OSC Enforcement Activity in 2012

TORONTO, Feb. 28, 2013 /CNW/ - The Ontario Securities Commission (OSC) 
reported today on its enforcement activity in 2012, with details on how the 
OSC delivered a vigorous and timely enforcement program to protect investors 
and promote fair and efficient capital markets in the province. 
"Robust and effective enforcement is essential to investor protection and to 
foster confidence in our capital markets," said Howard Wetston, Q.C., Chair 
and CEO of the OSC. "The OSC continues to intensify its enforcement program 
and explore other ways to protect investors and support their trust and 
confidence in the fairness and integrity of Ontario's capital markets." 
In 2012, the OSC focused on protecting investors by addressing the most 
serious harm, including fraudulent activity and the failure to provide 
investors with full and complete information, both of which have a significant 
impact on investors. The OSC also continued to deal effectively with the 
challenges raised by increasingly complex enforcement files involving multiple 
respondents. 
Staff commenced a total of 30 proceedings involving 107 individual and 
corporate respondents, compared to 25 proceedings against 96 respondents in 
2011. Proceedings were concluded against a total of 63 individuals and 37 
companies in 2012, compared to 107 individual and 53 corporate respondents in 
the year before. 
HIGHLIGHTS 
Targeting Fraud 
In 2012, the OSC concluded proceedings involving allegations of fraud against 
a total of 25 individual respondents and 23 corporate respondents, or 48 per 
cent of all respondents in concluded proceedings. OSC staff also commenced 
proceedings involving fraud allegations against a total of 35 individual 
respondents and 21 corporate respondents in 2012, or just over half of all of 
the respondents in commenced proceedings. 
"We made it a priority to go after fraudulent schemes aimed at investors and 
we did just that in 2012," said Tom Atkinson, Director of Enforcement. "The 
OSC has established solid momentum in protecting investors by targeting fraud 
and sanctioning perpetrators." 
The OSC continues to strengthen its partnerships with police services and the 
provincial Ministry of the Attorney General in areas of shared enforcement 
interest. These relationships are supported by the specialized skills of OSC 
staff in areas such as forensic accounting, litigation and cross-border 
investigations. 
Court Proceedings 
The OSC continues to bring cases to the Ontario Court of Justice, especially 
proceedings involving fraud allegations, recidivists and respondents who do 
not comply with Commission orders. At December 31, 2012, there were seven 
matters in litigation before the court, and six of those matters involved 
allegations of fraud. In 2012, two defendants received jail sentences 
totalling 21 months for breaches of the Ontario Securities Act and Commission 
orders. 
International Investigations 
An increasing share of OSC enforcement actions involve activity beyond the 
borders of Ontario, resulting in challenging and complex investigations. 
On May 22, 2012, OSC staff issued a statement of allegations, including fraud, 
against Sino-Forest Corporation and six individual respondents. The proceeding 
is ongoing before a tribunal. 
One major focus of the Sino-Forest investigation was whether gatekeepers such 
as auditors and other corporate advisors properly performed their role in 
protecting investors. In December 2012, OSC Staff issued allegations against 
Ernst & Young LLP, former auditors of Sino-Forest Corporation. Staff alleged 
that Ernst & Young breached the Ontario Securities Act by failing to conduct 
their audits in accordance with relevant industry standards. 
International Enforcement Co-operation 
The interconnectedness of the global capital markets requires a sustained 
focus on and commitment to information sharing and collaboration among 
regulators to combat cross-border misconduct. 
The largest number of requests for assistance from the OSC come from U.S. 
regulators, specifically the Securities and Exchange Commission (SEC) and 
Commodity Futures Trading Commission (CFTC), but an increasing number of 
requests are made between the OSC and regulators in Asia and Europe, such as 
Hong Kong and Germany. The number of international (non-U.S.) requests for 
assistance received by the OSC increased from 10 in 2011 to 19 in 2012. The 
OSC made 35 requests to international regulators in 2012, up from 33 in 2011 
(see table below). 
Requests to the OSC often involve assistance with access to broker and banking 
records for investigations, locating people of interest to investigators and 
compelling testimony from individuals in interviews. Assistance requests can 
alert OSC Enforcement staff to possible misconduct in Ontario which requires 
prompt action to protect investors and markets here. The rising level of 
assistance is being driven by the effectiveness and timeliness of the OSC's 
co-operation and the significant increase in the number of non-U.S. regulators 
who are compliant with the International Organization of Securities 
Commissions' (IOSCO) Multilateral Memorandum of Understanding for information 
sharing. 
