In Re Coventree Inc.: Subjective Determinations of Materiality and the Requirement for Expert Economic Evidence

Wed Dec 14 20:24:38 UTC 2011
By Bradley A. Heys

In this NERA paper, Vice President Bradley A. Heys examines the Ontario Securities Commission's (OSC) recently released decision in In Re Coventree Inc., in which the OSC found that Coventree and two of its directors (the “Respondents”) failed to disclose material changes to Coventree's business as required under the Ontario Securities Act. Whether or not it reached the correct result, the OSC Panel's reasons raise significant questions about the type of evidence required to demonstrate that a change in a company's business is material. Mr. Heys argues that, while no expert evidence was introduced by either the OSC Staff or by the Respondents on the materiality of the changes in question, the Panel drew at least some key inferences that would have been better supported by expert evidence. Although the OSC Panel is recognized as a specialized tribunal with expertise in matters relating to the Ontario Securities Act, the Panel's conclusions on materiality appear to be largely subjective and therefore provide little guidance for future litigants about the types of evidence that should be led in order to establish or disprove allegations of material changes. Mr. Heys describes the assistance that expert economic evidence and analysis could have provided and that, arguably, should have been required to support a finding of materiality.