Cormark Securities Inc. Decision: Key Takeaways for Market Participants
A recent decision by the Capital Markets Tribunal in Cormark Securities Inc. (Re) addressed critical issues in securities law, focusing on what constitutes a "distribution," the definition of client relationships, and the scope of public interest jurisdiction.
On March 17, 2017, Cormark Securities facilitated transactions to assist Canopy capitalize from its inclusion in the Toronto Stock Exchange’s composite index. These transactions included a private placement, short sales, and the borrowing of free-trading shares. The Ontario Securities Commission (“OSC”) alleged that these actions constituted an illegal distribution, that Cormark failed to act fairly and honestly toward Canopy as a client, and that the conduct engaged the Tribunal’s public interest jurisdiction.
However, the Tribunal concluded:
No Illegal Distribution: The Tribunal determined that the transactions did not convert restricted shares into free-trading shares. Each set of securities remained distinct, with restricted shares subject to a four-month hold period and free-trading shares sold in the secondary market.
Canopy Was Not a Client: The Tribunal found that Canopy was not Cormark’s client. Evidence demonstrated that Cormark’s primary obligations were to Saline and its principal, Bistricer.
No Public Interest Violation: The OSC’s allegations of misleading and unfair conduct did not meet the evidentiary threshold to warrant sanctions under the Tribunal’s public interest jurisdiction.
This decision is a reminder of the importance of an effective and independent adjudicative process. While regulators, registrants, issuers and other market participants may find settlements, faster and less expensive than a hearing in front of the Capital Markets Tribunal, we believe that Ontario’s capital markets are not well served by settlement orders based on untested or incorrect legal interpretations.
At North Star, we assist clients in navigating complex securities and regulatory issues. By staying aligned with legal and regulatory requirements, our clients can mitigate risks and focus on achieving their goals. Contact us at info@northstarcompliance.com to learn how we can support your organization’s needs.