OSC Annual Report 2009 Francais
OSC


Enforcement

Deliver fair, vigorous and timely enforcement

The effective enforcement of securities laws provides protection to investors and fosters fair and efficient capital markets. The OSC deploys its broad investigative and enforcement powers in response to allegations of non-compliance and other misconduct in the capital markets. The OSC’s compliance and enforcement functions complement each other in a continuum of oversight.


 

Regulatory Enforcement

The 2008–09 fiscal year featured an increase in the enforcement activity by the OSC with respect to the number of investigations, proceedings commenced and the use of interim measures such as temporary cease trade orders.

Case assessment

In 2008–09, the OSC Enforcement Branch assessed a total of 446 cases for evidence of potential breaches of Ontario securities law.

Potential enforcement cases come to the attention of the Enforcement Branch through other areas of the OSC, such as the Corporate Finance Branch, Compliance and Registrant Regulation Branch and Inquiries & Contact Centre; through referrals from other securities regulators or law enforcement agencies; from surveillance of market activity; and from monitoring public sources of information.

OSC Enforcement Branch: Intake

  2006–07 2007–08
2008–09
 
         
Number of cases assessed 421 499 446  
Number transferred to Investigations 50 58 49  

Of the cases assessed at intake, 49 were transferred for further investigation by the OSC. In some of the other cases, alternative approaches, such as the issuance of warning letters, undertakings to change practices or referrals to an SRO or a criminal law enforcement agency were used by the OSC.

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Investigations

OSC investigators probe allegations of breaches of Ontario securities law. The process involves gathering evidence, documenting facts and interviewing witnesses under oath, or otherwise. Enforcement staff also work in co-operation with other securities regulators, SROs and law enforcement agencies.

OSC Enforcement Branch: Investigations

  2006–07 2007–08
2008–09
 
         
Number of completed investigations 41 48 59  
Number transferred to Litigation 16 16 18  

The OSC has the authority to halt certain activities in order to preserve assets and to prevent further violations of securities laws even while an investigation is ongoing. For example:

  • Temporary cease trade orders (TCTOs) are used to halt trading;
  • Freeze orders restrict the use of monies or other assets so that they are not dissipated; and
  • The Commission can seek a court order appointing a receiver to take control of any assets of firms or individuals.

These types of interim measures have been successful at halting trading activity or preserving assets during regulatory investigations. In 2008–09, adjudicative panels of the Commission issued 18 initial TCTOs against a total of 139 respondents. In addition, the OSC obtained from the courts 16 freeze orders, freezing approximately $22 million.

Temporary Cease Trade Orders and Freeze Orders

Increasingly, the OSC is using temporary cease trade orders (TCTOs) to halt trading activity during regulatory investigations. In 2008–09, the Commission issued 18 initial TCTOs and granted extensions of some of those TCTOs.

  2006–07 2007–08
2008–09
 
         
Actions before the Commission 5 11 18  
Number of respondents (Parties to the proceedings) 25 117 139  

In addition, in fiscal 2008–2009, 16 freeze orders were obtained in court by the OSC, freezing in excess of $22 million.

The OSC completed 59 investigations in the fiscal year, which included some investigations initiated in the 2007–08 fiscal year. A total of 18 files were transferred from the investigations stage for litigation by the OSC.

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Litigation

The OSC formally commenced 23 enforcement proceedings in 2008–09, involving a total of 125 individuals and corporations. Twenty-one of the proceedings (related to 120 respondents to the proceedings) were commenced before an adjudicative panel of the Commission while two proceedings (relating to five defendants) were commenced before the Ontario Court of Justice. The number of proceedings commenced increased by 11 from a total of 12 in 2007–08.

OSC Enforcement Branch: Litigation

  2006–07 2007–08
2008–09
 
         
Litigation        
Proceedings commenced        
• Actions before the Commission 19 12 21  
Number of respondents 65 42 120  
• Actions before the courts 2 - 2  
Number of defendants 5 - 5  
         
Enforcement timelines        
Average number of months from intake to commencement of a proceeding 24.5 24.1 12.4  

An administrative enforcement proceeding is brought before an adjudicative panel comprised of Members of the Commission. In considering matters before them, the panels exercise a protective, public-interest function. The majority of the OSC’s enforcement proceedings are heard by adjudicative panels of the Commission.

The OSC also has the authority to prosecute alleged breaches of the Securities Act against defendants in the Ontario Court of Justice. In such cases, the proceedings are based upon alleged breaches of the Securities Act in circumstances where the Commission is seeking sanctions and penalties from the court to send a strong message of deterrence. The power to prosecute alleged criminal conduct lies with the criminal justice system, typically through prosecutions by the provincial or federal Attorneys General.

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Concluded settlement and contested hearings

In 2008–09, the Commission concluded a total of 21 proceedings commenced by the Enforcement Branch, in relation to the actions of 46 respondents. The sanctions imposed in the concluded proceedings included the imposition of orders totalling some $20.8 million in administrative penalties, disgorgement, settlement amounts and costs. Certain concluded cases are featured in the Notable cases sidebar on this page.

