ABCP's of stealing $32 Billion. Case study 2 for inquiry

[admin]

On Wed, 12/17/08, Anonymous Anonymous wrote:

From: Anonymous Anonymous
Subject: Solving the CAD ABCP issues
To: mccalj@parl.gc.ca
Cc: jflaherty@fin.gc.ca
Date: Wednesday, December 17, 2008, 7:46 AM

Honourable John McCallum,

I sent the attached below to the treasury. I know you have been an outspoken supporter of the Montreal Accord settlement and having treasury support it financially.

I urge you to reconsider your position. Many of us working at the banks (who YOU will be bailing out if you support the Montreal Accord), raised our voices in concern over the Canadian conduit business. It was a travesty that foreign banks were allowed to take advantage of the Caisse and PSP so easily and willfully.


However, they should not be rewarded for their misdeeds. They cleverly colluded together to avoid meeting their obligations under the liquidity provisions embedded in the assets that they then created and sold to the conduits. Because these assets are Russian dolled away from the end-conduit investors, the details of these liquidity provisions are unknown to the investors.

These liquidity provisions should generally require the foreign banks to BUY BACK ALL THE ASSETS. Thats' right, $32billion put back to the foreign banks overnight. Problem solved!

The current settlement rewards these fiends by allowing them to continue to hide and eliminate these liquidity provisions, make accrual book loans into the collateral, and all the while protecting their historic profits, and even booking new restructuring profits.

The best solution is for the Canadian government to do due diligence these assets, put them back to the Banks, and lend money to the banks to support the assets. Not continue to support the greatest fraud in Canadian history.


On Mon, 12/15/08, Anonymous Anonymous <lssabcp@yahoo.com> wrote:

From: Anonymous Anonymous
Subject: Solving the CAD ABCP issues
To: jflaherty@fin.gc.ca
Date: Monday, December 15, 2008, 12:08 AM


Honourable James M. Flaherty,

I am a former CDO practitioner who had worked at 2 of the foreign banks that created the "Leveraged Super Senior" assets that were sold to the Canadian Conduits. These were hugely profitable transactions for these firms as a result of the investors (conduits as a proxy for their lenders) did not fairly value the assets sold to them. These assets were inappropriate for any other investor because they had a market value trigger embedded in them that only DBRS of all rating agencies would rate. Don't be fooled. If Canada is going to back this rescue, it should know that it was well known internally at these firms that the non-bank Canadian Conduits were behaving foolishly.

You might be lulled into thinking that these banks provided liquidity and would support the "par" market for these assets. You would be wrong. These banks conspired to limit the application of their liquidity backstops. This is similar to the Auction Rate market in the US, where investors thought the banks who made the assets would buy them back. There was no explicit provision in the auction in the market for liquidity as in the US conduit market or the CAD conduit market. However the explicit CAD conduit liquidity language was caveated by the definition of a "MARKET DISRUPTION". IT is this definition that has let DB and the original asset sellers off the hook. They are relying on their interpretation this language which is well disguised out for them. The old language defined a Market Disruption as ALL conduits failing, including the bank sponsored ones. DB in particular quickly realized this was an impossibility unless the CAD banking system collapsed. SO DB KNEW IT WAS SELLING THESE ASSETS WITHOUT ANY LIQUIDITY BACKSTOP, BUT ALLOWING THE INVESTORS TO ASSUME THEIR WAS.

DBRS realized its stupidity and changed the MARKET DISRUPTION requirements to be defined as 2 Conduits failing. DB and the original manufacturers of assets promptly pulled out of the market. Others including Merrill, Barclays, and HSBC, entered with the knew language. THE ASSETS MADE IN 2006 BY THESE BANKS SHOULD BY ANY LEGAL INTERPRETATION BE BOUGHT BACK AT PAR BY THESE BANKS. The rush to put a standstill on these conduits gave them an out.

BEFORE YOU LEND TO THE RESTRUCTURING, PLEASE INVESTIGATE THESE ASSETS AND MAKE YOUR OWN DECISION AS TO WHETHER THE FOREIGN BANKS SHOULD BE BUYING BACK THESE ASSETS AT PAR, AS IN THE US AUCTION MARKET.

This was a scam, and the banks knew it. By allowing them to make loans to the re-structuring and change the terms, you are allowing them new windfalls. I know, for example, that DB is booking EURO 125,000,000 of profit from the re-structuring.

here is a historical summary form an objective 3rd party:

http://www.pimco.com/LeftNav/Global+Mar ... 5-2007.htm

[admin]

ABCP advisors, $200-million; ABCP investors, zero

John Greenwood, Financial Post

Monday, January 05, 2009

Canada's market for asset-backed commercial paper remains just as illiquid as it was the day it seized up nearly 17 months ago but the lawyers and financial advisors trying to rescue it have already billed noteholders for nearly $200-million.

According to documents filed in connection with the proposed $32-billion restructuring, lawyers for the investors committee, their financial advisors JP Morgan and others had been paid or submitted invoices for $199.1-million as of Dec. 8, 2008.

The lion's share of that money -- $87-million -- is going to JPMorgan, the New York financial advisor contracted by the investor committee to figure out how to convert the $32-billion of frozen paper into long term notes.

Meanwhile, thousands of holders of frozen ABCP, including some in financial distress, are still unable to access their investments.

Lawyers for the investor committee are expected to file a motion asking an Ontario Superior Court judge to approve an amended restructuring plan as early as Tuesday, paving the way for a court hearing by the end of the week, which is widely expected to result in a positive ruling.

The revised plan is bolstered by $4.45-billion in additional margin facility to support the leveraged credit default swaps that make up the bulk of the assets underlying the frozen ABCP. The new cash is being provided mostly by the federal government, Ontario and Alberta, which has led some observers to call it a government bailout.

Observers say that if the court gives the green light to the workout as expected, it could be completed before Jan. 16, clearing the way for about 1,800 retail investors to get all their money back as part of a deal announced by Canaccord Capital and Credential Securities.

In a note to clients on Dec. 24, Canaccord chief operating officer Mark Maybank called the revised restructuring "an exceptionally important milestone in what has been a long and challenging process, but one that we have great confidence will be completed successfully."

Mr. Maybank said that under the current timetable retail noteholders would have their money returned the week of Jan. 26.

While individuals will get their money back, the rest of the noteholders are unlikely to be so lucky. Under the restructuring, the companies and institutions that hold the vast majority of the frozen ABCP will get new notes that they will most likely have to hold until they mature in 2016 since the market for investment products such as this is not expected to unfreeze.

The market for non-bank sponsored ABCP fell apart in August 2007 after investors stopped buying and the banks that had agreed to provide emergency liquidity declined to step up. That prompted a group of major investors led by the Caisse de depot et placement du Quebec to halt the market while they put together a rescue plan.

Critics complain that the restructuring is flawed because it relies on the same group of liquidity providing banks that refused to step up in August of 2007, triggering the market collapse.

The $4.45-billion of additional margin facility was demanded by players such as Deutsche Bank, Merrill Lynch and Citigroup as a condition for entering into the revised plan.

[admin]

if I had five cents for every commentator who asks "who is to blame" for this mess.......................

personally I find it pretty damn easy to place the blame. Go straight towards to "professionals" who engineered the get rich schemes, the products, the sales tricks to take advantage of trusting and vulnerable members of the public.

If we look at:

1. regulators who allowed this
2. brokers who sold this
3. lenders and lending brokers who tried to lend their way to riches

etc., etc..............

we can find a vast supply of people who were supposed professionals, experts, and willing to throw all this out the window for a chance to get rich the quick, dirty and easy way. they are to blame, without question.

Stop asking who caused this. They are quite easy to find. They are in the phone book. Hold hem accountable, and for gods sake, stop bailing them out with more public money. This was a crime larger than all of the other crimes in the country combined.

[admin]

LETHBRIDGE HERALD

Written by Gerald Gauthier

Tuesday, 13 January 2009

Details of the city’s long-awaited restructuring plan for its $30-million portfolio of tainted asset-backed commercial paper investments are to be made public within several days.


Now that a complicated restructuring arrangement has received final court approval, City of Lethbridge officials are to go over final details this week with representatives of National Bank, the brokerage firm that sold the investments to the city in mid-2007. City officials have withheld details of the National Bank settlement for months because the deal was contingent on the restructuring plan receiving court approval to proceed.


“Now that we’ve moved past the logjam, I think we’ll be moving toward a resolution,” said Mayor Bob Tarleck, adding details of the settlement are likely to be announced early next week. “Now we can move toward a conclusion. Our interest has always been to to protect the interests of the citizens of Lethbridge.”


After 17 months in limbo, one of the most complicated restructuring deals in Canadian history got final legal approval Monday. It allows $32 billion in short-term investments to be unfrozen and converted to longer-term notes which mature in 2016.


But the city and other non-retail investors should expect far less than they originally expected in interest payments and future market value from the replacement notes they will soon receive, according to Diane Urquhart, a Mississauga, Ont.-based independent financial analyst.
“The interest flow is going to be extremely weak,” she said in a phone interview, noting that, based on current rates, the notes at the outset will likely pay as little as 0.9 per cent in net interest.


