OSC Announces Results of Enforcement Activity in 2014

TORONTO – Recognizing the importance of a strong and visible enforcement presence to public confidence in the capital markets, the Ontario Securities Commission (OSC) continued to make targeted investments in its enforcement program in 2014. Staff commenced an increased number of quasi-criminal and criminal proceedings, enhanced the OSC’s forensics capabilities and strengthened its alliances with police services. By expanding its partnerships and bolstering its enforcement toolkit, the OSC made advancements in detecting, investigating and prosecuting misconduct.

“The OSC has a stronger enforcement presence today because of more eyes and ears on the street, improved technological sophistication and significant alliances with police and other agencies,” said Howard Wetston, Q.C., Chair and CEO of the OSC. “Through sheer hard work and dedication, OSC enforcement has become more vigorous and effective in protecting the interests of the investors and capital markets in Ontario.”

The OSC commenced a total of 22 proceedings in the 2014 calendar year, which included eight cases commenced before the Courts. Of these eight cases, six were commenced pursuant to section 122 of the Securities Act (Ontario) and two pursuant to the Criminal Code of Canada. In 2013, the OSC commenced a total of six cases before the Courts.

Proceedings were concluded against a total of 91 individuals and companies in 2014. Of these, 87 respondents had their proceedings concluded before the tribunal of the Commission. In the other matters, two defendants had their cases concluded before the court under provincial securities legislation and two defendants by way of court proceedings under the Criminal Code.

Of the four concluded court proceedings, two defendants received jail terms. One was sentenced to three years in jail after pleading guilty to two charges contrary to the Criminal Code. Another was sentenced to 60 days in jail for breaching the Securities Act (Ontario), following a quasi-criminal proceeding. Both jail sentences were handed down following investigations by the OSC in partnership with police services.

"The collaboration between OSC Staff and police, particularly in the Joint Serious Offences Team, is producing impressive results in targeting misconduct, including convictions on criminal charges,” said Tom Atkinson, Director of Enforcement at the OSC. “Since its inception in May 2013, the JSOT has investigated 22 matters, executed more than 80 search warrants, brought five cases before the courts on criminal matters and another nine on quasi-criminal proceedings."

New Enforcement Tools

The OSC tribunal approved the first two no-contest settlement agreements in 2014, involving a total of four corporate respondents. These proceedings met the criteria for when a respondent does not have to make formal admissions respecting its alleged misconduct. In one settlement, the respondent agreed to pay $8 million to advance the Commission’s mandate, while in the second agreement, three respondents agreed to pay compensation of more than $13.5 million to clients. The use of no-contest settlements was one of the new enforcement tools introduced by the OSC last year, which also included enhancements to the credit for cooperation program. Public information about OSC proceedings is available on the OSC website (www.osc.gov.on.ca).

Recently, the OSC proposed a new whistleblower program that would encourage the reporting of serious misconduct to the OSC. 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 program would be the first of its kind for securities regulators in Canada and could be a tool to assist with detecting misconduct in areas such as corporate disclosure, insider trading and market manipulation. The proposal was published in Staff Consultation Paper 15-401 and the public can submit comments on the paper until May 4, 2015.

Supporting Enforcement with Enhanced Technology

The OSC continues to bolster its enforcement technology capabilities, including an enhanced in-house digital forensics lab. Staff also research emerging concerns such as cryptocurrencies and how to analyze them from a forensics standpoint. During investigations, the JSOT and the Enforcement Branch have leveraged the OSC’s improved technology and evidence-control capabilities in the search and seizure of digital evidence found both on traditional media, such as computer hard drives, optical disks and USB thumb drives, and on mobile devices like smart phones and tablets. Forensics staff support the recovery and analysis of hidden, deleted or obfuscated information obtained during investigations.

Co-operation to Combat Misconduct

Co-operation between the OSC and its international counterparts is essential to providing protection to investors in Ontario. The OSC works jointly with agencies in other countries to combat cross-border misconduct, including fraudulent schemes. For example, the OSC received important assistance from the U.S. Securities and Exchange Commission during the JSOT investigation of Keith Summers, who pleaded guilty to two charges under the Criminal Code and was sentenced to three years in jail in 2014.

To promote inter-agency cooperation, the OSC and the Competition Bureau signed a Memorandum of Understanding (MOU) to develop a framework for cooperating in areas of mutual interest, including protecting Canadians from fraudulent business practices and providing assistance in investigations, litigation or other enforcement actions. This MOU will include information sharing between the Competition Bureau and the Joint Securities Intelligence Unit (JSIU), an OSC-RCMP partnership that targets criminal syndicates involved in illegal market activity. In addition, the JSIU has been establishing relationships with other police services, specifically their fraud units, to assist with securities-related investigations and to provide a mechanism for sharing information.

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	-	-
Insider Trading	1	2
Market Manipulation	-	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	-	-	-	-
Insider Trading	1	-	2	-
Market Manipulation	-	-	1	-
Fraud	12	8	18	9
Miscellaneous	1	1	6	5
Total Respondents	26	19	39	57

 

The Commission may impose temporary orders to protect investors by prohibiting or inhibiting potentially illegal activity while an investigation is underway. In 2014, temporary orders were obtained in three cases, involving a total of five individuals and three companies. In 2013, temporary orders were obtained in four cases involving a total of four individuals and nine companies.

OSC Staff may also seek freeze directions from the courts on assets during an investigation or a proceeding to prevent investors’ assets from being transferred or dissipated. In 2014, Staff obtained 14 freeze directions involving a total of six individuals and three companies, compared to the 10 directions related to four individuals and one company obtained in 2013.

 

Concluded Proceedings - Respondents
A proceeding is concluded when the Commission or the courts make a decision and any sanctions are ordered.

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	-	1	-
Insider Trading	3	-	2	-
Market Manipulation	-	-	1	-
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	-
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

 

Monetary Sanctions
The Commission can impose monetary sanctions and bans on individuals and companies for violations of securities law or conduct that is contrary to the public interest. Adjudicative tribunals can also order a respondent to pay the costs of an investigation and/or hearing. The courts have the authority to impose fines, jail terms, and restitution. Monetary sanctions include penalties, settlements and disgorgement. Disgorgement requires the respondent to pay the OSC the amount the respondent obtained as a result of the illegal activity.

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	-
Restitution	-	$155,000
Total	$5,000	$155,000
Courts (Criminal Proceedings)
Restitution	$4,841,806	-
Total	$4,841,806	-

 

International Efforts

 

Jurisdiction	Requests for assistance received by the OSC 2014	Requests for assistance received by the OSC 2013
International	18	17
United States	39	37
Domestic	22	14
Total	79	68

 

Jurisdiction	Requests for assistance made by the OSC 2014	Requests for assistance made by the OSC 2013
International	10	19
United States	17	20
Domestic	7	7
Total	34	46

 

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