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Last year, CSA enforcement resulted in more than $62 million in fines, administrative penalties and voluntary payments.

However, it’s difficult to compare that to 2015’s amount of $138 million, because that year saw a few cases with large fines. The 2016 amount better compares to that for 2014: $58 million.

Included in the $62 million for 2016 is $15 million from the OSC’s no-contest settlements, compared to nothing from such settlements in 2015.

“No-contest settlement has proven to be a worthwhile program,” says Sean Boyle, a partner at Blake, Cassels & Graydon in Vancouver.

“The OSC has collected $320 million in [such] settlements to be distributed to investors—or what some might call victims. That’s noteworthy.” That amount, given in the report, is the result of seven no-contest settlements to date. In 2015, no-contest compensation was $8 million from one settlement.

More jail time was handed out in 2016: 23 years to 15 offenders of the Securities Act. That compares to 10 years for 15 offenders in 2015.

Further, 13 people were found guilty under the Criminal Code, with nine sent to jail for six months to four years—a total of 16 years of jail. That compares to four people with jail terms of 15 months to four years in 2015.

The report says “significant jail terms” and an increase in criminal proceedings commenced (10, compared to six last year) reflect, respectively, efforts to prosecute serious cases in the courts and collaboration with other securities and law enforcement agencies.

But Jim Douglas, a partner at Borden Ladner Gervais in Toronto, doesn’t read much into the jail terms.

More interesting, says Douglas, is the number of criminal proceedings commenced (10 cases) versus administrative ones (56 proceedings were commenced in total).

Comparing Canada to the U.S., he says, “It’s notable how little takes place in […] criminal prosecution of market offences in Canada,” even accounting for the population difference. “Maybe it’s just that we haven’t seen the fruits of [collaboration] efforts, or at least the most recent efforts in that regard, yet.”

Proceedings commenced drop

Only 56 proceedings started last year, compared to 108 in 2015, a decrease of more than 48%.

“If this is an indication that securities violations are down, it is a good sign of effective prevention,” says Bernard Pinsky, a partner at Clark Wilson in Vancouver.

“It is too early to tell yet, as the number of new proceedings could also be a result of staff shortages or cases that are not yet ready to prosecute,” says Pinsky.

Boyle calls the drop in proceedings the most striking thing about the report. He attributes it to newly appointed authorities at the OSC and BCSC needing to get up to speed.

For example, Howard Wetston resigned as OSC chair in November 2015, with Maureen Jensen taking over in February 2016. A month later, Tom Atkinson, the OSC’s director of enforcement, resigned and was replaced by Jeff Kehoe in October 2016. Similarly, the BCSC experienced several new appointments in the last year and a half.

Of note, the report says whistleblower programs introduced in 2016 by the OSC and the AMF have attracted “several credible tips.” Given the low number of proceedings commenced, however, those tips haven’t necessarily led to enforcement action.

Information sharing increases

Highlighted in the report is international intelligence sharing. In his opening message, Louis Morisset, CSA chair, states that CSA’s membership in the International Organization of Securities Commissions (IOSCO) allows global information sharing and enhances enforcement efforts. Two Canadian regulators, Jensen and Jean-François Fortin, executive director of enforcement at the AMF, have high-profile IOSCO roles related to information sharing.

Further, the report says that, in 2016, CSA initiated a task force to “facilitate intelligence sharing with international regulators.” For instance, Boyle says there’s concern from regulators about potential market manipulation by Chinese participants.

It’s an “interesting development in the globalization of the capital markets and the significant investment of Chinese money in Canada,” he says. Global information sharing is potentially further enhanced by Atkinson’s appointment to the Hong Kong securities and futures commission.

Consistency in offences

Overall, offences remain similar over the years, with illegal distributions and fraud still holding the top two spots.

“A number of the highlighted cases both in the regulatory section and the criminal section are good old-fashioned Ponzi schemes,” says Boyle, citing the Nelson case in B.C., the Narayan case in Alberta and the Welcome Place case in Ontario.

Interestingly, misconduct by registrants dropped significantly in 2016, to eight concluded cases from 20 in 2015 and from 41 in 2014, though it’s unclear why.

(In comparison, the report says the SROs concluded 159 cases in 2016, compared to 139 in 2015.)

Says Pinsky: “There were almost no penalties imposed by the CSA on registrants for misconduct”—a mere $103,854, a figure that’s fallen drastically from the last couple of years.

Though the amount for restitution, compensation and disgorgement is up significantly in 2016 due to no-contest settlements, in previous years, misconduct by registrants resulted in almost $19 million (2015) and more than $26 million (2014) in restitution, compensation and disgorgement.

“It is not clear yet whether it is a strategy shift by the CSA to ask less in administrative penalties and more in investor restitution,” says Pinsky, “or whether the circumstances of the cases concluded in 2016 simply better suited that remedy.”

Michelle Schriver is assistant editor of Advisor's Edge. Email her at michelle.schriver@tc.tc.

Originally published in Advisor's Edge Report

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