Canadian Lawyer InHouse

these rules generally get written for, and knee-jerk reactions always require the good guys who actually follow the rules to do the same as the bad guys who don't," DeGrandis says. "I've said to our gover- nance committee, that once a whistle- blowing regime is up and running in the United States, give it two years and it will be here. I just think it's an inevitability." But Lascaris isn't so certain the OSC will jump on the whistleblower bandwag- on. "To the extent they're actually looking at it, that's progress. But I'm skeptical that anything will actually come of it," he says. "I had hoped that the events of 2008 and 2009 would cause a sea change in atti- tudes towards enforcement, but I think the OSC and Canadian securities regula- tors generally have not been sufficiently aggressive over the years, and I don't sense a dramatic change in the levels or quality of enforcement here." Lascaris sees the other major pro- posal in the October staff notice, the no- contest settlement program, as evidence that the OSC may actually be moving backwards on enforcement. The pro- gram would allow protective orders to be made by the OSC without the need for a specific admission of a breach of the Securities Act. The OSC says the pro- gram, launched alongside new guidelines for self-reporting and credit for co-oper- ation, is "aimed at resolving enforcement matters more quickly and effectively." The proposals were prompted in part by settlement negotiations getting bogged down in disputes over admissions, with companies often fearing they will be used against them in concurrent or sub- sequent civil litigation. "If you're willing to settle for less, you can always settle faster, but what's the ben- efit if it doesn't achieve anything meaning- ful? You're far better off having more pro- tracted proceedings if it achieves some- thing meaningful," Lascaris says. "This policy is really one that serves the interests of a small group of well-heeled defendants who actually have the resources to pay compensation to investors." The idea drew sharp criticism in a submission to the OSC from Michael Watson, who spent 10 years as its enforce- ment director. He called no-contest settle- ments "wrong in principle" and cast doubt on the time and money savings, arguing the majority of settlement efforts go into the wording and that respondents will be just as keen to get that right whether or not they admit to wrongdoing. In the U.S., where the practice is long- standing, authorities are taking a second look after U.S. federal Judge Jed Rakoff rejected a proposed $285-million settle- ment between the SEC and Citigroup Global Markets Inc., citing fears over its fairness. "If the allegations of the complaint are true, this is a very good deal for Citigroup," he wrote. "Even if they are untrue, it is a a platter," he says, adding that the OSC needs to be careful with its limited resources. "There's certain things that the commission does well and there's certain things that the courts do well." According to Waitzer, the OSC has already been burned by overreach with the explosion of issuers from emerg- ing markets. Suspected fraud at Sino- Forest Corp. and alleged capital market abuse by sportswear company Zungui Xaixi Corp. have left the OSC with an enforcement headache in China. "It's not just the OSC. The TSX too has been out running up listings, and the I've said to our governance committee, that once a whistleblowing regime is up and running in the United States, give it two years and it will be here. I just think it's an inevitability. DONALD DEGRANDIS, TransCanada Corp. mild and modest cost of doing business." Lascaris says there's no evidence no-contest settlements in the U.S. have enhanced deterrence and suggests they may actually weaken it. "The obligation to make admissions is itself a power- ful deterrent. It really imposes costs on the person who's making it, not just for private litigation, but also in reputational terms." By handicapping class actions, Anand says no-contest settlements could cut off an avenue that is often the only realistic prospect of restitution for investors. If that is to happen, she'd like to see the OSC opening up new routes for investors. "Alternatives for inves- tor compensation must be considered. Perhaps settlement agreements should require the payment of compensation to investors harmed by the respondent's misconduct," she says. But Waitzer argues it makes sense for the OSC to limit its focus on restitu- tion, especially with the development of a robust securities class action mar- ket. "A no-contest settlement doesn't preclude private enforcement, it just doesn't hand it to the plaintiffs' bar on OSC is clearing prospectuses," Waitzer says. "So something goes wrong, and we don't have in place the necessary co-operation agreements with Chinese regulators, and nobody really under- stands how you go about getting infor- mation from Chinese banks or what the legal regime is to enforce claims there." At an event last November, OSC chair Howard Wetston told an audience that an ongoing emerging market issu- ers review had highlighted a number of challenges for his team. At the same event, he wondered out loud whether the OSC can "effectively enforce the Ontario Securities Act international- ly," reassuring the audience it would "do whatever is reasonable and practi- cal to investigate and take appropriate enforcement action." Waitzer would like to see more ener- gy devoted to preventative measures upfront. "We need to think more care- fully about what could go wrong ahead of time, and try to address those con- cerns. I'm not just pointing the finger here at the OSC. It's the stock exchange, the lawyers, the accountants, all the gatekeepers in the process," he says. IH INHOUSE APRIL 2012 • 29

• Cover