Coventree sanctions decision raises interesting points

February 2, 2012

On December 23, the Ontario Securities Commission released its reasons for imposing sanctions in its case against Coventree Inc. and two of Coventree's directors. As we discussed in an earlier post, the Commission recently ordered Coventree to pay an administrative penalty of $1 million and costs of $250,000, while the defendant directors were each ordered to pay a penalty of $500,000.

The sanctions decision raises a couple of points of particular interest. First, the decision considers the principle enunciated in Kienapple that an accused cannot be punished for more than one offence arising out of the same set of facts. While the principle has been applied in an administrative context in the past, the Commission in the immediate case raised doubt as to whether the principle would apply to an OSC proceeding. Regardless, the Commission found that the failure to issue and file a news release  in respect of a material change in this case was a distinct offence from the failure to file a material change report in respect of the same material change. As such, the Commission's opinion on the applicability of Kienapple was not determinative.

Further, the decision discusses Staff's request that the Commission issue an order preventing the director defendants from seeking or accepting indemnification from Coventree for any penalty imposed. The Commission ultimately found that it lacked the authority to make such an order. In the Commission's view, however, there would be nothing preventing Staff from negotiating a provision in a settlement agreement limiting a director or officer from seeking such indemnification.

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