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Posts tagged ‘ontario securities commission’

Fraud Awareness Month begins amid criticism of lax enforcement against serial scammers

March 7th, 2018

by Greg Klein | March 7, 2018

Education more than deterrence seems to be the focus of Canadian securities commissions as Fraud Awareness Month begins. Two series of articles by Postmedia and the Globe and Mail reveal numerous examples of con artists evading administrative penalties and criminal charges, leaving victims powerless to recover losses.

Fraud Awareness Month begins amid criticism of lax enforcement against serial scammers

The British Columbia Securities Commission kicked off the annual awareness campaign by releasing results of a survey. The people most susceptible to investment scams, the poll found, are millennials. Over 500 respondents were tested on their reaction to a fictional investment offer that guaranteed no-risk returns of 14% to 25%.

“Although the claim contains several investment fraud warning signs, 26% of respondents said the offer was ‘worth looking into,’” the BCSC reported. “More troubling, 20% of the respondents who would look into the offer said they were interested because they need the money, indicating even greater vulnerability.”

Adults aged 18 to 34 showed the greatest naiveté, with 47% of women and 35% of men that age expressing interest. Just 13% of people 55 years and over gave similar answers, a decline from 26% in a similar 2012 study.

“Investors should always be skeptical of anyone offering a risk-free investment with an unusually high return, because there’s no such thing,” warned BCSC director of communications and education Pamela McDonald. “We encourage investors to look carefully at every investment they make, but also to listen to your gut. If something doesn’t make sense, or doesn’t feel right, we encourage you to contact the BCSC.”

The admonition follows criticism of weak enforcement by the BCSC and its counterparts. In December the Globe and Mail’s Grant Robertson and Tom Cardoso reported their analysis of 30 years of regulatory records, finding one in nine people pronounced guilty of securities fraud go on to re-offend, some even defying multiple lifetime trading bans through aliases and “jurisdiction-hopping.” Ill-gotten gains can far exceed penalties, which at any rate often remain unenforced.

In November a Postmedia series by Gordon Hoekstra reported numerous cases of uncollected BCSC fines and payback orders on scammers who in some cases continue to hold significant assets. Others transfer assets with relative ease.

Between the fiscal years ending in 2008 and 2017, Hoekstra stated, the BCSC collected less than 2% of $510 million in fines and payback orders. The Ontario Securities Commission did somewhat better, collecting 18% over the last decade.

In a December response to the Globe and Mail, the Canadian Securities Administrators stated that securities commissions are limited to pursuing administrative cases, with police responsible for criminal matters. But last month Hoekstra reported examples of Vancouver police and RCMP refusing to investigate fraud allegations. Vancouver cops say they typically refer cases of investment fraud to the BCSC. The RCMP declined to investigate another example on the grounds that it was a BCSC matter.

In another February story, Hoekstra revealed the BCSC “quietly” stayed more than $35 million of penalties regarding nine cases following a B.C. Court of Appeal decision on a pump-and-dump operation.

OSC tele-townhall encourages scam awareness

October 16th, 2017

by Greg Klein | October 16, 2017

OSC tele-townhall encourages scam awareness

Courts and regulatory agencies notwithstanding, there’s probably no greater frustration for con artists than con-resistant investors. With that in mind, the Ontario Securities Commission has a public outreach program underway including a tele-townhall.

Taking place October 24 at 6:30 p.m., the one-hour event will work “much like a call-in radio show,” the commission explains. Staff will provide information about frauds and scams commonly perpetrated in Ontario. Callers may ask questions and take part in live polls. Participants can register here up to noon of that day.

As part of an outreach program called From Bay Street to Main Street, the OSC also has several investor awareness meetings scheduled over the next few months. Many of the events will take place with groups representing Canadian newcomers or seniors, two particular scam targets.

The OSC also promotes investor knowledge through its Get Smarter About Money website.

Among other strategies across the country, the British Columbia Securities Commission has promoted investor awareness through entertaining videos, a few of which can be seen here and here.

Ontario Securities Commission director of enforcement Jeff Kehoe comments after two con men get jail time for a Tanzanian mining scam

February 7th, 2017

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$6.6-million gold mining scam nets four-year jail terms

December 20th, 2016

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.

SEC pays whistleblower $22 million for securities fraud tip

August 30th, 2016

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.

SEC pays whistleblower $22 million for securities fraud tip

“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.

L’Autorité des marchés financiers disagrees with the Ontario Securities Commission policy of rewarding whistleblowers

August 5th, 2016

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Ontario Securities Commission offers whistleblowers cash for tips

July 14th, 2016

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.

Ontario Securities Commission offers whistleblowers cash for tips

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.”

Criminal consequences

April 8th, 2016

As Blankenship plans an appeal, other miners in the U.S. and Canada fare worse

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.

As Blankenship plans an appeal, other miners in the U.S. and Canada fare worse

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.

OSC plans whistleblower rewards but PDAC opposes payouts

October 28th, 2015

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.

Ontario Securities Commission proposes rewards for whistleblowers

February 3rd, 2015

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.”

Ontario Securities Commission proposes rewards for whistleblowers

OSC CEO Howard Wetston: Informants might
collect even if the commission doesn’t.

“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 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.