OSC Panel approves settlement with Katanga Mining Limited, former and current directors and officers for misleading disclosure and internal control failures
For Immediate Release Enforcement OSC
TORONTO – A Panel of the Ontario Securities Commission (OSC) today approved a settlement agreement (the settlement) with Katanga Mining Limited (Katanga), former members of its board of directors Aristotelis Mistakidis, Tim Henderson, and Liam Gallagher, former chief financial officers Jacques Lubbe and Matthew Colwill, former director and chief executive officer (CEO) Jeffrey Best, and current director and CEO Johnny Blizzard (the individual respondents). The settlement is in connection with disclosure violations and internal control failures by Katanga, and conduct by the individual respondents that led to the company making misleading financial disclosure to investors.
As a part of the settlement, Katanga admits that, between January 1, 2012 and March 31, 2017, it failed to maintain adequate internal controls over financial reporting (ICFR) and disclosure controls and procedures, and that it failed to disclose material weaknesses in its ICFR.
Additionally, the individual respondents admit that they engaged in conduct that undermined Katanga’s corporate governance, internal controls and culture of compliance and that resulted in Katanga making materially misleading disclosure relating to the results of its operations, including: overstating USD$41.8 million of copper cathode production and improperly capitalizing impaired ore and overstated concentrate inventories totalling approximately USD$122 million.
Gallagher, Henderson and Mistakidis served as Glencore nominee directors on Katanga’s board of directors and exercised significant influence over operational and financial decisions at Katanga. Together with Katanga’s officers, they admit to conduct that undermined Katanga’s internal controls, resulting in Katanga failing to comply with Ontario securities law.
In addition, Katanga admits it failed to disclose material risks to its business, specifically: the elevated risk of public sector corruption in the Democratic Republic of the Congo (DRC) and the nature and extent of Katanga’s reliance on individuals and entities associated with Dan Gertler. Gertler’s close relationship with Joseph Kabila, the President of the DRC, and allegations of Gertler’s possible involvement in corrupt activities in the DRC were referred to in media and non-governmental reports.
“Violations of this magnitude seriously undermine investor confidence in the integrity and reliability of public companies’ disclosure and financial reporting. Katanga’s failure to disclose the risks related to the nature and extent of its reliance on the Gertler Associates is unacceptable. Investors cannot be given anything short of accurate and truthful disclosure,” said Jeff Kehoe, Director of Enforcement at the OSC.
“Directors and Officers set the ‘tone from the top.’ This package of sanctions, including significant monetary payments, director and officer bans, as well as the appointment of an independent consultant, reflects our continued work to bring forward impactful cases and impose meaningful sanctions to address unlawful behaviour,” said Mr. Kehoe.
As part of its settlement with the OSC, Katanga has agreed to make a voluntary payment of CAD$28.5 million to advance the OSC’s mandate of protecting investors. Katanga has also agreed to pay for an independent consultant, approved by OSC staff, to conduct a review of the policies, procedures and effectiveness of its metal accounting. Additionally, the company has agreed to pay CAD$1.5 million to be allocated toward the costs of OSC Staff’s investigation.
The individual respondents have agreed to pay a total of CAD$5.9 million in administrative penalties. These include penalties of CAD$2.45 million for Mistakidis, CAD$950,000 for Gallagher, CAD$750,000 for Best, CAD$550,000 for Lubbe, CAD$450,000 for Henderson, CAD$400,000 for Blizzard, and CAD$350,000 for Colwill. Each individual respondent has also agreed to pay CAD$50,000 in costs.
Additionally, each of Mistakidis, Lubbe and Best are prohibited from becoming or acting as an officer or director of a reporting issuer for four years. In light of his role on Katanga’s audit committee, Gallagher is prohibited from becoming or acting as an officer or director of a reporting issuer for six years. Henderson is prohibited from becoming or acting as an officer or director of a reporting issuer for three years. Each of Colwill and Blizzard are prohibited from becoming or acting as an officer or director of a reporting issuer for two years. Blizzard is required to resign as CEO of Katanga within 30 days, during which period he will have no role in approving or certifying Katanga’s 2018 annual financial statements and Management’s Discussion & Analysis.
In total, the monetary penalties in this matter amount to CAD $34.4 million, and the costs to be allocated toward the costs of OSC Staff’s investigation amount to CAD $1.85 million.
The mandate of the OSC is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair and efficient capital markets and confidence in the capital markets, and to contribute to the stability of the financial system and the reduction of systemic risk. Investors are urged to check the registration of any persons or company offering an investment opportunity and to review the OSC investor materials available at http://www.osc.gov.on.ca.
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