Canada: The OSC's Proposed Whistleblower Program

Last Updated: February 19 2015
Article by Matthew Fleming, Jason A. Saltzman and Michael Schafler

On February 3, 2015, the Ontario Securities Commission (OSC) released Staff Consultation Paper 15-401. The OSC proposed a whistleblower program aimed at encouraging individuals with high quality information regarding serious misconduct to come forward. The program would fall under the Enforcement Branch, independent of the Inquiries and Contact Centre which currently accepts tips about possible breaches of securities laws without incentives or awards. Modeled after a similar program administered by the Securities and Exchange Commission (SEC) in the United States, the OSC's program would be, if implemented, a first for Canada's securities regulators.

Why introduce a whistleblower program?

The proposed OSC Whistleblower Program is intended to encourage individuals with knowledge to report possible breaches of Ontario's securities laws. Since cases of misconduct usually involve sophisticated individuals and raise complex issues which may be difficult to uncover without assistance, the OSC is of the view that the Whistleblower Program would allow for the resolution of enforcement matters more quickly and effectively. Furthermore, the Whistleblower Program may also motivate issuers and registrants to self-report misconduct in order to take advantage of the OSC's credit for cooperation program (OSC Staff Notice 15-702), which is unavailable if the misconduct is first reported to the OSC by a whistleblower.

The SEC's experience

The SEC rewards whistleblowers who voluntarily provide original information leading to successful enforcement. However, the SEC must obtain monetary sanctions totaling more than US$1 million in order for a whistleblower to be eligible for an award. Financial awards can range from 10% to 30% of the monetary sanctions collected. Since the inception of the program, the SEC has received 10,193 tips and complaints from whistleblowers. The SEC announced its largest whistleblower award to date, more than US$30 million, on September 22, 2014.1 Like the SEC's program, the OSC's proposed whistleblower regime would likely apply to foreigners. However, the OSC's regime would cap awards at CA$1.5 million.

How would the Whistleblower Program function?

The OSC's Whistleblower Program would be available to whistleblowers who report serious misconduct that results in administrative proceedings or a settlement heard by the OSC under s.127 of the Securities Act (Ontario). Upon final resolution of a matter, including any appeals, the OSC would offer an eligible whistleblower a monetary award of up to 15% of the total monetary sanctions awarded (excluding cost awards) in an OSC hearing or settlement in which total sanctions or settlement payments exceed CA$1 million. The award would be capped at a maximum amount of CA$1.5 million. OSC Staff, including the Director of Enforcement, would recommend the amount of the award for approval by the OSC.

The determination of the amount of the financial award would be discretionary and would involve a detailed assessment of each situation against established criteria. With respect to information, the OSC would consider whether the information contributed in a meaningful way to the investigation and to the outcome of the s.127 proceeding and whether it positively affected the timeliness and efficiency of the investigation. With respect to the whistleblower, some factors that would form part of the award assessment would include:

  1. how cooperative the whistleblower was during the course of the investigation;
  2. what steps the whistleblower had taken, if any, to report the misconduct through internal compliance systems before reporting to the OSC;
  3. whether the whistleblower reported the information either through internal compliance systems or to the OSC in a timely manner; and
  4. the level of culpability of the whistleblower in the conduct being reported.

Who is eligible to be a whistleblower and what type of information can they provide?

Whistleblowers who provide information to the OSC must meet the eligibility requirements to collect a financial award. The whistleblower must:

  1. be an individual;
  2. provide information that is(1) high quality, (2) original and voluntary, and (3) results in a hearing before the OSC or a settlement hearing under s.1272; and
  3. not fall into an ineligible whistleblower category

High-quality information

High-quality information includes such information that:

  1. relates to serious misconduct in the marketplace;
  2. is timely (misconduct that has recently occurred, is ongoing or about to occur);
  3. is credible and detailed, with well-organized supporting documentation;
  4. has the potential to stop further harm from occurring; and
  5. is likely to save significant time and Staff resources in conducting an investigation.

Original and voluntary information

Original information is information or facts of which the OSC is not already aware. However, the OSC may engage in a critical analysis of publicly available facts that may be considered original information if that analysis brings to light serious misconduct not previously known by the OSC. The information should also be voluntary (not requested or compelled under the Securities Act or by other securities commissions or self-regulatory agencies in connection with reviews or investigations). The SEC would be considered as another securities commission and thus information compelled by the SEC would not give rise to the whistleblower's eligibility for financial award.

