Admittedly, the figures put out this week by the Ontario Securities Commission look bad enough at first glance. Since 2005, the OSC has collected less than 1 per cent of the $73.36-million in fines it has imposed on fraudsters and other rule-breakers after defeating them in contested hearings.
The agency blames the lack of recovered money on the ability of bad guys to hide assets. It points out that it has had success with winning more and longer jail sentences for some offenders lately, and says it extends bans on trading and other activities for deadbeats who don’t pay up.
The OSC’s collection rate for fines imposed as part of settlements with violators -- the regulator’s version of plea-bargains -- appears much better, with about 71 per cent of that money coming in.
However, even that number deserves a second look. The OSC says it collected $109.79-million in fines and costs agreed to in settlements, of the $155.52-million pledged to it.
Those figures include the $28-million in settlements made in 2009 with establishment financial institutions Canadian Imperial Bank of Commerce, CIBC World Markets and HSBC Bank Canada, over their failings in the meltdown of the asset-backed commercial paper market in the summer of 2007.
That money could not have been hard to collect. Big banks, unlike serial fraudsters, tend to be quite concerned about their repuations.
Subtract that amount from the total the OSC says it was able to rake in from settlements, and the agency only got its hands on $81.79-million. If you also strip the bank’s $28-million out of the total amount pledged in settlements, the result shows the OSC recovering just 64 per cent of penalties promised in deals with the remaining wrongdoers. And this is money that people and companies in trouble actually agreed to pay in order to settle their cases.
The lower number provides a more realistic assessment of just how little of the money the OSC imposes in fines -- even the money that rule-breakers agree to pay -- ends up coming to it from the more run-of-the-mill offenders, such as "boiler-room" operators, that it deals with.
The OSC acknowledges that it has hardened its stance in settlement talks in recent years, and that it chooses not to take into account a rule-breaker’s ability to pay when demanding a dollar amount.
As the agency’s director of enforcement, Tom Atkinson, said in an interview this week: “You don’t want to waive your penalties because someone comes before you and says ‘I’ve stolen a million dollars from victims, but I’ve spent it all now, so don’t fine me and I just want to walk out of here.’”
He said both that the OSC had already made exhaustive efforts to track down money and that it would somehow do more. The OSC’s pledge to publish its collection rates in its annual reports means investors and the public will be able to judge whether things are getting better.
Meanwhile, the OSC's poor collection record could factor into the current debate over whether it should adopt U.S.-style “no-contest” settlements with alleged wrongdoers, which allow them to neither admit nor deny liability. Some argue this would speed up settlement talks in certain cases and allow the agency to concentrate on bigger fish. Critics say it lets bad guys get away without punishment.
Ontario is already the holder of a reputation as a place where white-collar criminals get off easily. It is easy to see why critics will say a move by the OSC to allow some violators to get out of admitting liability, even while most are already getting out of paying their fines, would reinforce that perception.