In a landmark announcement on February 27, 2019, the Ontario Securities Commission said that it had paid out its first-ever whistleblower awards under its Whistleblower Program. According to the OSC’s release, three whistleblowers in separate matters received a total of $7.5 million for providing “high quality, timely, specific and credible information, which helped advance enforcement actions resulting in monetary payments to the OSC.” The whistleblower awards are the first of their kind by a securities regulator in Canada, and demonstrate that the OSC is committed to its newly-adopted bounty-based approach to incentivising tipsters to report potential misconduct. The awards also highlight the significant financial incentives for blowing the whistle, and may spur an increasing number of prospective tipsters to come forward and report potential wrongdoing to the regulator.
The Whistleblower Program – background
As we have previously discussed, the OSC launched its widely-anticipated Whistleblower Program on July 14, 2016. The Program incentivizes individuals to come forward with information on securities-related misconduct by promising rewards of up to $5-million for reporting corporate misconduct that leads to a successful enforcement action. Under the Whistleblower Program, a whistleblower is only eligible to receive a financial award where proceedings result in over $1 million in total monetary sanctions being ordered or paid voluntarily in settlements.
Although the Whistleblower Program itself does not provide any protection against reprisals for whistleblowers, the Ontario Securities Act was amended in conjunction with the introduction of the Program to prohibit retaliation by employers against employees for reporting securities violations (as well as against employees who express their intention to report such violations). Those same amendments voided confidentiality provisions that precluded or purported to preclude employees from such reporting.
The first payouts
In keeping with the confidentiality assurances in the Whistleblower Program, and similar to the approach taken by authorities in the U.S., the OSC provided no detail in its announcement about the specific cases involved or how the information provided led to successful results in those cases. The OSC also did not announce the specific amounts of each of the payouts, choosing instead to combine the amounts of the three awards in a single $7.5 million figure, notwithstanding that the awards are said to relate to separate matters.
Implications
This announcement was due. The OSC said in June 2018 that it had at that point received approximately 200 tips, at an average of about two tips per week, and that seven percent of those tips were already associated with active investigations. Given the robust take-up among whistleblowers, it was only a matter of time until the Program paid out, and we should expect further announcements of additional awards in the coming months.
The advent of the Whistleblower Program changed the dynamic for companies within the purview of the OSC. It is more important than ever for businesses to have in place a strong controls system and corporate culture in order to detect potential problems as early as possible and to protect employees who come forward to report those problems internally. A robust approach to internal compliance is the best defence against the increasingly real risk that boards and management will first hear about serious misconduct within their organizations from the OSC as a result of a whistleblower tip. The $7.5 million in awards, and the likely uptick in whistleblower activity that will result from their announcement, only underscore the importance of this approach for companies going forward.
