If this does not occur, it is reasonable to treat the non-response
as a refusal and request an opportunity to be heard. Alternatively,
the opportunity to be heard by the Director can be waived entirely.
Due to the increased expense and improbability of success before
the Director, this is a strategy worthy of consideration.
In the past, an opportunity to be heard by the Director was
relatively informal and could be conducted with minimal cost.
It provided a forum to negotiate terms to address the concerns
of Staff. Unfortunately the trend has been towards increasingly
adversarial proceedings involving documentary evidence and
the testimony of witnesses. This process inevitably results in
the Director siding with Staff who, after all, are supervised by
and report to the Director. After losing before the Director, any
person “directly affected by” the decision may seek a hearing
and review before the Commission. Although the members of the
Commission sit as the board of directors of the Commission and
are ultimately responsible for the organization, the Commissioners
that preside over contested hearings do not work directly with
OSC Staff. Accordingly, they are able to bring a more independent
perspective than a Director.
Strategies for Success on a Hearing and Review
A hearing and review before the Commission, typically before
one or two Commissioners, is a hearing de novo. This means that
the issue will receive fresh consideration and the party applying
does not have the burden of convincing the Commission that the
Director’s decision was wrong. KCC and Citadel are two examples
of cases where parties have prevailed before the Commission after
failing with Staff.
Sections 11. 9 and 11. 10 of National Instrument 31-103
Registration Requirements, Exemptions and Ongoing Registrant
Obligations effectively provide Staff with a veto over certain
transactions involving the change of ownership of registered
securities dealers. In KCC, Pro-Financial Asset Management
(PFAM), in light of ongoing financial and compliance issues, had
agreed to an order that imposed significant terms and conditions
on its registration and eventually reached an agreement to sell its
assets to KCC. One of the terms of the transaction was that the
management team of PFAM would be employed by KCC after the
sale. In addition, concurrently with the acquisition of the PFAM
assets, KCC would be recapitalized by a new owner.
After several months of back and forth and the exchange
of a considerable amount of information, Staff objected to the
transaction. Although the applicants waived an opportunity to be
heard, the Director of CRR issued a decision refusing to grant the
requisite approval under NI 31-103, citing concerns with proposed
management and the new firm’s ability to comply with its regulatory
requirements. Thereafter, KCC and PFAM successfully obtained the
Commission’s approval for the transaction on a hearing and review.
A key strategy which contributed to the success of this case
was the decision to make unilateral changes to the proposed
transaction to address the concerns of Staff. These changes were
unilateral in that they were not accepted or agreed to by Staff.
Rather, they were presented to the Commission at the hearing
and review. In rejecting the transaction, Staff had heavily relied on
the compliance record of PFAM and an ongoing investigation into
PFAM. By changing the contemplated role of the PFAM principal
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