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CSA report shows fines more than doubled in 2015

Canada's securities commissions imposed $250-million in fines and compensation orders against wrongdoers last year, more than doubling the previous year's total as regulators moved more aggressively to try to deter criminals and assist fraud victims.

The Canadian Securities Administrators, an umbrella group for Canada's provincial securities commissions, will release its annual enforcement report for 2015 on Tuesday, showing that fines and penalties imposed across the country last year totalled $138-million, up from $58-million in 2014. Orders for restitution and "disgorgement" of ill-gotten gains totalled a further $112-million, an increase from just $66-million in 2014.

The $250-million total for 2015 is more than double the $124-million in fines and restitution imposed in 2014, and reflects a desire to send a strong signal of deterrence, said CSA chairman Louis Morisset, who is also chief executive officer of Quebec's securities regulator, the Autorité des marchés financiers.

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"The severity of sanctions is important to ensure people who have in mind to not respect the rules will understand there's a high price to pay for that," Mr. Morisset said in an interview.

While penalties may act as a deterrent, they do not provide a major revenue source to regulators. Securities commissions will not collect most of the $250-million ordered last year because many people who commit frauds and other crimes never pay the fines. The collection rate on monetary sanctions ordered by the Ontario Securities Commission, for example, has ranged between 3 per cent and 14 per cent in recent years, with almost all the money collected coming from settlement deals rather than contested cases.

Mr. Morisset said regulators are having greater success prosecuting cases in court, where jail terms can be imposed as a way of ensuring there are stronger penalties for those who are not deterred by regulatory sanctions and do not pay fines.

Fifteen people received jail terms under provincial securities act violations in 2015, compared with five people in 2014, while a further four people received jail terms for Criminal Code violations, which provide for longer sentences.

Another six people were charged under the Criminal Code in 2015 but their cases have not concluded yet.

"Clearly, with fraud, market manipulation or illegal distributions, where people end up losing everything, we believe we need to try to obtain jail terms, and more and more we are getting there," Mr. Morisset said.

He said judges are getting more experienced at handling securities-related cases, which is helping build up case law in the area, making it easier to win jail terms.

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"There is more and more comfort by judges in understanding the severity of wrongdoers, the impact they have on people," he said. "In Canada, I think the view has been for a long time that financial crimes basically were not as serious as other crimes, and I think more and more the courts have realized the seriousness of all of this, and they've basically decided to impose jail terms."

Regulators have also had more success obtaining court orders to freeze financial assets during an investigation if they suspect crimes are occurring. Freeze orders can ensure victims' assets are retained in bank or brokerage accounts and cannot be removed or shifted offshore while an investigation is completed.

Securities commissions got 52 freeze orders in 2015, up from 35 in 2014. The freeze orders last year involved assets held by 64 individuals and 58 companies.

"If we believe there is money to be salvaged for investors, we're trying to do it, and we succeed more and more," Mr. Morisset said. "The difficulty is that often, unfortunately, the money is not there any more."

Regulators announced charges or allegations in 108 new cases last year, compared with 105 in 2014 and 112 in 2013. The most common type of case involved illegal distributions of securities, followed by fraud, market manipulation and misconduct by industry registrants.

Securities commissions concluded 145 cases in 2015, an increase from 105 in 2014 and 133 in 2013. The number of cases concluded tends to vary widely each year, depending upon when cases that were launched in earlier years reach a resolution. Cases are counted as concluded when proceedings finish against one person, even if others named in the same matter still have continuing proceedings.

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About the Author
Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More


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