On March 15, 2018, the Ontario Securities Commission (OSC) and the Financial and Consumer Affairs Authority of Saskatchewan (FCAAS) released highly anticipated reasons for a combined decision relating to Aurora Cannabis Inc.’s (Aurora) unsolicited take-over bid to acquire CanniMed Therapeutics Inc. (CanniMed). The reasons followed a December 21, 2017 decision in which the OSC and FCAAS, among other things:

  • Permitted Aurora’s use of “hard” lock-up agreements with other CanniMed shareholders to build support for its bid (finding that the locked-up shareholders were not “acting jointly or in concert” with Aurora).
  • Cease traded a tactical shareholder rights plan (poison pill) implemented by the CanniMed board in the face of the Aurora bid.
  • Declined to grant Aurora exemptive relief from the 105-day minimum deposit period.
  • Declined to restrict Aurora’s ability to rely on the exemption from the general restriction on purchases by a bidder to purchase up to 5% of the target company’s shares during the currency of its bid.


Continue Reading

On March 31, 2018, the new rules from the Ontario Securities Commission (OSC) on distributions of securities outside of Canada came into force. OSC Rule 72-503 Distributions Outside Canada (Rule 72-503) provides clarity on a previously opaque subject in Canadian securities law: how do market participants comply with securities law when selling securities to buyers that reside in other countries? In response to this ambiguity, Rule 72-503 creates four new exemptions from the Ontario prospectus requirement for issuers distributing securities to buyers residing in other countries.

Background

Since its publication in 1983, Interpretation Note 1 Distributions of Securities of Ontario (Interpretation Note) governed OSC policy on distributions outside of Canada. As a statement of principle, the Interpretation Note allows distributions of securities effected outside of Ontario without triggering Ontario’s prospectus requirement where “reasonable steps are taken by the issuer, underwriter and other participants effecting such distributions to ensure that such securities come to rest outside of Ontario.” The Interpretation Note then cites several examples of such “reasonable steps” including representations in the selling documents and legends on the securities, without committing to a bright-line test or concrete criteria. In the intervening decades, market participants have often complained about the vagueness of the Interpretation Note and the corresponding lack of certainty to international securities offerings in an increasingly globalized world.


Continue Reading

The British Columbia Securities Commission (BCSC) published BC Notice 2018/01 – Consulting on the Securities Law Framework for Fintech Regulation on February 14, 2018.  The Notice follows from a series of consultations (both in person and by survey) conducted by the BCSC on various elements of the financial technology (fintech) industry.  The Notice sets out the results of the consultations, the general approach to date of the BCSC on certain of the matters and poses specific questions for comment on potential regulatory action to clarify or modernize securities laws in the space. Written submissions are due on April 3, 2018.

The Notice discussed the following topics, among others:

  • crowdfunding and online lending business models
  • online adviser business model
  • cryptocurrency funds
  • initial coin offerings (ICOs) and cryptocurrencies.


Continue Reading

In August 2017, we considered the guidance offered by the Canadian Securities Administrators (CSA) regarding the application of securities laws to the blockchain industry and initial coin offerings (ICOs), primarily as set out in CSA Staff Notice 46-307 Cryptocurrency Offerings.  In that post, we noted that the CSA have provided little guidance regarding when they would consider cryptocurrencies to be securities, and thus subject to Canadian securities rules.

Continue Reading

On March 7, 2018 the U.S. Securities and Exchange Commission (SEC) released a “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets”. The statement is a warning to investors, service providers operating platforms through which digital assets are traded, and those providing ancillary services involving the transfer or maintenance of digital assets

With regard to investors, the SEC’s principal suggestion was to conduct diligence to ensure online trading platforms with which investors engage are SEC-registered and regulated marketplaces, whether as national securities exchanges, alternative trading systems, or broker-dealers.


Continue Reading

On September 28, 2017, the securities regulatory authorities in all Canadian jurisdictions, other than British Columbia (CSA), issued CSA Multilateral Notice of Multilateral Instrument 91-102 Prohibition of Binary Options and Related Companion Policy (Instrument) in response to an increased number of complaints received relating to the marketing of binary options. Subject to the necessary approvals,

On March 7, 2017, 1891868 Alberta Ltd., a wholly-owned indirect subsidiary of Sprott Inc. (Sprott, and together with its wholly-owned subsidiaries, Sprott Group), filed an originating application (Application) in the Court of Queen’s Bench of Alberta (Court) for an order approving a proposed plan of arrangement (Arrangement) with Central Fund of Canada Limited (Target), Sprott Physical Gold and Silver Trust (to be formed and managed by Sprott Asset Management LP (Trust)), the holders of class A non-voting shares (Class A Shares) of the Target and, as applicable, the holders of common shares (Common Shares) of the Target pursuant to Section 193(2) of the Business Corporations Act (Alberta) (Act).  The Application has been scheduled to be heard by the Court on September 7, 2017.

