The Long Arm of the B.C. Securities Commission
In McCabe v. British Columbia (Securities Commission), 2016 BCCA 7, the B.C. Court of Appeal upheld the ability of the B.C. Securities Commission (the “Commission”) to penalize a resident of British Columbia for publishing misrepresentations about an American company in the United States. This case confirms the Court’s expansive approach to the Commission’s extraterritorial jurisdiction.
Mr. McCabe is a British Columbia resident who published a monthly stock report through a company he controlled. Guinness Exploration Inc. (“Guinness”) is a company incorporated in Nevada. Its shares are quoted on the Over-the-Counter Bulletin Board in the United States and it is an over-the-counter reporting issue in British Columbia. In 2009 and 2010, Mr. McCabe wrote three reports promoting shares in Guinness (the “Guinness Tout Sheets”).
Mr. McCabe wrote the Guinness Tout Sheets in British Columbia, but they were printed and distributed in the United States. There was no evidence that anyone in British Columbia other than Mr. McCabe was aware of them. Mr. McCabe ultimately received $2.65 million (USD) through his British Columbia bank account for publishing the Guinness Tout Sheets.
The Guinness Tout Sheets were grossly misleading. The Commission found that they were intended to significantly increase trading volumes in Guinness shares in order to inflate its stock price.
In 2012, the Commission alleged that Mr. McCabe made misrepresentations contrary to s. 50(1)(d) of B.C.’s Securities Act, R.S.B.C. 1996, c. 418. Mr. McCabe advanced a preliminary argument that the Commission lacked jurisdiction because the Guinness Tout Sheets were only sent to residents of the United States and Guinness shares were only traded in the United States. The Commission rejected the argument, which Mr. McCabe appealed.
The Commission’s Extraterritorial Jurisdiction
At the outset, the parties disagreed over the appropriate standard of review. Mr. McCabe submitted that the issue was one of “true jurisdiction”, such that the Commission’s decision had to be correct. The Commission responded that the case only concerned the application of s. 50(1)(d) to Mr. McCabe’s conduct and thus a reasonableness standard was appropriate. The Court ultimately declined to decide this issue as it found that the Commission was correct in any event.
Mr. McCabe’s central jurisdictional argument was that the Securities Act was constitutionally inapplicable to his conduct by reason of extraterritoriality. He submitted that there was no meaningful connection between British Columbia and the publication of the Guinness Tout Sheets in the United States and that s. 50(1)(d) should be interpreted as containing language limiting its geographical applicability.
The Court held that the Commission’s jurisdiction depends on a real and substantial connection between the impugned conduct — here Mr. McCabe’s publication of the Guinness Tout Sheets — and British Columbia. The Court also held that the analysis of whether a real and substantial connection exists must reflect the realities of modern securities regulation, including the fact that conduct involving securities will often cross provincial and national borders.
The Court agreed with the Commission that the evidence against Mr. McCabe disclosed a real and substantial connection between his conduct and British Columbia: The Guinness Tout Sheets were written in British Columbia, by a resident of British Columbia, who was paid in British Columbia.
Mr. McCabe, relying on the law of misrepresentation and defamation, also submitted that the wrongful act of publication only occurs where a statement is read or acted upon, not where it is written, because publication is incomplete until a statement is consumed by a recipient.
The Court rejected this analogy based on the purpose and wording of the Securities Act. As the Court noted, a tort generally cannot be committed in a vacuum and requires a victim who has been harmed. Conversely, one of the central functions of the Securities Act is to regulate conduct, not remedy harm to victims. The Court also held that an offence under s. 50(1)(d) is committed when the statement is made; s. 50(1)(d) does not require that a misrepresentation be received or acted upon.
As a result, the Court dismissed Mr. McCabe’s appeal and upheld the Commission’s assumption of jurisdiction.
McCabe continues the Court’s expansive approach to the extraterritorial scope of the Securities Act. McCabe closely follows the related case of Torudag v. British Columbia (Securities Commission), 2011 BCCA 458. Torudag involved a similar challenge to the Commission’s jurisdiction by a person not resident in British Columbia who engaged in insider trading with respect to a reporting company in British Columbia. As in McCabe, the Court upheld the Commission’s jurisdiction.
At the time, we wrote that Torudag suggests that the Commission possesses jurisdiction over foreign persons trading on foreign exchanges so long as a real and substantial connection to British Columbia exists. McCabe relies on on the residency of the person as a connecting factor, but also confirms the jurisdiction of the Commission to regulate conduct in foreign markets. As a result, it supports a broad view of the Commission’s jurisdictional reach.
McCabe v. British Columbia (Securities Commission), 2016 BCCA 7
Date of Decision: January 8, 2016