Legal review coming for investigation orders

The Court of Appeal for British Columbia ruled that the subjects of an investigation by the B.C. Securities Commission (BCSC) should be heard in court over whether the onus should be on the regulator to uphold an investigation order, or on the subjects to have the order revoked.

According to the court’s decision, the appellants in the case, Mark and Susan Morabito, were the subjects of a BCSC investigation order issued in 2018, authorizing the regulator’s staff to investigate their trading.

Earlier this year, they applied to the commission to have that order revoked. The BCSC dismissed their application, ruling that the applicants must prove that revoking the order would not harm the public interest.

Then, in October, the BCSC filed insider trading allegations against Mark Morabito. The commission alleged that in 2018, he traded ahead of the release of bad news by Canada Jetlines Ltd., where he was director and chairman.

Those allegations have not been proven, and a hearing into the charges has been scheduled for September 2022.

In the meantime, the appeal court has ruled that the question of whether the onus should be on the regulator or on the targets of an investigation should be heard in court.

The ruling follows an earlier decision of the appeal court, which found that the onus is on the regulator to determine whether or not a freeze order should be revoked.

While freeze orders and investigation orders are fundamentally different, the court ruled a similar case could be made.

“The appellants established that there was at least an arguable case that the analytical model respecting the onus in relation to freeze orders also applied to investigation orders. It is in the interests of justice to grant leave,” the court said in its ruling.

The question of who bears the onus in determining whether or not an investigation order should be revoked has not been decided, the court said, adding that this issue “could have a significant impact on the procedure concerning reviews of investigation orders.”

In particular, a court ruling on this point could “promote efficiency and clarity” in future applications seeking to revoke investigation orders, the decision noted.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.