Ontario’s market watchdog adds criminal offences unit

Part of the strategy is to put more people in jail

Amid the failure of the RCMP’s specialized corporate crime unit to notch a single major corporate criminal conviction, Canada’s largest securities regulator has forged ahead to create a serious offences unit of its own to handle complex criminal cases destined for the courts, the National Post has learned.

Sources confirmed that the Ontario Securities Commission (OSC) has partnered principally with the Ontario Provincial Police (OPP), and is currently in discussions with Metro Toronto police and the RCMP, to establish a new unit that will investigate and prosecute boiler room operations, such as fraud and market manipulation and other illegal activities, many of which are associated with organized crime.

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The OSC has hived off a group of 20 staff members, many of these former police officers and ex-Crown prosecutors, to create the serious offences unit. This group, eight of which have received special constable status from the OPP, operates on a separate floor with a computer network walled off from the rest of the regulator’s staff to preserve the proper chain of command and evidence. The members, who just completed a weeklong training session, have assorted weapons in their arsenal to pursue miscreants, including the ability to employ search warrants, wiretapping and undercover surveillance, which are allowed by the Criminal Code as part of their work in conjunction with the police.

“We recognize the serious harm that those involved in securities fraud offences perpetrate against retail investors,� Tom Atkinson, director of enforcement at the OSC told the Post in an email. “As such, we’re focused on bringing more cases before the Ontario Court of Justice where sanctions, including fines and jail sentences, are expected to have a greater deterrent effect.�

Added a source familiar with the discussions, who asked not to be named: “There’s a perception that there are cases that are not being treated criminally and are not being handled criminally and this shows they are prepared to do it.�

The OSC, which has jurisdiction over the Toronto Stock Exchange and the TSX Venture Exchange, is the dominant securities watchdog in Canada and its decisions affect most of the country’s mutual funds, pension funds and brokerages. However, the OSC, like most of the other 12 provincial and territorial securities regulators, has long faced criticisms for its poor track record of enforcement, especially on major cases, such as insider trading.

The creation of the RCMP’s Integrated Market Enforcement Teams (IMETs) a decade ago has done little to change that, especially in the wake of failed high-profile prosecutions against former executives of Nortel Networks Corp. and Royal Group Technologies Ltd. In fact, a U.S. academic described Canada as “a first-world country with second-world capital markets and third-world enforcement.�

In the unlikely event of a national securities regulator, and continued criticism about the lack of robust and timely enforcement, OSC chair and CEO Howard Wetston said recently the watchdog would “intensify its enforcement program and explore other ways to protect investors.� To that end, the OSC has been focusing on market manipulation and fraud. These types of fraudulent stock schemes may not be as high-profile, but they are among the most prevalent, causing significant damage to investors and compromising the reputation and integrity of Canada’s capital markets.

“We need to up our game in terms of deterrence. We don’t feel the administrative process is effective or appropriate in many of these cases,� said a securities official who asked not to be named.�

Traditionally, these stock fraud cases have been handled at tribunal hearings inside provincial securities regulators. However, the possible penalties are more lenient than those that can be imposed by a judge. As a result, the OSC is trying to move these cases into the courts where jail terms can be meted out.

“Part of the strategy is to put more people in jail,� said the source.

Mr. Atkinson said that there are plans to eventually create a specialized unit within the OSC to tackle insider trading, which has proven much harder to successfully prosecute. It has long been a private complaint of securities regulators across Canada that Crown attorneys and court judges do not take a severe enough view of corporate crime. The serious offences unit, in collaboration with various police forces, is an attempt to change that attitude.

“We want to leverage our expertise in the area of securities with law enforcement to ensure that criminal behaviour is dealt with in the appropriate criminal forum,� said Mr. Atkinson.

The move by the OSC comes at a time when the RCMP has created a financial crimes unit as part of a wider re-engineering of the national police force currently under way across the country. The newly constructed unit is comprised of the Commercial Crime unit, IMETs and the Proceeds of Crime unit, which mostly deals with drug-related offences. The RCMP already shares a joint intelligence unit at the OSC and those investigators will be folded into the OSC’s new serious crime unit.

Article source: http://www.canada.com/Ontario+market+watchdog+adds+criminal+offences+unit/8525478/story.html