"The OSC often has common enforcement interests with other regulators and 
Ontario's investors and markets benefit from our efforts to share information 
and provide assistance on a timely basis," said Tom Atkinson, Director of 
Enforcement. 
In August 2012, the SEC acknowledged the OSC's assistance in an investigation 
that shut down ZeekRewards.com, a USD$600 million Ponzi scheme in the U.S. The 
CFTC also acknowledged the work of the OSC in assisting the CFTC in its 
investigation into a USD$7 million foreign currency fraud. 
Enforcement and Compliance 
For many investors, their main point of contact with the securities industry 
is through registered advisers or dealers, who are expected to comply with the 
high standards of conduct and disclosure in Ontario. 
The OSC increased its focus on compliance with Know Your Product (KYP) and 
Know Your Client (KYC) requirements and other suitability obligations for 
registrants in 2012. The concluded proceeding against Trapeze Asset Management 
Inc. is an example of a registered firm failing to ensure that certain 
investments were suitable for all of its clients. Under terms of a settlement 
agreement, the OSC ordered the respondents to pay an administrative penalty, 
and Trapeze agreed to submit to a review of its practices and to conduct 
account reviews. 
In addition, staff in the Compliance and Registrant Regulation Branch referred 
four scholarship plan dealer firms to the Enforcement Branch after identifying 
serious concerns with sales practices during compliance reviews. Each dealer 
agreed to retain a compliance consultant to develop and implement a compliance 
plan and to monitor to ensure that all sales are suitable. 
Enforcement Efficiency 
The OSC continually looks for ways to be more efficient in the processes it 
uses for enforcing securities law in Ontario. The OSC is investing in new 
technology, including E-Discovery tools, data analytics and forensic services, 
to assist staff with complex investigations and also in the litigation process. 
The OSC started holding electronic hearings in 2012 to provide easier access 
to all documents and reduce the time, effort, and space required to manage 
documents throughout the hearing life-cycle. Leveraging technology in 
electronic hearings is improving the quality of searching results and 
analyzing evidence during the tribunal review and decision processes. 
Investor Warnings and Fraud Awareness 
The OSC issues Investor Alerts and maintains an Investor Warning List on its 
website to warn the public about individuals and companies that may be 
involved in harmful activity. In 2012, the OSC issued five Investor Alerts, 
the same number as in 2011, and added 24 companies and four individuals to its 
Investor Warning List, compared to 31 companies in 2011. 
Staff from Enforcement and the Office of the Investor are participating in 
"OSC in the Community" provincial roadshow events in early 2013. The first 
event was in Thunder Bay on February 27. Staff gave presentations to investors 
about fraud prevention and how to identify the warning signs of fraudulent 
investment schemes. 
ENFORCEMENT PROCEEDINGS 
Proceedings Commenced 
A total of 30 proceedings were commenced in 2012, involving 71 individuals and 
36 companies. Fifteen of those proceedings included allegations of fraud, 
involving 56 of the total of 107 respondents. 
 _______________________________________________________________
|Category of Alleged Wrongdoing|Cases|         Respondents      |
|______________________________|_____|__________________________|
|                              |     |Individuals     |Companies|
|______________________________|_____|________________|_________|
|                              |     |                |         |
|______________________________|_____|________________|_________|
|Fraud*                        |  15 |          35    |     21  |
|______________________________|_____|________________|_________|
|Illegal distributions         |   6 |          16    |      9  |
|______________________________|_____|________________|_________|
|Misconduct by registrants     |   2 |           4    |      4  |
|______________________________|_____|________________|_________|
|Insider Trading               |   2 |          12    |      1  |
|______________________________|_____|________________|_________|
|Miscellaneous                 |   5 |           4    |      1  |
|______________________________|_____|________________|_________|
|Total                         |  30 |          71    |     36  |
|______________________________|_____|________________|_________| 
* 2012 is the first year in which fraud is featured as a standalone category. 
Previously, fraud matters were included among other categories. 
Interim Orders 
Interim orders protect investors by prohibiting or inhibiting potentially 
illegal activity while an investigation is underway. A total of eight orders 
were issued by the Commission in 2012, involving seven individuals and 13 
companies. 
Concluded Proceedings 
A proceeding is concluded when the Commission or the courts make a decision 
and any sanctions are ordered. In 2012, proceedings were concluded against a 
total of 63 individuals and 37 companies. 
