Securities laws are a form of investor protection legislation. Compelled disclosure of material information by publicly traded companies lies at the very heart of an effective securities regime.

The Ontario Securities Act, and the equivalent securities laws in the other provinces, set out detailed disclosure rules for: (1) new securities offered in the “primary market” in initial and secondary public offerings; and (2) those already trading in the “secondary market” on stock exchanges (e.g. the Toronto Stock Exchange and NASDAQ), over-the-counter, and on other alternative trading platforms.

When publicly traded companies breach their disclosure obligations, impacted investors have several common law and statutory remedies at their disposal to seek compensation for their losses from the company that issued the securities, its directors and officers, and, in certain cases, other third-party professional service firms, including investment banks (underwriters), accountants and auditors.

Primary Market (Prospectus) Claims

Section 56(1) of the Securities requires that a prospectus for securities issued in the primary market make full, true and plain disclosure of all material facts relating to the securities issued or proposed to be distributed.

Part XXIII of the Securities Act provides a statutory cause of action for damages for misrepresentations in a prospectus in favour of any person who purchases a security offered by the prospectus against the issuer or selling security holder, each underwriter (investment bank) involved in the offering, every director of the issuer at the time that the prospectus was filed, and certain other persons. A right of rescission is also available in lieu of damages. Additionally, and depending on the circumstances, investors in primary market prospectus offerings may sue for negligent misrepresentation or fraud at common law.

Similar remedies are available for investors in “private placement” transactions for misrepresentations in offering memoranda and other disclosure/marketing documents.

Secondary Market Claims

Publicly traded companies are subject to extensive continuous disclosure obligations under the Securities Act, the equivalent securities laws in the other provinces, and under National Instrument 51-102. Broadly stated, continuous disclosure obligations fall into two general categories: (1) periodic disclosure; and (2) timely disclosure.

Under securities laws, periodic disclosure must be made at regular intervals, for example the provision of interim and annual financial statements and management discussion and analysis (MD&A) reports. In these documents, public companies must disclose all “material facts” (i.e. anything that may reasonably be expected to have a significant effect on the market price or value of the company’s securities).

Timely disclosure obligations only arise when there has been a “material change” in the public company’s business, operations or capital that would reasonably be expected to have a significant effect on the market price or value of its securities.

Periodic and timely disclosure obligations are designed to “level the playing field” in order to increase fairness in the secondary market.

Part XXIII.1 of the Securities Act provides a statutory cause of action for: (1) misrepresentations made in documents released by a public company; and (2) the failure to make timely disclosure of material changes. Moreover, and depending on the circumstances, secondary market investors may also sue for negligent misrepresentation or fraud at common law. And, remedies are also available for insider trading.

In addition to the Firm’s robust business litigation practice, the lawyers at Gilbertson Davis LLP have experience in acting for both plaintiffs and defendants, and providing advice to insurers, in cross-border claims for securities misrepresentation in the primary and secondary markets involving publicly traded companies operating in a diverse range of industries and geographical locations, including mining and offshore oil and gas exploration.

If you have an issue concerning the disclosures made by a publicly traded company, if you are a defendant to a securities claim, or insure a person that is, please contact Gilbertson Davis LLP for an initial consultation.