Do the RCMP get their man if he is white collar?

[Steve]

This is a warning to all investors: White collar criminal activity is widespread in our capital markets.

[advocate]

I agree, as do many of the readers of this forum. What we are hoping to accomplish with this is a forum to jot down examples, so they can come to light. If you have something we should know about, this is as safe a place as any to let it out. Perhaps then something can be done about it.

If you do not have all the details, or if just a hunch, throw it out there, and see if anyone else can add something to your hunch?

advocate

[advocate]

JEFF CHRISTENSEN / REUTERS

What if Martha Stewart had been prosecuted in Canada instead?


To bridge the gap, Prof. Puri recommended re-evaluating the role of securities regulators. "Moving forward, perhaps the securities regulator should act more as a facilitator or catalyst to assist investors in receiving compensation," she told the gathering of 200 investigators, lawyers and regulators.

Among the findings in her discussion paper, Prof. Puri, who teaches at Osgoode Law School in Toronto, said securities regulators in Canada have historically been reluctant to pursue quasi-criminal sanctions through the courts - and that in turn has partially contributed to the lack of expertise among judges in dealing with white-collar cases.

She referred to existing studies that indicate judges have historically imposed "disappointingly light" punishment on white-collar criminal offenders. According to Prof. Puri, these miscreants were less likely to be imprisoned, received lower average sentences and served less time than offenders involved in more traditional crimes.

Although Prof. Puri argued many reasons explain the discrepancy, she suggested the main cause for this leniency is the lack of expertise among most Canadian judges to determine whether an offence adversely affects investor confidence or the stability of the Canadian economy.

"The Canadian judiciary needs to recognize not only the magnitude and impact of corporate misconduct on large segments of the population, but also the broader ramifications of corporate crime on the Canadian economy," she concluded.

To that end, Prof. Puri advocated a two-pronged approach: "meaningful reform" for judges to help them better understand white-collar crimes, which should result in tougher financial penalties and imprisonment; and the creation of specialized criminal courts to deal exclusively with corporate and white-collar crime, similar to those that deal with young offenders and family law matters.

Although Prof. Puri did not explicitly recommend the creation of a national securities regulator, she suggested the significant differences in enforcement trends among Canada's 13 provincial and territorial securities commissions "may have an adverse effect on enforcement."

For example, Ontario is focused on registrant-related misconduct and prosecuting insider trading, while British Columbia has made it a priority to clamp down on the distribution of securities without a prospectus.

At the same time, she said the commissions differ on how they dole out punishment at sentencing. To wit, Alberta does not take into account the personal circumstances of the person or company being disciplined, while regulators in Ontario, New Brunswick, Saskatchewan and Manitoba do make it a factor.

As a result, the differences among the multiple provincial regulators "may lead to sub-optimal enforcement actions being taken on the whole, in contrast to a national or consolidated regulator, which would be more likely to act in the national interest," she said.

As well, Prof. Puri said a national or consolidated regulator would enhance enforcement effectiveness in Canada because it would allow policies and priorities to be created at a national level and reduce costs to regulators and market participants.

Not surprisingly, her paper reiterated the widely held view that when compared with their U.S. counterparts, Canadian regulators do not engage in enough enforcement activity and are less effective when they do.

To support her assertion, Prof. Puri cited statistics that showed Canadian securities devote a smaller percentage of their total budget to enforcement than their U.S. counterparts. For example, the enforcement costs at the Securities & Exchange Commission represent 29% of the total budget. That compares with a range of 13% to 19% at each of the four major Canadian provincial securities commissions.

As well, Prof. Puri found financial penalties are 10 times higher in the United States than the average Canadian fine.

Furthermore, many of the high-profile white-collar cases in the U.S. have been pursued by attorneys general, such as Eliot Spitzer in New York - not the SEC. In Canada, Crown prosecutors have not embarked on a sweeping crackdown on corporate and white-collar crime.

