The Ontario Securities Commission (OSC) finalizedOSC Rule 11-502Distribution of Amounts Received by the OSC under Disgorgement Orders and Payment of Related Administrative Costsand its related companion policy, that deals with the distribution of funds that have been collected by the OSC pursuant to disgorgement orders. The framework concerns distributions to investors that have incurred direct financial losses due to contraventions of Ontario securities laws or commodity futures law. Similar rules have been published under theCommodity Futures Actin OSC Rule 11-503, and its related companion policy (collectively, the Rules).
As noted in the companion policies, the purpose of a disgorgement order is not to compensate investors but to prevent a wrong-doer from benefitting from their misconduct, deter the wrong-doer and others from engaging in similar misconduct, and restore confidence in capital markets.
Last year, the OSC had published a notice and request for comment on the Rules as there are currently no specified procedures in Ontario for distributing disgorged funds back to investors. The framework under the final Rules continues to address:(i)the circumstances in which money received by the OSC under a disgorgement order is required to be distributed;(ii)the eligibility requirements for investors seeking payment from disgorged amounts collected by the OSC;(iii)a process for distributing disgorged amounts to harmed investors in cases where a court-appointed administrator is not used; and(iv)the use of other monetary sanctions and settlement payments received by the OSC to pay certain administrative costs in relation to the distribution of disgorged amounts.
The notice and claims process is expected to be conducted by a court-appointed administrator in most cases.
A dedicated page on the OSC website relating to distributions will be updated on a quarterly basis to include information on matters such as where disgorgement has been ordered, amounts received under those orders and amounts that remain unpaid. Information will also be provided if the OSC decides not to proceed with a distribution of amounts received by the OSC in a given case based on the stipulated factors. The website will also include investor resources, notices of any active distributions and reports on completed distributions.
As a change from the consultation drafts of the Rules, in addition to posting notice of the claims process on the OSC's website with the period within which an eligible applicant may apply, there is now a requirement for the OSC to issue a press release when the notice of claims process is posted. Additional channels such as social media and investor advocacy organizations may also be used to notify potential claimants. In addition, a new online system will allow investors to log their contact information with the OSC at the time a disgorgement order is issued if they would like to be contacted about a potential future distribution.
The Rules contemplate that if there is no court appointed administrator, applicants will have at least 90 days from the date of the notice to make a claim, but the OSC may allow for a longer claim period in appropriate circumstances (for example, where investors are outside Canada or contact information is limited).
The new Rules are expected to come into force on the later ofAugust 26, 2025, and the day on which applicable sections of theBuilding a Stronger Ontario Together Act (Budget Measures), 2023(Ontario) are proclaimed into force in late summer or early fall of this year.
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