Today’s Financial Post has some comments from me on yesterday’s settlement between the Ontario Securities Commission and Nortel Networks. Peter Brieger does a good job setting out the background. Like many things the OSC has done lately, some of which we have commented on before, this one leaves us wondering if anyone is really home at Canada’s so-called premier securities regulator.
Last week, the OSC settled with Biovail founder Eugene Melnyk for $ 1 million —the same amount it is seeking from Nortel. The Melnyk settlement involved an individual. Nortel, on the other hand, is a leading corporate issuer and the offence took place repeatedly over a period of several years. If the settlement with Melnyk was fair and appropriate, it is hard to see the OSC’s deal with Nortel in the same light.
For Nortel only to contribute toward the costs of the investigation opens the door to others seeing it as just a cost of doing business improperly. Unlike the Melnyk situation, where no investors appeared to suffer, Nortel’s actions resulted in investors being systematically deceived and misled over a considerable period.
This decision sends precisely the wrong signal, but it is consistent with the lame image the OSC continues to create in the minds of investors who are looking for more than a cost of investigation outcome. And it raises the question: What exactly is the business of the OSC? It seems to go out of its way to find reasons not to pursue potential wrong doing or to prosecute. Now, the fact that the executives on whose watch this occurred are no longer there seems to be the latest excuse. Nortel is a corporate entity with its own legal rights and obligations. Executives were not acting on their own behalf; they were acting for the company. Shareholders relied upon the company’s actions and statements; they were not relying upon the executives in their personal capacities. But the OSC seems to want to take the easiest route to making it look like it is still on the scene when it is doing little more than an impersonation of a regulator. I predict some investors will be more outraged by the actions of the OSC than by the events that prompted the investigation in the first place, and will again be demanding reform of Canada’s system of securities regulation.
It is hard to regard this outcome as anything but one more indication that the OSC is out of touch with the investors it is supposed to be protecting and lacks the will and the judgment needed to properly regulate an important sector of Canada’s capital markets.