Slow, unprofessional tactics not enough to revoke securities investigation order: BC Court of Appeal

The British Columbia Court of Appeal has ruled that the onus to prove that public interest will not be prejudiced by the revocation of an investigation order issued under the Securities Act lies on the party pushing for the revocation.

In Morabito v. British Columbia (Securities Commission), 2022 BCCA 279, Mark Morabito was executive chairman of Canada Jetlines Ltd. (Jetlines), which came into being as a result of a reverse takeover transaction.

In 2017, he made plans to transfer over 350,000 shares of Jetlines to his wife but was unable to complete it until 2018. He did not state if it was gratuitous or not, but in the meantime, Jetlines’ shares rose and fell for a month. In March 2018, Jetlines published news that it would not be achieving the target start-up date. At this time, several senior members also left the company.

In August 2018, the Commission issued an ex parte investigation order under s. 171 of the Securities Act, R.S.B.C. 1996, c. 418 on the trading in the securities of Jetlines. In December 2019, a freeze order was issued upon Morabito. This was varied roughly two months later to allow Morabito to sell several securities.

In January 2021, Morabito sought revocation of the order, describing it as “inherently capable of abuse.” He also argued that over the course of 33 months, the investigation “[had] spiralled out of control without approaching a timely conclusion”. The commission panel dismissed the application for revocation, ruling that none of the grounds raised was sufficient to conclude that public interest favoured bringing the investigation to an end.

Morabito’s leave to appeal the panel’s decision was granted on only one question: “Upon whom does the onus of proof lie in an application for revocation of investigation?”

The appellate court ruled that the onus lies on the applicant to show that public interest will not be prejudiced by the revocation.

Slow, unprofessional investigation not enough for revocation

“Investigation orders under [section] 171 fall at the low end of the spectrum of procedural fairness” and requires only some basis for suspicion of a contravention of the act to be shown, said the court.

The appellate court found that Morabito’s complaint was not based on the improper issuance of the order but on how the investigation was carried out – at a glacial pace and with heavy-handed and unprofessional tactics. However, the onus remained with the applicant to prove that revocation of the investigation would not prejudice public interest, said the court.

This did not mean, however, that the investigator can always rely on this burden of proof, since if the applicant alleges and produces evidence of unprofessional conduct or abuse, the evidentiary burden may shift to the investigator to respond for inordinate delay or why a particular tactic was followed, for example, said the court.