The Canadian Securities Administrators is putting Ponzi schemes and boiler room operations at the top of their enforcement agenda for 2010, according to a report released Monday detailing enforcement activities over the past year.

In the report, CSA chairman, Jean St-Gelais, highlights the regulators efforts at early intervention to prevent harm in financial fraud cases. “… we are using the enforcement tools available to us, such as interim cease trade orders and freeze orders, in an attempt to disrupt activities that have the potential to harm investors.”

According to the report, 83 interim orders and asset freeze orders were issued in 2009, down from 92 orders in 2008. Also in 2009, CSA members froze 64 bank accounts relating to 29 individuals and 24 companies, representing a total of $19,112,009 in assets.

St-Gelais suggests that in the year ahead Ponzi schemes and boiler room scams will be high on the regulators’ radar.

“CSA members are responding to these challenges through both new enforcement initiatives and enhanced communications efforts. Plans for 2010 include work on a multi-jurisdictional investigation and prosecution protocol, and specialized staff training in targeting illegal insider trading and market manipulation. Enforcement and communications teams are working together on developing proactive ways to inform the public of emerging scams and potential issues,” he adds.

The report summarizes the enforcement activity undertaken by regulators across the country last year. It notes that 124 total proceedings were commenced in 2009, down from 171 the previous year. While fewer cases were initiated in 2009, more cases were completed during the year. CSA members concluded 141 cases in 2009, up from 123 cases in 2008.

Among the cases concluded in 2009, illegal distributions remain the most common offence, accounting for 68 cases during the year, up from 65 in 2008. There were 29 cases of registrant misconduct, 16 cases of illegal insider trading, 14 disclosure violation cases, three market manipulation actions, and 11 cases classified as miscellaneous.

Of the 141 completed cases, 69 were concluded by settlement agreement, up from 40 cases that were settled the previous year, and 45 in the year before that. Contested hearings dropped to 37 in 2009 from 55 in 2008..However, the number of cases that went to court rose to 35 from 28 the previous year.

Penalties increase

Securities regulators had a banner year in terms of penalties levied, with $153,673,008 in fines and administrative penalties ordered during the year; plus another $5,678,413 was ordered in costs. In 2008, just $12,469,117 was ordered in fines and $1,578,439 was ordered in costs. However, the bulk of 2009’s penalty total is attributable to the asset-backed commercial paper settlements, in which five respondents agreed to pay $104,425,000 in administrative penalties and $1,775,000 in investigative costs.

In addition to the penalty orders, $92,206,325 was ordered in restitution, compensation and disgorgement during the year. Again, the bulk of that was due to a single case, as three respondents from Research In Motion Ltd. agreed to pay $68,100,000 as part of one settlement agreement with the Ontario Securities Commission. Apart from that big case, compensation orders by CSA members totalled $1,601,995 in 2009, and disgorgement orders totalled $22,504,330.

In addition to monetary orders, courts in Ontario and Québec ordered jail terms for four individuals, ranging from 30 days to 30 months.

The report also indicates that 12 cases were appealed in 2009, and 11 decisions rendered, with four of them being overturned on appeal and seven decisions being upheld.

SRO enforcement cases increase

As for the industry self-regulatory organizations, the CSA report indicates that the Investment Industry Regulatory Organization of Canada, the Mutual Fund Dealers Association of Canada, and the Chambre de la sécurité financière collectively concluded 97 enforcement cases in 2009, compared with 55 in 2008.

The report doesn’t give details on the outcome of those cases, or the penalties rendered. However, the report points out that a court challenge to the jurisdiction of the SROs likely impacted the number of cases they concluded in 2008 and 2009.

“In July 2008, the Ontario Divisional Court ruled in the Taub case that the Investment Dealers Association of Canada (now part of IIROC), did not have the jurisdiction to take disciplinary proceedings against former approved persons in Ontario. As a result, IIROC and the MFDA adjourned all proceedings against former approved persons in Ontario while the decision was appealed. In August 2009, the Court of Appeal of Ontario reversed the Divisional Court’s decision, thereby confirming the jurisdiction of the SROs. Enforcement proceedings previously interrupted by the Ontario Divisional Court decision have since resumed,” it explains.

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Court rules SROs can pursue former members
October 2009

http://www.investmentexecutive.com/client/en/News/DetailNews.asp?IdPub=184&Id=50798&cat=27&IdSection=27&PageMem=&nbNews=

CSA 2009 Enforcement Report

http://www.securities-administrators.ca/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=75


CSA enforcement actions double in 2008: reportJanuary 29, 2009

http://www.investmentexecutive.com/client/en/News/DetailNews.asp?Id=47956&cat=8&IdSection=8&PageMem=&nbNews=