In a market the size of Canada’s, one large deal often has an oversized impact on yearend statistics. That’s what happened in regulatory enforcement in 2009, as regulators secured a couple of large settlements that dominated the annual results.

In early February, the Canadian Securities Administrators issued a report detailing the results of their enforcement work in 2009. Impressively, the regulators tallied up almost $154 million in fines, up from just $12.5 million in 2008.

The sole reason for the huge jump was the series of settlements the Ontario Securities Commission, Quebec’s Autorité des marchés financiers and the Investment Industry Regulatory Organization of Canada reached with several securities dealers regarding their involvement in the non-bank-sponsored asset-backed commercial paper market, which collapsed in late 2007. Those settlements represent almost $139 million of the total fines, administrative penalties and costs levied during 2009.

That collection of settlements also puts the AMF atop the league table of provincial regulators, as it secured more than $78 million worth of the ABCP case’s final tally. In terms of total penalties handed out, the AMF had almost $82 million in monetary sanctions levied — more than half the overall total.

Separately, the AMF reports that it brought forward a total of 855 charges in 2009; that 783 individuals were sanctioned (including 400 individuals and companies sanctioned for late filing or failure to file insider-trading reports, which also generated more than $1.1 million in fines); and that prison terms totalling more than 3.5 years were also meted out.

Notwithstanding the numerous insider-reporting violations, illegal distributions (distributing securities without a prospectus or registration, including Ponzi schemes) remain the most common offences regulators are tackling — both in Quebec and in the rest of Canada. (See “NBSC tackles…,” at right.)

The AMF reports that illegal distributions represented more than half of the settlements it reached during 2009, accounting for 25 of the 48 cases the AMF settled. Similarly, the CSA revealed that almost half of the cases it completed during the year involved illegal distributions. Across the CSA, there were 68 such cases concluded in 2009 (up slightly from 65 in 2008), out of 141 total cases completed during the year.

Overall, the number of cases the CSA wrapped up in 2009 rose from the previous year, as 123 cases were resolved in 2008. However, the number of new cases the regulators took on slipped. In 2009, regulators commenced a total of 124 new proceedings, down from 171 the year prior.

A reason why more cases were resolved last year may be because settlements were also on the rise. Of the cases the CSA completed in 2009, 69 were concluded by settlements — up notably from 40 in 2008. At the same time, the number of contested hearings dropped to 37 in 2009 from 55 in 2008.

In general, cases that are settled consume fewer resources, which should, in theory, allow the regulators to churn out a higher number of cases during the year.

That said, the regulators aren’t shying away from the more resource-intensive task of taking cases to court. In fact, the number of cases that went to court rose to 35 in 2009, up from 28 in 2008.

Although illegal distributions were by far the most common offence regulators tackled during the year, and much of this activity involves people who are operating outside the securities industry, regulators also had their share of industry violations to deal with. Of the cases completed in 2009, 29 are classified as “registrant misconduct,” including the massive ABCP settlements. This is more or less unchanged from 30 such cases in 2008.

However, the CSA reports, the number of enforcement actions concluded by the self-regulatory organizations — IIROC, the Mutual Fund Dealers Association of Canada and the Chambre de la sécurité financière — jumped to 97 in 2009 from 55 in 2008. One reason for this, the CSA suggests, is that a number of cases may have been affected by an ongoing court challenge to SRO jurisdiction, which was finally resolved in the SROs’ favour in 2009.

Illegal insider trading was the next most popular offence, with 16 cases; this was followed by disclosure violations (14 cases), three market manipulation actions and 11 that were classified as miscellaneous.

An alleged disclosure violation was the other big-dollar case resolved in 2009: three respondents from Research In Motion Ltd. agreed to pay $68.1 million as part of a settlement with the OSC.

@page_break@Although the ABCP settlements accounted for the vast majority of the monetary penalties handed down in 2009, the RIM case accounted for the bulk of the $92.2 million in restitution, compensation and disgorgement that the regulators ordered during the year. Apart from the RIM case, compensation orders by CSA members totalled $1.6 million in 2009, and disgorgement orders totalled $22.5 million.

Penalties aren’t the only way regulators tried to protect investors; they also intervened to prevent harm before it happened — they froze 64 bank accounts, representing a total of $19.1 million, in 2009.

Looking ahead, the CSA is aiming to do more to disrupt possible securities frauds — and warn investors — at an early stage. The report indicates that Ponzi schemes and boiler rooms will remain at the top of regulators’ enforcement agendas in the coming year. They are also working on a multi-jurisdictional investigation and prosecution protocols, as well as on specialized staff training that targets illegal insider trading and market manipulation. IE