“(The City of) Lethbridge will keep getting this interest revenue, but it’s unlikely they’ll be able to sell these notes at a reasonable price,” she said. “At this point, the best I’m thinking people can hope for is 75 cents on the dollar even if they hold onto it until maturity,” she said.


Trading in ABCP has been frozen since August 2007. When trading in the new notes resumes, Urquhart expects a run-off of investors dumping the investments at losses of up to 80 per cent.


“It’s going to be vulture buying. It’s not going to be pension funds or even hedge funds,” she said.


When the city took a $5.7-million writedown on its ABCP holdings in early December, Tarleck maintained he still expected any actual loss on the investments to be minimal. He hinted Tuesday the city isn’t likely to join a possible stampede of investors looking to dump their new notes when trading resumes.


“We don’t want to be making any panic decisions that aren’t in our best interests,” he said.
In the wake of the ABCP debacle, Larry Elford, a local investor advocate, called on the federal an provincial governments to hold public inquiries into what he described as failures by securities regulators to uphold their own laws. He received a letter recently from the Alberta Finance Ministry advising him his request for a provincial inquiry had been rejected.


Tarleck said he disagrees with the position taken this week by Alberta Premier Ed Stelmach and Finance Minister Iris Evans in opposing the creation of a national securities regulator to police the trading of securities in Canada. The idea was recommended earlier this week by an expert, seven-member panel headed by Mulroney-era cabinet minister Tom Hockin.


“I don’t think this is the time for provincial protectionism,” Tarleck said. “I would feel more comfortable if we had a national presence instead of a patchwork of provincial regulators.
“I think protection of investor security trumps provincial protectionism.”


Meanwhile Tuesday, Hockin attempted to make the case for a single Canadian securities regulator to the Calgary business community, saying such a body would give Alberta a stronger voice on the international stage and would be modelled on that province’s laws.


“This is not a Toronto-centric report,” said Hockin, who served as minister of state for finance under Brian Mulroney.


“A system of 13 regulators is too cumbersome, too fragmented and too slow.”


The current system, he said, limits Canada’s ability to “speak with one voice” internationally and “doesn’t provide any outlet for the Alberta voice,” as Ontario regulators often represent Canada abroad, Hockin added.


The needs of Alberta-based companies to raise capital for oil and gas exploration would be addressed in a “decentralized” system, which Hockin hopes would retain many of the same staff that companies currently deal with at the Alberta Securities Commission.


In further seeking to allay Albertans’ concerns, Hockin said the panel based its draft legislation on that province’s securities act.

[admin]

advocate comment.........the ABCP fiasco was not swept under the carpet, it was avoided by all proper authorities in Canada and left to Purdy Crawford to deal with. As the "cleanup man" who looked after the tobacco smuggling scandal in Canada, he is the perfect legal janitor to cleanup the bodies in this mess. He makes certain that noboday is held accountable, nobody gets sued and nobody goes to jail. What is the problem?

ABCP regulatory fiasco swept under the carpet-Why did the OSC not take a stand and ensure that all retail investors were given equal treatment?
"It [the OSC] starts with a view that they endorse a court process and then they
don't take any steps to ensure that the court process is fair with respect to their
constituency, which is the retail marketplace. The OSC should have been more
diligent, especially given the findings of the IIROC study that showed there were
breaches of know- your- client and suitability rules. They were highly remiss in not
addressing the aberrations that were evolving in the so-called solution as it
occurred. And now they are standing by and watching the [three dozen] left-out
families be ultimately crammed down " - Diane Urquhart, an independent financial
analyst Source: B. Critchley, End of a shameful episode, Financial Post, Jan. 12, 2009 pg
FP2 [Urquhart also said the way the OSC "protected" the ABCP retail investor interests
stands in complete contrast to how 12 U. S. states handled the US$300-billion auction
rate securities mess. Down there, the distributors and/or underwriters were made to buy
them back. As well, fines were imposed. In Oct. 2008, IIROC, the brokerage industry
self-regulator said in a 100-plus page report: "This study and the compliance sweep found
that the majority of dealer members that acted in the distribution of third-party ABCP to
retail investors did not understand the underlying asset composition, liquidity risks and
distinct rating methodology used for the structured financial assets underlying the ABCP.
In short the dealers didn't do their due diligence or understand what they were selling”
No firm has yet been held accountable by IIROC or anyone else.]

[admin]

from www.canadianfundwatch.com


Senior speaks out on the ABCP scandal
"There's been a lot of personal grief around trying to make ends meet for me and my
wife. The worst thing was we couldn't even afford to go to a movie. That was all I had
in the world. I think [this process] was a travesty. The people who knew that this was a
flawed product, they are the real culprits and they are getting off scot free. They should
be going to jail for what they did." - Reid Moseley, a retired Calgary school teacher with
most of his savings tied up in frozen ABCP. Mr. Moseley said he bought the paper in
2007 after selling his house, regarding it as a temporary investment that he would cash in
when the deal on a new house closed. Source: J. Greenwood, Ruling clears way for
ABCP restructuring, FP, Jan.12, 2009 pg FP5

[admin]

it is interesting to note the involvement of purdy crawford in the ABCP crisis. It reminds me a great deal of his activity with his former tobacco company when settling charges of cigarette smuggling. According to the "Physicians for a Smoke Free Canada", those charges resulted in a "get out of jail pass" negotiated for wrongdoing executives of the tobacco companies. They also called it a "sweetheart of a deal" negotiated whereby the offending corporation was able to pocket billions from smuggling, and avoid taxes, while paying a lesser amount in penalties. Crime does pay it seems.

here is a comment about Mr. Crawford from one of the more respected names in Canadian business circles:


Purdy Crawford ‘Delusional' over ABCP deal
Financial Post

May 7, 2009

Re: ABCP Got A Great Deal, Letter to editor, May 2.

Purdy Crawford must be delusional, in my opinion, if he thinks he got a great deal for the ABCP paper investors.

He spends 18 months and only 10% of these swindled ABCP holders get their money back. This quarter, the banks who gained litigation immunity and his lawyer-colleagues steal $200-million in fees, so there's not a cent available to pay any interest.

The holders of this paper in many cases had funds frozen that had been earmarked for employment-creating capital projects. Other holders were pension funds. This paper today is no bid.

The remaining 90% of the holders can't get 1¢ on the dollar for this paper that the bankers foisted on unsuspecting short-term paper buyers.

The banks, the government and the judiciary have all played a role in dissipating $30-billion in investor funds with no recourse allowed.

Mr. Crawford should, in my opinion, retire permanently and stop helping investors.

Seymour Schulich, Toronto.

(I will post Mr Crawford's initial letter to follow)

[admin]

ABCP got a great deal
Financial Post

May 2, 2009

Re: ABCP Interest To Go To Bank Fees, John Greenwood, April 25.

Mr. Greenwood identifies the margin funding commitment fees payable to several banks and governments as a contributing factor to the interest shortfall suffered by holders of restructured notes on the first interest payment date.

He characterizes the commitment fees as "significantly higher than the market rate," and "exorbitant" (the suggestion being made that the Investors Committee that I chaired agreed to "exorbitant" bank commitment fees in order to get lender support for the restructuring). In addition to various factual errors (which I won't focus on here), I am sure there must be some misunderstanding and believe it best to correct the record.

In March, 2008, when the original deal was struck, the negotiated margin funding commitment fees represented approximately one-third of the then-prevailing market rates. Indeed, in numerous public statements and documents, it was stated quite clearly that the margin funding facilities were made available at a cost considered to be below prevailing market prices for these types of lending facilities (could such lending facilities even be arranged with third parties in the then-current economic environment).

Today's market rates are likely more expensive than those of March, 2008. The margin funding fees payable by the restructured trusts ought properly to be characterized as dramatically below market.

As I expressed publicly many times during my 18-month tenure as chairman of the Pan-Canadian Investors Committee for Third-Party ABCP, I believe we negotiated a great deal for the investors at the time and I firmly believe that remains equally true today.

Purdy Crawford, Toronto.

[admin]

Briefly: "Dealers probed for ABCP" and more of Friday's news
Staff / July 24, 2009
from www.advisor.ca

National Bank Financial and Scotia Capital are among the bank-owned investment dealers being investigated by four of the nation's financial regulators.

Securities commissions in Ontario, British Columbia, Quebec and the Investment Industry Regulatory Agency of Canada (IIROC) are engaged in settlement discussions with a number of brokerages about their involvement in creating a market for ABCP despite learning about the liquidity crisis set to unfold with the elaborately structured financial instruments.

Central to the probe is a memo, dated July 24, 2007, by Judi Dalton, managing director of debt capital markets funding, warning a small group of investors of Coventree's exposure to U.S. subprime mortgages, and sent just weeks before the ABCP market was seized.

The memo was sent to representatives of a number investment dealers, including Scotia Capital, National Bank Financial and RBC Capital. Regulators claim the memo served as an early warning sign, and have been examining the bank's inventory of these shaky commercial papers before and after receiving the memo.

