Civil Liability for Continuous Disclosure Violations

Our next two articles examine the new Ontario regime of statutory civil liability for misrepresentations in the disclosure record of reporting issuers. The regime went into effect on December 31, 2005.

Investors now have the right under the Securities Act (Ontario) (the Act) to sue a reporting issuer (and others) for a misrepresentation in the issuer’s disclosure record. The policy rationale is simple: while prospectus purchasers have long had the statutory right to sue an issuer, its directors and certain officers for a misrepresentation in the prospectus, purchasers in the secondary market (where, it has been estimated, approximately 94% of trading takes place) previously had no similar statutory right to recover for misrepresentations in the issuer’s on-going disclosure record. The changes to the Act rectify this inequity.