On June 12, 2025, the Ontario Securities Commission (OSC) published its final rules to implement a new statutory framework that will facilitate distributing amounts collected by the OSC under disgorgement orders to harmed investors. Disgorgement is an equitable remedy designed to deprive wrongdoers of funds illegally obtained through violations of securities or commodity futures legislation.
The new rules are expected to come into force in late summer or early fall 2025, pending legislative amendments to the Securities Act (OSA), Commodity Futures Act (CFA) and Securities Commission Act.
The New Disgorgement Framework
The new rules will create a structured process for distributing funds recovered from disgorgement orders to individuals or entities that have suffered financial losses from contraventions of the OSA and CFA.
Currently, when the Ontario Capital Markets Tribunal or Ontario Superior Court issues a disgorgement order based on breaches of the OSA or CFA following a contested hearing or settlement, the OSC is not required to distribute the recovered funds to investors and may use the funds to support its own activities in accordance with its regulations. Under the new statutory framework, recovered funds must be distributed directly to harmed investors, subject to certain exceptions and requirements.
The rules stem from legislation passed by the Ontario government in November 2023 requiring that disgorgement proceeds obtained by the OSC be provided directly to investors. The rules were initially published for comment by the OSC in August 2024 and take into account comments from industry stakeholders during a subsequent consultation period.
Administration Process
Under the new rules, the OSC will post notice of disgorgement orders on its website and issue a press release. This notice will inform investors of the disgorged amount and the deadline for submitting claims. The new section will provide information on the amounts collected under the order, whether the OSC has started the distribution, as well as how investors can submit claims.
Harmed investors must demonstrate quantifiable financial losses directly resulting from the misconduct with sufficient proof.
The new framework seeks to ensure a fair and equitable distribution of funds. Eligible investors will receive a pro-rata share of the disgorged funds, calculated based on several factors, including:
- The total amount collected from the disgorgement order
- The investor’s individual losses
- The aggregate losses of all eligible investors
- Any other information the OSC considers appropriate
Once a claim is submitted, harmed investors will not receive any payment until all filed claims have been considered and the amount owed to each applicant is determined. The OSC will primarily rely on the expertise of court-appointed administrators to carry out distributions, but may administer distributions itself.
Reflecting certain stakeholder comments received during the consultation period, the new rules also provide that if the OSC receives only part of an amount owing under a disgorgement order, the OSC must hold the amount for potential future distribution up to three years from the date of the final disposition of the disgorgement order. If the OSC receives a partial amount that justifies carrying out a distribution, the OSC may elect to proceed with a distribution or hold the funds for an additional period to allow for more funds to be recovered.
Finally, the rules do not prevent investors from pursuing other avenues of loss recovery, including seeking direct damages through a civil claim. The OSC has also clarified that it will continue to use no-contest settlements and receiverships to investors in appropriate cases and views the new disgorgement framework as a supplement — not a replacement — to its existing investor redress toolkit.
Exceptions to Distribution Requirements
The new rules’ requirement that all funds from disgorgement orders be distributed to harmed investors is subject to two exceptions, namely where (1) disgorged funds are related to contraventions of Ontario’s “insider trading and tipping” prohibitions or (2) the costs of administering the distribution are disproportionate to the value of the amount received under the disgorgement order and the number of potential eligible investors. Whether the second exemption applies will be considered by the OSC on a case-by-case basis, rather than based on any specific numeric or monetary thresholds, as initially proposed.
Implications and Looking Ahead
As articulated by the OSC, the new disgorgement framework supports the OSC’s efforts towards greater and more efficient investor protection and redress and is aimed at providing a more direct, certain and faster process for distributing disgorged funds to investors. The new framework also aligns the OSC’s regime with regulators in other jurisdictions (including British Columbia and Quebec) with similar distribution mechanisms, and is part of a broader recent push by the Ontario government to modernize and enhance the province’s capital markets regime.
The rules appear to reflect a willingness by the OSC to assume the role normally held by civil litigants in cases involving widespread investor loss, namely class action plaintiffs and court-appointed receivers. It remains to be seen whether these civil channels will be impacted and whether the new framework will be more supplementary than displacive in cases where the OSC chooses to pursue regulatory proceedings against a registrant accused of causing investor loss.
For more information, please contact the authors or any other member of our Securities Litigation group.