However, a large portion of the millions of dollars expected from the settlements and administrative hearings isn't expected to compensate investors.

Since the ABCP crisis, some investors have been reimbursed through a Pan-Canadian agreement — a privately negotiated restructuring that involves federal and provincial government money.

Settlement talks between the regulators and banks are ongoing. If a settlement isn't reached by the end of the summer, a hearing before a panel of adjudicators could be scheduled for the fall.

Meanwhile, Coventree, a key player in the ABCP market, is shutting down its operation.

• • •

[admin]

1. first is the fact that if there are any fines, settlements or payments paid by the banks over wrongdoing found in this case, that NONE of the money will go to customers like the city of lethbridge or others. 100% of the funds are typically kept by the regulator, or as one writer said to me, "it is like the police calling you and telling you that, "Hey, the good news is that we found your stolen car, but the bad news is that we are keeping it".

2. As part of a failed attempt to get their money back, all ABCP investors had to vote on a restructuring package that included the clause that they could not and would not sue anyone, for anything, over this failed investment in ABCP. This restructuring vote passed and yet investors still did not get their money back as promised. Lawyers for the restructuring had to go hat in hand to Alberta, and Federal Governments to get a bailout package before smaller investors were compensated. The item of interest here is that people like the city of lethbridge etc, now have no legal recourse to get this money back EVEN IF the National bank that sold it to them is found to have done them wrong. Strange.

3. In an even more bizarre side note, the man (Purdy Crawford) who negotiated the restriction of those legal rights, (and tried to negotiate a restriction from prosecution as well into the deal) is the same guy who negotiated Imperial Tobacco out of cigarette smuggling charges that cost them a billion dollars in fines. He is like a mafia cleanup man who goes in after corporations do very bad things, and he then tries to get them of the hook or keep them out of jail. Very strange that no securities police, regulators, rcmp, treasury department in canada was involved, but instead this private cleanup man lawyer.

#3 is way strange and possibly incomprehensible to most people without a ton of background, but #1 and #2 are examples of pure financial abuse by system designed to win at any cost, and they are some of the reasons I call for a change to the entire system

cheers

[admin]

news release on regulators looking into ABCP sales, followed by investor advocate comments/predictions......

From: Advisor.ca July, 2009
National Bank Financial and Scotia Capital are among the bank-owned investment dealers being investigated by four of the nation's financial regulators.
Securities commissions in Ontario, British Columbia, Quebec and the Investment Industry Regulatory Agency of Canada (IIROC) are engaged in settlement discussions with a number of brokerages about their involvement in creating a market for ABCP despite learning about the liquidity crisis set to unfold with the elaborately structured financial instruments.
Central to the probe is a memo, dated July 24, 2007, by Judi Dalton, managing director of debt capital markets funding, warning a small group of investors of Coventree's exposure to U.S. subprime mortgages, and sent just weeks before the ABCP market was seized.
The memo was sent to representatives of a number investment dealers, including Scotia Capital, National Bank Financial and RBC Capital. Regulators claim the memo served as an early warning sign, and have been examining the bank's inventory of these shaky commercial papers before and after receiving the memo.
However, a large portion of the millions of dollars expected from the settlements and administrative hearings isn't expected to compensate investors.
Since the ABCP crisis, some investors have been reimbursed through a Pan-Canadian agreement — a privately negotiated restructuring that involves federal and provincial government money.
Settlement talks between the regulators and banks are ongoing. If a settlement isn't reached by the end of the summer, a hearing before a panel of adjudicators could be scheduled for the fall.
Meanwhile, Coventree, a key player in the ABCP market, is shutting down its operation.


Comments/predictions from http://www.investoradvocates.ca

No money likely to go to victims. Settlements are most often kept by self(ish) regulators.
No effective punishment likely to deter future events, salaries of all regulators involved in this are paid for by those that they are investigating, with fairly predictable results.
No ability to sue and gain compensation that way, as the right to sue for damages has already bee taken away from all victims of this crime in a fairly convoluted restructuring plan that accomplished this bit of self protection.
Lets add up the score and see where we are at.
Deception to sell the products in the first place. (“trust me, this is safe stuff”.....says the salesman who claiming “advisor” status on his business card)
Legal exemptions granted to allow toxic investments into our economy. (it was NOT safe, from the beginning and all parties knew it, except of course the buyers)
Protection from lawsuits granted to the perpetrators of this. (Thanks to the cleanup efforts of Purdy Crawford) (didn't he do a similar "cleanup" job on tobacco smuggling charges?"
Financial meltdown of the economy and of economic confidence a result. (you did not need a strong economy did you?.........sorry)
No charges so far. Fraud, negligence, breach of trust not under investigation by the any bona fide police agency. (remember, we police ourselves in the financial industry)
Investors transfer $32 billion worth of wealth to the pockets of the richest organizations in Canada. (enough said)
The referee’s (regulators and self regulators) are paid by the financial institutions. (Guess who wins the game?)
Financial institutions in Canada are involved in a regulatory love fest, while the public simply gets screwed........again.
To the regulators whose salaries are paid by those very banks you are investigating........"please step up your game and prove me wrong."

[admin]

<http://www.nationalpost.com/todays-paper/story.html?id=1886944 <http://www.nationalpost.com/todays-paper/story.html?id=1886944> > Blow For
Abcp Holders

On second anniversary of collapse, rating agency cuts debt four grades

John Greenwood, Financial Post

Published: Thursday, August 13, 2009

DBRS has significantly chopped its rating on some of the $32-billion of
restructured asset-backed commercial paper, dealing another blow to hopes
that the holders of the debt may one day get their money back.

Citing the recent failure of a string of corporations linked to the bonds,
DBRS said there has been a "rapid deterioration" in the credit quality of
some of the underlying assets, resulting in "higher probabilities of
default."

The downgrade, issued on Tuesday, comes days before the two-year anniversary
of the failure of Canada's ABCP market on Aug. 13, 2007, which left
investors ranging from individuals to the Ontario government and the Caisse
de depot et placement du Quebec, the biggest holder of the paper, unable to
sell notes they believed were as liquid as cash.

"This stuff is trading like junk paper anyway, but this is not good for
investors," said a bond trader who asked not to be named. "This definitely
lowers the value."

DBRS lowered the A2 notes issued by the MAVII trust to BBB (low) from A and
warned of possible further downgrades.

"That's four notches, that's a pretty big move," the bond trader said.

After a marathon 18-month restructuring process, investors swapped their
stalled ABCP for new bonds in January, but almost from the start the bad
news has been piling up. In April, the first scheduled interest payment of
about $11-million had to be diverted to cover administrative costs, leaving
little or nothing left for investors.

The new notes are set to mature around 2016, but it is far from certain
whether investors will get their money back, since their value is based
primarily on structured credit investments such as CDOs and credit default
swaps linked to companies that have fallen on hard times.

In its downgrade, DBRS referred to five of the companies linked to the
bonds, including Lehman Brothers Holdings Inc., Freddie Mac and
Abitibi-Consolidated Inc.

Observers say only a limited secondary market has developed, with even the
top-quality notes trading at less than 50¢ on the dollar.

As part of the restructuring about 1,800 retail investors have got back
their money, but the lion's share of the $32-billion is held by companies
and institutions that had no choice but to take the new bonds.

Perhaps the most controversial aspect of the deal was a clause -- approved
by an Ontario Superior Court judge -- giving legal immunity to the banks and
investment firms that manufactured and sold the ABCP.

While the market for ABCP froze up around the world, only in Canada did the
banks that agreed to provide emergency liquidity decline to step up, leaving
investors on the hook.

What still rankles many investors are reports that investment dealers and
other major players were aware that the market was in trouble before it fell
apart but continued to sell the notes.

"The real loser in all this is the average Canadian, like the millions of
Quebecers who rely on the Caisse de depot for their pensions," said Brian
Hunter, a retail investor who got more than $600,000 of his savings back.

Mr. Hunter said Ontario residents will likely have to pay for the nearly
$1-billion the province invested in ABCP.

"At the end of the day it's the taxpayer who's going to have to pay for it,"
he said. "At the end of the day, somebody took $32-billion and they got away
with it."

[admin]

images.jpeg (3.76 KiB) Viewed 774 times

TTHE PERFECT CRIME
A HOW TO GUIDE
Written by Larry Elford, (former CFP, CIM, FCSI, Associate Portfolio Manager, retired)

I am about to tell you how to commit the perfect crime. A crime worth billions, and one in which no police become involved. Impossible you say. Sit back, relax, and let me tell you about my former career.............

You only have to promise to honor the “code of silence” by which all white collar criminals abide. Tell no one!

It begins like this. If you wish to rob a bank, you are subject to the criminal code of Canada, and that is a bad thing...............however, in order to make it the perfect crime, I have to change your line of thinking. I encourage you to stop momentarily, and turn the entire crime around. Imagine putting on a suit and joining the financial services industry. When a bank wishes to rob the public, there is no police force in the country that has figured out this “reversal robbery” that we have perfected in Canada. Now you are getting into an area where crime really does pay.

