by Greg Klein | December 20, 2016
Two conmen who touted a Tanzanian gold mining stock now face prison time and restitution orders, the Ontario Securities Commission announced December 20. William Wallace and Robert Heward were each sentenced to four years and ordered to pay back $6.67 million to approximately 105 people who invested in Londoni Gold Corp. The pair were convicted of fraud, illegal distribution and unregistered trading. The last two charges brought concurrent 18-month sentences.
We will continue to seek prison sentences for individuals who commit crimes like these, which have a devastating impact on the lives of people and their families.—Jeff Kehoe,
OSC director of enforcement
Despite never having been registered with the OSC and having no prospectus for their company, the two sold Londoni shares between December 2009 and December 2013. In doing so they misrepresented the project’s operations, management, viability and production potential, the court heard. “A significant portion” of the money they raised financed their personal lifestyles.
They first appeared in a Toronto court in September 2014.
“This case sends a strong message to individuals engaged in securities fraud and illegal distributions that they will be held accountable for their misconduct,” said OSC director of enforcement Jeff Kehoe. “We will continue to seek prison sentences for individuals who commit crimes like these, which have a devastating impact on the lives of people and their families.”
The charges followed an investigation by the Joint Serious Offences Team, a partnership of the OSC, RCMP Financial Crime program and Ontario Provincial Police Anti-Rackets Branch.
by Greg Klein | August 30, 2016
Detailed information and extensive assistance brought an informer more than $22 million, the U.S. Securities and Exchange Commission announced August 30. It’s the SEC’s second-highest award, following a $30-million payout in 2014.
The anonymous tipster worked for the offending firm, which wasn’t named by the SEC.
“Company employees are in unique positions behind the scenes to unravel complex or deeply buried wrongdoing,” said Jane Norberg, acting chief of the SEC’s Office of the Whistleblower. “Without this whistleblower’s courage, information and assistance, it would have been extremely difficult for law enforcement to discover this securities fraud on its own.”
In June 2015, Norberg told an Ontario Securities Commission roundtable that the SEC had paid 17 people a total of more than $50 million over four years of operation. The largest reward at that time was over $30 million. The total now surpasses $107 million, divvied up between 33 recipients.
Rewards can range between 10% and 30% of money collected when sanctions exceed $1 million, the SEC stated. “No money has been taken or withheld from harmed investors to pay whistleblower awards.” The SEC protects tipsters’ confidentiality.
Last month the OSC became Canada’s first regulator to offer such rewards. Payouts can range from 5% to 15% of sanctions and/or voluntary payments by companies of at least $1 million. The maximum reward comes to $1.5 million, but can increase to $5 million should the penalty exceed $10 million.
An e-mail from OSC rep Kate Ballotta confirms that the program has already received tips but doesn’t state whether payouts have been made yet. “Another securities enforcement tool unique to the OSC,” she writes, is the no-contest settlement program in which five cases have resulted in about $200 million being returned to investors.
In Quebec, l’Autorité des marchés financiers launched a reward-less whistleblower program in June, after AMF research found “confidentiality is what primarily motivates whistleblowers to report incidents.”
The Prospectors and Developers Association of Canada opposed the OSC rewards, arguing they could encourage “bounty-hunting behaviour and framing companies for financial gains.” PDAC also warned that “overly cautious issuers” might face extra costs for additional legal advice.
by Greg Klein | July 14, 2016
There’s nothing like altruism, especially when there’s something in it for you. The Ontario Securities Commission became Canada’s first such regulator to open a paid whistleblower program on July 14. The new office wants to hear about possible violations that include illegal insider trading, market manipulation, accounting transgressions and disclosure contraventions. Informers with info leading to OSC sanctions and/or voluntary payments of at least $1 million qualify for rewards ranging from 5% to 15%, capped at $1.5 million. But should the OSC collect over $10 million, the cap rises to $5 million.
The size of the reward depends on the amount collected, a departure from the OSC’s original proposal to pay out even if the malefactor doesn’t.
Those involved in wrongdoing might qualify for a reward, although the degree of culpability can decrease the payout.
Whistleblowers may report anonymously if they have a lawyer act as go-between. The OSC says it “will make all reasonable efforts” to protect their sources. Anti-reprisal provisions apply, even if the info doesn’t bring about enforcement or doesn’t meet the reward criteria. Conditions require that the info isn’t already known to the OSC, was provided voluntarily and didn’t originate from a third party.
Interestingly, there’s no whistleblower reward for info relating to criminal or quasi-criminal cases.
The program’s “a game-changer for securities enforcement in Canada,” said OSC CEO/chairperson Maureen Jensen. The commission studied the Canada Revenue Agency’s Offshore Tax Informant Program and programs implemented by the U.S. Securities and Exchange Commission and the Australian Securities and Investments Commission.
But the latter agency doesn’t offer rewards, the Prospectors and Developers Association of Canada pointed out. Nor does a program run by the U.K. Financial Conduct Authority.