The Application

The Application seeks an interim order for the calling and holding of a meeting of shareholders (Target Shareholders) of the Target to approve the Arrangement proposed by the Sprott Group.  It should be noted that applications for court orders approving arrangements are typically made by target companies.  Accordingly, this application, which is not supported by the Target, could be characterized as a “hostile” plan of arrangement.  At an application held in April, the Court agreed to set a date in September for the interim application.

According to the Sprott Group, there are a number of qualitative and quantitative benefits to the Target Shareholders which are anticipated to result from the Arrangement and the transactions contemplated thereby, including eliminating the dual-class share structure, continued exposure to the future growth of the Target’s portfolio of assets, the availability of a physical redemption feature, and the potential for the Class A Shares to trade at, near or above their net asset value (instead of at a discount to net asset value, which is currently the case).

According to the Target, the Application is one of numerous steps already taken by the Sprott Group to seek control of the Target. Among other measures taken, the Sprott Group has previously attempted to requisition a meeting of the Target to, among other things, elect a slate of directors (Requisition), commenced a derivative action against the Target and appealed to the Court of Appeal the Court’s finding that the Requisition was invalid.  All of these attempts were unsuccessful.

In this context, a take-over bid made directly to the holders of Common Shares and Class A Shares would likely be ineffective since, according to Sprott, at least 75% of the Common Shares are held by directors and officer of the Target and such persons are not expected to tender to the bid.


Continue Reading

On August 24, 2017, the staff of the Canadian Securities Administrators other than Saskatchewan (CSA) published CSA Staff Notice 46-307 Cryptocurrency Offerings (the Staff Notice) in response to increased activity within the distributed ledger technology or “blockchain” industry. The Staff Notice provides guidance regarding the application of Canadian securities laws to businesses operating in that industry, in particular those undertaking initial “coin” or “token” offerings (ICOs), exchanges on which those coins, tokens and cryptocurrencies are traded and investment funds that invest in such assets.

The Staff Notice provides that in the CSA’s view many coins, tokens and cryptocurrencies fall within the definition of “securities” under Canadian securities laws. An offering of such tokens would therefore require a prospectus or exemption from prospectus requirements and businesses supporting and operating ancillary to such tokens could be subject to registration requirements. The Staff Notice also provides that such products may also be derivatives and subject to the derivatives laws adopted by the Canadian securities regulatory authorities.

The Staff Notice confirms speculation among industry participants and advisors that Canadian regulators would take this approach, which is similar to the positions articulated by the United States Securities & Exchange Commission and securities regulators in Singapore.

With respect to ICOs, the Staff Notice provides that, from the CSA’s perspective, many of the ICOs completed to date involved the sale of securities and that securities laws in Canada will apply if the person or company selling the securities is conducting business from within Canada or there are Canadian investors in the tokens.

The CSA are aware of businesses marketing their tokens as software products and taking the position that the tokens are not subject to securities laws.  It appears to be the CSA’s view, however, that in many cases, when the totality of the offering or arrangement is considered, the tokens should properly be considered securities.  In assessing whether or not securities laws apply, the Staff Notice states that the CSA will consider substance over form and apply a purposive interpretation to the law with the objective of investor protection in mind.


Continue Reading

On July 27, 2017, the Canadian Securities Administrators (CSA) announced in CSA Staff Notice 51-351 Continuous Disclosure Review Program Activities for the fiscal year ended March 31, 2017 that a CSA Staff Notice detailing the results of the continuous disclosure review program (CD Review Program) will be published every two years instead of annually. As a result, there will be no CSA Staff Notice related to the CD Review Program for the fiscal year ended March 31, 2017 and instead the next CSA Staff Notice will be for the fiscal year ended March 31, 2018.

CSA Staff Notices regarding the results of the CD Review Program are aimed at providing an overview of common continuous disclosure deficiencies. Further details regarding the CD Review Program can be found in CSA Staff Notice 51-312 (revised) Harmonized Continuous Disclosure Review Program and have been summarized below.

In 2004, the CSA established the CD Review Program. The goal of the CD Review Program is to improve the completeness, quality and timeliness of continuous disclosure by reporting issuers in Canada. The CD Review Program educates issuers during continuous disclosure reviews and identifies material disclosure deficiencies and questionable transactions that affect the reliability and accuracy of an issuer’s disclosure record.

Under the CD Review program, the principal regulator is responsible for reviewing the issuer’s continuous disclosure record and taking further steps related to continuous disclosure compliance. The CSA uses a risk-based approach to select issuers to review and to determine the type of reviews to conduct, which can either be a “full” review or an “issue-oriented” review. Staff review the overall quality of the issuer’s disclosure, and in particular, assess whether there is sufficient information for the reader to understand the issuer’s financial performance, financial position, business risks and future prospects. Issues identified during the review are typically communicated to the issuer through a comment letter, which then invites the issuer to provide a written response.


Continue Reading