By now I probably do not have to convince you that far too many financial types are greedy enough to lie and steal from the public. The recent economic crisis has given us enough examples to convince the most trusting financial fan. And somehow our financial regulatory system has “fostered” this environment, has allowed it to happen.

The other shoe to drop, two shoes in fact, that I will ease you into over the course of this article is how our financial system is rigged to allow these abuses, without penalty. Lets start at the bottom of the economic food chain, with your local salesman or saleswoman selling investments and mutual funds. They we will slowly climb the ladder to learn how easy it is to commit the perfect crime against an entire economy.

There are about 130,000 registered “salespeople” in Canada (source Investment Industry Regulatory Organization of Canada, IIROC) with their three month securities course as the major educational requirement to start selling financial products by commission. They begin from day one with a major misdirection of the public. They earn the license that says “salesperson” on it, or at least it did every single day for the last thirty years until the securities commissions struck the word “salesperson” from their documents to hide this misrepresentation. They did this last month. July, 2009 to be precise. From now on you will be served by a guy with a three month correspondence course, who goes by the license category of “dealing representative”. Whatever that means. We still get to misdirect and misrepresent. We still win. You still lose.

They are trained as salespersons. Hired to sell, expected to sell or leave. In the business, the letter they get when their sales production is not high enough to satisfy the sales manager is called an “achieve or leave” letter. Client returns do not come into play, nor into measurement, it is an entirely sales and commission driven system. You are paid by an “eat what you kill” model based on commissions on transactions or fees based on your assets under administration. And yet the industry refers to it’s salespersons as advisors, trusted professionals, and advertises that “your interests come first”. “We are here to help you find the proper investment” would be a common industry promise. This is not what they deliver. For example:

According to the Investment Funds Institute of Canada, (IFIC) 80% of mutual funds sold in the past two decades or so, were sold using the highest commission paying class of funds, the DSC class. DSC stands for deferred sales charge, and it produces the biggest commission possible, in the quickest possible time, and a naturally resulting highest cost to the client. This violates the aspects of a professional advisor, the code of ethics of the entire industry, and the suitability requirements that each and every transaction must meet in this industry. The requirement to “minimize” the transaction costs to those people who you claim to “advise”, not maximize those costs. Clients have every right to ask for all their money back, but, as we shall see, this industry is self regulating, meaning we police ourselves, so they have no one to help them get their money back. We police ourselves, and you are out of luck.

The next trick of the trade, and most recent, for your local investment “salesperson” is the substitution of poorer performing and higher cost “house brand” mutual funds for independent funds. According to the Investment Funds Institute of Canada 92% of mutual fund sales in 2007 were made into something called “wrap” funds. These wrap funds include funds made up of other funds, proprietary, (house brand) funds and who knows what else. A “fund of funds” earns a fee upon fees, which is not good for you the investor. According to the Ontario Securities Commission Fair Dealing Model proposals, an investment firm earns from 12 to 26 times greater fee income when they sell you the “house brand” or the house “wrap” account. This is why you may have been sold proprietary funds, and not likely because your dealer has found a better way to manage funds than all the independent experts. They have just found a better way to get 2% more from your trust relationship. (Imagine if every doctor you visited had their own “house brand” pills to sell to you)

Double dipping, charging fees on top of commissions, or commissions on top of fee based accounts, also runs rampant by those investment types wanting to be named “vice presidents” at their firms. It is just another method of gaining or skimming an extra percentage or two in fees from the trusting client. I wont say that each and every salesperson out there is in this skimming mode, but the sales numbers paint a pretty ugly picture of an 80/20 balance of sales commissions coming before professional advice.

On to more tricks of the trade. Mutual fund fee abuse is a $25 billion dollar haircut each and every year in Canada, according to Keith Ambaschteer at the University of Toronto.

https://docs.google.com/fileview?id=0Bz ... OTkw&hl=en

Professor John Coffee of Columbia University adds that having 13 provincial and territorial securities commissions deducts another $10 billion from the Canadian economy each year. These two independent experts put us at $35 billion behind each year without even talking of specific investment examples. That is enough money to run my province of Alberta for an entire year.............money used simply to “feed” the greed and self interest of those running Canada’s financial system. Thanks guys, you are doing an amazing job.

Add in asset back commercial paper ($32 billion), junk bonds, limited partnerships, movie deals, MURBS, tax shelters, tainted income trusts, Nortel, Bre-x, YBM, Northshield, Portus, Crocus, and all the other so-called legal investments that I cannot even remember at my advanced age, and you have a perfect recipe for skimming more money from bad investment products and intentionally bad advice than the cost of each and every other crime in Canada.....combined. (Nortel alone was responsible for evaporating up to $366 Billion. You do the math on the rest)

According to Justice Canada, all the other crime in Canada is costing us in the neighborhood of $40 billion each year. I can come up with over $60 billion each year myself without resorting to much more than a napkin, but I am truly looking forward to Prof P. Puri’s upcoming study of the amount of damages due to white collar crime in Canada. Prof Puri is an associate law professor who teaches about white-collar crime at Osgoode Hall Law School at the University of Toronto and publishes insightful reports on the nature of the financial system in Canada. Reports you should read.

The police, where are they while this is going on? Prof Puri has a study on this as well, and she concludes that the crooks are rich and powerful and well funded, while the police are outgunned in all aspects. But you should read it yourself.

I have learned that the police tend to concern themselves with the criminal code of Canada, and while fraud, negligence, breach of trust, etc fall under this code, they have been sold a nice package of goods to ignore this code in most financial cases. Those instances are usually when these crimes occur within the financial industry in Canada. Why? Because the financial industry (those cunning, manipulative, wealthy power brokers who we now know are not to be trusted) have set up something called a “self-regulatory system. They have set it up, funded it, staffed it. Here is the secret foundation of the perfect crime. “Own or control the entire investigation system.” In fact, the financial industry pays the salaries and costs of even our crown agency, the provincial securities commissions, through fees paid to them. They have their own act called the securities act. They police it, they enforce it. The trouble is that they enforce it to their advantage, and not in a manner fair to the public. If there are three parties living in this financial relationship, one being the financial dealers, two being the regulators, and three being the public, two of them are sleeping together and one is alone, in the basement, in the dark. Scared. Enough about me. I am talking about the public. While the regulators (securites commissions, and self regulators) are making passionate love to the financial industry, or vice versa, the public is simply being screwed and ignored. Not possible you say? Are we not a highly civilized, developed country? Let me tell you more.

Canada is the only developed country in the world that does not have a national securities regulator. Instead we have 13 provincial regulators in an economy the same size as Texas. I have always said that each of these territorial commissions act a lot like every bad sheriff in every bad Smokey and the Bandit movie I have seen. Acting and behaving as if they are above the law. They just keep proving it year after year. Each of these securities commissions is supported by fees paid to them by the financial industry. They purport to serve two opposite interests, one being to protect the public at large, and two being the smooth functioning of the financial industry. I can attest that after thirty years of study, they are skipping the first, and serving the second. This is where the money comes from.

For one example, on each securities commission complaint intake process, is an instruction that they will not deal with a member of the public, unless they have first gone to the industry sponsored “self regulatory” body, which is often just a trade and lobby group for the industry. So we have a crown corporation, refusing to serve the public, and instead sending them with complaint to the very association of whom they are complaining about. (mutual fund or investment dealers) It is a bit like sending an abused child to go and complain the the very persons he or she was abused by. It does not work for the victim but it works perfectly for the abuser. We win, the public loses again.

The investment dealers association (IDA) (one of our industry trade bodies that posed as a regulator) split itself in two parts a few years back to place better optics on the fact that they were a trade and lobby group pretending to be a regulator.

Thirteen provincial and territorial securities commissions defer statutory obligations away from themselves (who are charged with handling them) and to these self regulatory agencies, who cannot even claim to know what job they are supposed to be doing.

For example, here is what the Ontario Securities Commission says to a customer with a complaint:

“The OSC has recognized the Investment Dealers Association ("IDA") as a self regulatory organization (1995, 18 O.S.C.B. 5293). As such, the IDA has the authority and the jurisdiction over its members to enforce Ontario securities law as well as IDA rules, regulations and by-laws.” (These days they defer to IIROC, a newer version of the IDA, or MFDA (Mutual Fund Dealers Association)

“As there are no provisions to circumvent this process, the OSC is unable to consider your request for a regulatory review of your matter.” This from a letter to an abused investor dated Aug 25, 2004. They give a similar answer today, as does each of the thirteen provincial and territorial securities commissions, despite them being the statutory body charged with this duty. They brush it off.

