An Italian court has convicted seven scientists and experts of manslaughter for failing to adequately warn residents when an earthquake struck central Italy in 2009 killing more than 300 people. Each of the scientists and experts were sentenced to six years in prison.

This finding of guilt for failing to predict an earthquake is not only a scientific travesty but a legal travesty as well. How anyone can predict an earthquake in an area that is regularly subject to seismic activity is beyond any rational explanation. This conviction borders on astrology being recognized as a legitimate science and hopefully the matter will be appealed to a court where some understanding of the science of geology is applied and the convictions set aside.

It is imperative that the world’s community of geological scientists express their concern about this decision in no uncertain terms to the Italian government.

Shamarkay Hersi, articling student, assisted in the preparation of this article.

On August 23, 2012, the Ontario Securities Commission (“OSC”) released a request for comments on proposed amendments to Rule 13-502 and Companion Policy 13-502CP, which deals with the OSC’s fees model. The proposed amendments are aimed at adjusting the current fee structure under the Ontario Securities Act (the “OSA”) and the Commodity Futures Act so that the fees charged by the OSC are aligned more closely with the OSC’s actual costs.

With the proposed amendments, the OSC projects to increase revenues by 14.8% in 2013/2014.

The proposed amendments include, among others:

• the use of “reference fiscal year” (which is the last fiscal year ending before May 1, 2012) in determining participation fees, as opposed to the issuer’s last completed fiscal year under the current rules;

• an additional tier of participation fees for corporate finance – the first tier will be applicable to reporting issuers with capitalization under $10 million (which will be subject to an initial lower participation fee of $800), and a second tier will be applicable to reporting issuers with capitalization between $10 million and $25 million (which will initially remain subject to a $960 participation fee);

• an additional tier for capital markets participation fees – the first tier will be applicable to participants with under $250,000 of specified Ontario revenues (which will be subject to a $800 participation fee), and a second tier will be applicable to participants with revenues between $250,000 and $500,000 (which will remain subject to a $1,035 participation fee). Participation fees would be increased as shown in the proposed rule during the last two years of the three-year fee cycle. Participation fees for participants within higher tiers of revenue would increase by 7.9% annually throughout the three-year fee cycle;

• fees for late filling of prescribed forms – including new forms 13-502F7 (Specified regulated entities – Participation Fees) and 13-502F8 (Designated Rating Organizations – Participation Fee); and a separate annual maximum aggregate fee of $5000 per fiscal year of an issuer for all Forms 45-501F1 and 45-106F1 (Reports on Exempt Distributions).

In addition, the following fees are proposed to increase from $3,250 to $3,750:

o the fee for filing a preliminary or pro forma prospectus in Form 41-101F1;

o the fee for filing a preliminary short form prospectus in Form 44-101F1; and

o the base fee for the filing by an investment fund of a preliminary or pro forma prospectus in Form 41-101F2.

With these amendments, the OSC is seeking to, among other things, rebuild its reserve fund to a level that is consistent with other securities regulators (e.g., the British Columbia Securities Commission, and the Alberta Securities Commission).

Comments on the proposed amendments are being accepted until November 21, 2012.

For more details, please refer to the OSC’s request for comments, which can be found here.

Shamarkay Hersi, articling student, assisted in the preparation of this article.

On August 16, 2012, the Canadian Securities Administrators (“CSA”) published CSA Staff Notice 43-307 Mining Technical Reports – Preliminary Economic Assessments (the “Notice”). The Notice highlights a number of issues relating to the use and disclosure of a preliminary economic assessment (“PEA”), as defined in National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”):

1. Use of a PEA as proxy for a pre-feasibility study (“PFS”)

The CSA identifies three situations that give reasons for concern: (1) where an issuer represents that a PEA, or a component of it, is or will be done at the level of a pre-feasibility study (“PFS”); (2) where a PEA is represented to be a PFS but for the inclusion of inferred mineral resources; and (3) where a PEA is treated as a substitute or proxy for a PFS. These situations are problematic because while a PEA can only demonstrate the potential viability of mineral resources, a PFS or feasibility study (“FS”) is more comprehensive study and, therefore sufficient to demonstrate the technical and economic viability of a mineral project. Issuers who blur the boundary between a PEA and PFS run the risk of being challenged by the CSA as to whether the study meets the definition of a PEA. The CSA recommends that issuers do not:

• describe a study as a PEA unless it clearly falls into the definition of a PEA; or

• compare their PEA or any component of it to the standards of a PFS if the study includes inferred mineral resources.