Concluded Settlement and Contested Hearings before the Commission

    2006–07   2007–08  
2008–09
 
               
 Number of proceedings   22   13   21  
Respondents   31   16   46  
 Sanctions include:              
Cease trade orders   18   10   23  
Exemptions removed   14   7   18  
Director and officer bans   12   8   29  
Registration restrictions   5   4   12  
               
Administrative penalties, disgorgement orders, settlement amounts imposed $ 1,372,650 $ 3,419,000 $ 17,709,868  
Costs imposed $ 285,749 $ 1,730,282 $ 3,103,191  

* In addition, three respondents agreed to pay $68,100,000 as part of a settlement agreement with the Commission. (See In the Matter of RIM et al in the Notable Cases sidebar.)

Two prosecutions before the Ontario Court of Justice were concluded in 2008–09, including the conviction of Barry Landen for illegal insider trading (see Notable cases sidebar). In the other case, Howard Rash pleaded guilty to trading in securities contrary to a registration requirement and to illegally distributing securities under the Securities Act. In August 2008, Mr. Rash received a suspended sentence and a two-year term of probation during which he is banned from working in the securities industry in Ontario.

The Commission section of this Annual Report includes more details about the activities of adjudicative panels in 2008–09.

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Enforcement co-operation and coordination

Co-operation among jurisdictions is another essential part of the effective enforcement of securities laws in Ontario and across Canada. Enforcement cases often involve more than one jurisdiction, making collaboration among Canadian Securities Administrators (CSA) members and with other regulatory authorities a critical factor for success.

Reciprocal orders

In 2008, an amendment to the Securities Act authorized the OSC to make orders based on orders made by securities regulators in other jurisdictions. These “reciprocal orders” can be used by the OSC to prevent individuals and companies who have been sanctioned in another jurisdiction from engaging in similar misconduct in Ontario. Reciprocal orders are another measure that can enable the OSC to respond to protect investors and prevent wrongdoing. In 2008–09, four proceedings affecting five respondents were initiated under this provision.

Several other jurisdictions of the CSA have similar statutory powers to authorize the use of reciprocal orders. The use of reciprocal orders by CSA jurisdictions demonstrates the commitment of securities regulators to strengthen enforcement coordination across Canada.

Domestic co-operation

The OSC works proactively with other CSA jurisdictions, the SROs and law enforcement agencies to prevent, detect and deter misconduct. The OSC also partners in joint investigations and shares intelligence, as appropriate, with other enforcement authorities. (The Strong Investor Protection section contains more details about the OSC’s work to provide protection to investors.)

Along with the RCMP and the Investment Industry Regulatory Organization of Canada (IIROC), the OSC is a member of the Joint Securities Intelligence Unit (JSIU). The JSIU targets criminal syndicates and organized crime groups operating within the Canadian capital markets. A key objective is to detect and disrupt wrongdoing in the capital markets before investors are harmed.

International co-operation

Misconduct in the global capital markets transcends international borders. Securities regulators and law enforcement agencies deal with this borderless phenomenon by co-operating and sharing information. Securities regulators and law enforcement agencies work together to identify and close gaps in regulatory effectiveness between jurisdictions and to conduct vigorous and timely international investigations. In 2008–09, the OSC responded to some 500 enforcement-related assistance and information requests from international regulators and agencies.

When appropriate, the OSC assists foreign securities regulators, including the U.S. Securities and Exchange Commission (SEC), with investigations. For example, in 2008, the OSC provided assistance to an SEC initiative to protect investors from potentially fraudulent spam e-mails that promoted stock investments. The SEC campaign resulted in the suspension of trading in the securities of 35 companies. The OSC and SEC have also co-operated on a number of investigations, resulting in the commencement of proceedings in both Ontario and the U.S.

More than ever, the OSC recognizes the necessity and importance of improving collaboration among Canadian and international regulatory and criminal law enforcement agencies. The OSC strives to foster inter-jurisdictional co-operation and coordination of investigative efforts and enforcement tools in order to provide protection to investors from unfair, improper or fraudulent practices.

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Notable cases


In the Matter of RIM et al:
In this settlement, four individuals paid in excess of $9 million in administrative penalties and costs, and three individuals agreed to make a payment of more than $68 million to Research in Motion (RIM) in respect of certain improperly authorized stock options.

In the Matter of Biovail Corporation: The Commission approved a settlement where the company agreed to pay an administrative penalty of $5 million after agreeing that it breached Ontario securities law and acted contrary to the public interest in respect of its public disclosure.

In the Matter of Limelight: Following a contested hearing in respect of an illegal distribution, the Commission ordered sanctions, including disgorgement totalling over $2.7 million and administrative penalties of more than $400,000.

On January 29, 2009, Barry Landen, a former senior executive of a mining company, was sentenced by the Ontario Court of Justice to a 45-day jail term and a fine of $200,000 for illegal insider trading.

In 2008–09, the Superior Court issued orders appointing receivers in respect of New Life Capital Corp and in respect of ASL Direct Inc. The OSC may apply to the Court for an order appointing a receiver for a company where it is in the best interests of, among others, security holders of the company, or where it is appropriate for the due administration of Ontario securities law.