Information resulting in a hearing before the OSC or a settlement hearing under s.127

A s.127 matter must be concluded with the imposition of monetary sanctions or an agreed payment. After the administrative matter is concluded and monetary sanctions are imposed, or after a settlement is approved by the OSC, Staff will use their discretion to assess factors, including whether:

  1. the whistleblower's information directly led to such proceedings;
  2. the information provided by the whistleblower caused Staff to open an investigation or broaden the scope of an existing investigation;
  3. the information was credible and detailed, and contributed in a meaningful way to the initiation or conduct of the investigation and the outcome; and
  4. whether the allegations in the proceeding relate, in whole or in part, to violations of securities laws that were identified by the whistleblower in the original information submitted.

In addition, in order to be eligible, specific total monetary sanctions or settlement payments with respect to a named respondent(s) would have to be at least CA$1 million and would have to be final and not appealable.3

Ineligible whistleblower categories

A whistleblower that falls into one of the following categories would be ineligible to receive the financial award under the program. Ineligible whistleblowers are those who:

  1. provide information that is misleading or untrue, has no merit, or lacks specificity;
  2. are culpable in the conduct being reported4;
  3. provide information that is subject to solicitor-client privilege;
  4. provide information obtained through the course of a financial audit when engaged to provide audit services;
  5. have or had job responsibilities as Chief Compliance Officers (CCO) or equivalent positions, or are or were directors or officers at the time the information was acquired, and acquired the information as a result of an organization's internal reporting or investigation processes for dealing with possible violations of securities laws5;
  6. are or were employed by the OSC, self-regulatory agencies, or law enforcement at the time the information was acquired; or
  7. obtain or provide the information in circumstances which would bring the administration of the OSC Whistleblower Program into disrepute.

What are proposed whistleblower protection initiatives?

Confidentiality

The OSC is of the view that whistleblowers must have the option of keeping their identities confidential and expects that whistleblowers would not generally be required to testify as part of s.127 administrative proceedings. To achieve the confidentiality objective, the OSC proposes to adopt a policy which would provide that the OSC would use all reasonable efforts to keep a whistleblower's identity confidential (and information that could be reasonably expected to reveal the whistleblower's identity) subject to three express exceptions. The exceptions would be:

  1. when disclosure is required to be made to a respondent in connection with an s.127 administrative proceeding to permit a respondent to make full answer and defence;
  2. when the relevant information is necessary to make Staff's case against a respondent; and
  3. when the OSC provides the information to another regulatory authority, a self-regulatory organization, a law enforcement agency or other government or regulatory authorities pursuant to s.153 of the Securities Act.

Anonymity

The OSC is considering adopting a policy which would enable a whistleblower to remain anonymous to the OSC, at least for a period of time after providing information. The justification behind whistleblower anonymity arises due to concerns that potential whistleblowers may be reluctant to be identified in cases where their identities are inadvertently disclosed or ordered to be disclosed and where information provided results in an investigation but not a proceeding.

The OSC also imagines a new role for legal counsel where, in order to remain anonymous to the OSC, a whistleblower would need to be represented. Legal representation would enable whistleblowers to receive advice respecting the criteria they would have to satisfy in order to potentially qualify for a financial award. However, whistleblowers would ultimately be required to disclose their identities to the OSC before receiving any financial award to allow the OSC to assess the eligibility requirements.

Protection from retaliation

The OSC contemplates the creation of measures to protect whistleblowers from retaliation by their employers. Importantly, anti-retaliation protections should be available to both individuals who report possible violations of the Securities Act through an internal compliance reporting system (up the ladder) and those who report directly to the OSC. The OSC intends to pursue discussions with the Ontario government to consider the addition of three provisions to the Securities Act that would provide a meaningful deterrent against retaliation by employers. The provisions would:

  1. make it a violation of securities law to retaliate against a whistleblower and permitting Staff to prosecute the employer through a proceeding under s.127;
  2. give a whistleblower a civil right of action against an employer who violates the anti-retaliation provision; and
  3. render contractual provisions designed to silence a whistleblower unenforceable.

