The ASC issued an investigation and the Summons pursuant to section 42 of the Securities Act, requiring Scott Beaudette, the CEO and sole employee of Sunpeaks Ventures Inc., to attend for examination at the ASC and to produce documents, for potential contraventions.
In April 2012, the Alberta Securities Commission (ASC) issued an investigation and a Summons to a Witness (the "Summons") pursuant to section 42 of the Securities Act, requiring Scott Beaudette, the CEO and sole employee of Sunpeaks Ventures Inc., to attend for examination at the ASC and to produce documents, for potential contraventions of the Securities Act. Following receipt of the Summons, counsel for Mr. Beaudette wrote the ASC and took the position that the proposed examination would violate Mr. Beaudette's Charter rights unless the ASC could provide written assurances that any evidence compelled from Mr. Beaudette would be kept confidential and would not be shared with US law enforcement agencies such as the SEC and the US Department of Justice. Mr. Beaudette chose not attend the ASC for the examination and the ASC commenced proceedings in the Court of Queen's Bench seeking various orders. Mr. Beaudette brought an application challenging the constitutionality of sections 42 and 46 of the Securities Act.
The wording of section 42, briefly stated, empowers the ASC to summon a witness, to compel that witness to give testimony and to compel that witness to produce documents. Section 46 provides the power to the ASC to share information with other securities or financial regulatory authorities, law enforcement agencies or other governmental or regulatory authorities in Canada and elsewhere.
The Alberta Court of Queen's Bench dismissed Mr. Beaudette's application and confirmed that effective securities law enforcement demands that there be inter-jurisdictional cooperation and reciprocal assistance between the regulatory agencies including between Canada's regulatory enforcement agencies and the United States regulatory enforcement agencies (the decision is found here). We had previously commented on the Court of Queen's Bench decision (found here).
On appeal, Mr. Beaudette again argued that the requirement to provide information concerning his securities activities in North America, coupled with the possibility that the ASC might share that information with the SEC and the US Department of Justice, would infringe on his right to liberty as guaranteed under section 7 of the Canadian Charter of Rights and Freedoms.
The Alberta Court of Appeal upheld the constitutionality of the summons and information sharing powers under the Charter and held that sections 42 and 46 of the Securities Act did not violate Mr. Beaudette's Charter rights. The Court of Appeal held that section 7 of the Charter is engaged “where state compulsions or prohibitions affect important and fundamental life choices” and such choices did not include the election to participate in a highly regulated industry.
While immunity from the use of self-incriminating evidence in subsequent proceedings is recognized in Canada to prevent such evidence from being used in the criminal law context, the Court of Appeal noted that an ASC investigation is not by its very nature, criminal. The Court of Appeal also noted importance of Canadian securities regulators and found that even though securities legislation allows for the investigation of offences committed both in Canada and elsewhere, the ASC has a legitimate regulatory purpose. The regulatory purpose and objectives of securities regulation is to protect investors, to facilitate capital market efficiency, and to ensure public confidence in the capital markets, and this could not be achieved without the ASC being able to compel testimony and share information with other regulatory authorities.
The Court of Appeal held that section 42 and the Securities Act as a whole "strike a balance between the privilege against self-incrimination and the principle that relevant evidence should be available in a search for the truth". Even though evidence could potentially be used in American proceedings, Canadian courts are not authorized to evaluate or control the investigative and judicial processes of a foreign authority.
The decision by the Court of Appeal again confirms that in a highly regulated industry, such as the securities market, the individual is aware, and accepts justifiable state intrusions. The purpose of the securities legislation and enforcement agencies are to regulate the market, something that often requires inter-jurisdictional sharing of information. This decision highlights that even the Charter does not prevent the ASC from sharing information with foreign authorities.