The CSA may take the position that an issuer is treating the PEA as a PFS if the issuer:

• does not include a cautionary statement with equal prominence each time it discloses the economic analysis of the mineral resources;

• uses the PEA as a basis to justify going directly to a FS or a production decision;

• discloses mining or mineable mineral resources or uses the term “ore”, which is essentially treating mineral resources as mineral reserves; or

• otherwise states or implies that economic viability of the mineral resources has been demonstrated.

2. Preparing a PEA in conjunction with PFS or FS

The CSA indicates that issuers are preparing PEAs using inferred mineral resources concurrently with, as an add-on, or update to their PFS or FS. The CSA is concerned that this practice will indirectly allow issuers to include inferred mineral resources in their PFS, which contravenes NI 43-101 restriction on indirectly inferred mineral resources in an economic analysis. The CSA takes the position that a study is not a PEA if it includes an economic analysis of the potential viability of mineral resources and if the study is done concurrently with or as part of a PFS or FS. This is the case if the study:

• has the net effect of incorporating inferred mineral resources into the PFS or FS, even as a sensitivity analysis;

• updates, adds to, or modifies a PFS or FS to include more optimistic assumptions and parameters not supported by the original study; or

• is a PFS or FS in all respects, except name.

3. Technical Report Triggers: Disclosing economic outcomes for material mineral properties without support by a technical report

The CSA notes that issuers are disclosing results of potential economic outcomes for material mineral properties which are not supported by a technical report. Considering that investors may significantly rely on this information and make investment decisions based on it, this could trigger the requirement to file a technical report under NI 43-101. This is the case if the disclosure is:

• contained in the issuer’s corporate presentations, fact sheets, investor relations materials, or any statement on the issuer’s website; or

• posted or linked from third party documents, reports, articles, or otherwise adopted and disseminated by the issuer.

4. Misleading PEA results: Overly optimistic or highly aggressive assumptions & diverging methodologies

The CSA also points out as an issue of concern the use by issuers and qualified persons of overly optimistic or highly aggressive assumptions in the PEA, and the use of using methodologies that diverge significantly from industry best practices and standards. As the results of a PEA include, or are based on, forward looking information that is subject to National Instrument 51-102 Continuous Disclosure Obligations, an issuer must not disclose forward-looking information unless the issuer has a reasonable basis for doing so. In the case of overly optimistic or highly aggressive assumptions, the CSA may challenge the qualified person to explain or justify the assumptions, or failing that, ask them to revise the PEA to take a more conservative or reasonable approach.

5. PEA Disclosure that Includes By-products

The CSA notes that issuers are disclosing PEA results that include projected cash flows for by-product commodities that are not included in the mineral resource estimate. The CSA considers the inclusion in a PEA of such by-product commodities to be misleading and contrary to the definition of PEA because these commodities are not part of the mineral resource. The CSA cautions issuers not to include cash flow projections for any commodity or part of a commodity that has not been properly categorised as a measured, indicated, or inferred mineral resource.

6. Material deficiencies or errors

Finally, the Notice addresses the consequences associated with material deficiencies or errors in NI 43-101 required documents. Where the CSA identifies a deficiency or error, it will first request that the issuer correct it by restating and re-filling the document. If the issuer fails to comply with the request, the CSA may either:

• place the issuer on the reporting issuer default list;

• seek a commission order requiring the issuer to re-file the documents; or

• issue a cease trade order until the issuer corrects the deficiency.