In its submission to the OSC last year, PDAC suggested cash rewards could encourage “bounty hunting behaviour and framing companies for financial gains.” The organization feared companies could face higher compliance costs for additional legal advice.
“Reporting of fraud should be a moral obligation … not driven by financial incentives,” PDAC added.
Nor will payouts come from Quebec’s whistleblower program, launched last month. L’Autorité des marchés financiers found “it cannot be established with certainty, based on specific data, that a financial incentive generates more quality whistleblowing.
“Instead, the AMF’s research and analysis highlight that the protection of confidentiality is what primarily motivates whistleblowers to report incidents.”
by Greg Klein
One year in prison and another on supervised release—six days apart from each other two American courts handed two former mining executives identical jail time. One ex-boss was implicated in polluting a river, the other in 29 mining deaths.
The latter, former Massey Energy CEO Don Blankenship, also got a $250,000 fine. The sentence came almost exactly six years after the underground explosion at West Virginia’s Upper Big Branch coal mine operated by a Massey subsidiary.
Widespread outrage greeted the sentence but the judge—a coal miner’s daughter—gave Blankenship the maximum penalty allowed for a misdemeanor of conspiring to violate safety regulations. In December a jury acquitted him of felony charges of securities fraud, lying to the U.S. Securities and Exchange Commission, and conspiring to impede mine safety officials. Convictions could have brought him 31 years in prison.
In the past Blankenship reportedly donated millions to friendly politicians and judges including, Bloomberg reports, $3 million to support a West Virginia Supreme Court of Appeals judge “who helped overturn a $50-million jury award against some of Massey’s units.”
John Grisham cited Blankenship as the novelist’s inspiration for The Appeal, depicting a ruthless Wall Street billionaire and his bought-and-paid-for Supreme Court judge. Grisham later wrote Gray Mountain, a fictional indictment of the Appalachian coal industry.
Alpha Natural Resources took out Massey in 2011 for $7.1 billion. Alpha eventually paid about $209 million for fines, restitution and mine safety improvements. The company also settled a securities class action suit for $265 million, as well as settling undisclosed amounts with 29 families.
Other former Upper Big Branch staff convicted after the disaster include superintendent Gary May, who got 21 months in prison, security chief Hughie Elbert Stover, who got three years, and Massey executive David Hughart, who got 42 months.
According to the United Mine Workers of America, 52 people died on Massey property under Blankenship’s reign. Still maintaining his innocence on the misdemeanor, Blankenship intends to appeal.
The week before his sentence, a federal judge in Alaska gave Canadian James Slade one year in prison and another on supervised release for criminal violations of the U.S. Clean Water Act, the Alaska Dispatch News reported.
Prosecutors described Slade as the senior on-site executive of XS Platinum during the 2010 and 2011 mining seasons when salmon-spawning streams “turned muddy brown with waste water,” according to an earlier ADN story.
The company was extracting platinum from tailings on a former mine site near the Bering Sea coast of southwestern Alaska. Slade argued that his Australian supervisors refused his request to provide equipment that would have stopped the discharge.
But the ADN quoted the judge saying Slade “really had a choice, and when it became clear the two Australians were adamant about making as much money as they could and to heck with any pollution control equipment, he could have walked away from this job.”
Two Americans face sentencing after pleading guilty to related charges. Prosecutors declined to extradite the Australians, Bruce Butcher and Mark Balfour.
The British Columbia legislature has amendments pending that could impose $1 million in fines and three years in prison for Mining Act violations. Triggered by the 2014 Mount Polley tailings dam collapse, the new regs strengthen penalties currently capped at $100,000 and one year. But following a 2015 Vancouver Sun investigation, the paper reported that “no fines had been levied in the courts under the Mines Act since 1989.”
Notwithstanding the lack of Bre-X convictions, Canada might do more to deter fraud than other mining-related offences. In 2013 the Ontario Securities Commission slapped geologist Bernard Boily with a $750,000 fine and $50,000 costs for fraudulent assays that brought a class action suit against his employer. The previous year geologist John Gregory Paterson got six years for a nearly four-year-long assay-faking scam.
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.
by Greg Klein | February 3, 2015
Canada’s largest investment regulator wants to pay up to $1.5 million for information leading to sanctions against delinquent issuers. In a February 3 announcement, the Ontario Securities Commission said it hopes to gather “timely information that might otherwise be difficult, or even impossible, to obtain.”
“We have proposed a realistic and concrete program that, in our view, needs to be put into action for the benefit of Ontario investors,” stated OSC CEO Howard Wetston. “We see a whistleblowing program as an important enforcement tool—one that will encourage individuals with high-quality information to come forward and report misconduct.”
The reward would reach up to 15%, capped at $1.5 million, of the total monetary sanctions imposed against a malefactor. To qualify, the info would have to bring about a minimum sanction or settlement above $1 million. But informants would get their loot even if the OSC didn’t. Under the proposal, rewards wouldn’t be contingent on recoveries.
An informant might qualify for a reward even if he or she held a degree of culpability.
