Securities regulators enforcement report highlights COVID-19 response

Law360 Canada (July 6, 2021, 4:47 PM EDT) -- The umbrella group for Canada’s provincial and territorial securities regulators is saying the COVID-19 pandemic led to an “unfortunate rise in wrongdoers” who tried to capitalize on economic uncertainty and prompted new ways of conducting enforcement.

The Canadian Securities Administrators (CSA) enforcement report for the 2020-2021 fiscal year says the pandemic required a high degree of collaboration between CSA members, law enforcement and federal counterparts like the Office of the Superintendent of Financial Institutions (OSFI). As part of its response, the CSA participated in the North American Securities Administrators Association (NASAA) sweep, which targeted COVID-19 related investment scams. This initiative included disruption and prevention activities, such as reviewing and shutting down websites promoting financial fraud, as well as identifying and shutting down scams on social media and on digital marketplaces such as Kijiji and Craigslist. This led to the identification of over 150 schemes, with 64 identified by Canadian regulators.

Over the last fiscal year Canadian regulators issued 159 investor alerts, banned 38 individuals and 22 companies from participating in Canada’s capital markets, with seven people receiving a combined total of 15.4 years of jail terms for criminal and quasi-criminal cases. Sanctions of approximately $20 million were imposed in administrative penalties and voluntary payments, and approximately $42 million in restitution, compensation and disgorgement orders were issued.

CSA chair Louis Morisset said the report highlights how regulators adapted quickly to evolving circumstances by introducing new ways of protecting investors, while staying ahead of emerging issues and trends.

“I am incredibly proud of the CSA members across the country and all their exceptional work,” he said. “The work done during the pandemic-driven crisis truly demonstrated the strength and resilience of the CSA and confirmed, no matter the circumstances, we are deeply committed to enforcing securities laws and protecting investors in Canada.”

The report also highlighted the fact that the means by which regulators conducted enforcement activities changed, with virtual investigations and hearings becoming the “new norm” across the country. The CSA said the remote hearings enabled important adjudicative functions to continue while making participation by respondents and witnesses easier and more affordable, particularly for those in remote locations.

Walied Soliman, the Canadian chair of Norton Rose Fulbright who previously led Ontario’s capital markets modernization taskforce, said regulators in Canada have done a good job in finding a balance between properly prosecuting criminal elements and not overburdening good actors in the market who may have slipped up and just made an administrative error during the course of their work.

“Fraudsters will always find creative ways to operate, no matter whether you are in a pandemic or out of a pandemic,” he said. “What is to be applauded is the efforts of our capital markets regulators that they are on top of the changing environment that they have to regulate.”

Soliman said the adaptability of the regulators over the past year has been impressive, noting that investigations and interviews on videoconferencing platforms like Zoom “have been conducted quite effectively.”

“The only area that our regulators will continue to need to adapt to is in their engagement with the defence community to ensure that they are still striking that appropriate balance during investigations that I mentioned,” he said. “That is not so much a criticism as it is a reality, and I am confident that is something that we are going to see continued improvement on.”

Eric Brousseau of Ross Nasseri LLP said hearings by securities regulators came to a bit of a standstill at the beginning of the pandemic, noting he had a regulatory prosecution which was supposed to start last March which was only wrapped up this January.

“Many regulators were kind of quick to hit the reset button and try to get cases moving, but there was understandably a delay for probably five or six months in 2020,” he said. “These are hard offences to catch and prosecute, because they are so labour and time intensive.”

But Brousseau said the the enforcement numbers for 2020-2021 don’t seem to show much of an upward trajectory over previous years, noting that $138 million in fines and penalties was imposed in 2015.

“Does that mean that fraudulent schemes are being weeded out earlier on, or does it mean this not necessarily the year with the greatest number of convictions and jail sentences?” he said. “I think a continued financial investment from all levels of government is needed so that we can continue to have the most advanced tools and the best people investigating and prosecuting these crimes.”

More information about CSA can be found here.

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