Securities enforcement activity declined overall in Canada last year, according to the Canadian Securities Administrators (CSA), but the Ontario Securities Commission’s (OSC) no-contest settlement process was key to generating a large jump in money being returned to investors.
The CSA issued its annual enforcement report on Monday, which shows a headline decline in the number of cases that regulators concluded as well as a drop off in the number of new cases and penalties imposed vs the previous year.
Overall, the CSA concluded 109 cases against 262 respondents (both individuals and companies) in 2016, down from 145 cases involving 350 respondents in 2015 (but up a bit from 2014).
The total amount of monetary sanctions (including fines, administrative penalties, and voluntary payments to regulators) also dropped to $62.2 million last year from $138.3 million in 2015 (although the total for 2016 was up slightly from $58.2 million in 2014). The CSA saw declines in the monetary sanctions for all major offences, including illegal distributions, fraud and insider trading. However, the OSC’s no-contest settlement process did result in $15 million in voluntary payments.
Similarly, the total amounts of investor restitution, compensation and disgorgement that were ordered during the year surged thanks largely to several large no-contest settlements. In 2016, a total of almost $350 million was ordered returned to investors, more than triple the $111.7 million that was ordered in 2015 — and almost $300 million of that came in no-contest deals. Absent that, the amounts returned to investors for various offences declined year-over-year. As well, total costs orders fell to $2 million from $4.4 million in 2015.
The CSA’s report also indicates that more than half of the concluded cases (57%) went to a hearing, 21% were settled and 22% were decided in the courts. Overall, the courts in Ontario, Alberta and Quebec ordered jail terms against 15 people in 2016, representing 23 years of total jail time. There were also 10 cases commenced under the Criminal Code in 2016,.
In addition, regulators collectively issued 45 interim and asset freeze orders in 2016, down from 52 in 2015. However, the number of respondents covered by these orders jumped to 202 in 2016 from 122 in 2015 while the number of reciprocal orders dropped to 63 in 2016 from 96 in 2015.
Along with the year-over-year decline in concluded cases, the CSA is also reporting that the number of proceedings launched in 2016 dropped to 56 cases involving 144 respondents last year from 108 cases against 266 respondents in 2015. Illegal distribution cases remain the top issue for regulators, accounting for more than half of the respondents facing allegations in 2016, followed by fraud at 16%.
The CSA also issued a total of 60 investor alerts during 2016, with more than half of these dealing with binary options firms.
Finally, the report indicates that the various self-regulatory organizations — the Investment Industry Regulatory Organization of Canada, the Mutual Fund Dealers Association of Canada (MFDA), and the Chambre de la sécurité financière — saw their collective enforcement activity rise during the year, as they concluded a total of 159 enforcement cases in 2016, compared with 139 in 2015.
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