Here is what the IDA (what todays Industry body used to call itself) claimed in 1998:

"The IDA is Canada's only national entity with delegated responsibility for securities regulation and investor protection." - Joe Oliver former president of Investment Dealers Association, 1998 Evidence given before the
Senate Standing Committee on Banking, Trade and Commerce

Here is what the IDA’s Paul Bourke said to the Financial Post in 2004:

"First, let's get the facts straight. The only legislative power the provincial governments "delegate" to the IDA is registration of brokers -- and even that is only delegated in B.C., Alberta and Ontario. The provincial governments do not "delegate" securities industry compliance and enforcement." Nov 3, 2004


"The IDA is a private organization and can set its own rules."
Financial Post May 9, 1999.
"...the IDA is not an arm of the government.  We are not acting as an agency or a delegate of the securities commission."
This from former IDA legal counsel Brian Awad
National Post Newspaper titled “IDA called on constitutional grounds”

It appears that the relationship between the provincial securities commissions and those self regulatory agencies employed by the Investment dealers and also by the mutual fund dealers is a very confused and troubled, but incestuous one. They are in bed together, and the stories of the affair do not match each others version.

Need more convincing that the provincial regulator may be bought and paid for?

From Alberta Auditor General report
“ASC is the industry-funded organization responsible for overseeing the capital
market in Alberta. It administers the Alberta Securities Act, the Securities
Regulation and Securities Commission Rules.”
source
Report of the Auditor General on the Alberta Securities Commission’s Enforcement
System

The Alberta Securities Commission collected some $24 million in fees in 2009, (source Alberta Securities Commission 2009 annual report) some of those fees no doubt came from the unique and interesting practice of selling exemptions to the law as described above, our Securities Act. Did you read that correctly? I will repeat it just in case you missed it. They collect money for giving financial firms “hallway passes” to skip out of having to follow our provincial laws! There are several thousand investments and investment companies who have paid money to your government protective commission, and purchased permission to violate the laws. This list can be found at any securities commission in the country by searching the word “exemption”. How would you feel if your Food Inspection Agency were knowingly allowing tainted and defective food to be sold? How would you feel if your Health Agencies were earning “fee income” from granting drug companies the right to spread infection? Your provincial securities “regulator” is doing something very much like this, and has done so several thousand times without so much as a peep of honest and transparent disclosure. This is not honest services and if looked at carefully, it may not even be legal.
This is the second shoe I told you I was going to drop on you, earlier on in the article. The second conspirator in being able to commit the perfect “reverse” bank robbery.

Need a very specific example or two?

The Alberta Securities Commission granted “approximately twenty investment firms” (Source, Alberta Finance and Enterprise) the right, for a fee, to sell tainted and toxic subprime mortgage investments, called Asset Backed Commercial Paper. Honest disclosure would call them Liability Backed Commercial paper but that shows just how easily the securities commission can be fooled into subservient compliance to the finance industry. There was no public debate on whether laws should be violated for these particular companies, nor for these particular investments. This was done behind closed doors. There was no public notice given that certain investments were being sold into our economy while not meeting our laws........or did they meet our laws once a legal exemption has been purchased? Or were they illegal investments that had somehow been made “legal” on paper, but not in actual substance? It matters not, they are your problem, not ours. What matters is that the crime is perfect if you have bought a pass to make that which was illegal, legal. You cannot lose.

They are $32 million worth of a problem for the City of Lethbridge. They are $18 million worth of a problem to the University of Calgary who were probably told by an investment person, that these were top rated, safe investments. I suppose the legal exemption needing to be met because they were precisely the opposite of top rated and safe, was forgotten in the zeal to make an $18 million dollar sale. Understandable in light of the excitement. Can you imagine what a used car salesman would tell you in order to make an $18 million dollar sale? Now apply that to a guy with a 90 day securities course and you pretty much have the picture.

The Alberta Treasury Branches were in a position of failure by having placed nearly half (47%) of each and every dollar of deposit that they held into these toxic investments. Source Report of the Auditor General of Alberta,  http://www.oag.ab.ca/files/oag/Oct_2008_Report.pdf The irony here is that Iris Evans is the Finance Minister in charge of the ATB, which nearly failed under her watch, by being infected with toxic investments which were allowed by the ASC, another agency under her watch.

Our economy was infected with a known toxic product, which the financial firms in Canada wanted to dump, knowing that they were not up to par? Securities Commissions are and have been “hesitant” to investigate this crime due to their part in approving the stuff. They are starting to come around, now due to a public awareness campaign by a small group of investor advocates. How am I so sure they knew in advance they were crap? Because they had to apply for an exemption to our securities laws in order to sell them. They had to put in writing the exact shortcomings of these investments. They had to file an application to exempt, which in itself is an admission that these products did not meet the law.
Why did the securities commission grant this permission to sell crap into our economic food chain. Here is the exact wording which grants the decision to grant them this permission from thirteen provincial and territorial securities commissions:

“Each of the decision makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met”.

In other words “we have no freaking clue what we are doing but our salaries (at the securites commission) are approaching $200,000 and we will go along with whatever we are told to do by the people that pay these great salaries”. (authors interpretation)

The Saskatchewan Financial Services Commission even has a booklet on their web site called “How to Raise Capital Using Exemptions”. It indicates how to approach and work with the SFSC to assist in selling securities in Sask that need a little help going around the law.

I could dwell on this a bit further, and may come back to it, but I have to digress just a little to further look into a favorite word at the securities commission. “Decision”.

In the case of retired Calgary firefighter Gordon Simpson, who had a bad experience with his investment dealer, and made a complaint to the Securities Commission. He was told by this crown agency to go elsewhere, that he had to take his complaint instead to the industry sponsored investment dealers association. An industry trade body that we have already looked at and the supreme court of Canada has decided that this trade body “does not owe a duty of care to the public. Only to their own members. Of course Mr. Simpson’s case was dismissed by the IDA, as most often happens when you take any complaint to the very association of members of which you are complaining. He appealed this “decision” by the IDA. Guess what? His appeal was denied. They would not even hear his appeal. There were two strange reasons given. One is that the IDA has their own special meaning for the word “decision”, (like Bill Clinton does for sexual relations) and they say this to Mr. Simpson, “a refusal to carry on with investigating a complaint was not actually a “decision” and therefore could not be appealed”.
In further argument, they say further that “Therefore, not every decision meets the definition of “decision” for the purposes of the Act.”

In case that logic was not bulletproof enough, they had a backup reason to go with. Another reason given for not allowing Mr Simpson to appeal the brush off decision was that Mr. Simpson was “not a party directly affected by the decision” not to pursue his case and therefore he was not allowed to appeal. This is the second time I have heard the investment dealers association pull this excuse out of imaginary lawyer land......they gave the same foolish logic to a Mr. Jim Roache of Ottawa when his case also was dismissed out of hand. Mr Roache is quoted as having said, “if I was not a person directly affected by this, who the hell was? It was my savings, my retirement, my failed marriage.......” The Investment Dealers association was unable to grasp this simple logic (something about $200,000 salaries) and they were unable to answer Mr. Roache.

Where was I, now that I have gotten the “decision” thing off my chest? Oh, we have covered how the securities commission appears to be doing a one sided job of refereeing the relationship between the public and the investment dealers. We have confirmed that this referee is indeed paid by the investment dealer side of the relationship, and that they (securities commission) refuses to deal directly with the public. They will, however take money from, and deal directly with any industry player who wishes to violate the laws and place the public at harm. Thanks. You guys are awesome!

Where do we go from here? Need a few more examples? A few hundred more? How about several thousand? What will it take? I have submitted documents into the legislatures of several provinces and into Ottawa, with two “poster child” cases of knowingly abusing the public trust with legal exemptions, and with a failure by the Alberta Finance minister (and the Finance Minister before her) to rein in this abusive behavior. I have requested a provincial inquiry under the provincial inquiries act, but that would mean that the Alberta government would have to investigate themselves. What odds do you give that the Alberta government is honest enough, and transparent enough to look into its own participation in doing billions of dollars of damage to Albertans and to our economy? How about the other 13 governments involved? Any bets?

I am getting ahead of myself. I was still focused on the securities commission in Alberta, fighting for their very lives (salaries) against the threat of a national securities commission. What would they possibly do to earn salaries as high as $700,000, if their jobs were taken away. Who would print all the paper? Who would do the job of not protecting the public, while strenuously claiming to protect the public?

These agencies will tell you that they have changed, that they have seen the light and they are new and improved. Each year and each scandal they tell us that. Certainly they have changed some names, some have even changed the name of the organization (The Investment Dealers Association having split it’s lobby group apart from the regulatory side, The Investment Industry Regulatory Organization Of Canada IIROC). Perhaps some of this change is true. It is my belief that these organizations are not coming clean, not admitting wrong in any case, and simply making optical moves to appear clean. They continue every day to violate the public trust and sell off the public interest in favor of their own interests. It is your financial future at stake. Your economic health. Are you willing to place it entirely at risk to foxes and lawyers who pay themselves hundreds of thousands to do things like this?

A few years back the Alberta Auditor General was trying to do an audit of the Alberta Securities Commission. There were allegations of two tier treatment, one for the rich and powerful, and another for the rest. There were ASC employees who were attempting to come forward to tell of this. There were stories of blow up sex dolls in the ASC office, and an atmosphere that was simply inappropriate. Did the ASC submit willingly, as does a group that has nothing to hide? No. They paid about $1.2 million in legal fees to challenge the right of the auditor to audit this crown agency. After a lengthy debate, the auditor was finally allowed to do his job, and he found a systemic failure to follow practices and procedures of any kind in too many cases. They failed. To add insult to injury, they fired a few of the very people who were trying to help the public interest and tell the truth about the commission. Those people violated the industry code of silence, which says that your loyalty to your employer must always take priority over your loyalty to the public interest. No leaks. No losses.


