On July 14, 2016, the Ontario Securities Commission (the “OSC”) broke ground in Canada when it officially launched its widely anticipated Office of the Whistleblower and its Whistleblower Program. As the first “bounty-for-tips” program in Canada, it will provide financial incentives to those who report corporate misconduct to the OSC. As such, the Whistleblower Program is attracting significant attention.
Kelly Gorman, the newly-appointed Chief of the OSC’s Office of the Whistleblower and Deputy Director of the OCS’s Enforcement Branch, said at a seminar hosted by Osler on July 20, 2016, that this program will be a “powerful tool in the Enforcement Branch”. She emphasized that “whistleblower tips will be very valuable information for us because they have information about companies that may often times be hard for us to access”.
The OSC’s Whistleblower Program has in large part preserved the substance of the Proposed Policy, which we commented on earlier this year. The most notable features of the OSC’s Whistleblower Program include the following:
Whistleblower Awards: Similar to the whistleblower program at the Securities and Exchange Commission (the “SEC”), the OSC’s Whistleblower Program incentivizes individuals to come forward with information on securities- or derivatives-related misconduct by incorporating monetary awards. This can be contrasted against Québec’s Autorité des marchés financiers whistleblower program, launched in June of this year, which does not include financial incentives. Under the OSC’s Whistleblower Program, whistleblowers can receive an award of up to (but not exceeding) $5 million for reporting corporate misconduct which leads to a successful enforcement action. In fact, the first $1.5 million awarded is not contingent on collections. Under the SEC program, whistleblowers have been awarded up to $30 million in 2014 and $17 million most recently in June 2016.
Eligibility: Individuals including employees and suppliers who voluntarily submit (anonymously or not) original information on the designated submission forms relating to a violation of Ontario securities law, such as illegal insider trading and/or tipping (excluding criminal or quasi-criminal matters), are eligible for an award of between 5 and 15% of the total sanctions imposed and/or voluntary payments made where these amounts total $1 million or more if such information leads to an administrative proceeding.
Internal or external auditors, Chief Compliance Officers, directors, officers and in-house counsel are eligible for a whistleblower award in certain circumstances, for example, when at least 120 days have elapsed since the individual provided the information through the appropriate internal channels. Culpable whistleblowers are also eligible for an award; however, the degree to which the whistleblower is complicit in the reported misconduct is likely to decrease the amount of the award.
Protection from Reprisals: Although the OSC’s Whistleblower Program is silent with respect to protection against reprisals, the Ontario Securities Act (the “OSA”) was recently amended to prohibit reprisals by employers against employees for reporting securities violations (as well as against employees who express their intention to report such violations), and to void any confidentiality provision which precludes or purports to preclude the employee from such reporting. Furthermore, this prohibition may be enforced under the OSC’s public interest jurisdiction in the OSA.
Internal Reporting is Not Required: As we have written previously, while the Whistleblower Program seeks to “encourage” employees to report potential securities violations through established workplace protocols, it does not require it. Concerns have been raised that this could undermine the important role of designated compliance officials and their ability to support internal protocols by encouraging employees to sidestep or ignore internal protocols in favour of seeking financial reward by reporting directly to the OSC.
Confidentiality Protections: The OSC aims to use “all reasonable efforts” to protect the identity of whistleblowers. In fact, a whistleblower can remain anonymous for a period of time if they are represented by a lawyer. However, the whistleblower’s identity will eventually be revealed to the OSC in order to determine eligibility for a financial award. There are also two exceptions to confidentiality in the Whistleblower Program: where disclosure of the whistleblower’s identity is necessary in an administrative proceeding under section 127 of the OSA or section 60 of the Commodity Futures Act (the “CFA”) to allow the respondent to make “full answer and defence”, or where OSC Staff determines that it is necessary to disclose the information to specified entities in section 153 of the OSA or section 85 of the CFA. In the latter scenario, the OSC will only reveal the whistleblower’s identity upon obtaining the whistleblower’s consent.
Implications for Public Companies
As said, the Whistleblower Program does not require whistleblowers to first report wrongdoing internally within their organizations, and as such, the Office of the Whistleblower may become the first stop for many tipsters looking to report wrongdoing and to position themselves to receive potentially significant awards. However, if companies have strong, responsive internal reporting systems which provide whistleblowers with the necessary access to multiple, structured channels of reporting, such systems may reduce the numbers of this anticipated phenomenon and instill confidence in whistleblowers that the internal channels of communication are responsive to their concerns. These systems should be reviewed and assessed to ensure that they sufficiently welcome and respond to internal reporting.
Employers should also take the time to review their confidentiality agreements, confidentiality policies as well as employee codes of conduct, which may be voided by the recent amendments to the OSA if they preclude employees from reporting corporate misconduct or assisting the OSC with its investigations. In addition, internal record-keeping is ever more relevant now, particularly when employers are considering dismissing employees who are thought to be complicit in corporate misconduct, as the OSC will be looking for documentation such as performance appraisals when investigating allegations of retaliation by employers against employees.
Continuous training programs for compliance staff and employees in supervisory roles about the Whistleblower Program as well as the new section 121.5 of the OSA and the resulting implications are steps that employers should take in order to comply with the new protections for employees who choose to assist the regulator with its public interest mandate.
Finally, staying on top of developments and trends by regularly following updated notices, reports and articles posted on the Office of the Whistleblower’s website, or on informational sites such as this one, is also important.