Legal Issues

The Ontario Securities Commission bolstered its enforcement program in 2014.

As a result, the Commission:

  • launched more quasi-criminal and criminal proceedings;
  • enhanced its forensics capabilities; and
  • strengthened its alliances with police services.

In total, the OSC commenced 22 proceedings in 2014, which included eight cases brought before the courts. Out of those eight cases, six were commenced pursuant to section 122 of the Securities Act (Ontario), and two to the Criminal Code of Canada. In comparison, OSC commenced 27 proceedings in 2013 but only brought six cases before the courts.

Read: CSA levies more than $58 million in fines for 2014

In a breakdown, the OSC says it closed cases against 91 individuals and companies in 2014, compared to 170 in 2013. Out of the 2014 total, 87 respondents dealt with the Commission, while the remaining four had their cases concluded before the court—two under provincial securities legislation and two under the Criminal Code.

Overall, two defendants received jail terms: one was sentenced to three years after pleading guilty to two charges contrary to the Criminal Code, while the other was sentenced to 60 days for breaching the Securities Act (Ontario), following a quasi-criminal proceeding.

The number of proceedings opened and cases closed has dropped, conceded Howard Wetston, Q.C., chair and CEO of the OSC, at a press conference yesterday. But that’s because the cases the OSC is taking on are becoming increasingly complex and wider in scope, he explains. Consider, for example, that OSC handed out more than $73 million in monetary sanctions, compared to about $58 million in 2013.

Read: OSC sent more to jail in 2013

Also, the Commission plans to work more closely with RCMP, and with international agencies (see last two tables below) to combat cross-border misconduct.

Read: Canada offers top regulatory environment

“The collaboration between OSC Staff and police, particularly in the Joint Serious Offences Team (JSOT), is producing results,” says Tom Atkinson, director of enforcement at OSC. “Since May 2013, the JSOT has investigated 22 matters [and] brought five cases before the courts on criminal matters, as well as another nine on quasi-criminal proceedings.”

Going forward, says Wetston, the OSC will work more closely with the RCMP’s Integrated Market Enforcement Team (IMET) in Ontario—these teams are funded by the government and help prosecute those using capital markets to harm investors. They were launched by the RCMP in 2003 to investigate major fraud cases, and there are teams in Toronto, Montreal, Vancouver and Calgary.

Effective April 1, 2015, Ontario’s 28-member IMET (the largest of the teams) will move into the same building as OSC and JSOT. Each party will remain as separate governing bodies, but they’ll collaborate when deciding whether to handle cases via OSC tribunals or the courts.

Read: 10 reasons Canada needs a single regulator

New enforcement tools

The OSC approved the first two no-contest settlement agreements in 2014. Those involved a total of four corporate respondents and, in one settlement, the respondent agreed to pay $8 million to advance the Commission’s mandate. In the second, three respondents agreed to pay compensation of more than $13.5 million to clients.

Read:

The OSC also recently proposed a new whistleblower program to encourage the reporting of serious misconduct. Under the program, a whistleblower could be awarded a financial incentive of up to $1.5 million upon the final resolution of an administrative enforcement matter.

The whistleblower proposal was published in Staff Consultation Paper 15-401, and the public can submit comments on the paper until May 4, 2015.

Read: Canadians file U.S. whistleblower claims

The OSC also has an enhanced in-house digital forensics lab. During investigations, both the JSOT and the Enforcement Branch have been able to search and seize more digital evidence found on traditional media, such as computer hard drives, optical disks and USB thumb drives. They’ve also been able to analyze data found on mobile devices.

2014 enforcement data

Total Proceedings Commenced

Category Number of cases 2014 Number of cases 2013
Illegal Distributions 7 6
Misconduct by Registrants 5 2
Disclosure Violations N/A N/A
Insider Trading 1 2
Market Manipulation N/A 1
Fraud 8 9
Miscellaneous 1 7
Total 22 27

How Proceedings Were Commenced

Category 2014 2013
Before the Tribunal 14 21
Court Proceedings (Quasi-Criminal*) 6 4
Court Proceedings (Criminal**) 2 2
Total 22 27

* Proceeding commenced pursuant to s. 122 of the Securities Act (Ontario)
** Proceeding commenced pursuant to the Criminal Code.

Proceedings Commenced – Respondents

Category Individuals

2014

Companies

2014

Individuals 
2013 Companies

2013

Illegal Distributions 7 2 9 40
Misconduct by Registrants 5 8 3 3
Disclosure Violations N/A N/A N/A N/A
Insider Trading 1 N/A 2 N/A
Market Manipulation N/A N/A 1 N/A
Fraud 12 8 18 9
Miscellaneous 1 1 6 5
Total Respondents 26 19 39 57

Concluded Proceedings – Respondents

Category Individuals

2014

Companies

2014

Individuals

2013

Companies

2013

Illegal Distribution 18 10 30 59
Misconduct by Registrants 6 11 3 5
Disclosure Violations 1 N/A 1 N/A
Insider Trading 3 N/A 2 N/A
Market Manipulation N/A N/A 1 N/A
Fraud 16 17 35 26
Miscellaneous 4 5 5 3
Total 48 43 77 93

How Matters were Concluded – Respondents

Category 2014 2013
Hearing before the Tribunal 58 71
Settlement Agreement 29 95
Court Proceedings (Quasi-Criminal*) 2 4
Court Proceedings (Criminal**) 2 N/A
Total Respondents 91 170

* Concluded pursuant to s. 122 of the Securities Act (Ontario)
** Concluded pursuant to the Criminal Code

Cases ongoing before the courts, as at December 31

2014 2013
Courts (Quasi-Criminal) 10 7
Courts (Criminal) 2 2

Protective Sanctions

2014 2013
Cease Trade Orders 67 159
Director and Officer Bans 37 67
Exemption Removals 67 118
Registration Restrictions 39 81
Total 210 425

Monetary Sanctions

OSC Total 2014 Total 2013
Administrative Penalties/Settlements $19,498,461 $14,741,854
Disgorgement $49,081,332 $40,242,705
Costs $4,867,150 $3,176,936
OSC Total $73,446,943 $58,161,495
Courts (Quasi-Criminal Proceedings)
Fines $5,000 N/A
Restitution N/A $155,000
Total $5,000 $155,000
Courts (Criminal Proceedings)
Restitution $4,841,806 N/A
Total $4,841,806 N/A

International Efforts

Jurisdiction Requests for assistance received by OSC in 2014 Requests for assistance received by OSC in 2013
International 18 17
United States 39 37
Domestic 22 14
Total 79 68
Jurisdiction Requests for assistance made by OSC in 2014 Requests for assistance made by OSC in 2013
International 10 19
United States 17 20
Domestic 7 7
Total 34 46

Originally published on Advisor.ca

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