The Ontario Securities Commission has expanded its boiler-room fraud unit into a separate division that will do criminal investigations of smaller fraud cases and take them to court where jail terms can be ordered against offenders.
OSC enforcement director Tom Atkinson said in an interview Friday the regulator decided the six-year-old unit would be more effective if it were taking fraud cases to court rather than investigating and prosecuting them as administrative tribunal hearings because the type of people involved in the frauds are not deterred by OSC sanctions.
The unit will investigate traditional boiler-room frauds – in which salespeople contact members of the public and use high-pressure tactics to sell shares in penny stock companies – as well as smaller fraud cases that were often not attracting police attention or criminal charges.
“They’re not the big headline-grabbing cases, that’s not what we’re aiming for,” Mr. Atkinson said. “They are ones we can do fairly rapidly, and hopefully that deterrence will reduce the incidence of this type of crime because it’s very harmful for retail investors.”
Major fraud cases will stay in the hands of police forces or the RCMP’s enforcement units, whose track record winning cases has been criticized in recent years. But Mr. Atkinson said the greatest gap in the enforcement system has been smaller fraud cases that often don’t end up in court at all.
The OSC has the power to prosecute violations in provincial court or to pursue them as administrative tribunal matters, but has typically taken more cases before a tribunal because the burden of proof is lower and the cases can proceed more quickly. The drawback in administrative cases, however, is that the OSC’s only available penalties are fines or removal of registration to work in the securities industry, whereas court cases under the Ontario Securities Act can result in jail sentences of up to five years.
Mr. Atkinson said the boiler-room unit has found that the people it investigates are “street criminals” who are not registered to work in the securities industry in the first place, so they don’t care about losing their registration or being barred from trading securities. They also don’t pay administrative fines that are imposed against them, he said.
“They’re not paying the fines, and we’re getting a lot of recidivism,” Mr. Atkinson said. “And so we started taking things to the Ontario Court of Justice and we started having some success.... We think that jail terms are going to be the biggest deterrent to this particular group of offenders.”
In recent years, the boiler-room unit has favoured using the courts – there are eight cases pending, Mr. Atkinson said – and has had jail terms imposed in many cases. Those successes convinced the OSC to “morph” the unit into a formal criminal fraud team, Mr. Atkinson said.
Ermanno Pascutto, executive director of shareholder advocacy group FAIR Canada, said the new unit is a “good start” because too many smaller fraud cases have been falling through the cracks and not ending up resulting in criminal charges. “It should increase the likelihood that $5-million or $10-million frauds, which seem to a great extent to fall under the radar screen, will get prosecuted more often now,” Mr. Pascutto said Friday.
FAIR has advocated creating a new national investigative unit in Canada to centralize investigations of fraud cases that are currently handled haphazardly among municipal police forces, Ontario Provincial Police, RCMP and securities regulators. Mr. Pascutto said the new OSC fraud unit is a “baby step” in this direction.
The new unit consists of 20 existing OSC staffers, many of whom are former police officers or Crown attorneys. Some of them have been deputized by the Ontario Provincial Police as special constables so that the unit can use police powers of investigation available under the Criminal Code, such as using search warrants or wiretaps.
While the new unit so far only has OSC staffers, Mr. Atkinson said the commission has approached the OPP and Toronto police with proposals to work together on cases as needed, and some fraud investigators from other organizations may be seconded to join the unit. The unit could also do investigations that lead to charges under the Criminal Code by a police force, he said.
Mr. Atkinson said a key feature of the new group is that it is operating in its own office with a separate computer system, so there can be no concern that evidence gathered by other OSC enforcement staff is being shared with the new criminal group, or vice versa. The distinction is key because there are different investigative powers that are allowed to be used by OSC staff and criminal investigators.