Consistent wins needed for OSC to achieve deterrence goals, experts say

The OSC, which has been criticized for being less successful at prosecuting white collar crime than its U.S. counterpart, highlighted its deterrence plan at an annual event last week. It said it was concluding more civil cases but was also upping its game when it comes to lower level criminal cases.

Tom Atkinson, director of enforcement at the OSC, said in an interview that a joint initiative with police, launched in June, is focusing not on big, headline-grabbing cases like Nortel, but rather the “fairly stubborn group” that is either operating outside the system or refusing to pay fines when imposed.

The plan involves bringing fraud cases to criminal court and seeking jail sentences by using wiretaps and surveillance or undercover operations.

Rick Powers, a professor at the University of Toronto’s Rotman School of Management, said the push for criminal sanctions was a good move for the regulator.

“In most cases, a severe sanction which was supposedly intended to stop the person from acting as a director or trade in shares seems great on paper, but what the OSC is saying now is that these types of individuals are not complying with the sanctions,” said Powers.

“This is a positive step and a recognition that, in these kinds of … frauds and these types of market manipulations, that the administrative sanctions just don’t work.”

Given how much police and enforcement work goes on behind the scenes, he added, it’s important for the OSC to speak out about its initiatives.

The success of any enforcement program is measured entirely by perception, says Jacob Frenkel, a partner at Washington law firm Shulman Rogers and both a former U.S. Securities and Exchange Commission (SEC) enforcement lawyer and federal prosecutor.

“The SEC enforcement program in the United States tries to protect its deterrence message through a broad range of cases, large and small, across all segments of the market,” said Frenkel.

“A number of quick wins are good for morale, they alone do not change a marketplace perception. It is only through a long-term persistent and active enforcement program that is fair yet forceful that the regulator establishes considerable credibility.”

Critics have slammed the length of prosecution for high-profile cases like that of former Hollinger executive Conrad Black or Garth Drabinsky. Drabinsky was convicted in 2009, along with business partner Myron Gottlieb, for a book-cooking scheme that ultimately resulted in the demise of the theatre production company Livent Inc.

Black, tried in 2007 in Chicago, faced criminal fraud charges as a result of an SEC investigation. Many of those charges were eventually dropped and two of his three fraud convictions were overturned on appeal, but it took less than a year for him to be tried and initially convicted.

Black reached a settlement with the SEC over civil proceedings for a smaller fine earlier this year.

Drabinsky’s case in Canada, by contrast, took 12 years to reach its climax. Proceedings against Black before the OSC are pending as they were halted during the criminal proceedings in the U.S.

But while the speed of the U.S. system is real, Powers said, it doesn’t always guarantee the appropriate outcome.

“In the United States they just have a much faster system, which some would argue prejudices the accused’s rights in some cases,” said Powers.

“In Canada, certainly the balance is in favour of the accused, and that’s why things take so long. There has to be some balance there.”

While the changes don’t affect civil cases, Atkinson said, responsible, regulated entities or individuals do respond well to fines and public notices about wrongdoing.