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Can a finding of a breach of securities law by a securities commission be the basis for professional liability?


In 2004 and 2005, Dale Smith, CPA, was involved in a complex investment structure (the "Norshield Investment Structure") which was presented to investors as giving them access to hedge fund managers usually only accessible to institutional investors. In reality, investors' funds were invested in a Barbados-based corporation which was put under receivership and led to the loss of 159M$ due to the investment strategy, missing or incomplete records, multiple jurisdictions, competing claims and intercorporate transfers.

In March 2010, the Ontario Securities Commission (the "OSC") found Mr. Smith, along with a partner and two corporations: (i) not to have acted fairly with investors, (ii) to have authorized breaches of Ontario securities laws, (iii) to have provided misleading evidence to Staff to hide securities law violations and (iv) to have engaged in a course of conduct that compromised the integrity of Ontario's capital markets and was contrary to the public interest. The Ontario Superior Court dismissed Mr. Smith and his partner's appeal in 2011. In August 2010, they were fined more than 2M$ and were permanently prohibited from trading in securities and from acting as officer or director of an issuer.

Judicial History

In 2012, the Quebec CPA Order (the "Order") lodged a disciplinary complaint against Mr. Smith based on section 11.11 of the Code of ethics of chartered professional accountants' (the "CPA Code of Ethics")2.The complaint was dismissed by the Order's Disciplinary Council as they lacked evidence on Ontario law, a decision which was reversed by the Professions Tribunal. On judicial review, the Superior Court of Quebec upheld the Disciplinary Council's decision on other grounds, underlining that the OSC chose an administrative proceeding against Mr. Smith, rather than seeking a criminal prosecution in front of the Superior Court of Ontario. Furthermore, when including the words "offence" and "guilty", both the CPA Code of Ethics and Quebec's Professional Code3 (the "Professional Code") refer to criminal proceedings.

The Court of Appeal decision

Justice Jacques Dufresne of the Quebec Court of Appeal upheld the Superior Court's decision and dismissed the Order's disciplinary complaint. He confirmed that both section 11.1 of the CPA Code of Ethics and section 149.1 of the Professional Code, as it read as the time of the complaint4, refer to criminal proceedings. While the Court acknowledges that "in ethical matters, the objective of the mechanisms put in place is to promote a broad interpretation likely to produce the expected effects, including that of protecting the public" (our translation), the language of both Acts does not permit to include securities laws breaches found through administrative proceedings. While section 149.1 of the Professional Code was modified in 20135 (language which the Court specifically refused to comment), the presence of similar language ("guilty" and "offence") would seem to lead to the same conclusion. As such, professional orders (which include, in Quebec, lawyers, notaries, chartered administrators and chartered appraisers) cannot rely on such language to obtain disciplinary penalties against an individual found guilty of securities laws violations by a securities commission.



1 "Shall be guilty of an act derogatory to the dignity of the profession […] any member of the Order who: (1) is found guilty by a final judgment of a court of competent jurisdiction of an offence against any tax Act or securities Act in Canada or elsewhere."

2 Code of ethics of chartered professional accountants, CQLR c C-48.1, r 6

3 Professional Code, CQLR c C-26

4 "A syndic may, by way of a complaint, seize the disciplinary council of any decision of a Canadian court declaring the professional guilty of a criminal offence which, in the opinion of that syndic, is related to the practice of the profession."

5 "A syndic may, by way of a complaint, seize the disciplinary council: (1) of any decision of a Canadian court finding a professional guilty of a criminal offence, (2) of any decision made in Québec finding a professional guilty of an offence under section 188 or of an offence under a provision of a Québec or a federal Act, or (3) of any decision made outside Québec finding a professional guilty of an offence which, if committed in Québec, could have resulted in penal proceedings under section 188 or penal proceedings under a provision of a Québec or a federal Act. The decision referred to in the first paragraph must, in the opinion of the syndic, be related to the practice of the profession."

  • By: Gabrielle Tremblay