OSC reports growth in enforcement activity in 2015

TORONTO, March 7, 2016 /CNW/ - The Ontario Securities Commission (OSC) reported today on its increased enforcement activity in 2015. Last year, the OSC commenced 31 cases (18 before the OSC Tribunal and 13 before the courts), compared to 22 in 2014.

In 2015, eight individuals were sentenced in criminal or quasi-criminal matters. Michael Hughes received a conditional sentence of two years less a day for fraud for issuing false monthly statements indicating his client's holdings were increasing in value when the client was actually losing money, Shaida Bandali was sentenced to two years' probation and a $45,000 fine for unregistered trading for selling confidential information about maternity patients to scholarship plan dealers, and Bernardo Giangrosso received a custodial sentence of three months for breaching a Commission order.

The OSC also rendered decisions in 2015 in two major insider trading cases, resulting in lengthy bans and financial penalties.

"Ontario investors can be confident that our enforcement team is working hard to safeguard their interests," said Maureen Jensen, Chair and CEO of the OSC. "Using innovative enforcement tools to increase our reach and effectiveness, we are protecting investors and Ontario's capital markets."

Introducing new enforcement tools

The OSC has introduced innovative tools that encourage market participants to self-report violations, provide information to OSC investigators and return funds to harmed investors. Along with partnerships with other enforcement agencies and jurisdictions, these tools are improving enforcement results.

"The OSC's vigilant and responsive approach to enforcement promotes a culture of integrity and compliance in Ontario's capital markets," said Tom Atkinson, Director of Enforcement at the OSC. "Our active, innovative enforcement program is helping to protect investors from financial harm, and sending a clear message to potential wrongdoers."

No-contest settlements

In November 2015, the OSC approved a no-contest settlement agreement in relation to excess fees that Quadrus Investment Services Ltd. discovered and self-reported to the OSC. Quadrus agreed to compensate clients approximately $8 million. This settlement sends a strong message about the importance of treating clients fairly with respect to fees.

The OSC will continue to use this tool where respondents qualify under applicable criteria.

Mediation

In May 2015, the OSC launched a Pilot Mediation Program, providing the option for respondents to work with an independent third-party mediator to resolve enforcement issues. To date, two enforcement matters have been resolved through mediation. 

Proposed whistleblower program

In October 2015, the OSC published Proposed OSC Policy 15-601 – Whistleblower Program for public comment. This program would be the first of its kind for securities regulators in Canada.  Under the program, the OSC would provide a financial incentive of up to $5 million for high quality, original information that leads to an enforcement outcome with sanctions of $1 million or more.

The program would help generate tips on complex securities law matters, such as insider trading, accounting and disclosure violations, and market manipulation that may otherwise be difficult to detect. It would also provide an incentive for reporting issuers and registrants to enhance their compliance systems and foster an environment where internal reporting of misconduct is encouraged.

The OSC aims to finalize the policy and launch the Whistleblower Program with a dedicated whistleblower office in spring 2016.

Strengthening partnerships

The OSC is working more closely than ever with provincial and federal law enforcement agencies to investigate wrongdoing in securities-related market activity.The Joint Serious Offences Team (JSOT), a partnership between the OSC, the RCMP Financial Crime program and the OPP's Anti-Rackets Branch, continues to make strides in combating financial crime. In 2015, JSOT executed 49 search warrants and laid charges against 20 accused/defendants.

In support of the Joint Securities Intelligence Unit (JSIU), a partnership that targets criminal syndicates involved in illegal market activity, the RCMP relocated its financial crime unit to the OSC's Toronto office in 2015. Recent secondments from the Competition Bureau and the Investment Industry Regulatory Organization of Canada (IIROC) have further broadened the JSIU's capabilities and enhanced its ability to protect investors.

In June 2015, the OSC was recognized by Canada's Financial Transactions and Reports Analysis Centre (FINTRAC) as a law enforcement power. The OSC now receives extensive financial disclosure reports from FINTRAC, providing valuable intelligence for investigators.

The OSC is an active participant in the Canadian Securities Administrators (CSA) Enforcement Group.  Through regular meetings, the OSC works with its counterparts in other jurisdictions across Canada to coordinate efforts to target areas of concern, consolidate learnings on key areas, partner on various initiatives and coordinate work.

The OSC is also actively involved on two committees of the International Organization of Securities Commissions (IOSCO): the Screening Group and Committee 4. The Screening Group works to help the 106 signatories – representing 95 per cent of the world's capital markets – to achieve compliance with the IOSCO Multilateral Memorandum of Understanding. Committee 4 reviews and makes recommendations on enforcement and information exchange issues that affect the international securities regulatory community.

Engaging with investors

The OSC's Contact Centre responds to questions from investors and, where appropriate, passes on complaints to the OSC's Enforcement Branch. In 2015, the Contact Centre referred more than 360 complaints to Enforcement for further investigation.

Since its re-launch in 2015, the OSC's Investor Office has been modernizing and expanding its efforts to help Ontarians invest wisely and confidently. In addition to investor alerts and the participation of the Enforcement Branch in OSC in the Community events across the province, the Investor Office is improving awareness of fraud among investors through its Investor News, which has 6,000 subscribers. Efforts will continue to expand in 2016, targeting those most at risk of becoming victims of fraud.

