Paying cash for enforcement tips is a success: OSC

Five years in, the Ontario Securities Commission’s (OSC) whistleblower program has paid out over $8.6 million for tips that generated $44 million in monetary sanctions and voluntary payments — and uncovered an array of misconduct that may otherwise have gone undetected.

The OSC said its whistleblower program, which began offering financial rewards for tips that lead to successful enforcement action back in 2016, has generated approximately 650 tips to date — and the number of tips received by the OSC has grown each year.

Tips received over the past five years have helped uncover “complex, novel and hard-to-detect matters…allowing the OSC to open new investigations and broaden the scope of existing investigations,” the regulator said.

“The OSC whistleblower program continues to exceed expectations and deliver tangible results,” Grant Vingoe, chairman and CEO of the OSC, said in a release.

The misconduct uncovered by tips has included suspected illegal insider trading, market manipulation, abusive short-selling and misleading disclosure involving firms in the financial, tech and resource sectors, the OSC said.

Tipsters have ranged from employees to industry professionals, external analysts and investors “with unique knowledge about misconduct or the perpetrators of misconduct,” the OSC reported.

“I want to commend those who have come forward with information related to securities misconduct in Ontario. Their courage and determination enhance our ability to protect investors and achieve better enforcement outcomes for our markets,” Vingoe said.

“These individuals take tremendous personal and professional risks in coming forward, and the protection of whistleblowers is, therefore, a critical component of our program,” added Jeff Kehoe, director of enforcement at the OSC.

Last year, the OSC brought its first enforcement case against a firm for reprisals levelled against a whistleblower.

In July 2020, the regulator settled allegations with Coinsquare Ltd., a Toronto-based crypto trading platform, and two executives at the firm who were accused of retaliating against an internal whistleblower who reported concerns about alleged wash trading to senior management.

As part of that settlement, which included financial sanctions and industry suspensions, the firm was also required to create an internal whistleblower program.

“We expect employees to be free to voice their concerns about potential breaches of Ontario securities law, and will continue to take enforcement action against firms that retaliate against whistleblowers,” Kehoe said.

The OSC’s whistleblower program, which was modelled after a similar initiative of the U.S. Securities and Exchange Commission (SEC), is still the only program operated by a securities regulator in Canada that pays financial rewards for tips that generate successful enforcement action.

A number of other provincial regulators operate their own whistleblower programs, as do the self-regulatory organizations, but none of them offers the prospect of a financial payout for reporting suspected misconduct.

To date, the SEC’s program, which has been around longer than the OSC’s and serves a much larger market, has paid out approximately US$938 million to 179 whistleblowers since issuing its first award in 2012. The SEC reported that it received over 6,900 tips in fiscal 2020 alone.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.