Law Times

LAW TIMES / JULY 28/AUGUST 4, 2008 PAGE 5 Unified national securities regulator needed, says lawyer A BY ROBERT TODD Law Times Toronto lawyer says a Divisional Court ruling that the Ontario Securities Act doesn't give a na- tional self-regulating body jurisdiction to punish brokers who leave the indus- try shows why Canada needs a unified national securities regulator. "What you have is conflicting de- cisions at the securities commission level, and in the courts as well now," says Anisman. "And I think, ultimate- ly, the conflict in part that's reflected in the legislation grows out of differ- ent philosophical premises about the self-regulatory scheme that are held by different commissions." The majority decision, which the Invest- ment Industry Regulatory Organization of Canada and Ontario Securities Commission will seek leave to appeal at the Ontario Court of Appeal, was in favour of Stephen Taub. The OSC alleges that he breached IIROC (formerly the Investment Dealers Associa- tion of Canada) bylaws and rules "by, among other things, facilitating 'trading activity that appeared to be or was consistent with market manipulation or deception' and 'circumvent- ing' IDA and SEC rules by opening accounts and accepting orders from clients outside his jurisdiction of registration," according to a May 2007 OSC ruling. The OSC's claims related to activity that allegedly occurred between November 1998 and June 2003. The OSC began disciplinary proceedings against Taub in October 2005. He was involved in the securities industry from 1988 to 2004. The court noted that, unlike other provinces, Ontario lacks a "clear statutory provision that permits self-regulated or- ganizations to discipline former members." "In our view, the plain meaning of s. 21.1(3) of the act can- not be stretched to in- clude the discipline of former members with- out doing violence to the meaning of the statute," reads the majority deci- sion of justices Helen Pierce and Charles Hackland, written by Pierce. "'Members' and 'former members' are not interchangeable terms. Such an interpre- tation of the governing statute is unreason- able," said the majority. A dissenting opinion from Justice James Carnwath agreed with the OSC's May 2007 decision on the matter, which stated that by signing an application to the IDA, Taub "submitted to the juris- diction of the IDA and agreed to the by- laws, rules, regulations, and other regu- latory requirements of the association." One such bylaw gave the IDA jurisdic- tion over former members in terms of disciplinary matters for five years after their membership ends. Carnwath also disagreed with the major- ity's view that the central issue in the matter was "who determines who can be regulated." Wrote Carnwath: "The issue is whether the bylaw extending Mr. Taub's capacity to be sanctioned following res- ignation carries out the purpose of the legislation, i.e., to protect investors from improper practices and to foster confidence in capital markets." Anisman notes that - the issues arising in the Taub v. Investment Dealers of Canada case are not new. Alberta's Securities Act covers former members, while Saskatchewan's securi- ties commission came to the same conclu- sion as Ontario's Divisional Court, which prompted legislative amendments. In British Columbia, the province's se- curities commission ruled in a similar man- ner as the OSC, finding that the IDA (now IIROC) has jurisdiction under its own rules with respect to former members. Anisman notes that the Alberta com- mission has taken the position that the au- thority of the self-regulatory body comes from the Securities Act and the recognition granted by the commission under it. That differs, says Anisman, from the OSC's stance in this case that the authority arises out of the contract between IIROC and its member firms and their employers. "The reason I think it's significant for a national regulator, is what you have with II- ROC now, formerly the IDA, is you have a single organization with a single rule that is subject to supervision by at least six securi- ties commissions, and more," he says. Anisman — who was commissioned by the federal government in 1979 to write a proposal for a national securities market law — says a national regulator could deal with this "dislocation in the regulatory regime." "It's my view that issues like that are go- ing to arise inevitably in unforeseen ways, and this is just one of them," he says. Ogilvy Renault LLP securities partner Ava Yaskiel says the ruling uncovers what "seems to be a big hole in the ability