If an issuer is considering a prospectus offering, the review of the prospectus filing could take more time if issues such as those noted above are present. Where there are material deficiencies, the CSA may recommend against issuing a receipt for the prospectus.

For more details, please refer to the Notice, which can be found here.

On July 26, 2012, the Canadian Securities Administrators (the “CSA”) released a request for comment on proposed consequential amendments to a number of national instruments, policies and forms related to National Instrument 25-101, Designated Rating Organizations (“NI 25-101″).

As discussed in a previous post, NI 25-101 requires credit rating agencies or organizations to apply to become a “designated rating organization” (“DRO”) if they wish to have their credit ratings eligible for use in securities legislation. DROs are also required to comply with a set of rules concerning conflicts of interest, governance, conduct, compliance and required filings.

The proposed amendments, among other things, will replace the terms “approved rating” and “approved credit rating” in a number of instruments, policies and forms with “designated rating” and will include a rating provided by a DRO affiliate (as defined in NI 25-101). Further, the references to “approved rating organization” and “approved credit rating organization” will be replaced with the term “designated rating organization”.

The CSA is also requesting comments on a consequential amendment to Item 7.9 of Form 44-101F1, Short Form Prospectus which will clarify that the disclosure of an issuer’s relationship with a credit rating agency or organization is limited to the securities being distributed under a short form prospectus.

Comments are being accepted until October 24, 2012

On June 28, 2012, the Ontario Securities Commission (“OSC”) issued a notice to the effect that when OSC staff recommends that the Director refuse, amend, or suspend an individual either already registered or seeking registration under the Securities Act (Ontario) (the “Act”), or when OSC staff recommends imposing terms and conditions on an individual’s registration, the staff will send a letter providing written notice of its recommendation and brief reasons for it (the “Letter of Brief Reasons”) not only to the individual registrant but also to the registrant’s sponsoring firm. In the staff’s view, providing registered firms with the Letter of Brief Reasons will promote the accuracy and completeness of information provided in respect of individuals they sponsor.

On April 30, 2012, the Canadian Securities Administrators (the “CSA”) announced the official designation of DBRS Limited, Fitch, Inc., Moody’s Canada Inc. and Standard & Poor’s Rating Services (Canada) as Designated Rating Organizations (“DROs”) under National Instrument NI 25-101 Designated Rating Organizations (“NI 25-101”).

NI 25-101, which came into force on April 20, 2012, established a regulatory framework for the oversight of credit rating organizations by permitting them to apply for DRO status. The CSA designation orders make each of the DROs subject to regulation under applicable Canadian securities laws.

On March 7, 2012, the Ontario Securities Commission, the Quebec’s Authorité des Marches Financiers and the British Columbia Securities Commission entered into a Supervisory Memorandum of Understanding (Supervisory MOU) with the European Security Markets Authority (ESMA) concerning the regulatory cooperation in the supervision of credit rating agencies that operate in both the European Union and Canada. The Supervisory MOU is subject to the approval of the Minister of Finance and if approved, it will become effective April 20, 2012.

The Ontario Securities Commission (OSC) today published information regarding the OSC’s authority to impose monetary sanctions and an update on how the collection of those sanctions has proceeded.

The OSC has the authority to impose a range of sanctions on individuals and companies for violations of securities law or conduct that is contrary to the public interest in Ontario. Sanctions are imposed either at the conclusion of a contested proceeding or as part of a settlement reached between the respondent and OSC staff and approved by the OSC.

The purpose of the Commission’s sanction powers is to deter future wrongdoing in the capital markets. One of the OSC’s powers is to impose monetary sanctions for breaches of Ontario securities law and the OSC has exercised this authority since 2005. Monetary sanctions include administrative penalties and disgorgement orders. In imposing administrative penalties, the OSC may order a person or company found to have breached securities law to pay up to $1 million for each failure to comply.

Further details may be found here.