OSC seeks feedback on proposed process for distributing disgorged funds to harmed investors

TORONTO – The Ontario Securities Commission (OSC) today published for comment a rule proposal that would establish a new process for returning money to harmed investors.

The proposed process would apply when disgorgement is ordered in an enforcement proceeding before the Capital Markets Tribunal or the Ontario Superior Court of Justice, and the OSC receives sufficient funds to make a distribution feasible.

The OSC is publishing the rule proposal to address recent legislative amendments to the Ontario Securities Act, the Commodity Futures Act, and the Securities Commission Act, 2021. Upon proclamation, the legislative amendments will create a statutory framework for the distribution of money received by the OSC under disgorgement orders.

The rule proposal outlines:

• the circumstances in which money received under disgorgement orders is required to be distributed;
• the eligibility requirements for investors seeking a payment;
• the process for distributing disgorged amounts in cases where a court-appointed administrator is not used; and
• the use of other monetary sanctions and settlement payments to pay certain administrative costs in relation to the distribution of disgorged amounts. 

Disgorgement is a type of monetary sanction imposed by the Capital Markets Tribunal or the Ontario Superior Court of Justice. Disgorgement sanctions require the respondent in a proceeding to pay any amounts they have obtained as a result of their non-compliance with securities law or commodity futures law. There is currently no prescribed process for making distributions to harmed investors from funds disgorged to the OSC.

While disgorgement orders are not imposed to compensate investors, the legislative amendments contemplate that, in circumstances established under the proposed rule, amounts received under these orders could be distributed to investors who incurred direct financial losses as a result of the conduct giving rise to the order.

Under the proposed rule, the OSC would be required to publish a report on each completed distribution to promote transparency and awareness about the distribution process.

The OSC will also develop plain-language resources to help investors understand the new statutory distribution framework and the payment application process.

Proposed OSC Rule 11-502 Distribution of Amounts Paid to the OSC under Disgorgement Orders, Proposed OSC Rule 11-503 (Commodity Futures Act) Distribution of Amounts Paid to the OSC under Disgorgement Orders and their companion policies are available on the OSC’s website.

Please submit comments in writing on or before October 9, 2024.

The mandate of the OSC is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair, efficient and competitive capital markets and confidence in the capital markets, to foster capital formation, and to contribute to the stability of the financial system and the reduction of systemic risk. Investors are urged to check the registration of any persons or companies offering an investment opportunity and to review the OSC investor materials available at https://www.osc.ca.

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