The OSC announced last week that it has awarded a $525,000 whistleblower award to a company outsider who used their industry expertise to identify irregularities. This award to an outside expert appears to be the first of its kind by a Canadian securities regulator and was made under the OSC's Whistleblower Policy which we discussed in previous articles here and here.
Under the OSC's Policy, eligible whistleblowers may be awarded up to $5 million for reporting serious securities- or derivatives-related misconduct that leads to significant enforcement or settlement outcomes. Over $8 million has been awarded to whistleblowers since the Policy came into effect in 2016.
The OSC suggested that the whistleblower's information was based on "subtle clues" that were "buried deep in reams of data and technical information decipherable only by someone with in-depth market knowledge or industry-specific expertise."
The latest award serves as a reminder of the breadth of the OSC's Policy which treats as "original information" information that a whistleblower obtained from their critical analysis of publicly available information, if the analysis reveals information that is not generally known or available to the public. As a result, new insights developed by outside experts, including individuals who might work for competitors of the company accused of irregularities, may lead to whistleblower awards even when they are based on public data.
One of the enumerated circumstances that would generally make a whistleblower ineligible for an award is if a whistleblower "obtained or provided the information in circumstances which would bring the administration of the Program into disrepute." As a result, if an expert has developed original information about a company and has first used the information for personal profit, for example, by selling short that company's stock in anticipation of a subsequent enforcement action against the company, it is unclear whether the short seller would be eligible for a whistleblower award.
Under the Policy, the OSC makes all reasonable efforts to ensure whistleblower confidentiality so the identity of the whistleblower and the details of the related enforcement proceeding were not disclosed.
Nonetheless, based on the features of the Policy as discussed in our previous article, certain deductions can be made regarding the matter that may have led to the award.
What we know from the Policy:
- If the sanctions imposed are in the $1 million to $10 million range, then the maximum whistleblower award would be capped at $1.5 million and would not be contingent on the successful collection of the monetary sanctions by the OSC.
- If the sanctions imposed are $10 million or more and the OSC actually collects the monetary sanctions from respondents, then the maximum whistleblower award would be capped at $5 million.
- The amount of a whistleblowing award is discretionary and ranges between 5% and 15% of the sanctions.
- Appeal rights must expire or be exhausted before an award may be granted.
- Unlike the SEC's whistleblowing framework in the U.S. on which the OSC's Policy is largely modeled, OSC whistleblower awards are capped at $5 million, are not exclusively based on monies collected, and are not contingent on the successful collection of monetary sanctions by the regulator.
Ontario's Whistleblower Policy came into effect in July 2016 and was the first of its kind in Canada. During its first two years of operation, it generated approximately 200 tips according to the OSC, 15 of which were associated with active investigations. In 2019, the OSC paid $7.5 million to three whistleblowers on separate matters.
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