The New Self-Regulatory Organization of Canada (New SRO) cannot pay investors who’ve suffered losses, even if the regulator successfully collects disgorgement orders in proceedings. The New SRO has published for comment a new proposal on distributing funds disgorged and collected through disciplinary proceedings to harmed investors. The regulator asks stakeholders to submit comments in writing by May 1, 2023.
The request for comment discusses existing research and analysis of existing regimes which allow disgorgement, looks at three general approaches and discusses the difference between disgorgement and restitution. It also goes into some detail about program administration including application processes, administration costs, claims assessment and parallel recovery options.
“While disgorgement orders are not imposed for the purpose of compensating investors, the funds received under these orders could be distributed to investors to offset some of the losses they incurred as a result of the conduct giving risk to the order,” the regulator states.
They add that between April 2009 and December 2022 Investment Industry Regulatory Organization of Canada (IIROC, now part of the New SRO), hearing panels alone ordered $7.9-million in disgorgement, of which only $1-million was collected.
The request for comment considers that disgorgement, even if collected, may not provide full compensation to harmed investors and that funds may not be available to all affected investors. It also states that the primary goals of the New SRO’s disciplinary proceedings are to determine whether there has been a breach of regulatory requirements. “To maintain the integrity and focus of New SRO enforcement processes, the working group recommended that these processes be kept apart from the administration of the proposed program and distribution of the disgorged funds.”
