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OSC plans whistleblower rewards but PDAC opposes payouts

by Greg Klein | October 28, 2015

Determined to enact Canada’s first investment-related whistleblower program by next spring, the Ontario Securities Commission released a revised set of proposals for public comment on October 28. The plan would encourage reporting of serious securities-related misconduct in Ontario by offering cash rewards, now up to a maximum of $5 million. Insider trading, along with accounting and disclosure violations, would be among the targeted misdeeds. The OSC also expects the program “to entice companies to self-report wrongdoing.”

Informants might qualify for 5% to 15% of sanctions up to a maximum of $1.5 million, regardless of whether the OSC collects from the malefactor. But if the commission collects over $10 million, the informant’s share could reach as high as $5 million.

We receive incredibly high-quality tips that not only cause us to open investigations, but also enable us to bring enforcement actions much quicker and save on those resources.—Jane Norberg, U.S. Securities and Exchange Commission

The OSC pledged to take reasonable steps to protect informants’ identities and guard against retaliation.

The revised proposals would open the program to compliance officers, auditors, managers and directors under certain circumstances, even if they share blame. But culpable whistleblowers could still face prosecution.

The recommendations follow written submissions from 17 participants and a roundtable discussion with 12 panellists following the original announcement last February.

The Prospectors and Developers Association of Canada argued against cash rewards. Saying they could encourage “bounty hunting behaviour and framing companies for financial gains,” PDAC warned that the OSC might lack the resources to handle tips. “Overly cautious issuers,” meanwhile, could face higher compliance costs for additional legal advice.

“Reporting of fraud should be a moral obligation and not driven by financial incentives,” stated PDAC’s submission. “As mentioned in the proposal, both the United Kingdom and Australia’s whistleblower programs do not include financial incentives. Given that the UK and Australia are closer to Canada when it comes to the size of capital markets, the OSC should consider a system that is similar to theirs.”

But the Small Investor Protection Association stated that the U.S. Securities and Exchange Commission found financial rewards a powerful incentive. The association said the payout scale originally proposed by the OSC “may be a little light—it is well below SEC levels.”

Speaking at last June’s roundtable, SEC representative Jane Norberg said the agency received over 3,600 tips in fiscal 2014, about 10 a day and up 12.5% from the previous year. With 58 tips coming from Canada, info poured in from 60 countries as well as across the U.S.

In its four years of operation, the SEC’s program paid 17 people sums totalling more than $50 million. One informant from outside the U.S. got over $30 million.

The OSC’s revised proposals remain open for e-mailed comments until January 12. “This is a game changer for the OSC and our ability to achieve stronger outcomes for investors and the capital markets,” said OSC CEO/chairperson Howard Wetston. But should the program be enacted, he won’t be around to oversee it. Wetston’s five-year term ends November 15.

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