The 17th floor of 10 Queen St. West where the Ontario Securities Commission holds hearings into financial matters, is pictured March 2 2015. The OSC is discussing a program that would pay whistleblowers for tips.Fred Lum/The Globe and Mail
Dozens of Canadian residents reported allegations of wrongdoing to the U.S. Securities and Exchange Commission last year, taking advantage of a new whistleblower program that provides large payouts for successful tips.
Jane Norberg, deputy chief of the SEC's Office of the Whistleblower, told a Toronto audience Monday that her agency's new program has been a "game changer" since its introduction in 2011, generating over 3,600 tips last year alone, including 58 from Canada.
"Any country considering financial incentives should take a look at our annual report and see how many of their citizens are giving tips to us," she told a round table discussion organized by the Ontario Securities Commission.
The OSC organized the event to hear views about whether it should develop its own whistleblower program to pay for tips. The OSC published a discussion paper on the topic in February, proposing to pay tipsters up to 15 per cent of the total monetary sanctions collected in a case to a maximum of $1.5-million.
Ms. Norberg said her agency has paid out $50-million (U.S.) to 17 people since its whistleblower program began, providing between 10 and 30 per cent of fines collected following a successful prosecution. The SEC paid $30-million last year – its largest payout so far – to an unidentified tipster outside the United States.
OSC commissioner Mary Condon told the conference that the OSC developed its proposal after viewing the success of the U.S. program. "The landscape really changed once we had the opportunity to review the experience of the SEC," she said.
New York-based lawyer Jordan Thomas, a former SEC official who now works in private practice representing clients who are SEC whistle-blowers, warned the OSC that its $1.5-million (Canadian) maximum payout is too low to entice high-paid business people to risk their careers by exposing wrongdoing.
He said the OSC is also proposing to pay tipsters as much as 15 per cent of the penalties imposed, but has cited no minimum payout level, so it is unclear how its discretion would be used and whether some people could get far less than 15 per cent. The discretion is too uncertain for many senior people to take the risk, Mr. Thomas said.
"Adding one more type of uncertainty into your process means you're going to lose a lot of these types of people," he said.
Marian Passmore, director of policy at investor advocacy group FAIR Canada, said the OSC needs to reconsider its proposal to only pay whistle-blower awards in cases where the fines imposed are at least $1-million.
The OSC said the threshold was proposed because the whistleblower program is aimed at helping crack major cases, but Ms. Passmore said very few cases in Canada have payouts over $1-million, which means whistleblowers would rarely get paid.
"We believe the threshold should be lowered," she said. "A fine of $1-million is less frequent here than it is in the United States."
Connie Craddock, a member of the OSC's investor advisory panel, said the key to a successful program will be the ability to protect whistle-blowers and keep their identities confidential, warning that past experience shows retaliation is frequent when people expose wrongdoing in companies. She said would-be tipsters should not be required to report wrongdoing internally before they can report to the OSC.
However, lawyer Linda Fuerst, who represents many major corporations, said she doesn't believe major financial companies in Canada would retaliate against employees who come forward to reveal wrongdoing, and said people should be encouraged to report internally first.
"I'm not sure the U.S. experience is necessarily relevant in Canada," she said. "I think we have a different business culture in Canada than in the United States."
Janet McFarland