section 400(1)

INTRODUCTION AND BRIEF DESCRIPTION

It is an offense to knowingly circulate false information to induce investment or deceive shareholders and creditors in a company.

SECTION WORDING

400(1) Every one who makes, circulates or publishes a prospectus, a statement or an account, whether written or oral, that he knows is false in a material particular, with intent (a) to induce persons, whether ascertained or not, to become shareholders or partners in a company, (b) to deceive or defraud the members, shareholders or creditors, whether ascertained or not, of a company, or (c) to induce any person to (i) entrust or advance anything to a company, or (ii) enter into any security for the benefit of a company, is guilty of an indictable offence and liable to imprisonment for a term not exceeding ten years.

EXPLANATION

Section 400(1) is a provision under the Criminal Code of Canada that deals with fraud in the context of company prospectuses, statements, or accounts. The provision makes it an offense for any person to make, circulate or publish a prospectus, statement, or account that they know is false in a material particular, with the intent to induce people to become shareholders, deceive the members, shareholders, or creditors of a company, or induce people to entrust or advance anything to a company. This provision serves to protect the public from fraudulent activities by individuals who seek to obtain money or other benefits through deception. By making it a criminal offense to engage in such activities, the law aims to deter individuals from committing such crimes and to enforce accountability in cases where such activities have taken place. Section 400(1) applies to all types of companies, whether public or private, and covers both written and oral statements, accounts or prospectuses. The penalty for committing an offense under this section is imprisonment for a term not exceeding ten years. In essence, this provision of the Criminal Code reflects Canada's commitment to promoting fair business practices and ensuring that companies operate with integrity, honesty, and transparency. By holding individuals accountable for fraud in the context of company dealings, the law protects the public interest, promotes confidence in the commercial sector, and fosters a healthy business environment.

COMMENTARY

Section 400(1) of the Criminal Code of Canada sets out the offences related to making, circulating, or publishing a false prospectus, statement, or account with the intention to deceive or defraud. These offences are considered serious crimes and are punishable by imprisonment for a period not exceeding ten years. This section of the Criminal Code is important as it seeks to protect the integrity of financial markets and ensure that investors are not misled or deceived into investing in fraudulent or fictitious companies. It also serves to provide recourse for those who have already invested and may have suffered financial losses as a result of such deceitful practices. The section applies to anyone who makes, circulates or publishes a false prospectus, statement or account, whether in written or oral form. It is not limited to the creators of such materials but extends to anyone who circulates or publishes them with knowledge of their falsity. The section is divided into three parts, each with its own distinct intention. Firstly, it is an offence to induce individuals to become shareholders or partners in a company through a false prospectus or statement. This is particularly important as it speaks directly to the issue of investor confidence, which is critical to the functioning of a healthy economy. False prospectuses or statements can be created for the purpose of tricking investors into thinking that a company is more viable than it is, or that it has a different business model, customer base or market position than it actually does. Such practices can result in the loss of significant investments and the reduction of investor confidence, leading to broader negative implications for financial markets. Secondly, it is an offence to deceive or defraud members, shareholders or creditors of a company through false prospectuses or statements. This criminalizes behaviour that leads to financial losses for individuals who have invested in the company in good faith. Given that a company's finances are often opaque, investors rely heavily on the information provided in prospectuses and other official statements. False or misleading information can lead to investors making decisions that are not in their best interest. Finally, it is an offence to induce individuals to entrust or advance anything to a company, or enter into any security for the benefit of a company, through false prospectuses or statements. This criminalizes behaviour that seeks to exploit individuals' trust for personal gain. Entrusting or advancing anything to a company, or entering into any security, is a significant investment, and individuals must be confident that they are investing in a legitimate and viable organization. In conclusion, Section 400(1) of the Criminal Code of Canada plays a critical role in protecting Canada's financial markets and ensuring investor confidence. Deceitful practices such as making, circulating, or publishing false prospectuses, statements, or accounts, have significant negative implications for the economy and individuals' financial well-being. Prosecuting individuals who engage in these practices is critical to building trust within the financial sector, which is essential for ensuring a vibrant economy that benefits all Canadians.

STRATEGY

Section 400(1) of the Criminal Code of Canada is an important law that regulates the circulation, publication, and sharing of false information. This section criminalizes such activities when they are done with the intent to induce people to become shareholders or partners in a company, deceive or defraud members and creditors of a company, or induce any person to entrust or advance anything to a company. Given the severe penalties attached to this law, it is important for companies and individuals to consider strategic approaches when dealing with this section of the Criminal Code. Some of these strategies could include: 1. Reducing the risk of unintentional misrepresentation: To avoid running afoul of section 400(1), companies and individuals can take steps to reduce the risk of making unintentional misrepresentations. This could include conducting thorough due diligence before publishing any information about a company or its products, ensuring that all statements are true and accurate, and seeking the advice of legal and financial experts to ensure compliance. In addition, making full and fair disclosure of any risks associated with an investment opportunity can reduce the risk of future claims of misrepresentation. 2. Having an effective crisis communications plan in place: In the event that a company is accused of making false or misleading statements, having an effective crisis communications plan in place can be critical. This could include having a designated spokesperson to handle media inquiries and ensuring that all communications are coordinated and consistent. It may also involve engaging with stakeholders such as regulators, investors, and customers to provide accurate information and address any concerns. 3. Engaging with regulators: Companies that operate in regulated industries may find it beneficial to engage with regulators to ensure compliance with section 400(1) and other relevant laws. This could involve seeking guidance on what information needs to be disclosed to potential investors, ensuring compliance with advertising and marketing regulations, and providing regular updates to regulators on the company's activities and financial performance. 4. Being proactive in detecting and addressing any potential misrepresentations: Companies that are proactive in detecting and addressing potential misrepresentations may be able to mitigate the risk of future legal claims. This could involve conducting regular internal audits to ensure compliance with relevant laws and regulations, establishing a whistleblower hotline to encourage employees to report any concerns, and having a robust compliance program that provides employees with guidance on their obligations under the law. 5. Working with legal experts: Finally, companies and individuals can benefit from working with legal experts who specialize in securities law and have experience dealing with section 400(1) of the Criminal Code. These experts can provide guidance and advice on compliance, help to draft prospectuses and other materials, and defend against any legal claims that may arise. In conclusion, section 400(1) of the Criminal Code of Canada is an important law that regulates the circulation, publication, and sharing of false information. To navigate this law effectively, companies and individuals must consider a range of strategic approaches, including reducing the risk of unintentional misrepresentation, having an effective crisis communications plan in place, engaging with regulators, being proactive in detecting and addressing potential misrepresentations, and working with legal experts. By taking these steps, companies and individuals can help to mitigate the risks of non-compliance and protect themselves from legal liability.