Monday, 23 January 2012

Penalties on Securities Lawbreakers - a Fine Mess

Last week the Ontario Securities Commission revealed its poor record of collecting fines it imposed on those it found guilty of violating securities laws since 2005 - collecting only about half of total amounts owed, almost all of which came from negotiated settlements (with mainly major financial companies who always pay up) and virtually none of which came from contested hearings, where the most egregious fraudsters get sanctioned.

Though I suppose we should be a little grateful that the OSC is even revealing its performance - a new departure and a good step - and that improvement seems to be the OSC's goal, a brief analysis of the numbers in the Globe and Mail by law reporter Jeff Gray shows that the effort is a long way from anything that could be considered acceptable performance.

The Globe quotes the OSC director of enforcement on how tough the collection job is. Out in Alberta the ASC gives the same "we're doing all we can" explanation / excuse about its dismal record of not collecting fines.

Well, that's not good enough. They say they want to improve. Perhaps they could start with The Collection Gap's lengthy examination of the collection issue in the USA, where they have the same poor performance problem. The multitude of reasons advanced (including those of OSC and ASC) to explain woeful collection of fines, like individual incentives, institutional incentives, regulatory capture and insufficient resources, are reviewed and evaluated. The authors conclude that the fine collection impediments are mainly within the control of the agencies, not beyond their control (as the OSC seems to claim). Though the report is about the USA, the situation sounds a lot like Canada. (Thanks to Ken Kivenko of for the link to this document.)

For more tips on how to collect, they might want to consult Canada's "Collections R Us" aka Canada Revenue Agency. CRA's tax debt (taxes not paid on time) was only about 5.5% of total collections back in 2005 when the Auditor General last looked.

If there were a national securities regulator, whose terms of reference included a stronger mandate, incentives and mechanisms for enforcement and collection than provincial regulators evidently now have, greater cooperation with the CRA might also be possible. The CRA should be very interested. After all, income from investment fraud and illegal gains are subject to income tax too as noted at IncomeTaxCanada by Jim Maroney.

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