Ontario securities regulator wants to grow ‘whistleblower bar’ to encourage tips on misconduct

For example, he says an anonymous submission through legal counsel provides more robust confidentiality protection, and whistleblowers whose reporting may raise legal issues can obtain tailored advice.

“The program wants to hear from lawyers interested in developing and using their legal skills in this area,” Moniz says, noting it only started in 2016. “This a relatively new area of law, which means opportunities for lawyers.” He adds that the United States has many more law firms devoted to whistleblower law.

Moniz says lawyers who understand the employment aspects related to whistleblowers coming forward are also essential. “One issue is the definition of reprisal,” he says, noting the rules dealing with the OSC’s program are comprehensive, “so even the threat of an action could be something that would violate Ontario securities law.”

Lawyers who could help market participants in whistleblowing attempts would also be valued. “We want market participants to play a role in whistleblowing, so that is another potential area of a lawyer’s legal practice – to help them.”

Among other changes to explore are amendments to the program’s policies that would increase the number of tips received and awards handed out. Changes include:

• Engaging with experts and stakeholders to identify specific measures that will benefit whistleblowers, attract more tips, and help regulated firms strengthen their internal compliance.
• Leveraging data on an ongoing basis and using a case management system to streamline data collection and analysis to explore ways to capitalize on the available data and to learn more about incoming tips and the types of whistleblowers who report to the program.
• Plans to tailor outreach efforts to improve the program, for example, better-aligning efforts to target tips containing non-public or expert information and tips about specific types of misconduct, such as market abuse and emerging issues such as greenwashing, improperly tied selling, misuse of algorithms and artificial intelligence, and misconduct by public accounting firms that conduct audits of Ontario reporting issuers.

Says Moniz: “We have seen great growth, but we recognize that there are strategic opportunities we can take to get different types of tips and novel forms of misconduct.”

The OSC’s whistleblower program is Canada’s first and only paid program of its kind run by a securities regulator. Individuals who voluntarily submit original information about violations of Ontario securities law may be eligible for awards of up to $5 million. In addition to a financial incentive, the program and its governing statutes offer confidentiality and anti-reprisal protections to encourage individuals to report information about securities misconduct.

In its recently released update on the program, the OSC says that in its first five years and eight months, a total of $48 million in monetary sanctions and voluntary payments, with 11 whistleblowers receiving awards.

To increase protections against reprisals, Ontario securities law may void terms of employee agreements, including confidentiality agreements, to the extent they silence employees from sharing information with us, a recognized self-regulatory organization or law enforcement.

Recently, the OSC announced it awarded $481,000 to a whistleblower for information and assistance, leading to a successful OSC enforcement action. The whistleblower, an organization insider, submitted highly detailed information and valuable insights.

“The whistleblower’s cooperation and assistance allowed the OSC to collaborate with other regulators to obtain additional evidence,” said Jeff Kehoe, Director of Enforcement at the OSC. “The important information they provided fueled our investigation into wrongdoing and helped us deliver strong and timely enforcement action that protected investors from further harm.”

Moniz says whistleblowers play a critical role in helping the OSC protect investors and promote confidence in the capital market by reporting information on securities misconduct which may not otherwise come to light. The program also allows the OSC to quickly identify and investigate wrongdoing and hold wrongdoers accountable.

An analysis of whistleblowers indicates they came from Ontario and all corners of the world, with tips from 30 countries on six continents, including the United States. As well, whistleblowers weren’t always insiders. The update says most award recipients didn’t hold an internal role, “rather they were familiar with the industry or company or had skills that enabled them to analyze information to draw out helpful insights.

 The report says that 63 percent of tips originated from Ontario, with another 17 percent coming from the rest of Canada. The next largest source of leads, totalling 15 percent, were from the U.S., Australia, the United Kingdom and China.

“Capital knows no borders, and market participants know no borders, so our whistleblowers should not know any borders,” says Moniz.

As of March 31, 2022, the program received 797 tips from more than 840 whistleblowers. The vast majority - 93 percent - of tips were obtained through the program’s online portal. As a result of a concerted awareness campaign aimed at enhancing the program’s profile with the public, the whistleblower office has seen an average annual increase of 17 percent since the first completed fiscal year in 2018. The program generated 89 percent more tips in 2022 compared to the first complete year it operated.

Of the types of misconduct reported, misleading disclosure and financial statements represented the largest percentage, at 28 percent of the total, followed by fraud, illegal distribution or unregistered trading, registrant misconduct, illegal trading or tipping, and market manipulation.

Determining awards for whistleblowers and the timing of payment involves several criteria. They include:

• A process that begins once a matter involving whistleblower information results in an order, or multiple orders, by the Capital Markets Tribunal with total monetary sanctions and/or voluntary payments of $1 million or more.
• Any award issued will range between 5 and 15 percent of total monetary sanctions and/or voluntary payments, up to a maximum of $5 million.
• The program investigation team and an enforcement committee provide input, but ultimately, the OSC CEO determines whether to issue an award, the exact percentage calculation used, and how to allocate the award among joint whistleblowers.
• The appeal filing period must be expired, or the appeal must be exhausted before paying out an award.

Whistleblower awards are paid out of funds allocated to the program, not from funds that would otherwise go back to harmed investors. Another distinguishing feature of the program is that whistleblowers are paid up to $1.5 million of the award amount regardless of whether the OSC collects from the respondents. Amounts beyond $1.5 million, up to $5 million, depending on the amount collected.

To date, all recipients awarded over $1.5 million have received the total amount of their award.