The top person at the ASC earned in excess of $700,000 last year. (source 2009 annual report of ASC). At the Ontario Securities Commission there were at one time some 90 employees who EACH were earning more that the very top man at the SEC in the US. These salaries paid by the very industry that they are purporting to regulate. In my opinion and experience they are paid this much to say “yes” to the industry. Is it impossible to imagine that this government regulator would become overly influenced and biased by this lucrative arrangement? At the very least it does not follow a process of best practices.
“With 90 OSC employees making more than the chairman of the SEC, it’s time to look at the Ontario securities regulator’s performance and accountability
Its chair and just one of its vice-chairs together make more than all five members of the U.S. Securities and Exchange Commission combined, including SEC chairman Christopher Cox” http://finlayongovernance.com/


Studies of the enforcement activities of US and Canadian securities regulators and police tell us that the USA did over 600 times more prosecutions than done in Canada during the same time period. Source Canadian Business Magazine Editorial Board, Aug 2007. For the time period 2002 to 2007.

Financial penalties are 10 times higher in the United States than the average Canadian fine. Source Prof P. Puri, Osgood Law School of Canada.

In the US fraudster Bernie Madoff was found guilty and in jail within 6 months. Jailed for 150 years. In Canada, by contrast, Livent Inc. founders fraud trial took the Canadian system eleven years. Six months verses eleven years. Conrad Black had to be prosecuted in the US despite his Canadian background and business interests.

When a broker is fined in Canada by the Investment Dealers self regulatory body (IDA, IIROC, whatever comes next) you will be surprised to learn that the dealership body keeps the money. That is correct, they keep it for themselves. The victims get nothing. I suppose it helps pay their salaries. While at the Ontario Securities Commission, the vice chair Susan Wolbergh Jenah earned $446,000 according to OSC filings. Here she signed exemption orders allowing toxic investment paper to violate securities laws and be sold, which we have talked about earlier. She then jumped ship, and moved to the investment industry self regulator, earning some $700,000. In this capacity she then made the announcement that most investment dealers did not understand this toxic investment paper that they were selling (headlines Oct 2008 lethbridge herald and national). It is ironic that she herself signed the paper allowing these products to be sold in Canada, and then with a doubling of her salary, she then learns that this product she exempted was not understood. It makes me wonder if we double her salary again, to $1.5 mil, what would she then say? I makes me wonder how much money it would take for a public officer to do the job of protecting the public and ignore for a moment the focus on simply protecting ones job. It is also ironic, that I find that the more a person is paid, the greater the likelihood that they will instead act to protect their own livelihood. Strange beast this capitalism that I have worshiped for so long. Time for me to grow up, and move beyond the sandbox mentality that only knows three words, “me, mine, more”.

Where was I? Yes, we were looking at how new and improved these regulatory agencies and self regulators are, and how proactive they are at keeping ahead of the white collar crime curve. Compared to Europe, Australia, and USA, they are at least ten to twenty years late and a few billions short. But hey, the good news is that they are earning a good salary to protect us from crooks.
Where are the regular police agencies when fraud, forgery, negligence, breach of trust and other occur? They are busy with the criminal code, and not very involved with our securities act. They too, are believers that the securities people have things under control. Needless to say, the securities people take care of their own, and rarely even refer criminal offenses to the real police. The RCMP has had a few of these regulators and self regulators join the force, (while keeping their six figure salaries) as volunteers, so some of these financial people have actually infiltrated the RCMP commercial crime unit. This quote from a senior RCMP investigator when asked

“Unless the matters you are concerned about are referred to the RCMP IMET through one of our participating agencies (OSC, IDA, MFDA,MRS) it will not be considered for investigation.”

Source:
Supt. Craig S. Hannaford
Officer in Charge
GTA Integrated Market Enforcement Team
Royal Canadian Mounted Police

Are you beginning to see how “perfect” this system is for getting away with anything?
Remember, shhhhhh. Code of silence.
These investment regulators have truly infected our entire system. They have taken over. I have spoken to many financial victims who have gone a few years trying to solve their financial abuse, and they agree it is almost similar to a hypothetical situation: imagine your local police agency decided to lower their work load, and they “designate” the Hells angels as the “self regulatory” body capable of policing all cocaine and prostitution offenses. After all they are the largest market participant. That would be a very logical “decision” according to some of the self regulators I know of. Then when you have suffered a crime by any drug user, and you go to the police, they would say something like the ASC does, “we have recognized the Hells angels as the regulatory body in this area, and thus we are unable to process your complaint and we ask that you contact the Hells Angels in this matter.............” Off you would go, to try and have your problem resolved by the self regulator. If they get your money, or your property back from the druggie that stole from you, do you think the Hells angels would keep it?
The investment dealers do.

Top industry experts across Canada are calling for a national Securities Crime unit. The RCMP is truly incapable of doing the job. In 200? They were on record of having a full caseload with only 8 cases. By 2007 they had only one prosecution in canada while during the same period the us authorities had over 1200. This national securities crime unit would include investment experts, and might be expected to owe a loyalty only to the public, and not to the very criminals they are investigating. They would certainly not be allowed to be paid by those they are investigating, as is today’s system. A proceeds of crime funded agency could operate with very little public cost. The sooner we get started towards “best practices”, the sooner the stealing of your economic efforts will begin to slow.

We have looked at the crooks, the cunning and clever financial manipulators who manage to steal about half of the economic production of the entire financial system and investment returns the average man is hoping to live and retire on. We have looked above them to the self regulators who are hired and paid by these very people. We have gone up a level to the government regulators who we find, amazingly are also funded by the industry. The only area left untouched in this expose is the role of Purdy Crawford, a private industry lawyer, and why he became the head of the $32 billion dollar restructuring plan, with no government regulators in sight. Another day. Another story.

Where does the buck stop? With your finance department or attorney general who is usually in charge of each provincial securities commission? I have asked Iris Evans of Alberta Finance, in addition to the ASC, for years now, to answer a few questions, if they can, for the benefit of a confused public:

In what public interest are the legal exemptions that were granted to the “twenty” firms selling ABCP , and to mutual fund companies, who applied for and received a legal exemption to “rebate” or “kickback” commissions while they worked diligently to switch clients from independent mutual funds to their own house brand. Two simple case studies out of thousands of legal examples of breaking our laws. These two deserve a public inquiry. I wont say trust me because that saying is usually reserved for people who are NOT to be trusted, but believe me if you will, there are two case studies that will shock and amaze you. What public interest is served by exempting the laws Mrs finance Minister?
What public input or debate was allowed (or why not) into these permissions to violate our laws prior to them being granted?
What public notice was given (or why not) to those people or organizations to warn them prior to purchase
Where is the public inquiry into these matters? Where is the honest disclosure and transparency, or will we have to take your word that everything is fine?
Can you please protect the public in these matters, or will we continue to see protection of the possible crimes, the regulators and politicians in these matters?

So far our finance minister in Alberta (and every other province in the country) cannot answer these simple questions.


Not even Las Vegas lets people count the money unsupervised. Canadians, wake up. This country is your casino. Each person in this country owns a slice of ownership of this great economy of ours, good, bad or otherwise. If it fails, you fail. If it suffers, you suffer. And we are allowing clever, powerful folks to count the money unsupervised. I am here to tell you that they are putting as much as they possibly can in their pockets. It is documented. It is part of the public record. It is something that they can and will refuse to investigate. They win, we all lose.

Get financial minds out of the game of pretending to police themselves.
Or, if your tastes run to riches without morals, get yourself a suit and tie, and commit your crimes within the jurisdiction of the Securities Act of any province. The police will never even know about it. The Criminal code of Canada is for pickpockets and small change artists. The real money is made within the securities game. We own each and every referee in the game.

At the beginning of this article I asked the question.
If I wish to rob a bank, I am subject to the criminal code of Canada.........but if a bank wants to rob the public, what are they subject to?
Answer?
Nothing. No police will come. No commission will raise an eyebrow. No regulator exists in Canada that is not paid by those very banks and financial companies. No self regulator exists that does not represent the interests of its members over the interests of the public.
That is my experience. I have twenty years inside the industry, and nearly thirty now studying it from within and without.

Tell your provincial MLA to conduct a public inquiry into the two case studies, as well as the thousands of other times our laws have been hijacked. Your very economic health depends upon it.
Case study # 1 is titled “Commission kickbacks lead to an $800 million dollar windfall”
Case study #2 is titled “How to steal $32 billion dollars and not get caught”


Larry Elford is a former financial broker, and former CFP, CIM, FCSI, Associate Portfolio Manager, now retired, who left the industry after being unable to associate with the corruption involved. He documents what he experienced at http://www.breachoftrust.ca and counsels victims of financial abuse free of charge through http://www.investoradvocates.ca


The first crime is the actual abuse of trust, whether it be a financial advisor taking advantage of his client for personal gain,, child abuse, malpractice, embezlement, bribe, whatever.

