No-Contest Settlements: An Effective Tool to Help Enforce Ontario Securities Law?

19 novembre 2012 | Emily Cole

( Disponible en anglais seulement )

An earlier version of this article was included in the program materials for The Twelve-Minute Civil Litigator 2012 on September 20, 2012 and has been reprinted with permission from The Law Society of Upper Canada.


The question of whether Ontario should follow the United States’ example and implement no-contest settlements was put on hold by the Ontario Securities Commission (the « OSC ») in late October, 2012. Public hearings had not yet been scheduled. While staff of the OSC (« staff ») has indicated that discussions on this topic have been paused, it is still worthwhile to consider if no contest settlements are the way of the future or, whether the US District Court’s decision rejecting the Citigroup settlement on the grounds that no-contest settlements are « neither reasonable, nor fair, nor adequate, nor in the public interest » is correct.1

In the fall of 2011, staff published a Request for Comments on Proposed Enforcement Initiatives, including a No-Contest Settlement Program. The proposed no-contest settlement program would permit the Commission to make an order against a respondent for monetary sanctions and bans without admission of facts, a breach of the Securities Act and/or conduct contrary to the public interest.2

The OSC stated that these enhancements have two goals: (i) to improve the information coming into the OSC, and (ii) to leverage existing resources and allow staff to expedite the resolution of enforcement matters. Tom Atkinson, OSC Director of Enforcement, stated: « These new tools will have a direct impact on our ability to take decisive enforcement action in order to protect the public interest ». The comment period closed January 16, 2012.


An argument in favour of no-contest settlements is that they would increase staff’s ability to regulate the capital markets in Ontario by resolving enforcement matters more quickly and effectively. It has also been suggested that introducing no-contest settlements would result in a higher volume of protective orders. No-contest settlements would free up resources, allowing staff to bring more cases.

Robert Khuzami, SEC Director of Enforcement, stated that « the practical reality is that many companies would refuse to settle cases if they are required to admit unlawful conduct because it might expose them to additional lawsuits by litigants seeking damages ». He explained that if the SEC assesses that a favourable settlement with at least some of the parties can be reached without the expense and time of litigation, doing so is more favourable to the public interest because it frees up precious agency resources to investigate other potential frauds and wrongdoing.3

Respondents favour no-contest settlements because they allow them to resolve regulatory matters without exposure to liability in companion civil actions, particularly class actions.

Citigroup explained, « Private parties can ill afford the risks of agreeing to a consent judgment predicated on an admission of wrongdoing given the potentially devastating collateral consequences posed by private litigation premised on such admissions. »4

In Ontario, with the introduction of a statutory cause of action for secondary market liability, respondents are even more reluctant to settle regulatory proceedings. Since 2008, there has been a dramatic increase in securities class actions. At the end of 2011, there were at least 45 active Canadian securities class actions representing a total of approximately $24.5 billion in outstanding claims.5

The proposed no-contest settlement program is, in part, in response to feedback from market participants that they did not avail themselves of the staff’s Credit for Cooperation6 policy due to concerns about concurrent civil litigation and class actions. The Credit for Cooperation policy, which was introduced in 2002, offers market participants incentives, including a reduction in the scope or number of allegations and/or reduced sanctions, in exchange for cooperation with staff.

No-contest settlements also appeal to respondents because they allow them to resolve regulatory matters more quickly and efficiently, saving the direct costs of defending an investigation and proceeding, the indirect costs to reputational harm, and the distraction and stress of a regulatory investigation and proceeding.


An argument against no-contest settlements is whether they actually will result in prosecutorial efficiency by reducing the number of hearings, the length of hearings, the length of investigations or the time spent negotiating settlements.

Some commentators state that such settlements would likely only be utilized by a small segment of market participants in very few proceedings, such as issuers facing allegations of non-disclosure. In order to avail themselves of the programs, market participants must self-report in a timely manner, take remedial steps, and provide ongoing cooperation.

While no-contest settlements may eliminate a few hearings, the majority of the cases brought by staff are illegal distribution cases and insider trading cases which do not meet the no-contest settlement criteria, e.g. self-reporting. In 2010, 22 of the 27 proceedings commenced by staff were illegal distribution cases such as boiler rooms and Ponzi schemes. Investigations and hearings into illegal distribution cases can be time consuming and lengthy as most respondents are unrepresented.7

Former OSC Director of Enforcement, Michael Watson, commented that no-contest settlements will not reduce the time and effort spent by staff as the vast majority of time spent on settlement agreements is negotiating the wording of a settlement.8


The SEC and other US federal agencies have used no-contest settlements for many years. The tradition of permitting the imposition of penalties without admission of responsibility has a long history in US criminal law which permits nolo contendere pleas where an accused neither admits nor disputes a criminal charge. This is distinct from Canadian criminal law where an accused must admit guilt or be found guilty before criminal penalties will be imposed.

Although procedural, the recent decision of the United States Court of Appeals which stayed the US District Court’s Citigroup decision sent a strong signal that the District Court’s refusal to approve a no-contest settlement between the SEC and Citigroup was incorrect and that the SEC’s use of no-contest settlements will and should continue.9

Mr. Khuzami stated that the SEC was pleased with the decision. « As we have said consistently, we agree to settlements when the terms reflect what we reasonably believe we could obtain if we prevailed at trial, without the risk of delay and uncertainty that comes with litigation. » He also stated, « Equally important, this settlement approach preserves resources that we can use to stop other frauds and protect other victims. »10

It remains to be seen whether the OSC will revisit its plan to engage in public consultations on no-contest settlements. In today’s global markets, however, where cross-border regulatory cases and parallel class actions are commonplace, it makes sense to have the same set of rules on both sides of the border. No-contest settlements may not be the panacea but they may yet have a place in the regulator’s toolbox.


1 U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., No. 11 Civ. 7387 (S.D.N.Y. Nov. 28, 2011) (« Citigroup »).
2 OSC Staff Notice 15-704 – Request for Comments on Proposed Enforcement Initiatives, (2011) 34 OSCB 10720.
3 Remarks Before the Consumer Federation of America’s Financial Services Conference (Washington: December 1, 2011)
4 Brief of Defendant–Appellee–Cross–Appellant at 35, United States Securities & Exc. v. Citigroup Global Markets Inc., No. 11-5227 (2nd Cir. May 14, 2012).
5 NERA Economic Consulting, Trends in Canadian Securities Class Actions: 2011 Update (February 1, 2012)
6 OSC Staff Notice 15-702 – Credit for Cooperation, (2002) 25 OSCB 3949.
7 2011 OSC Annual Report, 2010 OSC Enforcement Activity Report.
8 Comment on OSC Staff Notice 15-704, Michael Watson (December 14, 2011).
9 United States Securities & Exchange Commission. v. Citigroup Global Markets Inc., No. 11-5227 (2nd Cir. March 15, 2012)
10 Edward Wyatt, « Ruling Gives Edge to U.S. in Its Appeal of Citi Case », New York Times Dealbook (March 15, 2012).

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