Quashing an Investigation

In what circumstances can a regulator be required to stop an investigation? That issue came up in Morabito v. British Columbia (Securities Commission), 2022 BCCA 279 (CanLII), https://canlii.ca/t/jrdx2. An individual and their spouse were the subject of an investigation by the securities regulator for insider trading. The investigation had been ongoing for some time. The subjects of the investigation, and those associated with them, had been required to expend significant resources providing information to the regulator. As part of the investigation, the regulator had attended, with police, at the individual’s home when it was likely the spouse would be home but the individual would not. The individual requested that the regulator quash the investigation as it was not serving the public interest and constituted an abuse of process. The regulator provided minimal evidence in response to the request. The individual’s request was denied primarily on the basis that the onus was on the individual to establish that there was no public interest in continuing the investigation. The individual argued in court that the onus should not be on the individual since it was the regulator who possessed the information necessary to justify the investigation.

The Court held that the onus was on the individual, not the regulator, to establish that continuation of the investigation was unwarranted, not in the public interest, or was an abuse of process. The procedural obligations upon the regulator were minimal at the investigation stage. Also, requiring the regulator to justify its investigation at this stage in the process created significant public interest concerns.

In my view there are also practical considerations that militate in favour of the conclusion that the subject of an investigation is not entitled to require the Commission to justify that order before the investigation has been completed and a hearing ordered under s. 161. Placing the onus on the director would normally require him or her to disclose what the investigation has shown so far and what he or she expects it will show as it progresses. In my opinion, such disclosure would open the door to the subjects of such orders to take evasive actions to forestall the discovery of possible contraventions of the Act. Many investigations would grind to a halt or bog down into ‘pre‑hearings’ that would delay and distract the Commission from completing the investigation. Moreover, the Act currently places no limit on the number of times an application for revocation may be brought; nothing would stop the subject from applying repeatedly in respect of the same matter.

The Court also found that the delay did not constitute an abuse of process. However, the Court indicated that there could be some rare circumstances in which evidence of a presumptive abuse of process raised by the subject of an investigation could require the regulator to justify its conduct.

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