The second crime is the cover up, involving individuals of considerable power or influence who were not involved personally in the initial wrongdoing, but whose sense of loyalty is stronger than their attachment to honesty and openness. Since exaggerated loyalty may be the very quality that gives such people power and influence (think Liberal party hacks and Adscam), it is hard to know what can be done about loyalty as self serving weakness.

The third crime is the hoodwinking of police and the public with false assurances that all is well.

(last three from the book "DARK AGE AHEAD", by Jane Jacobs

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HOW TO STEAL $32 BILLION FROM CANADIANS.............AND GET AWAY WITH IT
I feel so much better now that provincial securities commissions have announced that they will investigate the Asset Backed Commercial Paper investment crisis.

This infusion of tainted investment products helped bring the Canadian economy into the crisis, without which, we might have been isolated from the worst brunt of the storm.  This was a crime in which $32 billion was taken from Canadians and everyone has gotten away with it.

To investigate those financial firms and banks who it is alleged continued to dump this product onto an unsuspecting public, after they learned just how bad the risks truly were.........to investigate this might bring Canada into the 21st Century for financial crimes.

I wonder, however, with the recent experience of institutions investigating themselves (RCMP should not investigate RCMP) if a provincial securities commission is the right authority to solve this mystery.  Here is why.

They assisted in abusing the public.  They helped the people they are now investigating to get around the law with a bad product.

Provincial securities commissions admit to allowing about 20 investment firms to skirt our laws, (letter posted in blog at breachoftrust.ca) and to sell this ABCP product using something called a legal exemption.  All 13 commissions acted as a herd.  I am not sure how many people know that financial wizards can approach our crown agents, the securities commission and get permission to break our laws.  Search “exemptions” at your local securities commission.  You are forgiven if you do not believe but the documents are all there on the public record.

I found that similar legal permissions have been granted several thousand times in the last number of years.  Imagine the money one could make if you did not have to follow the law.  Can you even imagine taking $32 billion and getting away with it?  Now you know the size of the cracks in our financial regulatory system. Those in charge are getting rich at your expense.

Securities Commissions refuse to answer questions such as “what public interest” was served by these exemptions.  I believe they refuse comment because they know they have been caught providing less than “honest services” to the public.  A public inquiry under the Provincial Inquiries Act is requested to find out.

They refuse to allow public input.  The Securities Act makes no mention whatsoever of inviting public input when the laws as exempted, so they feel it is not necessary.

They refuse to give public notice.  You will get more warning if your neighbor decides to build his garage too close to your property line, than you will get if you were to invest in a product which did not meet our laws, but was sold with an “exemption”.

They continue to issue exemptions each and every year without public notice. Up to 800 exemptions some years.  Some of these for investments that YOU own. Wouldn’t it be nice if they told you about this?

They earn millions of dollars each year to do so.  Fee income.  From the same investment firms who pay their salaries. The same investment firms who they are now claiming to “investigate”.

They will likely keep the money themselves.  Even if they gain a settlement agreement with Royal Bank, Scotia, National Bank etc for failures to provide honest services to the public, our provincial securities commissions usually keep any money they collect!!  That is right.  It is seldom, if ever that victims of securities crime in Canada are not made victims again as money collected by todays regulators stays with those very regulators.

Their salaries are paid by the investment industry.  Enough said.

They are often hired or transferred to and from the industry. 

They are paid salaries as high as $700,000.  That in itself is not a bad thing, but lets look closer at the pay.

The top person at the ASC earned in excess of $700,000 last year.  (source 2009 annual report of ASC).  In BC it was $544,000 and he attended 18 meetings in 2009. At the Ontario Securities Commission there were at one time some 90 employees who each were earning more than the very top man at the SEC in the US.  These salaries paid by the very industry that they are purporting to regulate.  In my opinion and experience they are paid this much to say “yes” to the industry.   Is it impossible to imagine that this government regulator would become overly influenced and biased by this lucrative arrangement?  At the very least it does not follow a process of best practices.
“With 90 OSC employees making more than the chairman of the SEC, it’s time to look at the Ontario securities regulator’s performance and accountability 
Its chair and just one of its vice-chairs together make more than all five members of the U.S. Securities and Exchange Commission combined, including SEC chairman Christopher Cox” http://finlayongovernance.com/ 

One vice chair of the OSC a few years back,  earned approximately $446,000 and in this capacity signed the legal exemptions that allowed some firms to sell tainted investment paper (ABCP).  Shortly thereafter this person left the OSC and obtained a position at the Investment Industry Regulatory Organization of Canada (IIROC) and in this capacity earns some $700,000.  This person then went on record as saying that the dealers who sold this ABCP product “did not know what they were selling”.  The very same person who signed to allow them to violate our laws.  It is becoming apparent that instead of getting higher and higher standards of behavior as ones salary goes into the mid six figures and above, we may actually be getting “yes” men who will say and do nearly anything to maintain that salary.

I now know that fraud, breach of trust, negligence and honest services violations form too large a part of the canadian financial landscape.  I look forward to the day when these and other criminal offenses are enforced for white collar criminals as well as public servants who violate the public trust.  Our economy and your retirement will then be in much safer condition from those clever minds who count our money whilst policing themselves.

As Richard Nixon said once,  you cannot trust the folks who make the mess to clean it up.  By having provincial securities commissions doing the investigating, we are setting ourselves up for failure.  Regulatory failure.  Economic failure.  We have had enough of both.

The incestuous relationship between the financial industry and the financial regulators is indicative of something called “worst practices”, and is not something that should cause us to place our trust in these multiple regulators across the country.  

I hope that a police fraud unit, a Securities Crime Police Unit or some specialty, non financially related organization will be investigating some of the largest crimes in the country, and not those very same people who can be shown to have actually participated in them or assisted them.   Call your MLA and demand a public inquiry before another $32 billion is swept under the carpet.  See Royal Commission or Judicial Inquiry topic at  www.investoradvocates.ca  for a complete essay on “How To Steal $32 Billion”.

Larry Elford (former CFP, CIM, FCSI, Associate Portfolio Manager, retired)

Lethbridge AB
http://www.Breachoftrust.ca

http://www.Investoradvocates.ca

[admin]

Incest and money
Go together
Like milk and honey

Sept 1, 2009, Lethbridge, Alberta

Recently the media has announced that several provincial securities commissions have joined with the Investment Industry Regulatory Organization of Canada (IIROC) to investigate Canadian banks who sold Asset backed commercial paper. If you recall this is the “selling of sketchy” debt scam in which $32 billion has been taken from the Canadian economy and to date no one has been held to account. Here is why that might be.

Imagine if the very people who are now investigating the scam, were on the inside of helping set it up? Impossible you say.

Enclosed is a copy of the Ontario Securities Commission (and 12 provincial and territorial commissions) approving and allowing these products to be sold whilst not meeting our laws. It is called a legal exemption and for a few hundred or a few thousand dollars any investment firm can purchase such permission to skirt our laws. (see “orders, rulings and decisions” at http://www.osc.gov.on.ca) If your newspaper would print the web site (http://www.osc.gov.on.ca) and the highlighted text on the exemption orders it would be helpful to the reader.

One requirement is a willing regulator. On this particular exemption is the name of an OSC staff member and Susan Wolbergh Jenah.

The OSC is now pretending to investigate investment dealers, whilst pretending to ignore their own participation in the scam. The Investment Industry regulatory body is now headed by Susan Wolbergh Jenah. She used to be vice chair of the OSC, earning about $446,000 when she signed these (and other) exemption orders. She now earns approximately $700,000 as head of the IIROC which is investigating the very scam she helped sign for. Salaries of $446,000 to $700,000 paid for by the investment industry which they regulate is something I have found to create very willing regulators.

Now imagine if your Canadian Food Inspection agency were to allow tainted food into our food chain, for a fee, and then claim they were going to investigate the damage done by the tainted product. They would be investigating themselves, and we would be surprised by this. This is exactly what is happening and this is where Iris Evans comes into play here in Alberta. She is our Minister of Finance, and she is fully aware of the thousands of legal exemptions that our financial inspection agency allows, yet she does nothing to stop them. Our health care is being cut, our education is being cut. Jobs are being cut, and our Alberta Treasury Branch needed a billion dollar bailout. All due to “worst” practices, connections, cronyism. Due to taxpayer money and investments being caught up in this scam. With the help of our provincial securities commissions. Incestuous financial regulatory regimes. It is time for a change. It is time for best practices and simple conflict of interest guidelines to be incorporated into our financial regulations.
This will be my fifth request to Iris Evans to come forth and come clean with the public about the practice of legal exemptions. What is your Finance Minister telling you? You should ask her. Maybe if one hundred people ask, she might then feel like giving an answer.

