OSC vs. Purpose kicks off

Fighting through an unexpected power outage and faltering air conditioning, the battlelines for a hotly-contested enforcement proceeding before Ontario’s Capital Markets Tribunal were drawn over the first two days of hearings into allegations from the Ontario Securities Commission (OSC) against fund manager Purpose Investments Inc. and its founder, chairman and CEO, Som Seif.

Last September, the OSC brought proceedings against Purpose and Seif, alleging that they breached securities rules in a series of “sales communications” made between September 2019 and March 2023 that, the regulator alleges, contained misleading statements about the firm’s consideration of environmental, social and governance (ESG) factors by its funds.

Among other things, in its application for enforcement proceedings, the OSC alleged that the firm overstated the significance of ESG considerations by its funds to boost its sales and marketing efforts — when, in reality, its use of ESG data was a work in progress, and wasn’t being as widely applied as it publicly claimed.

The regulator also alleged that Seif breached the rules by failing to prevent the allegedly-misleading statements by the firm.

None of the allegations have been proven, and both Purpose and Seif are vigorously contesting the allegations.

In his opening statement on Tuesday, the regulator’s lawyer, Alvin Qian, senior litigation counsel at the OSC, said that the case is relatively straightforward, and a “classic case of false and misleading advertising.”

The single biggest question for the tribunal, Qian said, was whether Purpose accurately described in its public statements how it was managing investors’ money, particularly when it came to applying ESG factors to its investment funds.

The commission’s case will rely, to a large degree, on documents that include the impugned statements, along with internal communications that detail the degree to which ESG factors were being considered by the firm and its sub-advisors at the time it made its public statements, along with evidence collected as part of a disclosure review of the firm in early 2023.

In his opening statement on behalf of Purpose, the company’s counsel in the proceeding, David Hausman, partner at Fasken Martineau DuMoulin LLP, suggested that the tribunal must pay attention to the context surrounding the impugned statements, not just the documents themselves.

He indicated that the evidence will show that the company was developing its approach to ESG integration ahead of most of the rest of the investment industry, and well ahead of the regulatory policy in this area — which wasn’t adopted in its current form until 2024 — and that Purpose followed the regulatory framework that existed at the time, which was itself a work in progress.

Hausman also argued that most of the impugned statements aren’t “sales communications” as defined by securities law, and that ultimately none of them are untrue or misleading.

Seif’s counsel in the case, veteran litigator, Joe Groia, principal of Groia & Co., took centre stage on day two of the hearing — echoing Hausman’s position that the company’s statements were fundamentally true, and that the company had integrated ESG as it represented.

“The only thing that’s false or misleading about this case are the allegations in the notice of hearing,” he told the panel in his opening.

Indeed, Groia suggested that the regulator has cherrypicked statements by the firm to construct a narrative so that it could bring an enforcement case alleging greenwashing.

“They did a Street sweep, they focused on a number of market participants, and they ended up taking these proceedings against Purpose and Mr. Seif. They did that because that was their agenda, and they did that … without regard to the real facts of this case,” he said.

Against that backdrop, the tribunal began hearing from witnesses in the case on day two of the proceeding — which is scheduled for 18 more days in May, June and July, before concluding on Sept. 25.