The enforcement efforts of the Ontario Securities Commission (OSC), the regulator that administers and enforces compliance with the provisions of the Securities Act (Ontario) and the Commodity Futures Act (Ontario), have had mixed success— at best. With a mandate to protect investors and ensure fair and efficient capital markets through monitoring compliance and enforcement measures

The Supreme Court has handed down a judgment that marks a tremendous victory for Theratechnologies and public corporations in general. This important decision is a reminder of the continuous disclosure requirements of corporations and clearly defines the burden to be met by investors seeking authorization to bring a class action under the secondary market liability regime of the Securities Act (the “SA“).

This new liability regime was adopted to facilitate actions brought by shareholders trading on the secondary market who believe they have suffered damages due to a corporation’s misrepresentation or failure to disclose information. In order for shareholders to benefit from this advantageous regime, they must use the authorization mechanism under section 225.4 SA requiring proof of “a reasonable possibility that [the case] will be resolved in favour of the plaintiff.” Although this authorization mechanism has been in force in Ontario since 2002 and in Québec since 2007, this is the first time that the Supreme Court has specified its parameters:

[36] The Quebec legislature used different language in s. 225.4 [than what is used in article 1003 of the Code of Civil Procedurefor authorizations to institute a class action] to create a more meaningful screening mechanism in the securities context so that costly strike suits and unmeritorious claims would be prevented. Courts are given an important gatekeeping role, which requires them to conduct a preliminary examination of the impugned action or inaction to assess whether it could be said to have a reasonable possibility of success.

The corporation 121851 Canada Inc. (“121851“) alleged that Theratechnologies failed to disclose a material change while undergoing the Food and Drug Administration‘s (“FDA“) approval process of its flagship drug, tesamorelin, as required under section 73 of the SA. To satisfy the criterion of “a reasonable possibility” of success, 121851 needed to demonstrate, after a preliminary examination of the evidence, the existence of a material change. The Court confirmed that in order for there to be a material change within the meaning of the SA, it is important not only to determine whether the information has had a significant effect on the security’s market price, there must also have been a change in the business, operations or capital of the issuer.
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When the Ontario Court of Appeal speaks, it sets important policy for the securities industry.  On February 3, 2014, the industry was told that class actions claiming damages for secondary market misrepresentations are rendered easier to commence and continue.

In Greene v. Canadian Imperial Bank of Commerce, a rarely assembled five‑member Court Bench overturned