The Ontario Securities Commission (“OSC”), Canada’s largest securities regulator, has proposed establishing its own whistleblower program for individuals to report suspected securities fraud, marking Canada’s first foray into establishing such a system.
In developing the program, the OSC primarily relied upon the United States’ whistleblower program. In fact, the OSC specifically credits the “apparent success” of the U.S.’s program in its proposal paper as a reason for instituting its own whistleblower program. Consequently, many of the proposed regulations emulate those found under U.S. law. For instance, the OSC program would allow whistleblowers to remain anonymous and would make it a violation of the Ontario Securities Act for employers to retaliate against employees who report misconduct.
The OSC believes one of the fundamental underpinnings of its program is offering a bounty to whistleblowers who provide useful information, stating, “[W]e believe that the payment of a financial incentive is most critical to the success of the program.” Specifically, OSC Staff would have discretion to award whistleblowers who provide original information between 5–15% of the total monetary sanctions from a successful enforcement action if the sanctions or settlement proceeds exceed C$1 million, with a maximum award cap of C$1.5 million. This deviates in some respect from the U.S. system, where whistleblowers who provide useful information will receive 10–30% of the proceeds if the SEC recovers at least $1 million, and where there is no cap on the possible bounty.
Under the OSC’s program, an individual may be ineligible to receive an award in several situations, including where the individual: provides false or misleading information; provides information that is subject to the solicitor-client (i.e., attorney-client) or auditor-client (i.e., accountant-client) privilege; was the company’s Chief Compliance Officer or equivalent position; was a director or officer at the time the information was acquired, and acquired the information as a result of an the company’s internal reporting or investigation processes; or obtains or provides the information in circumstances which would “bring the administration of the OSC Whistleblower Program into disrepute.” Further, an individual who was culpable in the misconduct will not be automatically excluded from qualifying as a whistleblower, but the level of culpability will be a factor the OSC considers in determining the individual’s overall award. Further, the individual’s reporting will not absolve him or her from an OSC enforcement action.
Under the OSC’s program, whistleblowers have to report misconduct to the OSC directly. If a whistleblower reports misconduct through internal channels, the company’s failure to “promptly and fully report serious breaches of Ontario securities law” to the OSC may preclude an employer from receiving credit for cooperation during the OSC investigation. Conversely, the OSC will consider a company’s failure to take any action to respond to the whistleblower’s complaints as an aggravating factor when recommending sanctions.
Canadian companies doing business in the U.S. have already had to stay informed about developments at the SEC. Now, they will also have to operate with an eye towards the OSC’s proposed whistleblower program. Likewise, U.S. companies doing business in Canada will have to be mindful of the new legal exposure the OSC’s program may place on them. As these developments unfold, be sure to check out our blog for added commentary.