Incentive-Based Whistleblower Program Coming to Canada
It will be of significant interest to US corporations that make securities filings with the Ontario Securities Commissions (“OSC”), that on February 3, 2015, the OSC published “Staff Consultation Paper 15-401”, which sets out a proposed framework (“the Program”) for a whistle blowing program not dissimilar from the Dodd Frank Whistleblower Program created in 2011. The proposed Program is intended to help the OSC identify and resolve enforcement matters quickly. The OSC has identified certain specific objectives of the program, including:
- Increasing the number and efficiency of serious securities cases handled by the OSC;
- Motivating individuals with credible concerns to come forward with information;
- Increasing the quality of the information available to investigative and enforcement personnel;
- Encouraging issuers and registrants to self-report misconduct; and,
- Encouraging continued cooperation from a whistleblower throughout the investigation.
Although no other Canadian provincial securities regulator has to date created a comparable program, the sheer number of companies listed on the Toronto Stock Exchange (“TSX”) and companies listed on other exchanges but which make filings to the OSC, will result in very broad application of this framework when and if it comes into force. The 90-day comment period will end on May 4, 2015.
The Program
As stated above, there are striking similarities between the OSC framework and the Dodd Frank Whistleblower Program.
The proposed framework comprises five key features:
1. Whistleblower Eligibility
The OSC proposes offering an eligible whistleblower with a financial award. In order to be eligible, the whistleblower must:
- Be an individual;
- Provide information that is of high quality, and is original and voluntary; and,
- Must not fall into any of the exclusionary categories set out in s. 5.2 of the program.
Specifically, a financial award would not be available to the whistleblower who:
- Provides information that is misleading or untrue;
- Provides information that is subject to solicitor-client privilege;
- Provides information obtained through the course of a financial audit when engaged to provide audit services;
- Has or had responsibilities as a Chief Compliance Officer or equivalent position or is or was a Director or Officer at the time the information was acquired, and acquired the information as a result of the organization’s internal reporting or investigation process for dealing with possible violations of securities laws;
- Is or was employed by the OSC or other self-regulatory or law enforcement agency at the time the information was acquired; or
- Obtains or provides the information in circumstances which would bring the administration of the OSC program into disrepute.
Importantly, the OSC has indicated that it will not automatically exclude an individual with some culpability in the matter in question from qualifying as a potential whistleblower. The OSC will consider the level of culpability in determining whether a whistleblower award is made to the individual and the amount of any such award. On this point, the OSC is specifically seeking comment.
2. Financial Incentive
The OSC is proposing to provide whistleblowers with monetary incentives of up to CDN $1.5 million for quality information that leads to significant monetary sanctions of more than 1 million (excluding costs). Therefore, the OSC proposed program would not generate whistleblower awards as large as those seen recently in the United States. Whistleblowers may be entitled to up to 15% of the ultimate monetary sanction or agreed settlement amount imposed by the Commission. Unlike the SEC whistleblower program, the OSC whistleblower awards would not be based on monies collected, but on the amount of the sanction ordered against the wrongdoer.
3. Whistleblower Protection
The OSC proposes to enact three new statutory provisions under the
Ontario Securities Act to protect whistleblowers from retaliation from their employer. Specifically, these amendments will:
1. Make it a violation of securities law to retaliate against a whistleblower, thereby permitting the OSC to prosecute the employer under the Act;
2. Give a whistleblower a civil right of action against an employer who violates the anti-retaliation provisions; and,
3. Render contractual provisions designed to silence a whistleblower unenforceable.
4. Confidentiality
The protection of a whistleblower’s identity would be a key feature of the OSC program. The OSC proposes to adopt a policy which would provide that the OSC would use “all reasonable efforts” to keep confidential a whistleblower’s identity. This position however is subject to three important exceptions:
1. When disclosure is required to be made to a respondent in connection with an administrative proceeding to permit a respondent to make full answer and defence;
2. When the relevant information is necessary to make the Commission’s case against a respondent; and,
3. When the Commission is required to provide the information to another regulatory authority, or other self-regulatory or law enforcement agency or body.
The OSC also points out that it would have the obligation to disclose the identity of a whistleblower if ordered to do so by an appropriate authority such as a hearing panel of the OSC or under applicable freedom of information legislation.
The OSC is considering whether to adopt a policy which would enable a whistleblower to remain anonymous to the OSC for a period of time. In order to remain anonymous to the OSC, a whistleblower would need to be represented by legal counsel and anonymously furnish the information to the OSC through such counsel.
5. Program Structure
In order to administer the program, the OSC plans to create a separate intake unit within its enforcement branch to deal with whistleblower reports and other administrative aspects of the program. In this way, we anticipate that its administration would be similar to that in place at the SEC Office of the Whistleblower.
Conclusion
Since the SEC’s whistleblower program was introduced, it has resulted in over 10,000 tips and 14 financial awards, the largest of which was over USD $30 million. If the SEC’s experience is any indication, it is expected that the OSC Program will similarly generate large numbers of new securities investigations for the OSC. As noted above, the OSC is seeking written feedback on all issues raised by this proposed Program until May 4, 2015. US companies listed on the TSX or that make securities filings to the OSC may consider providing such comment.
Kristine Robidoux, QC
http://www.gowlings.com/OurPeople/kristine-robidoux
Partner, Gowling Lafleur Henderson LLP
Tags: Canada, Dodd-Frank Act, whistleblower