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Commercial Litigation, Corporate, Securities

OSC whistleblower policy not a game changer: Radnoff

It would be optimistic to call the Ontario Securities Commission’s (OSC) new whistleblower program a ‘game-changer’ with respect to its role in preventing fraud, and the regulator could arguably be allocating its resources to more effective initiatives, Toronto commercial litigator and appellate counsel Brian Radnoff tells BNN.

Launched in July, the OSC’s Office of the Whistleblower is the first paid whistleblower program by a securities regulator in Canada. The program offers up to $5 million in compensation “to individuals who come forward with tips that lead to enforcement action,” says the OSC, and accepts tips on possible violations of Ontario securities law including illegal insider trading, market manipulation, accounting and disclosure violations.

As Radnoff, partner at Lerners LLP, explains, “The concern is with preventing fraud in securities markets and particularly in Ontario. So the thought process is, ‘If we pay people to give us tips, then this will assist us in enforcing the Securities Act. This will assist us in stopping this fraud.’ So that’s really the idea behind this, it’s an idea that’s been tried in the U.S. for about five years now, so it’s been around there, and it’s now been adopted by the OSC and it’s being adopted in Quebec as well.”

The U.S. program, he tells BNN, is more generous than the initiative adopted by the OSC, but how well it has worked remains an open question.

“Yes, there have been reports of some very large payouts, and of course, those are the newsworthy ones, but the fact is that most of the rest of the payouts seem relatively small and more importantly, the number of people who get payouts seems also to be relatively small, because ultimately the authority gets to decide whether you get any money.

“You’re not automatically entitled to anything, and that’s particularly true with the Ontario Securities Commission’s new policy, it’s highly discretionary, there are a lot of exceptions. So, just because you give them a tip, or you give them information, doesn’t actually mean you’re going to get any money. Ultimately they get to decide," says Radnoff.

As he explains, the whistleblower policy contains lots of exclusions, particularly with regard to officers and directors of companies.

“In smaller companies, those are the people you’d expect who would be giving them tips, because they’d have the knowledge,” Radnoff says.

Also, he says, financial advisers and investors would be excluded from receiving payouts.

“Often, in a lot of these frauds, it’s the investors who know about it first and who make complaints. So there are numerous exceptions about who is entitled and when they’re entitled, and so the proof is really in the pudding – how many people are actually going to get paid out for these tips?” he says.

Alternatively, Radnoff tells BNN that the OSC should be given more resources to tackle the issue, and investors should be further educated on how to spot fraud.

“The OSC has a lot of really good tools and unlike a criminal investigation where you need a wiretap because you can’t force anyone to talk to you, the OSC can force you to talk to them. They can require you to attend for an interview, require you to give evidence that may incriminate yourself, so the OSC does have a lot of tools. I think the issue is less the tools and more having the resources to use them, or making sure people understand where there’s fraud and not get too carried away with the dollar signs in their eyes,” says Radnoff.

“The bigger picture here is obviously, what’s the best way to prevent fraud in our securities markets? And, you know, it’s not that this is bad, it’s just I don’t see it as being a game-changer, a big improvement, and I think it would be more important to put those resources into enforcement, to put those resources into education.”

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