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New B.C. stock market whistleblower program must face test of time, says critic

The B.C. Securities Commission is joining most major jurisdictions in North America with the introduction of a whistleblower program aimed at catching bad actors in the investment industry
The program came into effect Nov. 7.

The B.C. Securities Commission is joining most major jurisdictions in North America with the introduction of a whistleblower program aimed at catching grifters and fraudsters. The question is, will it work?

“It’s an interesting program and probably worth a shot,” retired Vancouver Sun business reporter David Baines said in an interview. 

“But I’m skeptical. We have seen several enforcement and fine collection initiatives announced with much fanfare that have had little or no material impact.

“Will we see any substantive enforcement actions that arise from this? I would imagine we will see a few minor cases come forward but it remains to be seen if this program will prove worthwhile, given the resources that will be needed to screen and develop tips into viable enforcement cases,” said Baines.

The commission’s chair and CEO Brenda Leong has kicked off a public relations campaign to advertise the new program, which follows in the footsteps of the one launched in Ontario in 2016 and what she calls the “gold standard” of the United States Securities and Exchange Commission (SEC).

“It's another tool in our enforcement tool kit,” Leong told Glacier Media.

The commission is offering between $1,000 and $250,000 for any information that leads to a much wider array of enforcement results, from a trade halt, preservation (of assets) order and minor administrative penalty to a hearing notice against a company or market participant.

The maximum amount may be issued should the information lead to a major enforcement penalty or the collection of outstanding fine amounts (by identifying assets of a debtor).

The commission has had a historically low rate of collecting fines. Baines notes it has made several changes to try to improve collections, such as having the power to block driver’s licence renewals and the ability to access RRSPs, but these initiatives “have had little or no impact on fine collection.”

The commission has said in the past that the changes will take time to work their way through the system.

Payouts anonymized, lower than Ontario and the United States

The program offers far less than the maximum $5 million offered by the Ontario Securities Commission or the tens of millions that the SEC may dish out. This, explained Leong, is because Ontario is regulating larger public companies and investment and accounting firms, while B.C.’s capital markets are dominated by junior companies and small-scale ventures.

“If I look at the types of enforcement cases that are typically in the hearing room, they will be people (who) raised money illegally; they misrepresented what they were telling investors; and in the serious cases they are outright frauds, right? They're not even real companies. They're out there defrauding investors. And so those are typically the kinds of cases you see here,” said Leong, adding the province “is a typically high risk marketplace.”

The commission’s executive director Peter Brady will decide who gets paid and how much. But since it’s a whistleblower program the public will not be informed who blew the whistle.

“A key feature of these programs is anonymity. We won’t know who is being paid, how much or what for,” says Baines. “It’s a discretionary program run by bureaucrats with no public disclosure and little or no oversight.”

The SEC recently audited its program via the independent Inspector General. Should this program need to be audited it could be done by the Auditor General of B.C. but there are no such plans.

Baines notes that confidentiality “is not iron clad.” As acknowledged by the commission, the “information or identity” of the whistle blower will be required to be shared to respondents when a hearing notice is issued or when an agency or person makes a legal demand.

“We are not providing you any guarantee or assurance of confidential informer privilege,” the commission states in its policy statement announcing the program. 

Baines is a four-time national award winner for business reporting on systemic market fraud in B.C. A chief concern is the commission already has more cases than it can deal with in a timely and effective way. In his view, the commission has settled too many serious cases without a formal hearing and with relatively light sanctions “for the sake of expediency.” 

Asked how the commission will triage whistleblower information (which Baines thinks will more often than not prove fruitless) Leong acknowledged that was one consideration.

“The program will pay for good information,” said Leong.

“It's got to be valuable information, it's got to be timely, it's got to be detailed. So, the better the quality of the information, the more potential for a higher award is there. …Now, even today, we get a whole bunch of complaints and things that lead nowhere so that problem already exists today. And you know, there's a risk that that might happen in the early days of the program. We’ll have to evaluate the kind of information that we're getting in and see how it goes,” said Leong.

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