The OSC trum­pets its en­force­ment num­bers, but there’s less than meets the eye

National Post (Latest Edition) - Financial Post Magazine - - COLUMNS & DEPARTMENTS - BY THERESA TEDESCO Theresa Tedesco is the chief busi­ness cor­re­spon­dent for the Na­tional Post . Email: ttedesco@na­tion­al­post.com

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.

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