Corporate whistleblowers could get up to $5M under proposed OSC policy

TORONTO – Ontario’s securities watchdog says its proposal to pay corporate whistleblowers up to $5 million should provide a “powerful incentive” for those with insider information about accounting fraud, insider trading and market manipulation to come forward.

The Ontario Securities Commission boosted its proposed reward after experts deemed the $1.5 million cap it had previously suggested too stingy to adequately compensate corporate tipsters for the risks they would bear.

Often, those with insider information are senior executives who risk losing their lucrative jobs and becoming blacklisted from working in their industries.

“We think that the proposed award range … is going to provide a sufficient enough incentive to induce enough whistleblowers to come forward in the types of cases that we are interested in detecting and prosecuting,” said Kelly Gorman, deputy director of enforcement at the Ontario Securities Commission.

Whistleblowers must meet certain requirements to be eligible for an award, including that the information they provide is of “meaningful assistance” to the commission and that the case results in at least $1 million of sanctions being ordered. If eligible, the whistleblower could receive between five and 15 per cent of the sanctions ordered.

Payouts would still be capped at $1.5 million unless the securities regulator is able to collect at least $10 million in sanctions related to the case. In such cases, the whistleblower would receive between five and 15 per cent of the sanctions collected, up to a maximum of $5 million.

South of the border, whistleblowers can receive a 10 to 30 per cent payout, with no cap on the total payment amount, but only if the securities regulator is able to collect the money that it’s owed.

If implemented, the OSC program would be the first of its kind for Canadian securities regulators.

Some stakeholders have also expressed concerns that the proposed program could undermine companies’ internal compliance processes by encouraging whistleblowers to go straight to the OSC, rather than reporting the issue internally first.

The securities watchdog says it has attempted to address those concerns in its latest proposal.

“While whistleblowers are not required to report internally first, our proposed policy is establishing a framework that will incentivize employees to actually do so,” Gorman said.

For example, reporting an incident internally first could increase the amount of reward that a whistleblower may receive.

The securities regulator has also decided that culpable whistleblowers — those who played a role in the misconduct — may still be eligible for a reward if they come forward.

“We think that those that are complicit in the misconduct might have the best knowledge,” said Gorman. “They may have valuable input with respect to serious securities misconduct and help us shut it down in an earlier stage.”

However, culpable individuals would likely receive lower rewards and the OSC could still take action against them for their involvement.

The OSC is seeking comment on its new proposal by Jan. 16 and aims to have the program in place by next spring.

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