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Weighing co-operation and privilege on OSC investigations

|Written By Kelly Harris

The former deputy director of the Ontario Securities Commission recently provided in-house counsel with a behind-the-scenes view of the way the regulatory body conducts investigations during a corporate counsel information session held in Toronto.

Kelley McKinnon, now a Gowling Lafleur Henderson LLP partner, spoke of the balance between disclosure and co-operation with the commission and the need for quicker investigations. She says it is important to understand investigators are under pressure to conclude their work in a timely fashion.

“Effective enforcement has to be timely enforcement,” she says. “So it was never in anyone’s best interest when investigations took years and years.”

The OSC is in charge of administering and enforcing securities legislation in Ontario, with the goal of providing protection for investors against “unfair, improper, or fraudulent practices.” In order to do this investigators are sometimes called upon to seek out corporate information. When this happens in-house counsel need to weigh the value of working co-operatively with investigators against holding what is deemed to be privileged information.

Understanding OSC mandated goals and requirements can help in-house counsel understand the sometimes-demanding nature of investigators. This includes disclosure of information to the OSC.

Disclosure can be seen to put co-operation with an investigatory body at odds with protecting corporate information. McKinnon says market participants sometimes have a “perception of unfairness of the balance of power,” if they follow legal principals they may feel they are at odds with the commission.

“They are worried that not co-operating fully will be held against them,” she says. “That is probably a dialogue that needs to be had more openly between the commission and market participants . . . the commission is always entitled to be tough, it is also always obliged to be objective.”

Key for any company under investigation is weighing what may be gained against what may be lost. Reputation may come into play in these circumstances, McKinnon says.

“Anybody involved in responding to an investigation needs to assess the particular circumstances,” she says. “There will be many occasions when the highest degree of co-operation is going to be in the best interest of the company, it may save cost and reputation problems.”

The session also included Wendy Kelley, senior vice president, general counsel, and corporate secretary for Biovail Inc., and Sharon Haward-Laird, deputy general counsel BMO Capital Markets, BMO Financial. Gowlings and the Association of Corporate Counsel hosted the session. ACC Ontario Chapter president Carla Swansburg, senior counsel with RBC Financial Group, told Law Times weighing co-operation with protecting corporate information is a “double-edged sword” and an ongoing challenge.

“The constant struggle is how to balance, ‘How can we co-operate, we want to co-operate, we not only want to co-operate we want to be seen to be co-operating, but we may have bet the barn in litigation threatened in the background if not already filed?’” she says.

Once again the companies may fear using their legal rights to not disclose certain information may be detrimental in the long run, Swansburg says.

“There is no easy answer,” she says. “There is this kind of mentality that says if you refuse to hand over information or you make a claim of privilege, it is going to be viewed as uncooperative.”

Swansburg calls it a “natural human reaction,” but also points out corporations may have very valid reasons for not disclosing certain documents. One issue is the threat of litigation and class action suits, again referring to human nature, she says it is understandable an investigator may be suspicious being handed less than all the information from a company.

“You are going to feel like maybe you can’t do a complete and full investigation if you are not getting the whole picture, when in fact the motivation is usually not to try and hide information, but try and protect privilege,” she says.

“You want to appear to be co-operative, and you do want to co-operate, you can’t just throw out the window the ability to protect yourself and defend litigation.”

Overall, Swansburg says the session was invaluable, being able to learn what motivates OSC investigators from the regulatory body’s former deputy director. She says many of those motivations would be apparent if a lawyer took the time to study the commission and its decisions, however, hearing about them from someone who was inside provided valuable information on time constraints and performance metrics.

“Hearing someone who has had to live with those and how they come to be applied and they approach investigations and enforcements is, I think, invaluable to someone who is involved with OSC investigations and co-operating in other investigations,” Swansburg says. “So the insights into what they do and why they do it are very helpful.” One insight McKinnon provided was on how corporate counsel can benefit from investigations by helping OSC staff to better understand issues facing the market. Still, professionalism must be paramount when it comes to a group under investigation standing behind their legal rights.

“In some circumstances they may be able to successfully educate OSC staff about the circumstances so that the staff take a different approach,” McKinnon says. “There may be, on the other hand, times when there is a challenging issue that needs to be fought out and may only be resolved through a hearing.

“When that happens certainly it is always staff’s responsibility to behave professionally, most people that understand litigation know that you can be tough, but still professional.”

When those situations occur the best course of action may be to move to a hearing to seek a resolution.