Similar prohibitions to those above exist in federal and Ontario statutes including labour and employment-related statutes and statutes implementing other regulatory regimes. For example, the Competition Act prohibits employers from taking retaliatory action against employees who report employer misconduct or refuse to engage in illegal acts. The OSC envisions two possibilities for enforcing the prohibition against retaliation in the Securities Act: (i) enforcement by Staff in an s.127 proceeding; and (ii) enforcement by the whistleblower through a statutory civil right of action under the Securities Act.

What are potential roadblocks and concerns?

The proposed Whistleblower Program would require legislative amendments to include the discussed anti-retaliation provisions in the Securities Act. Furthermore, the OSC recognizes concerns raised by issuers and registrant firms about the possible impact of the program on the operation of internal compliance systems. The OSC states that it recognizes the importance of internal systems but also that such systems are vulnerable to failure as individuals may fear retaliation resulting from their use.

Issuers and registrant firms should be aware that whistleblower reports may result in no subsequent credit for cooperation by the OSC if the issuer or registrant does not promptly and fully report a serious breach of securities law to OSC Staff or fails to correct the problem. In addition, inaction by issuers and registrant firms that are aware of misconduct will be considered an aggravating factor in the OSC Staff's recommendations on sanctions.

Comments

The OSC is inviting feedback on the proposed Whistleblower Program and is seeking written comments until May 4, 2015.

Footnotes

[1] The award is also significant in terms of scope as it was made to a foreign whistleblower. In that case, the SEC stated that there is a sufficient "US territorial nexus" whenever information provided, in a case brought in the United States, leads to the successful enforcement of a covered action concerning violations of the US securities laws. In addition, the whistleblower asserted that the award should have been greater. However, the SEC rejected this claim on the basis that the whistleblower delayed in coming forward. Therefore, the whistleblower's conduct may impact the amount of any award.

[2] The specific total monetary sanctions or settlement payments with respect to a named respondent(s) would have to be at least $1 million and would have to be final and not appealable.

[3] The OSC is considering whether whistleblowers should qualify for a potential award for providing the information that led to the enforcement outcome regardless of whether monetary sanctions or settlement payments are recovered.

[4] Depending on the particular circumstances, the OSC may accept information from an individual who provides information on matters in which he or she actively and improperly participated (the level of culpability will be a relevant consideration).

[5] Not all individuals who learn of possible misconduct through an internal reporting process or investigation would be ineligible (e.g. compliance department staff who are aware of the misconduct and observe a failure by the CCO to address it, would be able to provide information to the OSC and be considered for an award).

This article was co-authored by Danijel Augustinovic, an articling student in Dentons' Toronto office.

About Dentons

Dentons is a global firm driven to provide you with the competitive edge in an increasingly complex and interconnected marketplace. We were formed by the March 2013 combination of international law firm Salans LLP, Canadian law firm Fraser Milner Casgrain LLP (FMC) and international law firm SNR Denton.

Dentons is built on the solid foundations of three highly regarded law firms. Each built its outstanding reputation and valued clientele by responding to the local, regional and national needs of a broad spectrum of clients of all sizes – individuals; entrepreneurs; small businesses and start-ups; local, regional and national governments and government agencies; and mid-sized and larger private and public corporations, including international and global entities.

Now clients benefit from more than 2,500 lawyers and professionals in 79 locations in 52 countries across Africa, Asia Pacific, Canada, Central Asia, Europe, the Middle East, Russia and the CIS, the UK and the US who are committed to challenging the status quo to offer creative, actionable business and legal solutions.

Learn more at www.dentons.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Specific Questions relating to this article should be addressed directly to the author.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
24 Oct 2018, Other, Toronto, Canada

If you build it, claims may come. Join the Dentons Construction group for breakfast and an informative discussion on current topics in construction law.

25 Oct 2018, Other, Montreal, Canada

The EU is reaching the final crunch point in negotiations with the UK over the outline of its future trading relationship and terms of exit from the European Union scheduled for 29th March 2019.

30 Oct 2018, Other, Vancouver, Canada

Jana Mansour and Karen Martin will be taking part in an upcoming Pacific Business & Law Institute program titled ‘Construction Forum: Lessons From Real Life Experience’.

Similar Articles
Relevancy Powered by MondaqAI
Crawley Mackewn Brush LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Crawley Mackewn Brush LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions