compliance-regulation

North American regulators gathered together for the first time at a May 18 event at the National Institute in Toronto to discuss U.S.-Canadian securities litigation. The agenda included recent regulatory developments and enforcement trends.

Whistleblower programs

Enforcement director Andrew Ceresney describes the SEC’s whistleblower program as “transformative,” saying it provides companies with an incentive to self-report. The program receives 11 tips per day; in 2015, 49 tips came from Canada. “We paid out $67 million to 29 whistleblowers so far,” he says. Expect to see more retaliation cases, he adds, stressing the SEC’s focus on whistleblower protection.

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The OSC’s acting director, James Sinclair, notes the OSC whistleblower reward was amended to 15%, from 5%. Retaliation provisions — “not the full menu” provided by the SEC — have been passed but not yet proclaimed. “We’re hoping [for] a summer launch,” he says.

The AMF is also working on anti-retaliation provisions and a summer launch, says director Jean-François Fortin, as well as a publicity plan.

The AMF’s program offers no rewards. Fortin says confidentially protection is most important to the program and, further, no data supports rewards as an effective incentive to share information. If the program proves unsuccessful, however, he’d reconsider rewards.

Director Cynthia Campbell says the ASC is currently reviewing whistleblower programs around the world. Talks will continue once the ASC’s new chair, Stan Magidson, is in place in July.

No-contest settlements

Sinclair reports four cases of no-contest settlements since the program’s launch in 2014. He expects these cases to continue to be the exception to the rule. (In Canada, only Ontario has no-contest settlements.)

Fortin and Campbell express their opposition to no-contest. “We want to avoid creat[ing] a regime where voluntary payments become the equivalent of a cost of doing business,” says Fortin. Campbell questions whether accountability can be achieved without admissions. “We don’t do no-contest settlements in Alberta; I don’t see that shifting anytime [soon]. It boils down to deterrents.”

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Despite the long history of no-contest settlements in the U.S., an SEC policy shift three years ago now demands admissions in certain cases. Asked to provide clarity on identifying such cases, Ceresney says minimum factors must be present, such as egregious conduct, harm to large numbers of investors and significant risk to the markets. Further, he describes admissions as a discretionary factor to be decided case by case.

Insider trading

Fortin expects to see more insider trading cases in 2016. He warns of unauthorized individuals gaining access to privileged information — a risk with IT staff, for instance, as in the 2010 Dominic Côté case.

Enforcement collaboration

Themes of co-operation and collaboration were evident when investigators and litigators took the stage to share successful enforcement techniques, such as using co-operating witnesses (those who plead guilty and testify), wiretaps and consensual recordings (those involving one consenting party).

The FBI’s David Chaves recalls agents trailing hedge fund suspects in 2009. From about 140 arrests, the majority cooperated. And only two — a recidivist and an attorney — went to jail. “Co-operation — it’s what drives [enforcement] cases,” he says.

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In addition to individuals and corporations, co-operation comes from cross-border authorities.

“The RCMP has been our best partner of any country in terms of […] market manipulation,” says Chaves, adding U.S. industry wrongdoers mistakenly think of Canada as a safe haven. “What they don’t […] understand is the close partnership with the RCMP to identify, set up undercover operations and work within a framework that allows these investigations […] to be prosecuted in a timely way.”

Top of mind for regulators

 

Director Regulator Priorities
Cynthia Campbell ASC
  • Identifying misconduct at earlier stages
  • Working with the RCMP
Jean-François Fortin AMF
  • Whistleblower program
  • Insider trading
James Sinclair (acting director) OSC
  • Whistleblower program and anti-retaliation provisions
Andrew Ceresney SEC
  • Financial reporting and audit task force
  • Complex financial instruments
  • Foreign Corrupt Practices Act (FCPA)
Aitan Goelman U.S. Commodity Futures Trading Commission (CFTC)
  • Continued enforcements under Dodd-Frank, e.g., anti-manipulation and anti-spoofing

Originally published on Advisor.ca
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