Tag Archives: Ontario Securities Commission (OSC)

Ontario’s OSC Following SEC in Whistleblower Bounties

The question of internal compliance is always a challenge when regulators offer rewards to whistleblowers with cash awards. Why report internally when the whistleblower can get paid if they report externally? Internal compliance officers are paid to establish, train and enforcement legislative compliance policies internally.  However, internal compliance will not usually result in a reward for good behaviour or for internal whistleblowing. Hence the inherent problem with rewarding the whistleblower.

Since Dodd Frank, the Securities and Exchange Commission (“SEC”) has been giving monetary rewards or bounties for credible tips from whistleblowers that lead to enforcement actions. For example, The SEC recently awarded more than $4.5 million to a whistleblower whose tip triggered the company to launch an internal investigation and report the whistleblower’s allegations to the SEC and another government agency.

The Ontario Securities Commission (“OSC”) adopted a whistleblower reward program in 2016, and has received hundreds of “tips” since then. Earlier this year, the OSC announced that it has paid $7.5 million in rewards or bounties for tips leading to findings of wrongdoing under securities law. The OSC tipsters apparently provided high quality, time, specific and credible information that helped advance enforcement actions resulting in monetary payments to the OSC.

What is troubling, from a compliance perspective, is that the reward is based on the finding of wrongdoing and enforcement. No rewards are given to individuals from reporting internally and preventing a regulatory or criminal contravention.  The bounty reward programs, both in the US and Ontario, only reward individuals when they help catch a corporate or individual after the contravention.

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that could reveal their identity. The same applies with the OSC program.

One big difference between the SEC and the OSC programs, is that the penalties in the US are much larger than those in Canada. For example, in January 2017, Zimmer Biomet paid $30.5 million to resolve DOJ and SEC investigations into the company’s “repeat” violations of the Foreign Corrupt Practices Act. The DOJ said then thatBiomet “knowingly and willfully continued to use a third-party distributor in Brazil known to have paid bribes to government officials on Biomet’s behalf.” Those kinds of fines have not been seen by our courts or the OSC in their Canadian enforcement activities.

There is also a $5 million maximum on the OSC whistleblower counties program, suggesting that smaller rewards available in Ontario will be enough to achieve the same result and deterrent effect. The SEC has no such restrictions. Is this cap on the size of the bounty necessary, sufficient, and self-defeating?

Since Ontario is the only provincial securities regulator offering bounties, the other question of concern is whether  this is deterrent to business investment and listing on the Toronto Stock Exchange, for small capital firms, that may have the choice to register elsewhere in Canada?

Securities Regulatory Authorities Release Results of Gender Diversity and Term Limit Disclosure Review

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This post was originally published on Timely Disclosure (a Fasken Martineau blog) and authored by Tracy L. Hooey.

Securities regulatory authorities in Ontario and nine other provinces and territories of Canada published CSA Multilateral Staff Notice 58-308 Staff Review of Women on Boards and in Executive Officer Positions – Compliance with NI 58-101 Disclosure of Corporate Governance Practices on September 28, 2016.  The staff notice summarizes a review of the gender diversity and term limit disclosure of 677 non-venture issuers (being those listed on the Toronto Stock Exchange with year-ends between December 31, 2015 and March 31, 2016).  As a result, these statistics do not include data regarding most banks.

Key findings of the gender diversity disclosure review include:

  • there are more women on boards than last year. Of the 215 issuers with over $1 billion market capitalization, 18% of board seats are held by women (up from 10% last year);
  • only 21% of issuers adopted a policy relating to the identification and nomination of women directors (up from 15% last year) and issuers with such a policy had higher average female board representation (18%) as compared to those with no policy (10%);
  • only 9% of issuers set a target for the representation of women on boards (up from 7% last year) and those issuers with targets had a greater number of women on their boards (25%) than those without a target (10%);
  • 66% of issuers disclosed that they consider the representation of women on their boards as part of their director identification and nominating process (up from 60% last year);
  • board and executive officer representation by women varied significantly by industry.

Key findings of the board renewal disclosure review include:

  • 20% of issuers adopted director term limits (up from 19% last year);
  • of those issuers with term limits, 48% set age limits, 23% had tenure limits and 29% had both;
  • the most common reason cited for not adopting board renewal mechanisms was that term limits reduce continuity or experience on the board.

This release follows Ontario Securities Commission Chair and CEO Maureen Jensen’s call for leadership on women on boards.  Chair Jensen highlighted the low number of women filling board vacancies.  She noted that “of the 521 board seats vacated during the year, just 15% were filled by women” and “without an improvement in the vacancy fill rate, we will never reach 30% female board representation”.

Proposed Amendments to CBCA

In addition, the Government of Canada released proposed amendments to the Canada Business Corporations Act which, among other things, would require that distributing CBCA corporations identify the gender composition of their boards and senior management and disclose their diversity policies or explain why none are in place.

OSC Launches Whistleblower Program

The Ontario Securities Commission (OSC) has launched the Office of the Whistleblower and published OSC Policy 15-601 Whistleblower Program effective July 15, 2016. Together, these initiatives establish a new whistleblowing program that offers financial awards of up to $5 million for tips on possible violations of Ontario securities law that lead to enforcement action.

The OSC program allows whistleblowers to make anonymous reports to the OSC, and new protections have been enacted for whistleblowers that access the program. In particular, the Securities Act has been amended to add anti-reprisal provisions protecting employees who have sought advice about, expressed an intention to or actually provided information about a possible securities violation to the OSC.  In addition, the Act invalidates gag or confidentiality provisions or agreements that would otherwise silence or prevent whistleblowers from participating in an investigation.

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New era of White Collar Crime enforcement in Canada

Recent trends have seen legislative penalties increase, prosecutors cracking down, and more individuals going to jail.  We have entered a new era of white collar crime enforcement in Canada.

In mid-2013, the Corruption Foreign Public Officials Act (CFPOA) was amended by the Federal Government.  It introduced a “new books and records” offence, increased the maximum jail time to 14 years for individuals, and promised to phase out the legality of facilitation payments.  The Royal Canadian Mounted Police (RCMP) was assigned the exclusive jurisdiction over investigation and laying charges under the CFPOA and given an enhanced increase in their mandate to investigate and prosecute more corporations and individuals, which it is doing.

Following this, the RCMP prosecuted Nazir Karigar, a Canadian-Indian business man, under the CFPOA. At his lengthy trial it was never proven that he gave a bribe to an Air India (foreign) official, as alleged; the Crown did prove, to the court’s satisfaction, that he intended to pay a bribe to secure business with Air India for an American company. That was enough to convict and send him inside for 3 years.

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