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Katanga Mining Limited, which operates a copper mine and other
copper and cobalt facilities in the Democratic Republic of Congo,
has entered into a settlement agreement with Ontario Securities
Commission staff, which has been approved by a hearing panel of the Commission,
along with eight of Katanga's directors and officers.
Following inquiries made pursuant to Staff's investigation,
in July 2017, Katanga announced it was conducting an internal
review of its financial reporting practices. On August 14, 2017,
Katanga announced it was re-issuing financial statements from 2014
– 2017, and on August 15, 2017 the Commission issued a
management cease trade order. In November, 2017, a number of
Katanga's officers and directors resigned.
In the settlement agreement, which the Commission approved
December 18, 2018, Katanga admitted to numerous accounting
deficiencies that caused it to misstate material facts in its
financial reporting from 2012 – 2017. In addition, it failed
to disclose the nature and extent of risks posed by certain
consulting relationships with a shareholder and certain
governmental risks related to the Democratic Republic of Congo.
Finally, Katanga admitted to a lack of sufficient internal controls
to prevent the other violations to which it admitted.
The directors and officers variously admitted to knowledge of
the misstatements and failure to maintain internal controls related
to the disclosure. The settlement agreement characterized this as
failing to set the "tone from the top", and failure to
establish and enforce a culture of compliance.
Katanga agreed to pay a fine of $28,500,000 and $1,500,000 in
costs. The eight of Katanga's directors and officers agreed to
fines totalling between $400,000 and $2,500,000 (including costs)
and prohibitions on acting as directors or officers of issuers for
between two and eight years.
This is one of the most significant fines the OSC has levied in
recent years, and indicates that the Commission will take the
maintenance of a "culture of compliance" seriously within
issuers.
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