Canada Braces For Securities Class Actions

Continuing The 10b-5 Daily’s international theme, the Toronto Globe and Mail has a feature article on recent amendments to the Ontario Securities Act that are expected to generate “a wave of shareholder class action lawsuits.” Until now, Canadian investors who purchase shares in the secondary market have been limited to common law fraud claims, which require a showing of individual reliance. The recent amendments will create a presumption of reliance (i.e., the fraud-on-the-market theory) and will allow investors to “sue for two types of misconduct: a misrepresentation made in disclosure documents or public oral statements; and a failure to make timely disclosure of a material change.”

The article notes that some commentators are concerned the amendments will create an incentive to bring U.S.-style strike suits, but there will be certain safeguards in the new laws that do not exist here. Notably, a company’s liability will “be limited to either 5 percent of its market capitalization or $1 million, whichever is greater.” There will also be penalty limits for individuals.

Quote of note: “The legislation also is notable for the broad scope of potential defendants it will expose to liability. Not only does it pertain to the company and its directors and officers, but also to investment fund managers, spokespersons, experts (such as accountants, lawyers, financial analysts, engineers and geologists) and so-called influential persons (such as stock promoters or a majority shareholders with a significant influence on the company).”

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