When Judge Réna Émond of the Court of Québec imposed just before the Christmas holidays fines totaling $120,000 on Danny Gagné and ISpeedzone Inc. for illegal practice as a securities dealer, it wrapped up a good year for Quebec’s financial watchdog.
Nearly $8.8 million in fines and administrative penalties were imposed on 158 individuals and firms in 2016 for various offences under laws administered by the Autorité des marchés financiers (AMF), according to the latest enforcement report by the regulator. Of the $8.8 million in total monetary sanctions, $7.6 million involved securities or derivatives laws violations, with another $1 million stemming from Quebec’s Distribution Act. The report reveals that 15 offenders did more than 11,000 hours of compensatory work, with one offender choosing to pay his fines through a prison sentence of 729 days.
“Our enhanced detection capabilities, resulting mainly from the refinement of our surveillance tools, as well as our ability to obtain stern sanctions that include prison terms, contribute to deterring individuals and firms from violating the laws that we administer,” said AMF President and CEO Louis Morisset. “In 2016, for instance, seven individuals were imposed prison terms totaling 138 months at the conclusion of the penal proceedings we undertook.”
Over the past year the AMF launched 28 lawsuits before the Court of Quebec or the Tribunal administratif des marchés financiers against 55 individuals and firms for various offences. 552 charges were laid for offences under the Securities Act or the Derivatives Act, 10 charges for offences under the Distribution Act, and 21 charges for offenses under the Money-Services Business Act.
The AMF also obtained nine freeze orders against 59 individuals and firms. Freeze orders are issued during an investigation to protect assets and prevent them from being transferred. The watchdog also obtained orders against 45 individuals or firms to cease certain regulated activities, to cease acting as an officer or director, or to cease trading in securities.
The AMF’s new whistleblower program receive 49 reports, 28.6 per cent of which led to an opening of an investigation, reveals the enforcement report. “In light of the results to date, we are confident that our whistleblower program will enable us to detect more infractions, to intervene earlier and to minimize the consequences of infractions for victims,” said Jean-François Fortin, AMF’s executive director of enforcement.
Launched last year, the AMF whistleblowing program does not offer financial incentives to attract tips for potential transgressions. The financial watchdog decided to follow in the footsteps of Australian and United Kingdom’s securities regulators after an internal study determined that it cannot be “established with certainty” that offering rewards leads to “more quality” whistleblowing. A reward-based whistleblowing program may also end up “weighing down and complicating the work of investigators” because individuals may be tempted by the allure of a potential payday and provide tips that fall short of being “high quality,” said AMF spokesman Sylvain Théberge
Financial considerations also came into play. In order to reward whistleblowers, the regulator would have to impose sizeable penalties that could be collected, noted Théberge. “We are relying on receiving pertinent information from honest and loyal people who often face problems at a professional level because they have witnessed something that they cannot accept,” said Théberge.
The Ontario Securities Commission (OSC) has taken a different tack. Drawing from the successful whistleblowing program run by the U.S. Securities and Exchange Commission (SEC), it became the first securities regulator in the country to offer monetary rewards, up to $5 million, to individuals who come forward with information that leads to enforcement action. But to be eligible, a tip must lead to a sanction or a voluntary payment of at least $1 million. Controversially, even “culpable” whistleblowers – individuals who were complicit in the violation of Ontario’s securities laws – are eligible for a whistleblower award.