A panel of the Ontario Securities Commission (the “Commission”) found that the Respondent Donnini had engaged in unlawful insider trading contrary to section 76(1) of the Ontario Securities Act. The Commission suspended Donnini’s registration as a securities trader for 15 years and ordered him to pay investigation and hearing costs of $186,000. Donnini appealed all aspects of the Commissioner’s order. A panel of the Divisional Court dismissed the appeal from liability, but allowed the appeal in respect of the sanctions imposed on Donnini and the award of costs. The Divisional Court reduced Donnini’s suspension from 15 to 4 years and directed the Commission to reconsider its costs award by following specific procedural steps. The Court of Appeal upheld the Commission’s findings on liability and sanction but remitted the matter of costs for the Commission’s reconsideration.

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

Donnini v. Ontario (Securities Commission), [2005] O.J. No. 240, Ontario Court of Appeal, January 28, 2005, M. Rosenberg, M.J. Moldaver and J.C. MacPherson JJ.A.

In February 2000, Donnini was the head institutional trader for Yorkton Securities. He was involved in arranging financing for a technology company, KCA. On February 29, Donnini became aware that KCA and Yorkton were negotiating a second financing which was announced publicly two days later, on March 2, 2000. The majority of the Commission found that the proposed second financing was a material fact that Donnini had knowledge of on February 29, 2000 and that he thereafter intentionally traded in KCA shares on a “massive scale” on February 29 and March 1, thereby violating the insider trading provisions of the Ontario Securities Act. The Commission suspended Donnini for 15 years and ordered him to pay $186,000.00 in hearing and investigation costs.

The Divisional Court upheld the Commission’s finding of liability but reduced the suspension from 15 years to 4 years. The Divisional Court also set aside the order for costs.

With respect to liability, the Court of Appeal held that the Divisional Court did not err by upholding the Commission’s finding that Donnini was guilty of insider trading contrary to section 76(1) of the Act. On the record before the Commission, there was ample evidence to support this conclusion.

With respect to the sanction imposed, the court held that it was well-settled law that the standard of review to be applied to the decisions of the Commission was reasonableness simpliciter. Thus, the reviewing court must focus on the reasoning of the tribunal and not engage in its own de novo reasoning. The high level of deference which a reviewing court must show to a securities commission’s decision extended to the question of sanctions because of the expertise of the commission regarding securities matters. The Court of Appeal held that the Divisional Court erred in failing to stay close to the tribunal’s reasons in exercising its review function under a reasonableness standard. The Divisional Court did not refer to the reasoning of the Commission but rather, impermissibly substituted its own view of the evidence for that of the Commission. The Court of Appeal held that the Commission took into account the appropriate factors in imposing severe sanction on Donnini, including his senior position at Yorkton, his experience in the industry, his other misconduct in the market and the devastating impact insider trading can have on the integrity of the market and on investor confidence. The court held that these factors stood up to a somewhat probing analysis. Thus, the Commission’s appeal on this issue was allowed, and the court restored Donnini’s 15-year suspension.

However, the court held that the Commission’s reasons on costs were cavalier and the process followed by the Commission in this regard was unfair to Donnini as it denied him any opportunity to potentially challenge the validity of the costs incurred by the Commission. The appeal was therefore allowed on costs to the extent of returning the matter of costs to the panel for reconsideration in accordance with a procedure that met its obligations of fairness and due process.

To stay current with the new case law and emerging legal issues in this area, subscribe here.