in order to promote effective investigation and prosecution of securities market misconduct. It is inconsistent with that regime for respondents to face technical barriers when seeking the disclosure to which they are entitled.”

To read the full BCSC decision, click here.

Developers' projections were reasonable, rules Court of Appeal

Investors in a real estate development brought an action against, among others, the developers of the project for breach of the Real Estate Act, (since repealed by the Real Estate Services Act, S.B.C. 2004, c. 42) and the Securities Act, R.B.C. c. 418.  The investors claimed that the developers negligently misrepresented the projected occupancy rate for the development.  In Strata Plan LMS 3851 v. Homer Street Development, 2009 BCCA 395, the Court of Appeal rejected that claim, holding that the concept of “reasonableness” when applied to projections “of future performance of a to-be-built hotel, subsumes a range of reasonable outcomes, not a pinpoint conclusion.”

To read the full decision, click here.