TORONTO — Ontario's securities watchdog has launched the country's first paid whistleblower program, a move the securities commission says it expects will be a "game changer'' in its attempts to stamp out white-collar crime such as accounting fraud, insider trading and market manipulation.
"These are sophisticated matters that can go undetected for long periods of time and seriously cause harm to investors,'' Maureen Jensen, chair and CEO of the Ontario Securities Commission, said Thursday.
"A whistleblower who has knowledge of these activities, of this kind of misconduct and who reports it will allow us to take early action and to potentially minimize or avoid investor losses.''
A sign board displaying Toronto Stock Exchange (TSX) stock information. (Photo: Mark Blinch/Reuters)
Under the program, the OSC offers rewards of up to $5 million for tips that lead to successful prosecution and result in monetary penalties of $1 million or more.
Tipsters can receive five per cent to 15 per cent of the sanctions levied, with the total reward capped at $1.5 million. The maximum goes up to $5 million in cases where the securities regulator is able to collect at least $10 million in sanctions related to a case.
The program also includes protections for those who come forward, such as confidentiality and anti-retaliation measures.
A sign displaying TSX information is seen in Toronto November 20, 2008. (Photo: Mark Blinch/Reuters)
Several components of the OSC's program were hotly debated during the consultation process, including how much to pay whistleblowers and whether those involved in the wrongdoing should be eligible for a reward.
The OSC had originally planned to cap maximum reward payments to $1.5 million, but it raised that after experts suggested that was too little to compensate senior executives who risk losing high-paying jobs and being blacklisted from their industries.
Quebec's securities regulator, the Autorite des marches financiers, launched a whistleblower program last month, but opted not to provide financial incentives at all.
The watchdog said it had reviewed other such programs around the world, including in the U.K. and Australia, and determined that it can't be proven that financial rewards lead to higher-quality tips.
"These are sophisticated matters that can go undetected for long periods of time and seriously cause harm to investors."
When asked why the OSC has opted for financial incentives, Kelly Gorman, who heads up the Office of the Whistleblower, said the regulator has conducted a "tremendous'' amount of research over the past year and a half. That research has included looking at programs that don't pay, such as Australia's, and those that do, such as the U.S. Securities and Exchange Commission's program.
"There is no one set of research that one could look at to say that paying or not paying works or doesn't work, but what I can tell you is what we've determined as part of our research,'' Gorman added.
"We think the financial incentive is a critical piece to compensate whistleblowers for coming forward. They take personal and professional risks when they do so, and that financial incentive piece is meant to tip the balance.''
The securities watchdog also decided it would allow culpable individuals — meaning whistleblowers who participated in the crime they are reporting — to be eligible for rewards.
A sign shows TSX information in Toronto on Sept.15, 2008. (Photo: Mark Blinch/Reuters)
"The simple truth is that culpable individuals often have detailed knowledge of the misconduct, which will allow us to quickly identify and put a stop to ongoing harm,'' said Gorman.
"To be clear, however, while a culpable whistleblower may be eligible to receive an award, they do not receive immunity from us, and we may take enforcement action against them.''
Gorman said the OSC will also consider the level of the whistleblower's involvement in the incident when determining the amount of the reward.
"This may include denying an award where the whistleblower's conduct would bring the administration of our program into disrepute.''
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