The Ontario Divisional Court upheld the finding of insider trading against the head institutional trader and part owner of Yorkton Securities Inc. (“Donnini”) made by the Ontario Securities Commission (“OSC”). The court reduced the trading suspension imposed by the OSC from 15 years to 4 years and directed that the matter of costs, which had been assessed by the OSC at $186,052.30, be referred back to the OSC to conduct an inquiry into the extent of the bill in order to substantiate the amount.

Administrative law – Stock brokers – Disciplinary proceedings – Suspensions – Decisions of administrative tribunals – Securities Commission – Penalties – Judicial review – Costs

Donnini v. Ontario Securities Commission, [2003] O.J. No. 3541, Ontario Superior Court of Justice – Divisional Court, September 15, 2003, Lane, Somers and Greer JJ.

On June 11, 2002, two of the members of the Panel of the OSC found that Donnini breached section 76(1) of the Ontario Securities Act, R.S.O. 1990, c. S. 5 (the “Act”), the insider trading provisions of the Act. A third member of the Panel dissented and found Donnini guilty of only the lesser offence of acting contrary to the public interest. Donnini was a part owner of Yorkton Securities Inc. and the charges related to a new issue of shares for a high-tech company known as Kasten Chase Applied Research Limited.

During the course of the appeal, the parties attempted to have the court reassess the findings made by the Panel in the course of its Reasons. The court noted that such a reassessment of findings was not the function of the court in these circumstances, unless it can be determined that there is no reasonable way in which the facts as presented could establish the conclusion drawn by the Tribunal. The court further noted that deference was particularly warranted in cases where the Tribunal has a special expertise which it is called upon to apply during the course of its deliberations, citing Committee for Equal Treatment of Asbestos Minority Shareholders v. Ontario (Securities Commission), [2001] 2 S.C.R. 132. In this case, the court found that the Reasons clearly indicated that the expertise of the Panel was applied in determining whether or not the insider trading allegations had been made out. Having considered all of the evidence, the court concluded that the OSC committed no reversible error in its finding that Donnini was guilty of a breach of sections 76(1) and 127(1) of the Act. The court found that there was clear and cogent evidence before the OSC to support their findings and the appeal from liability was dismissed.

In the penalty hearing on September 12, 2002, the OSC suspended Donnini’s registration for a period of 15 years and ordered that he cease trading in securities. In addition, the OSC ordered Donnini pay the costs of investigation and hearing, which they fixed at $186,052.30. The court reviewed three factors which militated in favour of a reduction in the penalty. First, one member of the three person panel had not found that Donnini was guilty of insider trading but merely in acting contrary to public interest. Second, the court was concerned that chairman of the Panel made comments which appeared to indicate that the fact that Donnini refused to deny his guilt should be taken into account in increasing the penalty. Third, the court noted that there was a large discrepancy between the penalty imposed by the OSC on this occasion and the penalty imposed in other similar matters. The court recognized that the OSC was not bound to strictly follow its own precedents. However, the court was of the view that the OSC’s penalty decision should generally adhere to some recognizable pattern. The court stated that if the Commission was entitled to issue penalties which did not correspond with its previous decisions, then those engaged in the Commission’s disciplinary process will be unable to intelligently assess whether to settle or proceed to a hearing, an undesirable result. After reviewing these factors, the court reduced the trading ban from 15 years to 4 years.

The OSC had produced a Bill of Costs totalling greater than $186,000. No particulars were provided and Donnini’s counsel had been denied the opportunity to review any back-up material to the Bill and, if necessary, cross-examine the Bill’s proposers. The court held that the OSC erred in this regard. The court noted that an Order for costs is simply a fine by another name unless it is a true reflection of the actual and reasonable costs of the nature specified as recoverable in section 127.2 of the Act. This was a question of fact and must be resolved upon evidence, disclosure, documents and including cross-examination. Therefore, the court directed that the matter of costs be referred back to the OSC to conduct an inquiry into the extent of the Bill. The OSC was also directed to make available to counsel for Donnini all dockets, time dockets, journal and/or diary entries and other back-up material in support of the Bill and make available all of the participants whose names appeared on the docket for cross-examination by counsel for Donnini.

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