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Risk Management and Crisis Response

Insights on Avoiding and Addressing Corporate Crisis

SEC Continues to Penalize Companies which Restrict Whistleblowing or Seek Waiver of Payment of Whistleblower Incentive Payments

Posted in Managing Internal Risk, Regulatory Compliance and Enforcement

Metal sport whistle with pen and paper sheetAs whistleblower initiatives build steam in Canada, the United States and throughout the world, executives, and board members face evolving challenges that accompany them. Some of these relate to how firms need to deal with departing employees. In an order dated August 10, 2016 (the “BHI Order”), an administrative judge of the Securities Exchange Commission (“SEC”) imposed a USD $265,000 penalty on BlueLinx Holdings Inc.(“BHI”). BHI had used various versions of severance agreements that had the effect of prohibiting or discouraging its employees from reporting misconduct to the SEC, and in some cases, required its departing employees to waive their rights to receive whistleblower awards. A similar order dated August 16, 2016 (the “Health Net Order”) imposed a USD $340,000 penalty on Health Net, Inc. (“Health Net”) which expressly permitted departing employees to file a charge, provide information, or participate in any investigation or proceeding before any federal or state agency or governmental body, but required the employee to waive any right to individual monetary recovery based on any communication by the employee to the government agency or department. These orders send a strong message to market participants that the SEC is committed to ensuring potential whistleblowers are not in any way discouraged from coming forward with information regarding securities law misconduct. Continue Reading

U.K. Serious Frauds Office Enters into Second Deferred Prosecution Agreement to Resolve Corruption and Bribery Charges

Posted in Managing Internal Risk, Regulatory Compliance and Enforcement

London UKThe U.K. Serious Frauds Office (the SFO) on July 8, 2016 obtained its second deferred prosecution agreement (DPA). The Southwark (London) Crown Court approved the SFO’s application for a DPA relating to a defendant company indicted for conspiracy to corrupt and bribe contrary to section 1 of the Criminal Law Act 1977 and failure to prevent bribery under section 7 of the Bribery Act 2010. Continue Reading

A Review of New Whistleblower Protections Under Ontario’s Securities Act

Posted in Regulatory Compliance and Enforcement

MacBookAir and a man typingIn connection with the establishment of the Ontario Securities Commission’s new Whistleblower Program in July 2016, which includes monetary incentives for whistleblowers in Ontario, the Ontario government has approved amendments to the Securities Act (Ontario) (the “Act”) to provide additional protection to persons who report a potential violation of Ontario securities law or a by-law or other instrument of a self-regulatory organization. The amendments were proclaimed into force on June 28, 2016. Continue Reading

Three Scotia Dealers Reach No-Contest Settlement with OSC

Posted in Regulatory Compliance and Enforcement

photo-1458242629894-cf9a6bda80d6_700x350On July 29, 2016, the Ontario Securities Commission approved a no-contest settlement agreement with three Bank of Nova Scotia dealers in connection with fee overcharges that had gone undetected by the dealers’ internal control systems, and that had affected thousands of clients dating back to 2009. As a part of the settlement, the Scotia dealers agreed to implement a compensation plan to pay back the impacted clients in the amount of nearly $20-million. Also included as a part of the settlement was a “voluntary payment” by the dealers in the amount of $800,000 for use by the OSC for the purpose of educating investors, and a further payment of $50,000 for Staff’s costs of the investigation. This settlement is the fifth of its kind under the OSC’s no-contest regime, and demonstrates the importance of identifying problems internally and cooperating with the regulator to the extent possible in the circumstances. Continue Reading

Initial Board of Directors and New Implementation Timelines Announced for Canada’s Securities Regulatory Regime

Posted in General, Regulatory Compliance and Enforcement

BoardroomIn an important step towards implementing Canada’s Cooperative Capital Markets Regime, the participating jurisdictions have made the long awaited announcement of who will serve as the initial Board of Directors for the proposed Capital Markets Regulatory Authority.

