On February 3, 2015 the Ontario Securities Commission (OSC) published Staff Consultation Paper 15-401 Proposed Framework for an OSC Whistleblower Program (Paper). The Paper outlines the OSC’s proposal for an award-based whistleblower program (Program). The OSC is welcoming written comments on the Program until May 4, 2015.
The purpose of the Program is to encourage individuals to come forward with information regarding breaches of Ontario securities law. The Program would offer a discretionary financial award to individuals who provide information of misconduct that leads to monetary penalties or settlements of over $1,000,000.
The Paper follows OSC Staff Notice 15-704 Request for Comments on Proposed Enforcement Initiatives published for comment in October 2011. The Program would be the first of its kind amongst Canadian securities commissions. It follows the example of the U.S. Securities and Exchange Commission’s (SEC) whistleblower program established in 2011.
Objectives of the Program
The Program is part of an effort by the OSC’s Enforcement Branch to obtain information regarding securities law transgressions quickly and effectively. The Paper outlines certain specific objectives of the Program, including:
- motivating those most likely to have information to come forward;
- increasing the number and efficiency of securities law cases handled by the OSC;
- increasing the quality of the information used in investigations and proceedings;
- encouraging cooperation from the whistleblower throughout the investigation and proceedings; and
- encouraging issuers to self-report misconduct.
In pursuing these objectives, the OSC aims to investigate more securities law cases involving sophisticated players and complex issues, with better information.
Under the Program the OSC would offer awards to individuals who provide information that lead to monetary sanctions or settlements under section 127 of the Securities Act (Ontario) of over $1,000,000. Where penalties exceed this amount, the OSC would have the discretion to award the whistleblower up to 15% of the total sanction or settlement, excluding costs, capped at a maximum award of $1,500,000.
In order to be eligible for the award, the whistleblower must be an individual and the information must be original, provided voluntarily (i.e. not compelled or requested from the individual) and be of high quality. The Paper describes “high quality information” as information that is timely, relates to serious misconduct, is detailed, may stop further harm and is likely to save the OSC significant time and resources. In particular the OSC is looking for information regarding securities law transgressions that are extensive, abusive, create significant risks to investors and are perpetrated by individual in positions of authority.
Where information meets these criteria, it may still be excluded if it falls under a generally excluded category. While information under these categories will not automatically be excluded, generally the OSC will use its discretion and not issue an award where the individual:
- provided information that is misleading, untrue or unspecific;
- is culpable in the transgression to which the information pertains;
- obtained the information through the provision of auditing services;
- provides information that is subject to solicitor-client privilege;
- is or was the Chief Compliance Officer, director or officer of the issuer and the information was obtained through the issuer’s internal reporting process;
- is or was employed by the OSC or another law enforcement agency at the time the information was obtained; or
- obtained the information in an unseemly manner likely to bring the Program into disrepute.
Where the OSC determines that no award will be issued, its decision will not be appealable by the whistleblower.
The Paper also outlines measures that would be taken to protect whistleblowers. The OSC is primarily concerned with protecting the identity of whistleblowers and preventing retaliation by employers.
While anonymity would not be guaranteed, the Program would take reasonable steps to protect the identity of whistleblowers, for example by not requiring whistleblowers to testify during proceedings. Whistleblowers may also provide information anonymously under certain circumstances.
The OSC would also pursue discussions with the Ontario government to amend the Securities Act to prohibit employer retaliation against whistleblowers. These amendments would allow for enforcement under section 127 of the Securities Act (Ontario) where retaliation occurs, as well as providing the whistleblower with a civil right of action against employers who retaliate.
The Paper anticipates concerns that the Program could undermine issuers’ internal reporting channels by motivating individual’s to report the matter externally first. The OSC notes that this is not the intention of the Program and cites the SEC’s 2014 report to Congress which found that under the SEC’s program 80% of award recipients raised their concerns through internal channels first.
In addition to questions regarding the Program’s impact on issuers’ internal compliance programs, the Paper contains numerous questions intended to garner written feedback. Based on these questions, the OSC appears particularly interested in receiving comments with respect to:
- whether culpable individuals should be eligible for awards;
- whether the proposed award amounts are sufficient; and
- whether the OSC should proceed with the Program as described.
The OSC is seeking written feedback on these issues, among others, until May 4, 2015.