On February 3, 2015, the Ontario Securities Commission (the “OSC”) released OSC Staff Consultation Paper 15-401 – Proposed Framework for an OSC Whistleblower Program (the “Program”) aimed at encouraging individuals with knowledge of possible breaches of Ontario securities law (“Whistleblowers”) to report them to the OSC.
To qualify for a reward, the information provided must result in an administrative proceeding or settlement with the OSC. The Program is similar to the U.S. Securities and Exchange Commission’s whistleblower program, as well as the programs adopted in the United Kingdom and Australia.
The financial incentive being offered is up to 15% (subject to a cap of $1,500,000) of the total monetary sanctions or settlement exceeding $1,000,000, excluding costs. It is at the discretion of the OSC to determine the amount awarded. The reward is not contingent on the OSC actually recovering the monies, only that a sanction or settlement is imposed, but is only payable upon final resolution of the matter (including any appeals).
The OSC expects a Whistleblower would either be a knowledgeable individual employed by a market participant, or be a person who has done independent research leading to a substantiated concern about market misconduct.
The information given must be: (i) of high quality; (ii) original information; (iii) provided on a voluntary basis; and (iv) lead directly to the commencement of an OSC administrative proceeding with an enforcement outcome or settlement greater than $1,000,000, excluding costs.
Information will be considered to be of high quality if it is original, timely, credible, relates to serious misconduct, is supported by documentation, has the potential to stop further harm from occurring and likely to save OSC resources in an investigation. The alleged misconduct must be impending, ongoing, or recent.
The OSC will use its discretion to determine whether the information directly leads to a proceeding and enforcement outcome. The factors considered are: (i) if the Whistleblower caused the OSC to open or broaden the scope of an investigation; (ii) if the information contributed in a meaningful way to the investigation; and (iii) if the information provided identified a violation of securities law that resulted in a sanction or settlement.
These determinations would be made after final resolution of the issue, including appeals. This means the Whistleblower will be unsure of their eligibility for quite some time.
Certain individuals and categories of information are ineligible to receive a reward under the Program, including but not limited to:
- Information that is misleading or untrue, has no merit or lacks specificity;
- Information that is subject to solicitor-client privilege;
- Information obtained through a financial audit when engaged to provide audit services;
- An individual who has the responsibilities as a Chief Compliance Officer or equivalent position, or is or was a director of the corporation at the time the information was acquired and that information was acquired as a result of internal reporting or an investigation process;
- An individual employed by the OSC, a self-regulatory agency, or law enforcement agency at the time the information was acquired; and
- Information that is obtained in a manner that would bring the administration of the Program into disrepute.
The OSC is seeking input on whether a culpable individual should be eligible to receive a financial reward. Depending upon the particular circumstances, the OSC’s position is not to automatically exclude an individual with some culpability from qualifying as a Whistleblower. Although a culpable individual may qualify, the OSC could still seek an enforcement action for the Whistleblower’s role in the misconduct.
The OSC states that it will use reasonable efforts to keep the identity of a Whistleblower confidential subject to four (4) exceptions:
- When disclosure is required to permit a respondent to make a full answer and defence;
- When the relevant information is necessary for the OSC to make its case against the respondent;
- When the OSC provides the information to another regulatory authority, law enforcement agency or other government; and
- When the OSC is ordered to provide confidential information by an appropriate authority, such as a hearing panel of the OSC or under applicable freedom of information legislation.
Considering these exceptions, there is much uncertainty as to whether a Whistleblower’s identity can remain confidential, and the OSC acknowledges that they cannot guarantee confidentiality. Further, the OSC admits that in certain circumstances Whistleblowers may be required to testify.
Anti-Retaliation & Internal Compliance
In order to encourage and protect Whistleblowers, the OSC is considering amendments to the Securities Act (Ontario) that would deter retaliation by employers. The amendments would allow the OSC to prosecute an employer who retaliates against a Whistleblower, give the Whistleblower a civil right of action against an employer that violates the anti-retaliation provisions, and nullify contractual provisions designed to silence Whistleblowers.
The OSC is also considering whether internal reporting should be an aggravating factor in recommending any administrative proceedings. If the Whistleblower first reports misconduct within the organization and the organization fails to take action, the organization will obtain no credit for cooperation with the OSC and it will be viewed as an aggravating factor when imposing a sanction.
The OSC is seeking comments on the Program until May 4, 2015.