From the Regulators

Most panelists at an OSC roundtable were in favour of the OSC’s proposed program but several raised some potential concerns

By James Langton |

Rewards-based whistleblower programs can be "game changers" for securities regulators, but the model proposed by the Ontario Securities Commission (OSC) may need some work before it can be effective, according to an industry roundtable the OSC held on Tuesday.

The aim of the roundtable discussion panels was to examine some of the key issues that have arisen with the OSC's proposal to follow the U.S. Securities and Exchange Commission (SEC) and the Canada Revenue Agency in offering rewards to those who tip off authorities to possible wrongdoing.

Thus far, the SEC has paid out about US$50 million to whistleblowers since its program was adopted, including a $30-million payout to a single whistleblower. Under the program, the U.S. regulator can pay between 10% and 30% of the sanctions collected in major securities cases.

In contrast, the OSC's proposed program would potentially pay 15% of the sanctions ordered in major cases, up to a maximum of $1.5 million. However, the OSC is proposing to pay its rewards regardless of whether it's successful in collecting the monetary penalties ordered in a particular case, reflecting the difficult time Canadian regulators often have in actually collecting the penalties they order.

A series of panel discussions at the OSC's roundtable event on Tuesday examined some of the issues raised by the proposed program, starting with whether rewards-based whistleblower programs work. The discussions then delved into the finer issues of the necessary anti-retaliation and confidentiality provisions, and how such a program could impact firms' internal compliance systems.

On the basic issue of whether reward-based whistleblower programs work, Jane Norberg, deputy chief of the office of the whistleblower at the SEC, echoed SEC chairwoman Mary Jo White in calling such programs "game changers." In fact, Norberg reported that the SEC's program has boosted the number of tips the regulator receives; helps uncover information the SEC may not otherwise uncover; and it helps expedite investigations, allowing the regulator to make more efficient use of its limited resources.

Although there was general support for the concept of whistleblower programs at the OSC's meeting, several panellists raised potential concerns with the OSC's proposed model. Specifically, some argued that the $1.5-million limit on possible payouts is simply too low to be an effective incentive for people to report misconduct.

There were also concerns raised about aspects of the proposed program that could leave potential whistleblowers uncertain about how they will be treated. Panellists raised questions about whether the rewards would be taxable and how confident a whistleblower could be that his or her identity would be protected by other Canadian regulators that aren't considering whistleblower programs of their own but may be involved in enforcement actions based on the whistleblower's information.

Jordan Thomas, a former SEC litigator who now represents U.S. whistleblowers with Labaton Sucharow LLP in New York, argued that establishing a floor for rewards is essential to provide potential whistleblowers with greater certainty about the program. He also agreed that the proposed $1.5 million is too low and that a dollar cap isn't necessary given that the possible rewards would be limited to 15% of sanctions anyway.

Confidentiality and anti-retaliation measures were also cited as critical components of an effective whistleblower program as prospective tipsters face being blackballed if they are known for reporting misconduct.