A Two – Tier System for the Retail Investor
Currently, aggrieved retail investors who present a legitimate claim of a contravention of a provincial securities act are directed by the securities commissions to contact a self-regulatory organization (“SRO”). The SRO, not being a creature of statute, regulates its members and those registrants employed by the member by contract. The terms of that contract are the by-laws and constitution of the SRO. The securities commissions have “recognized” the SROs for the purpose of regulating its members subject to those terms. The contract however does not extend to the public as they are not a party to that contract.
The consumer/retail investor, with a valid claim, has the right to have their claim investigated and, if warranted, adjudicated by direct application of the relevant Securities Act and not by terms of a contract to which the consumer is not a party. To exacerbate the problem further is that there are no statutory remedies within the current regulatory structure available to the retail investing public even though it was contemplated and incorporated into the Securities Acts. As an example, the following can be found within the Ontario Securities Act.
128. (1) The Commission may apply to the Superior Court of Justice for a declaration that a person or company has not complied with or is not complying with Ontario securities law.
(3) If the court makes a declaration under subsection (1), the court may, despite the imposition of any penalty under section 122 and despite any order made by the Commission under section 127, make any order that the court considers appropriate against the person or company, including, without limiting the generality of the foregoing, one or more of the following orders:
13. An order requiring the person or company to compensate or make restitution to an aggrieved person or company.
Securities Act ,c. 11, s. 375; 2006, c. 19, Sched. C, s. 1 (1).
The following is the Ontario Securities Commission’s (“OSC”) answer to a question posed by an investor with respect to restitution. It is an extract from the transcript of the 2005 OSC Town Hall Forum Questions and Answers;
“The OSC does not, in fact, have the power to order a court to grant restitution. What it does have is the discretion under section 128 of the Securities Act to apply to the court for a declaration that a person has not complied with or is not complying with Ontario securities law. The court may then order a wide range of remedies, including an order for compensation or restitution.
The OSC has only used this redress mechanism once…”