 ________________________________________________
|Category of Wrongdoing   |        Respondents   |
|_________________________|______________________|
|                         |Individuals |Companies|
|_________________________|____________|_________|
|Fraud*                   |       25   |     23  |
|_________________________|____________|_________|
|Illegal distributions    |       20   |      6  |
|_________________________|____________|_________|
|Misconduct by registrants|        8   |      7  |
|_________________________|____________|_________|
|Illegal insider trading  |        2   |      -  |
|_________________________|____________|_________|
|Disclosure violations    |        1   |      -  |
|_________________________|____________|_________|
|Miscellaneous            |        7   |      1  |
|_________________________|____________|_________|
|Total                    |       63   |     37  |
|_________________________|____________|_________| 
* 2012 is the first year in which fraud is featured as a standalone category. 
Previously, fraud matters were included among other categories. 
 ____________________________________________________
|How Matters were Concluded                     |2012|
|_______________________________________________|____|
|Contested Hearings before a Tribunal           | 60 |
|_______________________________________________|____|
|Settlement Agreement                           | 36 |
|_______________________________________________|____|
|Court Proceeding (under securities legislation)|  4 |
|_______________________________________________|____|
|Total                                          |100 |
|_______________________________________________|____| 
Sanctions - Protective 
The Commission can impose bans on future activity, such as trading in 
securities (cease trade orders), acting as a director or officer of a public 
company, and acting as or becoming a registrant. The Commission can also 
remove prospectus and registration exemptions available under the Act. 
 ______________________________
|Category                 |2012|
|_________________________|____|
|Cease Trade Orders       | 80 |
|_________________________|____|
|Director and Officer Bans| 49 |
|_________________________|____|
|Exemption Removals       | 72 |
|_________________________|____|
|Registration Restrictions| 58 |
|_________________________|____| 
Sanctions - Monetary 
The Commission can impose monetary sanctions and bans on individuals and 
companies for violations of securities law or conduct that is contrary to the 
public interest. Adjudicative tribunals can also order a respondent to pay the 
costs of an investigation and/or hearing. The courts have the authority to 
impose fines and jail terms. 
Monetary sanctions include penalties, settlements and disgorgement. 
Disgorgement requires the respondent to pay the OSC the amount the respondent 
obtained as a result of the illegal activity. In 2012, the Commission 
ordered a total of more than $78 million in sanctions and costs. 
While the OSC has experienced challenges in collecting on monetary sanctions 
and cost orders, it continues to work to improve its collections practices. 
Additional information on the OSC's collection experience is available on its 
website (osc.gov.on.ca). 
 _________________________________________________
|Type                                 |   Amount  |
|_____________________________________|___________|
|Administrative Penalties/ Settlements|$13,648,572|
|_____________________________________|___________|
|Disgorgement                         |$61,503,163|
|_____________________________________|___________|
|Costs                                | $2,980,121|
|_____________________________________|___________|
|Total                                |$78,131,856|
|_____________________________________|___________| 
Enforcement Co-operation 
 ________________________________________________
|Requests for assistance received by the OSC|2012|
|___________________________________________|____|
|International                              |  19|
|United States                              |  30|
|Canada                                     |  10|
|Total                                      |  59|
|___________________________________________|____|
|Requests for assistance made by the OSC    |    |
|International                              |  35|
|United States                              |  14|
|Canada                                     |   8|
|Total                                      |  57|
|___________________________________________|____|
|Assistance files open as at Dec. 31, 2012  |    |
|International                              |  15|
|United States                              |  25|
|Canada                                     |  19|
|Total                                      |  59|
|___________________________________________|____| 
The 2011 OSC Report on its Enforcement Activity is available on the OSC 
website. 
The OSC is responsible for enforcing securities law in Ontario, and works 
actively to protect investors and the capital markets. 
For Media Inquiries: media_inquiries@osc.gov.on.ca 
Carolyn Shaw-Rimmington Manager, Public Affairs 416-593-2361 
Alison Ford Media Relations Specialist 416-595-8307 
Follow us on Twitter:OSC_News 
For Investor Inquiries: OSC Contact Centre 416-593-8314 1-877-785-1555 (Toll 
Free) 
SOURCE: Ontario Securities Commission 
To view this news release in HTML formatting, please use the following URL: 
http://www.newswire.ca/en/releases/archive/February2013/28/c9303.html 
CO: Ontario Securities Commission
ST: Ontario 
-0- Feb/28/2013 18:38 GMT
 
 
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