Larry Elford
103 - 7 A Ave South
Lethbridge Alberta T1J 1N 403 328-0391 403 393-4742
http://www.breachoftrust.ca
http://www.investoradvocates.ca (see the ABCP’s of how to steal $32 billion)

Enclosed BMO exemption order

Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- Relief from the prospectus and registration requirements granted for trades in negotiable promissory notes and commercial paper (short-term debt instruments). The short-term debt instruments may not meet the "approved credit rating" requirement contained in the short-term debt exemption in section 2.35 of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106). The definition of an "approved credit rating" requires, among other things, that every rating of the short-term debt instrument be at or above a prescribed standard. The relief is granted provided the short-term debt instrument:
(i) matures not more than one year from the date of issue;
(ii) is not convertible or exchangeable into or accompanied by a right to purchase another security other than a short-term debt instrument; and
(iii) has a rating issued by one of the following rating organizations at or above one of the following rating categories: DBRS: "R-1(low); Fitch: "F2"; Moody's: "P-2" or S&P: "A-2".
The relief will terminate on the earlier of 90 days upon an amendment to section 2.35 of NI 45-106 or three years from the date of the decision.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53 and 74.
May 17, 2006
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,
PRINCE EDWARD ISLAND, NOVA SCOTIA,
NEWFOUNDLAND AND LABRADOR, YUKON,
NORTHWEST TERRITORIES AND NUNAVUT
(the Jurisdictions)
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
BANK OF MONTREAL
(the Filer)
 
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for:
(a) an exemption from the dealer registration requirement in respect of a trade in a negotiable promissory note or commercial paper maturing not more than one year from the date of issue (together Commercial Paper); and
(b) an exemption from the prospectus requirement in respect of the distribution of the Commercial Paper,
(collectively, the Requested Relief).
Under the Mutual Reliance Review System for Exemptive Relief Applications
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a bank listed on Schedule I of the Bank Act (Canada). The Filer's head office is located in Montréal, Québec and its corporate headquarters and executive offices are located in Toronto, Ontario.
2. The Filer is a reporting issuer in each Jurisdiction having such a concept. The Filer is not in default of any of its obligations as a reporting issuer under the Legislation of any such Jurisdiction.
3. The Filer is not registered as a dealer or adviser under the Legislation in any province or territory of Canada.
4. The Filer trades in and distributes Commercial Paper in the Jurisdictions through the purchase of such Commercial Paper as principal for its own account or with a view to distribution or as agent for certain issuers.
5. Paragraph 2.35(1)(b) of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106) provides an exemption from the dealer registration requirement and prospectus requirement for a trade in Commercial Paper (the Short-term Debt Exemption) where, among other things, the Commercial Paper "has an approved credit rating from an approved credit rating organization".
6. NI 45-106 incorporates by reference the definitions for "approved credit rating" and "approved credit rating organization" that are used in National Instrument 81-102 Mutual Funds (NI 81-102). The definition of an "approved credit rating" in NI 81-102, requires, among other things, that (a) the rating assigned to such debt must be "at or above" certain prescribed short-term ratings, and (b) such debt must not have been assigned a rating by any "approved credit rating organization" that is not an "approved credit rating".
7. The Filer proposes to trade in Commercial Paper with the following general characteristics:
(a) it matures not more than one year from the date of issue;
(b) it is not convertible or exchangeable into or accompanied by a right to purchase another security other than Commercial Paper; and
(c) it has a credit rating from at least one of the following credit rating organizations at or above one of the following rating categories listed below:
Rating Organization Rating
 
Dominion Bond Rating Service Limited R-1 (low)
 
Fitch Ratings Ltd. F2
 
Moody's Investors Service P-2
 
Standard & Poor's A-28. The Commercial Paper may have a lower rating than required by the Short-term Debt Exemption and accordingly, the Short-term Debt Exemption may not be available.
Decision
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that the Commercial Paper:
(a) matures not more than one year from the date of issue;
(b) is not convertible or exchangeable into or accompanied by a right to purchase another security other than Commercial Paper; and
(c) has a rating issued by one of the following rating organizations, or any of their successors, at or above one of the following rating categories or a rating category that replaces a category listed below:
Rating Organization Rating
 
Dominion Bond Rating Service Limited R-1 (low)
 
Fitch Ratings Ltd. F2
 
Moody's Investors Service P-2
 
Standard & Poor's A-2For each Jurisdiction, this decision will terminate on the earlier of:
(a) 90 days after the coming into force of any rule, other regulation or blanket order or ruling under the Legislation of the Jurisdiction that amends section 2.35 of NI 45-106 or provides an alternate exemption; and
(b) three years from the date of this decision.
"David L. Knight"
Commissioner
Ontario Securities Commission
 
"Susan Wolburgh Jenah"
Vice-Chair
Ontario Securities Commission


Next enclosure TD exemption order

Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- Relief from the prospectus and registration requirements granted for trades in negotiable promissory notes and commercial paper (short-term debt instruments). The short-term debt instruments may not meet the "approved credit rating" requirement contained in the short-term debt exemption in section 2.35 of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106). The definition of an "approved credit rating" requires, among other things, that every rating of the short-term debt instrument be at or above a prescribed standard. The relief is granted provided the short-term debt instrument:
(i) matures not more than one year from the date of issue;
(ii) is not convertible or exchangeable into or accompanied by a right to purchase another security other than a short-term debt instrument; and
(iii) has a rating issued by one of the following rating organizations at or above one of the following rating categories: DBRS: "R-1(low); Fitch: "F2"; Moody's: "P-2" or S&P "A-2".
The relief will terminate on the earlier of 90 days upon an amendment to section 2.35 of NI 45-106 or three years from the date of the decision.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 74.
April 26, 2006
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA,
ONTARIO, QUEBEC, NEW BRUNSWICK, PRINCE EDWARD ISLAND,
NOVA SCOTIA, NEWFOUNDLAND AND LABRADOR, YUKON,
NORTHWEST TERRITORIES AND NUNAVUT
(THE JURISDICTIONS)
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
THE TORONTO-DOMINION BANK
(THE FILER)
 
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) that trades in negotiable promissory notes and commercial paper (Short-term Debt Instruments) by the Filer be exempt from the dealer registration requirement and prospectus requirement (the Requested Relief).
Under the Mutual Reliance Review System for Exemptive Relief Applications
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a bank listed on Schedule I of the Bank Act (Canada). The head office of the Filer is located in Toronto, Ontario.
2. The Filer is a reporting issuer in all Jurisdictions and is not in default of its obligations under the Legislation in any Jurisdiction.
3. The Filer is not registered as a dealer or adviser under the Legislation in any Jurisdiction.
4. The Filer both trades and engages in distributions of Short-Term Debt Instruments in the Jurisdictions as part of its activities as a principal and as an agent for issuers.
5. Subsection 2.35(1)(b) of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106) provides an exemption from the dealer registration requirement and prospectus requirement for a trade in a Short-term Debt Instrument (the Short-term Debt Exemption) where, among other things, the Short-term Debt Instrument "has an approved credit rating from an approved credit rating organization".
6. NI 45-106 incorporates by reference the definitions for "approved credit rating" and "approved credit rating organization" that are used in National Instrument 81-102 Mutual Funds (NI 81-102). The definition of an "approved credit rating" in NI 81-102, requires, among other things, that (a) the rating assigned to such debt must be "at or above" certain prescribed short-term ratings, and (b) such debt must not have been assigned a rating by any "approved credit rating organization" that is not an "approved credit rating".
7. The Filer has in the past traded and proposes in the future to trade Short-term Debt Instruments with the following general characteristics:
(a) they mature not more than one year from the date of issue;
(b) they are not convertible or exchangeable into or accompanied by a right to purchase another security other than another Short-term Debt Instrument; and
(c) they have a credit rating from at least one of the following credit rating organizations not less than the rating indicated:
Rating Organization Rating
 
Dominion Bond Rating Service Limited R-1 (low)
 
Fitch Ratings Ltd. F2
 
Moody's Investors Service P-2
 
Standard & Poor's A-28. The Short-term Debt Instruments may have a lower rating than required by the Short-term Debt Exemption and accordingly, the Short-term Debt Exemption may not be available.
Decision
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that each Short-term Debt Instrument:
(a) matures not more than one year from the date of issue;
(b) is not convertible or exchangeable into or accompanied by a right to purchase another security other than a Short-term Debt Instrument; and
(c) has a rating issued by one of the following rating organizations, or any of their successors, at or above one of the following rating categories or a rating category that replaces a category listed below:
Rating Organization Rating
 
Dominion Bond Rating Service Limited R-1 (low)
 
Fitch Ratings Ltd. F2
 
Moody's Investors Service P-2
 
Standard & Poor's A-2For each Jurisdiction, this decision will terminate on the earlier of:
(a) 90 days after the coming into force of any rule, other regulation or blanket order or ruling under the Legislation of the Jurisdiction that amends section 2.35 of NI 45-106 or provides an alternate exemption; and
(b) three years from the date of this decision.
"Susan Wolburgh Jenah"
Vice-Chair
Ontario Securities Commission
 
"Wendell S. Wigle"
Commissioner
Ontario Securities Commission