As we have previously posted, the appointment of the Board of Directors is a crucial prerequisite to advance the move to the more streamlined capital markets regulatory framework promised by the initiative, now supported by 6 provinces, one territory and the federal government. The announcement reflects the efforts of the initial Nominating Committee appointed by the council of participating Ministers in April 2015, as discussed in our previous post. Continue Reading

The Long-Awaited OSC Whistleblower Program Is Now In Force

Posted in Regulatory Compliance and Enforcement

Whistle on a blackboardOn July 14, 2016, the Ontario Securities Commission (the “OSC”) broke ground in Canada when it officially launched its widely anticipated Office of the Whistleblower and its Whistleblower Program. As the first “bounty-for-tips” program in Canada, it will provide financial incentives to those who report corporate misconduct to the OSC. As such, the Whistleblower Program is attracting significant attention.

Kelly Gorman, the newly-appointed Chief of the OSC’s Office of the Whistleblower and Deputy Director of the OCS’s Enforcement Branch, said at a seminar hosted by Osler on July 20, 2016, that this program will be a “powerful tool in the Enforcement Branch”. She emphasized that “whistleblower tips will be very valuable information for us because they have information about companies that may often times be hard for us to access”. Continue Reading

Legal and industry opposition to U.S. Fiduciary Rule may be a harbinger of developments in Canada with proposed introduction of best interest standard

Posted in Regulatory Compliance and Enforcement

On June 1, 2016, the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association (SIFMA) and six other industry and trade groups filed an injunction in Texas federal court challenging the Fiduciary Conflict of Interest Rule, which was introduced by the United States Department of Labour (the “DOL”) in April 2016 and became effective June 7, 2016. The Fiduciary Rule imposes a duty on investment advisors to act in their clients’ best interests when providing investment advice or recommendations on retirement accounts for a fee or other compensation. Prior to the introduction of the Fiduciary Rule, investment advisors were subject to the lesser “suitability standard” when advising retirement accounts which required them to confirm that each investment recommended was suitable for the investor. According to the DOL, the Fiduciary Rule is intended to enhance investor protection and improve retirement security by mitigating advisor conflicts of interest which have the potential to result in “large, avoidable losses to retirement investors.” Continue Reading

Questions Raised Over the Constitutionality of SEC Administrative Proceedings

Posted in Regulatory Compliance and Enforcement

Close-up of blue chart growth progressAs noted in previous articles, Canada and the US have different approaches to regulatory enforcement. Canadian securities regulators overwhelmingly address regulatory non-compliance through enforcement proceedings commenced before their own adjudicative tribunals. In the US, the SEC staff often proceeds in the civil courts. However, enforcement actions can also be pursued by administrative law judges in certain circumstances.

In the noteworthy decision in Tilton et al. v. SEC, the US Second Circuit addressed the constitutionality of SEC administrative law judges, also known as ALJs, who are directly appointed by the SEC. Tilton is the latest in a series of cases to challenge the SEC’s power to appoint the judges before whom it brings prosecutions as a violation of the Appointments Clause of the US Constitution. Continue Reading

U.S. Court Upholds Five-Year Limitation Period for SEC Disgorgement Remedies

Posted in Regulatory Compliance and Enforcement

The United States Court of Appeals for the Eleventh Circuit held in its late May judgment in SEC v. Graham that the five-year limitation period set out in 28 USC §2462 applies to the US Securities and Exchange Commission (“SEC”) claims for disgorgement or declaratory relief. In the case, Graham and several co-defendants were accused of violating federal securities law by selling condominiums that were functioning, in reality, as unregistered securities. Charges were brought more than five years after the alleged wrongdoing. The United States Court of Appeals for the Eleventh Circuit, agreeing with the defendants, held that the five-year limitation period applied to disgorgement as an equitable remedy. Continue Reading

Drug testing policies in the wake of Irving – Addressing legitimate safety concerns

Posted in Managing Internal Risk

drugsAlcohol and drug abuse at the workplace can lead to significant health and safety incidents, particularly in dangerous work environments. To minimize the likelihood of these incidents, employers may choose to adopt alcohol and drug testing policies for their employees in safety-sensitive positions. However, employees and unions continue to challenge these policies on the basis of employee privacy concerns. Recent decisions by Canadian courts and arbitration boards showcase how employers can demonstrate a legitimate need for drug or alcohol testing in their workplace. Continue Reading