With the Ontario Securities Commission's new incentive-based whistleblower program now on the horizon, recent awards under comparable whistleblower programs in the U.S. are increasingly relevant to boards of directors, management, internal counsel and compliance officers in Canada. Last month, the U.S Commodity Futures Trading Commission (CFTC) announced itself as a major player in the whistleblower incentive sphere when it revealed that it had issued its largest whistleblower award to date – more than $10 million to a tipster whose information led to a major enforcement action. While the Securities Exchange Commission's whistleblower program has attracted most of the attention in the U.S. over the last several years, this major award from the CFTC may be a harbinger of the kinds of payouts that we could see in Ontario in the near future.
The CFTC regulates the multitrillion dollar futures and option markets. Like the SEC, the CFTC's whistleblower program was created under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, with whistleblowers eligible to receive between 10 percent and 30 percent of the amount of monetary sanctions the CFTC collects for a successful enforcement action that results from original information submitted by the whistleblower to the CFTC. While the SEC's and the CFTC's whistleblower programs are similar, the awards that the SEC has announced – including an award of $30-million in 2014 – have dwarfed the payouts made by the CFTC. That is, until now.
The $10-million payout is just the third award that the CFTC has issued and is orders of magnitude larger than the first two, which were in the amounts of $240,000 and $290,000, respectively. While the details of the award are confidential, it is apparent that the information was provided in connection with a major enforcement proceeding. The CFTC has trumpeted the award as evidence that the regulator's whistleblower program is working to protect the futures and option markets, and as a clear signal to those with information that the risk of blowing the whistle is worth the reward.
The OSC has said that its whistleblower program will come online in June 2016, and that it has already begun to receive calls from would-be tipsters asking when the program will be up and running. Under the most recent proposed version of the program, the maximum amount of an award is capped at $5-million; well short of the astronomical payouts seen in the U.S., but still more than enough to command the attention of companies within the OSC's reach. This number will no doubt be sufficient to encourage many potential whistleblowers to take information about possible breaches of securities laws directly to the regulator, without first stopping to alert their employers' internal compliance or in-house legal departments.
In this regard, the OSC's whistleblower program increases the unwelcome potential for boards and management to find out about serious misconduct within their organizations from the OSC, rather than through their internal compliance systems. As a result, in order to avoid being caught off-guard and flat footed in the face of a crisis, it is now more than ever imperative that Canadian issuers continue to strengthen their compliance programs to detect misconduct and to provide robust protections and incentives for employees who report problems internally first.
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