By Danica Bennewies
Welcome back to Friday Finds, the weekly series on the CBLB where we share five of the top corporate and securities law news stories from the past week. The Polar Vortex sweeping through North America and causing freezing cold, Mars-like temperatures was at the top of most headlines this week, however there were also a number of big securities law stories. We’ve rounded up the top five that dominated our conversations.
First up, a decision from the Supreme Court of Canada (SCC). Bankrupt oil and gas companies must fulfill provincial environmental regulations before paying back anyone they owe money to, the SCC ruled on Thursday. The case before the SCC involved Redwater Energy Company, an Alberta oil and gas company that went bankrupt in 2015. Following its bankruptcy, Redwater abandoned its wells, pipelines, and other facilities but neglected to complete the required costly clean-up of the land. The SCC’s decision reversed an earlier ruling that prevented the Alberta Energy Regulator from seizing Redwater’s assets in order to pay for the necessary clean-up of its abandoned sites. In its majority decision, the Court stated that “[b]ankruptcy is not a license to ignore rules…”. This case brings new challenges to boards of directors in carrying out their risk assessments, particularly as more oil and gas companies are facing bankruptcy due to unfavourable market conditions.
On Thursday, the Ontario Securities Commission (OSC) published a notice inviting innovative Ontario businesses to join a new pilot project to test financial products and services. The project is the initiative of a global group of regulators called the Global Financial Innovation Network (GFIN), of which four of Canada’s biggest securities regulators are members (Alberta, British Columbia, Ontario, and Quebec). The purpose of this pilot is to provide FinTechs with a global sandbox to test out new products and business models in different jurisdictions, allowing them to access real-time insight into how they may enter these different markets. Additionally, the project will help inform the future work of the GFIN and could, over time, be used to highlight potential areas of regulatory convergence. This pilot is an example of the type of work the OSC has been engaging in recently to modernize regulation and support the development of innovative businesses for the ultimate benefit of investors.
One of the big questions faced by securities regulators over the past few years is whether ICOs should be deemed securities. The Securities and Exchange Commission (SEC) has issued a number of statements and carried out enforcement actions indicating that an ICO can constitute a security offering, and is therefore subject to the relevant registration requirements. However, Kik Interactive, a Waterloo-based start-up, disagrees. Kik is facing a potential enforcement action from the SEC for the 2017 token sale of Kik’s cryptocurrency, Kin. In an interview this week, Kik’s CEO, Ted Livingston, asserted that because Kin has monetary value it is essentially a currency and is therefore not subject to the registration requirements under the Securities Exchange Act (1934). Though the SEC hasn’t issued an enforcement action yet, Kik has made it clear that it will fight back if necessary. The result of this legal battle, should it come, could have major implications on the SEC’s regulatory authority over ICOs in the future.
In other regulator news, the Investment Industry Regulatory Agency of Canada (IIROC) and the Mutual Fund Dealers Association (MFDA) are pressuring provinces and territories to pass stricter laws relating to financial adviser fraud. The goal of two regulators, which oversee registered investment dealers, mutual fund firms, and financial advisers, is to provide a consistent level of investor protection across Canada. However, doing so requires closing a number of regulatory gaps that enable offenders to evade penalties. For example, in most jurisdictions the regulators do not have the authority to start collecting evidence immediately following the identification of a possible offender. Instead, in all but a few provinces, regulators must wait until disciplinary hearings have begun before collecting evidence on the alleged violators – a delay that hinders effective enforcement. As such, IIROC and the MFDA are seeking greater legal power from provincial and territorial governments to investigate crimes and collect fines, as well as protection from malicious lawsuits when acting in the public interest.
Lastly, we’ll end off with some industry news. Last week we talked about a couple major takeover deals by the gold producers Barrick Gold Corp and Newmont Mining Corp. This week, there’s a new takeover target in the gold sector. Iamgold, a Toronto-based mining company with operations in Canada, Africa, and South America, saw a 23% jump in its share price this week resulting from takeover rumours. Analysts say that Iamgold’s “surprise” decision to defer a project indicated that it might be preparing for a potential transaction. The miner was also apparently in talks with Kinross Gold Corp about a possible takeover last year, though the two companies failed to reach a consensus over certain terms. Both companies are among the worst performing long-term Canadian gold stocks, though Kinross is over twice the size of Iamgold and produced almost three times as many ounces of gold last year. Whether Iamgold will be the latest gold company to be acquired remains to be seen – stay tuned to Friday Finds for updates on this deal.
Thanks for getting caught up with us this week. We’ll see you back here on the CBLB next Friday for more Friday Finds!