OSC staff “would use all reasonable efforts” to hide an informant’s identity. The commission would also consider asking the province to legislate anti-retaliation provisions in Ontario’s Securities Act.
“The program would be the first of its kind for securities regulators in Canada,” the OSC added. But the commission considered the Canada Revenue Agency’s Offshore Tax Informant Program as well as whistleblower programs used by the U.S. Securities and Exchange Commission and the Australian Securities and Investments Commission.
The British Columbia Securities Commission has no similar program under consideration, communications officer Richard Gilhooley tells ResourceClips.com. The BCSC does conduct a Be Fraud Aware campaign, which includes an app, and encourages people to report scams. “We also put out investor alerts periodically to inform the public about ongoing scams or trends that we want them to be concerned about or report to us about,” he adds.
The OSC seeks written public input until May 4. In addition, a roundtable discussion will be announced shortly.
by Greg Klein
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Qualified person de-qualified
A geologist who faked assays and wrote false news releases has been slammed by the Ontario Securities Commission. On March 28 the OSC announced sanctions against Bernard Boily, a one-time VP of exploration for Bear Lake Gold TSXV:BLG who worked on the company’s Larder Lake gold project in the Cadillac Break of northeastern Ontario.
Some examples of his fanciful figures follow, with real results in brackets:
His scam came to light in July 2009 after Bear Lake hired an independent firm, InnovExplo Inc, to compile a resource estimate. Bear Lake then hired other independents to investigate. Investors, meanwhile, launched a class action suit. That was settled in April 2010 under confidential terms.
The OSC banned Boily from trading securities for 15 years, fined him $750,000 with $50,000 costs, and barred him from QP-ing for life.
In a statement announcing the penalties, OSC director of enforcement Tom Atkinson said Boily’s behaviour ran “contrary to the important gatekeeper role played by qualified persons in the securities disclosure regime.”
In January a Vancouver ex-QP, John Gregory Paterson, got a six-year prison term for faking assays while CEO of Southwestern Resources.
Speaking of fraud
Bre-X, the outrage that brought about QPs and NI 43-101 in the first place, is coming to an anti-climactic end. That’s according to an Ontario judge quoted in the March 21 Globe and Mail as he granted a bankruptcy trustee’s request to drop its legal action against Bre-X, its former officers and other companies involved. The G&M stated that an Alberta court is likely to approve a similar request and an Ontario class action suit will likely be dropped.
But some people made money and it wasn’t just company insiders. Clint Docken, the lawyer representing the Alberta class action suit, told the paper that trustees Deloitte & Touche got $3.9 million in fees and paid its lawyers $8 million, leaving $79,000 in Bre-X coffers. “A lawyer representing the trustee was not available for comment,” the G&M stated.
No charges were ever laid and “little also came of a move by the trustee to freeze the assets of [John] Felderhof, his ex-wife Ingrid and former Bre-X chief executive officer David Walsh, who died in 1998.” Nor is there any trace of the $75 million the Felderhofs got by selling Bre-X shares, the story added.
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by Greg Klein
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A city built on gold—and smuggling
“I didn’t ‘out’ anyone in the book and it wasn’t my intention to do that,” said Timmins journalist Kevin Vincent. “If I outed one prominent businessperson, I would have to out everyone in Timmins.” Discussing his book Bootleg Gold in Tuesday’s Northern Ontario Business, Vincent recounted what was once the mining town’s second-largest industry.
“A large percentage of the prominent business community has its roots tied to the gold-smuggling industry,” he told the paper. “In the 1920s, ’30s and ’40s, there was so much gold here every business had to have a set of scales under the counter. If you didn’t, you weren’t in business.”
Highgrading, as it was called, started with miners stealing small amounts, which they sold on a well-organized black market for 50%. “Shift bosses, mine captains and even mine managers were also involved,” Northern Ontario Business stated.
“When the gold was all put together, it was really compiled by just a handful of individuals and they controlled everything,” the paper quoted Vincent. “If you tried to move significant amounts of gold outside of their operation you ran a real, serious risk. Everyone knew it was going on and there were rules of engagement you had to follow.”
The endeavour was pervasive, with spinoff opportunities for seemingly everyone. One way of sneaking loot out of the mine was “inside false teeth constructed by local dentists,” the paper reported.
Due diligence defends against dirty deeds
March has been proclaimed Fraud Prevention Month by Canada’s 13 securities commissions. The regulators have a number of public awareness programs underway, including a provincial tour by the Ontario Securities Commission which highlights the agency’s new Office of the Investor, “the voice of the investor internally at the OSC.” On Tuesday some agencies, including Quebec’s l’Autorité des marchés financiers, cautioned would-be investors to check the registration (here and here) “of any firm or individual selling securities or offering investment advice.”
The following day the British Columbia Securities Commission announced two new features to its Investright program—a guide to private placements for retail investors and a mobile app providing investment advice and up-to-the-minute scam alerts. Like its Ontario counterpart, the BCSC has its own roadshow, this one exposing the province’s top 10 scams.
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