The Importance of Cooperation Among Interjurisdictional Securities Regulators: United States Securities and Exchange Commission v. Autorité des marchés financiers, 2018 QCCQ 4417

  • United States
  • 08/14/2018
  • Sophie Melchers, Securities Litigation

In the recent decision of United States Securities and Exchange Commission v. Autorité des marchés financiers, 2018 QCCQ 4417, the Quebec Court, Criminal and Penal Chamber held that the United States Securities and Exchange Commission (SEC) had the required interest under section 122 of the Code of penal procedure (CPP) to be allowed to examine materials seized by the Autorité des marchés financiers (AMF), the Quebec securities regulator, from persons under investigation. The CPP applies with respect to proceedings in view of imposing a penal (as opposed to criminal) sanction for an offence under any Act, except proceedings brought before a disciplinary body, including penal proceedings commenced by the AMF for breaches of the Quebec Securities Act.

Background to the Decision

The AMF executed search warrants and seized documents and hardware in the context of its ongoing securities investigation of Dominic Lacroix, Sabrina Paradis-Royer, DL Innov. Inc., and PlexCorps (PlexCoin and Sidepay.ca) (Lacroix et als). Besides being under investigation by the AMF, Lacroix et als were under investigation by the SEC and also named defendants in a lawsuit prosecuted by the SEC in New York for breaches of US securities laws.

The SEC made a request for international assistance from the AMF based on two international agreements between the securities law enforcement agencies: the Multilateral Memorandum of Understanding concerning consultation, disclosure, cooperation, and the exchange of information (MMOU) and the Memorandum of Understanding between the SEC and AMF (MOU).

In response thereto, the SEC was provided with documentation by the AMF and determined that the materials seized by the AMF were relevant to the SEC’s investigation and to its proceedings against Lacroix et als. The SEC therefore sought access to the seized materials, relying on section 122 CPP which allows every person who has an interest in a thing seized to apply for leave to examine them. As a courtesy, the SEC included Lacroix et als as mis-en-cause (impleaded parties) to its motions. The AMF was the respondent. The AMF consented to the SEC motions while Lacroix et als, the mis-en-cause, contested.

The Court’s Analysis

The only question to be adjudicated by the Court was whether or not the SEC had the required legal interest under section 122 CPP to be granted leave to examine the materials seized by the AMF.

In its motions, the SEC alleged the existence of the pending New York proceedings against Lacroix et als, the ongoing SEC investigation, the SEC request for international assistance addressed to the AMF and the relevance of the materials seized by the AMF for i) the New York proceedings, ii) the depositions of Lacroix et als and iii) the ongoing SEC investigation. Those allegations were supported by an affidavit from SEC counsel attesting that the facts alleged in the motions were true. In support of its motions, the SEC filed the AMF search warrants and supporting affidavits of AMF investigators, the minutes of execution of the search warrants, which included a description of the items seized, excerpts from the Quebec corporate registry and the pending New York proceedings.

Lacroix et als contested the SEC motions and argued that the affidavits supporting the SEC motions had no probative value. In their view, the facts alleged were insufficient without testimony regarding how the SEC became aware of them.

The Court firmly disagreed with the position of Lacroix et als, stating that the allegations in the SEC’s sworn affidavits referred to investigative documents of the AMF and those issued by the New York court. The Court emphasized that it was clear that the SEC prosecutor had personal knowledge of the contents of these documents, knowledge acquired as part of his professional duties as a lawyer for the SEC. For these reasons, the Court found that the evidence adduced in support of the SEC’s motions was sufficient to establish the legal interest of the SEC in the materials seized by the AMF and accordingly allowed the SEC to examine the materials and obtain copies of same, subject to paying any applicable fees.

The Court made reference to a decision in the Pharmaciens (Ordre des) c. Meilleur case, in which it granted a request under section 122 of the CPP giving a disciplinary council access to evidence seized pursuant to a search warrant. In addition, the Court clarified that case law does not require the entity requesting access to show that it has reasonable grounds to believe that an offense was committed in order to gain access to it.[1]

Key Take Aways

This decision clarified that the threshold to be met by a foreign regulator wishing to access materials seized by Quebec’s securities regulator is not particularly burdensome, the test being the existence of an interest in examining the seized materials as per section 122 CPP. Allegations concerning the AMF investigation and the parallel SEC investigation and proceedings, supported by a simple affidavit, proved to be sufficient.

Reference is made in this case to the international cooperation agreements, such as the ones between the AMF and the SEC. While those are held in high regard and validate the necessity for cooperation between jurisdictions to ensure that criminal or penal liability is enforced both domestically and abroad, the SEC’s request for access to the materials seized by the AMF fell outside their scope, hence the request under section 122 CPP.

https://www.securitieslitigation.blog/2018/08/the-importance-of-cooperation-among-interjurisdictional-securities-regulators-united-states-securities-and-exchange-commission-v-autorite-des-marches-financiers-2018-qccq-4417/