OSC Reports on Enforcement Activity in 2011

Toronto – The Ontario Securities Commission (OSC) reported today on its enforcement activity in 2011. The report provides details on the actions taken by the OSC to disrupt potential illegal activity and protect Ontario investors from ongoing harm.

During the year, OSC Staff pursued more cases before the criminal courts and made greater use of proactive investor outreach and protective orders. Looking forward, the OSC will continue to focus on detecting misconduct that causes direct harm to investors while addressing the challenges that result from increasingly multi-jurisdictional enforcement matters.  

“Maintaining a rigorous and effective enforcement regime is fundamental to the OSC’s ability to actively protect investors and promote confidence and the integrity of the markets,” said Howard Wetston, Q.C., Chair and CEO of the OSC. “During 2012 we will continue to adapt to the increasing complexity and international scope of enforcement files while building on the success we are seeing in our actions before the courts.” 

HIGHLIGHTS 

Jail Sentences 

The OSC’s commitment to strengthen deterrence by bringing more cases before the courts resulted in a record number of jail sentences in 2011. In total, OSC Staff secured more than 14 years in jail sentences in 2011, compared with 195 days in 2010. This focus is continuing in 2012, with five cases currently in litigation before the provincial courts. While proceedings in quasi-criminal matters present unique challenges, the OSC is committed to continuing to develop the internal and external resources necessary to make the litigation process more efficient.  

Proactive Enforcement Initiatives and Investor Outreach 

Proactive enforcement action and enhanced investor outreach were key priorities for the OSC in 2011. The Commission continues to act on its authority to impose protective orders to protect investors. These orders include banning trading in securities (interim orders) or freezing assets (freeze orders). In 2011, the Commission issued 11 interim orders and three freeze orders.  

The OSC is continuing to expand its use of communication strategies to warn investors about potential harm. In 2011, the OSC issued five Investor Alerts and added 31 companies to the Investor Warning List. In addition to broadcasting these notices across traditional outlets, the OSC is making greater use of social media, including Twitter and Facebook, to reach investors directly and in real-time.  

The OSC is also exploring new methods to proactively reach at-risk investors. In June, Enforcement Staff developed and successfully executed a ‘Reverse Boiler Room’ project by proactively contacting 420 at-risk investors to warn them of possible illegal distributions.  

International Focus 

International coordination remains a key focus for the OSC. The OSC continues to be active in establishing effective working relationships with international securities regulators and organizations. In 2011, the OSC signed a Memorandum of Understanding (MMOU) with the Financial Industry Regulatory Authority (FINRA). Such agreements help to facilitate the supervision of and exchange of information regarding firms and individuals that operate across jurisdictions. In addition, the OSC is currently acting on 32 requests for assistance from international securities regulators under the IOSCO MMOU.  

“This was an active year for our enforcement team and we are pleased with the results we are seeing in court and in our overall effectiveness,” said Tom Atkinson, OSC Director, Enforcement. “Going forward we will continue to intensify our efforts and work with our international regulatory partners in order to protect investors and our markets.”

New Enforcement Policy Proposals and Increased Effectiveness 

The OSC is continuing to leverage technology to enhance its ability to detect misconduct and improve operational effectiveness. The OSC’s proprietary trading surveillance software, OSC TradeNexus, is a key component in this regard, providing Enforcement Staff with a more complete view of marketplace activity. In addition, in 2011 the OSC initiated electronic hearings, which can provide efficiencies in hearing resources.  

In October, OSC Staff released a series of policy proposals designed to enhance the OSC’s enforcement regime for the benefit of investors and the capital markets. The proposals include enhancements to the OSC’s ‘Credit for Cooperation’ program and a new ‘no-contest’ settlement program. The proposals were sent out for public consultation and the Commission plans on conducting a public hearing to seek additional feedback. A date for the policy hearing is expected to be set later this Spring.  

ENFORCEMENT PROCEEDINGS

Proceedings Commenced

Alleged category of wrongdoing	Cases	Respondents
		Individuals	Companies
Illegal distributions	13	33	36
Misconduct by registrants	4	6	10
Disclosure violations	1	1	-
Miscellaneous	7	9	1
Total	25	49	47

 

Interim Orders

 

Interim orders protect investors by prohibiting or inhibiting a potentially illegal activity while an investigation is underway. A total of 11 orders were issued by the Commission, involving 26 individuals and 25 companies.  

Category	Cases	Respondents
		Individuals	Companies
Illegal distributions	8	20	20
Misconduct by registrants	1	1	3
Miscellaneous	2	5	2
Total	11	26	25

 

Freeze Orders

 

Freeze orders prevent assets from being liquidated or transferred out of Ontario during an investigation. A total of three orders were issued by the Commission, involving one individual and four companies, and in excess of $ 4 million was frozen.  

Category	Orders	Respondents
		Individuals	Companies
Illegal distributions	2	-	1
Misconduct by registrants	1	1	3
Total	3	1	4

 

Concluded Proceedings  

 

A proceeding is concluded when the Commission or the courts make a decision and any sanctions are ordered. In 2011, a total of 27 proceedings were concluded, involving 107 individuals and 53 companies.  

Category of wrongdoing	Cases	Respondents
		Individuals	Companies
Illegal distributions	14	71	41
Misconduct by registrants	2	7	3
Illegal insider trading	1	2	-
Disclosure violations	1	4	1
Market manipulation	2	8	2
Miscellaneous	7	15	6
Total	27	107	53

 

Sanctions – Protective

 

The Commission can impose bans on future activity, such as trading in securities (cease trade orders), acting as a director or officer of a public company, and acting as or becoming a registrant. The Commission can also remove prospectus and registration exemptions available under the Act.  

In 2011, the Commission issued:  

• 110 cease trade orders
• 83 director and officer bans
• 118 exemption removals
• 45 registration restrictions

Sanctions – Monetary 

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. The courts have the authority to impose fines and jail terms.  

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. In 2011, the Commission ordered a total of $60,387682 in sanctions and costs.  

Type	Amount
Administrative Penalties/ Settlements	$15,616,248
Disgorgement	$42,657,330
Costs	$2,114,104
Total	$60,387,682

 

While the OSC has experienced challenges in collecting on monetary sanctions and cost orders, it continues to work to improve its collections practices. Enforcement Staff are aggressively pursuing jail terms for breaches of protective Orders at the Ontario Court of Justice. In 2011, three respondents received jail sentences for breaches of Commission Orders. Information on the OSC’s collection experience is available on our website .  

 

The OSC is responsible for enforcing securities law in Ontario, and works actively to protect investors and the capital markets.  

 

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