OSC broke confidentiality, allege lawyers for ex-Bridging Finance CEO

Legal counsel for embattled former chief executive accuse staff of violating rights set out in securities law

OSC broke confidentiality, allege lawyers for ex-Bridging Finance CEO

The Ontario Securities Commission (OSC) violated the rights of the embattled ex-CEO of Bridging Finance when it filed an application to put the firm under receivership, according to lawyers representing him.

In a filing submitted on November 22, lawyers from Crawley Mackewn Brush LLP allege that during investigations into the firm, enforcement staff from the OSC compelled David Sharpe, who was its CEO and ultimate designated person at the time, to attend regulatory interviews over three different days.

“Mr. Sharpe took the use and derivative use protections of the Evidence Act and the Charter in respect of all questions asked and answers given,” the filing said.

As it sought to investigate the firm more deeply, the OSC submitted a court application to appoint PricewaterhouseCoopers as the receiver of Bridging Finance on April 30. To support its application, OSC staff submitted evidence it collected under Section 13 of the act, which included the entire rough transcript of an interview its staff had with Sharpe on April 29, 2021.

Shortly thereafter, on May 1, the OSC published a news release announcing PWC’s appointment and the issuance of a temporary cease trade order.

Sharpe’s legal team argued that by filing the interview transcript in the court record, the OSC violated Section 16 of the Securities Act, which stipulates broad non-disclosure and confidentiality terms.

They noted that there are exceptions provided by certain provisions under Sections 16 and 17, including one Section 17 provision that allows the commission to issue orders authorizing disclosure of compelled evidence.

But they say the relevant exceptions only apply when the commission determines such disclosure to be in the public’s interest. In addition, the OSC should not make any order authorizing disclosure of compelled evidence unless the commission has, where practicable, given the person or company from whom it was obtained reasonable notice and an opportunity to be heard.

“[W]hile documents that have been compelled under section 13 are routinely entered into evidence as part of Staff’s case, the admissibility of the transcripts of compelled testimony into evidence is subject to careful oversight by Commission hearing panels,” the filing said.

In Sharpe’s case, they said no notice was given, and the OSC staff did not have a section 17 authorization order when they filed the transcript.

According to Sharpe’s legal team, the OSC’s position is that filing the compelled testimony was permissible even without giving him notice or issuing an authorization order. That appears to be predicated on an interpretation of language from subsection 16(2) that says testimony or documents obtained under section 13 are for the exclusive use of the commission.

“It appears to be the position of the OSC that it has the power to use compelled evidence as its sees fit to perform its functions under the Act, including seeking the appointment of a receiver, even if doing so results in public disclosure of the compelled evidence,” Sharpe’s team alleged, emphasizing that such a position is completely at odds with plain wording of the subsection specifying that it only applies in accordance with section 17.

That position, Sharpe’s team added, stands in total opposition to the approach the OSC and the courts have taken in publicly available decisions to date. And while the commission may have filed compelled evidence in other court applications on the same basis as in this case, they said they’re not aware of any authority endorsing that approach.

“The apparent change in approach of the OSC … is highly problematic,” the filing said. “It is of critical importance that the Commission ‘clear the air’ so that the subjects of the OSC’s broad powers of investigation and compulsion understand the potential consequences of complying with a section 13 summons.”

A hearing on the arguments will be held before the Commission on December 16, 2021