Canadian securities regulators Thursday issued a new report detailing their enforcement efforts over the past year, which shows a modest increase in the volume of cases, significant volatility in the monetary penalties and compensation ordered, and a heightened focus on fraud by the regulators.
The Canadian Securities Administrators (CSA) have released their fifth annual enforcement report, which shows that the provincial regulators brought a total of 145 new cases in 2012, up from 126 in 2011. And, the number of companies and individuals facing proceedings was up to 388 from 352 in the previous year. On both counts, the 2012 totals were below 2010 levels however.
The CSA also concluded a larger number of cases in 2012, closing 135 matters last year, up from 124 cases the previous year. Although this higher number of cases concluded affected a lower number of respondents compared with the previous year — in 2012, concluded cases involved 322 total respondents, down from 365 in 2011. Over half of these cases, 57%, were resolved in a regulatory hearing, while 23% were settled, and 20% went to provincial court.
The CSA also reports that the self-regulatory organizations concluded a total of 128 enforcement cases in 2012, down slightly from 133 in 2011.
In terms of penalties and other sanctions, the total value of fines ordered by the CSA dropped from the previous year, whereas the value of compensation ordered jumped. Collectively, the CSA ordered $36.6 million in total fines and administrative penalties in 2012, which is down from $52.2 million in 2011, and $63.8 million in 2010.
Yet, at the same time, the restitution, disgorgement and other compensation ordered during the year jumped to $120.6 million, from $52.2 million the previous year, and $63.8 million in 2010. Costs ordered against respondents totaled $3.9 million during the year, up from $2.5 million in 2011.
These sorts of numbers are typically very volatile, as one or two big cases can result in a big swing in monetary penalties and disgorgement ordered. This was the situation in 2012, with $48.6 million of the disgorgement ordered in a single case. Moreover, these penalty totals are typically far greater than the amounts actually collected by regulators.
Additionally, the report shows that the CSA imposed 56 interim orders and asset freeze orders against 87 individuals and 77 companies; and, that seven individuals received jail sentences, ranging from 30 days to three years, and totaling approximately nine years in jail. The asset freezes affected 23 individuals and 14 companies, representing a total of $18.2 million.
In terms of types of offences that the CSA is taking on, it’s hard to compare year over year numbers as the CSA has changed how it classifies cases by introducing a new category for fraud cases, many of which were classified as illegal distributions in previous years. Nonetheless, it reports that the most common offence in 2012 was still illegal distributions, with 53 new cases; followed by 34 fraud cases. There were also 21 new cases involving misconduct by a registered firm or individual brought during the year, up from 14 in 2011; along with 10 disclosure violations, six market manipulation cases, and four illegal insider trading cases.
“CSA members work hard to combat securities fraud and we place particular emphasis in our enforcement work on the violations that constitute fraud,” said Bill Rice, CSA chair and CEO and chair of the Alberta Securities Commission (ASC). “In addition to these efforts, CSA members stress that education is a valuable tool in deterring investors from becoming victims of fraud and others types of securities laws violations.”