to exercise enforcement jurisdiction. "I would guess that if they do not win on appeal, [IIROC], then you would see a change to their bylaws and rules to make sure that it applied to members, including past members who are being investigated for some situation that occurred during their membership," says Yaskiel. Taub's lawyer, Robert Brush of Craw- ley Meredith Brush LLP, says the major- ity decision impacts any self-regulatory organization that seeks recognition un- der the Securities Act. "Under the Ontario Securities Act, be- cause of the specific language that's used, when they seek and receive recognition and bring themselves into that statutory scheme there's consequences, and there's all kinds of limits that are imposed on them," says Brush. "One of the consequences is that they are limited to regulate their current mem- bers, and that they don't have jurisdiction to regulate their former members." LT Toronto law firm plays key role in HBC deal BY ROBERT TODD Law Times A Toronto firm recently played a key role in the acquisition of the oldest commercial corporation on the continent. Stikeman Elliott LLP was Canadian counsel for NRDC Equity Partners on a deal that saw the company purchase the Hudson's Bay Co., the country's largest department store chain. New York firm Paul Weiss Rif- kind Wharton & Garrison LLP served as U.S. counsel for NRDC. Torys LLP represented the seller, InterTech Group, a diversified conglomerate led by the Zucker family, which ac- quired HBC in 2006. "We worked on the deal for a few months," says Stikeman Elliott merger and acquisition partner Ian Putnam. "It was generally a great transaction to be involved in. There were a lot of interesting issues, and it was generally a good working group, and we got the deal done." Putnam says tax structuring and planning issues arose, "but generally it was an acquisition of a Delaware private company, because Jerry Zucker held the Bay to a Delaware private com- pany. So there were typical issues associated with all of that." Stikeman Elliott became in- volved in the deal through ties with Paul Weiss, which the firm has worked with many times in the past, says Putnam. Also, Putnam spent five years at the New York firm, from 1999 to 2004. Through the deal NRDC con- solidated its ownership of Lord & Taylor, Fortunoff, and Creative Design Studios under a holding company called the Hudson's Bay Trading Co. Together, the compa- nies make up over US$8 billion in retail sales, 75,000 employees, and 55 million square feet of stores in the U.S. and Canada. The company also has named Jeffrey Sherman, formerly presi- dent and chief operating officer of Polo Ralph Lauren Corp.'s Polo Retail Group, its chief executive officer. He will be in charge of all of the company's Canadian stores, including The Bay, Zellers, Home Outfitters, and Fields. The Hudson's Bay Co. played a unique role in Canadian history. It was founded in 1670, making it one of the oldest commercial cor- porations worldwide. At one time it was the largest landowner in the world and controlled the fur trade in British North America for cen- turies. It effectively governed the region until formal authorities ar- rived on the scene. The company was the larg- est private landowner in the Do- minion of Canada during the late 1800s, and shifted to the sale of goods to settlers in western Canada as the fur trade dried up. "HBC's obviously a great Ca- nadian icon, and it was exciting to be involved in such a great transaction," says Putnam. Stikeman Elliott's team included Putnam, David Pickwoad, and Jeremy Ehrlich (corporate); Doug Klaassen, Andrew Elliott, and James Klein (real estate); Dean Kraus and Francesco Gucciardo (tax); Sandy Walker and Jennifer MacArthur (competition); Lorna Cuthbert, Gary Nachshen, Andrea Boctor, and Janice Campbell (employ- ment and pensions); and Larry Cobb (environmental). Torys' team was made up of John Emanoilidis, Peter Jewett, Gavin Sinclair, Philip Mohtadi, Julie An- gell, James Miller, Graham Erion, Zack Newton, Paulina Taneva, and Beverley Liske (corporate); Donald Roger, David Dell, Elise Sieradzki, and Gwen Johnson (real estate); James Welkoff, Andrew Wong, Pe- ter Keenan, Bari Zahn, and David Mattingly (tax); Dennis Mahony, Michael Fortier, and Tyson Dyck (environmental); Omar Wakil, Sue- Anne Fox, and Craig Pell (compe- tition); Chris Medland and Tara Sastri (employment); Eric Boehm (intellectual property); Blair Keefe and Sunny Sodhi (regulatory); and Jonathan Weisz, Jon Wiener, and Mark Tice (lending). 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