The OSC trumpets its enforcement numbers, but there’s less than meets the eye
The OSC is bragging about its enforcement record, but there’s less than meets the eye.
Canada’s top capital market regulator is apparently a toothless tiger no more. Recent data released by the Ontario Securities Commission revealed the country’s largest provincial securities watchdog “commenced an increased number” of criminal and quasicriminal proceedings in the courts last year, successfully secured jail terms for a couple of miscreants and collected more money from folks who violated securities laws, all the while strengthening its alliances with other police services. Now it’s in the process of combining forces with the RCMP under one roof.
So impressive was this track record that OSC chair Howard Wetston was hauled out to unveil them publicly. Finally, it seemed, the much-maligned (some of it unfair) commission had the statistical chops to show it really was a serious force.
But upon closer examination of the commission’s record, all the high fives may be premature. By almost every measure, enforcement activity actually declined last year — in some cases by significant amounts. Overall, the OSC commenced a total of 22 proceedings, compared to 27 in 2013. Of the total number of cases the OSC opened and closed against individuals and companies, the numbers dropped a whopping 53% to 91 from 170 in 2013 . Four of these cases wound up before the courts: two under provincial securities laws as quasi-criminal, and two prosecuted under the Criminal Code. The remaining 87 were handled through hearings before an OSC tribunal. Compare that to 2013 when 166 were handled at the commission.
Even settlement agreements, the regulator’s preferred tool of enforcement, were down year over year. In 2014 , the total number of negotiated settlement agreements decreased to 29 from 95 in 2013 . And the muchfeared U.S. -style no-contest deals failed to materialize in droves as only two were secured against four companies involving about $21.5 million. Meanwhile, cease-trade orders were down to 67 in 2014 from 159 in 2013 , and the
The OSC should be applauded for doubling down on the gritty cases that involve fraud and other criminal behaviour. Still, that doesn’t explain why settlements are on the wane
number of cases where protective sanctions (these include measures such as registration restrictions, director bans and cease-trade orders) were imposed fell by more than half to 210 from 425 in 2013 .
On the bright side, the OSC managed to improve on collecting fines and penalties, topping $73 million, 26% more than the $58.1 million collected in 2013 .
The numbers only tell half the story, conceded Wetston. Policing has become increasingly complex, he explained. Fair enough and the regulator should be applauded for doubling down on the gritty cases that involve fraud and other criminal behaviour where the evidentiary threshold is much higher than in cases that are heard before a commission tribunal. Still, that doesn’t explain why settlements are on the wane. They are cost effective, preserve precious resources for highprofile cases and still help ring up successes that allow the regulator to buff its image. The U.S. Securities and Exchange Commission has built a fearsome international image doing just that. To wit, the OSC didn’t handle one stock manipulation case in all of 2014 .
Presumably, when the OSC and the RCMP ’s 28-person Integrated Market Enforcement Team ( IMET ) begin co-habiting this month, Canadian securities enforcement will finally get the kind of cooperation that U.S. law enforcement has afforded the SEC . IMET prosecutes criminal capital market offenses of national importance while the OSC regulates Ontario’s capital market but isn’t mandated to pursue criminal offenses. Under the arrangement, the RCMP will give the OSC access to resources it otherwise wouldn’t have, most notably search warrants. For its part, the OSC , which has long lent staff to help the police on white-collar cases, will now be able to quarterback the RCMP on complex cases. Unfortunately, neither boasts a stellar record heading into this arrangement. But rather than dwell on the past, let’s hope this partnership lives up to its enormous potential.