|The report points out that
the OSC "as it is currently structured engages in policy setting, rule
making, investigations, prosecution and adjudication under one corporate,
statutorily established umbrella."
Essentially, the OSC has too many roles.
Therefore, the report recommends a number of changes to the OSC that would
split the prosecuting from the adjudicating.
But clearly the commission -- and in
particular its chairman, David Brown, who released the report to this
week's provincial hearings into the workings of the OSC -- didn't like
what the report had to say.
So the OSC retained the services of two
high-profile law firms -- Torys and McCarthy Tetrault -- to comment on the
Osborne report. (Osborne is the chairman of the Ontario Integrity
The idea was presumably to find fault
with some of the logic contained in the report and provide the OSC with
some ammunition, lest the provincial government decided to take a serious
look at the report's findings. Brown said he sought the legal opinions to
answer some "loose ends" that were not fully addressed by the Osborne
It's not known why the OSC approached
those two particular law firms. What is clear is that if the OSC had
approached some other law firms -- especially those who focus on
litigation -- they probably would have received a different view. (It's
worth noting that more than 60 people, including a number of litigating
lawyers, were interviewed in compiling the Osborne report.) And Brown
didn't tell the committee how much the OSC paid for the two opinions.
The OSC's approach doesn't sit well with
a number of lawyers. "The fact is that the two legal opinions can never
take away from the substance of the issue, which is the adjudicator and
the prosecutor wear the same hat. And that's unacceptable," said one
lawyer. "I don't care what some law firm says about it. It's angels
dancing on the head of a pin."
Another lawyer noted somewhat cynically
that "you can't get Coulter Osborne to say what you want. Legal opinions
are like fairness opinions for investment dealers."
Indeed, some lawyers argue that if the
OSC had been operating all these years under a different structure -- one
where there was a separation between the various roles -- the regulator
may have had more success with some of its enforcement actions.
YBM Magnex is one of the recent
high-profile cases of securities fraud. In that instance, the OSC was
judge and prosecutor, twin roles that allowed some of the defendants to
point out the paradox: one branch of the OSC had approved a prospectus
allowing the issuer to raise capital while another branch was nailing the
issuer and its advisors.