2015 ENFORCEMENT ACTIVITY

Proceedings commenced

A proceeding is commenced when the OSC files a Notice of Hearing and Statement of Allegations or swears an Information to allege wrongdoing before the courts.

The OSC commenced a total of 31 cases in 2015 (including 13 cases before the courts), many involving proceedings against multiple individuals or companies. Many of the proceedings commenced in 2015 were still underway at the end of the year, with decisions yet to be rendered.


2015

2014

OSC Tribunal

18

14

Court (quasi-criminala)

10

6

Court (criminalb)

3

2

Total

31

22

a Pursuant to the Securities Act (Ontario)

b Pursuant to the Criminal Code

The 31 cases commenced in 2015 involved proceedings against 73 individuals or companies.



2015

2014

Type of offence

Cases

Individuals

Companies

Cases

Individuals

Companies

Illegal distribution

8

13

14

7

7

2

Misconduct by registrant

3

3

2

5

5

8

Disclosure violation

2

1

2

-

-

-

Insider trading

2

3

-

1

1

-

Market manipulation

1

1

1

-

-

-

Fraud

7

17

7

8

12

8

Breach of order

6

6

-

-

-

-

Miscellaneous

2

2

1

1

1

1

Total

31

46

27

22

26

19

Interim orders

The OSC may impose temporary cease trade orders to protect investors by prohibiting or inhibiting potentially illegal activity while an investigation is underway. It may also seek freeze directions from the courts during an investigation or a proceeding to prevent investors' assets from being transferred or dissipated.


2015

2014

Temporary cease trade orders

3

3

Freeze directions

21

14

Amount frozen

$5,954,655

$6,462,786

Respondents

23

17

Concluded proceedings

Proceedings are concluded when the OSC or the courts make a decision and any sanctions are ordered. Cases may involve proceedings against multiple individuals or companies that may have proceedings against them concluded at different times, through settlement agreements or contested hearings. Results below are therefore by individuals or companies only.


2015

2014

OSC Tribunal

38

58

Settlement agreement

37

29

Court (quasi-criminala)

7

2

Court (criminalb)

2

2

Total

84

91

a Pursuant to the Securities Act (Ontario)

b Pursuant to the Criminal Code


2015

2014

Type of offence

Individuals

Companies

Individuals

Companies

Illegal distribution

11

10

18

10

Misconduct by registrant

4

5

6

11

Disclosure violation

-

1

1

-

Insider trading

11

1

3

-

Market manipulation

1

1

-

-

Fraud

16

15

16

17

Breach of order

4

-

-

-

Miscellaneous

3

1

4

5

Total

50

34

48

43

Proceedings ongoing before the courts on December 31


2015

2014

Court (quasi-criminala)

16

10

Court (criminalb)

4

2

a Pursuant to the Securities Act (Ontario)

b Pursuant to the Criminal Code

Protective and monetary sanctions

The OSC can impose protective and monetary sanctions on individuals and companies. Monetary sanctions include administrative penalties, settlement payments and disgorgement. Disgorgement requires the respondent to pay the OSC the amount obtained through the illegal activity. The OSC can also order respondents to pay the costs of investigations and hearings.

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

OSC Tribunal

2015

2014

Protective sanctions



Cease trade order

59

67

Director and officer ban

41

37

Exemption removal

55

67

Registration restriction

43

39

Monetary sanctions



Administrative penalties/settlements 

$20,106,596a

$19,498,461b

Disgorgement order

$42,882,986

$49,081,332

Costs

$4,051,443

$4,858,150c

Total monetary sanctions

$67,041,025

$73,437,943d

a Includes investor compensation of approximately $8 million in the Quadrus settlement agreement

b Includes an administrative penalty of $313,461 related to a reciprocal order

c Costs ordered in MRS Sciences were amended from $126,216.04 to $117,216.04 by Amended Order dated June 4, 2015

d Revised due to amendments to costs noted above

Courts

2015

2014

Quasi-criminala



Jail sentences

4 months

2 months

Fines

$301,000

$5,000

Restitution order

$203,769

-

Total

$504,769

$5,000

Criminalb



Jail sentences

24 monthsc

36 months

Fines

-

-

Restitution order

$116,311

$4,841,806

Total

$116,311

$4,841,806

a Pursuant to the Securities Act (Ontario)

b Pursuant to the Criminal Code

c Conditional sentence of two years less a day, which includes 18 months of house arrest

Requests for assistance

Active co-operation is an essential part of the OSC's enforcement strategy. The OSC works closely with other Canadian and international regulators and law enforcement agencies to investigate fraud, misconduct and failure to comply with securities law.

In addition to conducting thousands of database searches for external agencies each year, the OSC receives and makes requests for assistance from other Canadian and international jurisdictions. International requests are made via the IOSCO memorandum of understanding.

Requests received by the OSC

2015

2014

Domestic

12

22

United States

27

39

International

19

18

Total

58

79




Requests made by the OSC

2015

2014

Domestic

10

7

United States

15

17

International

19

10

Total

44

34

The mandate of the OSC is to provide protection to investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in the capital markets. Investors are urged to check the registration of any persons or company offering an investment opportunity and to review the OSC investor materials available at http://www.osc.gov.on.ca

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SOURCE Ontario Securities Commission

For further information: For Media Inquiries: media_inquiries@osc.gov.on.ca; For Investor Inquiries: OSC Contact Centre, 416-593-8314, 1-877-785-1555 (Toll Free)

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