[advocate]

White-collar criminals need own court: study
'Meaningful reform'
Theresa Tedesco, Chief Business Correspondent
June 15, 2005
Securities regulators should place greater emphasis on restitution for aggrieved investors and Canada should create specialized criminal courts specifically for white-collar crimes, concludes a study on capital market enforcement.According to the study, How Effective is Capital Market Enforcement in Canada?, the role of regulators needs to be re-evaluated because of a "disconnect" that exists between how they view their mandate and what investors expect."Securities regulators have historically interpreted their mandate as forward-looking and deterrence based," said associate law professor Poonam Puri during a presentation at the Joseph L. Rotman School of Management in Toronto yesterday. "On the other hand, individual investors who have lost their savings due to the misconduct of regulated market participants are most concerned about being compensated or made whole."

[Guest]

white collar crime is a crime of violence

this first spoken by diane francis of the post, and is so true

think of the problems caused by stealing a persons life savings:

depression, suicide, homicide, addiction, spousal abuse, child abuse, road rage, stress induced sickness, divorce.......the list could go on

white collar crime in Canada DOES pay, for the criminals, and that simply has to change.

too many officials do not understand it, and those who do find it too prevalent to police..........or for some strange reason refuse to police it

time for a change

[urquhart]

If Canada imposed 85 year jail sentences on 65 year old executives who committed white collar crime (even when they are Sunday School Teachers), there would be much less white collar crime going on here. Canada's securities enforcement system is a sham. See Bernie Ebber's proposed sentencing just announced below.

10:17am 06/28/05
Prosecutors seek 85-yr sentence for Bernard Ebbers -WSJ (MCIP, VZ) By Carolyn Pritchard
SAN FRANCISCO (MarketWatch) -- Prosecutors are seeking a sentence of 85 years in prison for former WorldCom (MCIP) (VZ) Chief Executive Bernard Ebbers, the Wall Street Journal reported on its Web site Tuesday.

[Guest]

from thursday June 23, 2005, Globe and mail commentary by Madelaine Drohan, researcher of corporate scandals as part of a media fellowship for the Chumir Foundation in Calgary;

selected quotes that I can relate to/agree with:

"Canada has an image abroad of being a soft touch; biker gangs and eastern european mobs operated here with impunity."

"Commissioned by the RCMP to study how much white collar crime cost the economy, KPMG came back with an estimate of between $2 billion and $3 billion a year. Only then did Ottawa agree to give the unit $30 million in new funding in 2003"

"The men and women at the top of corporate Canada form a small club, they sit on each others boards, and thier companies do business with each other..............there is an inherent reluctance to denounce someone you will sit beside at the next board of trade dinner."

"Canada's small size and the concentration of power also means that the business lobby is quite powerful."

"When the Ontario Teachers Pension Plan decides to file a lawsuit for corporate wrongdoing, it tries to use the U.S. courts whenever possible."

"When wrongdoing is uncovered, settlements are often negotiated with no admission of guilt on the part of the companies, and negligible fines."

[admin]

White Collar Crime is a Crime of Violence. Diane Francis
“..White-collar crime is a violent act. By my rough account, there have been at least half a dozen suicides by investors who are victimized and lost everything as a result of the Bre-X debacle. That's just the ones that came to my attention during a book research. How many people in other mining outfits lost their savings? How many marriages fail because of this? How many people lost their health because of the fraud? Or their houses and lifestyles? How many children's lives were affected? White-collar crime is violent because it mugs lives, livelihoods and self-esteem. That's why the American judges are correct in imposing tough sentences on these people. And yet no one has been charged or even investigated in Canada for Bre-X because the case would be too expensive for the cash-starved Mounties.... ” Source Diane Francis, “White collar crooks: U.S. hits them hard”, Financial Post, March 22, 2005 pgFP2[the Bre-X scandal cost investors an estimated $ 9 billion]

[admin]

Law enforcement and investor protection in Canada – a sorry tale

We received this insightful and articulate email after running a few stories on financial assault and the minimal penalties, if any, imposed on those responsible:

“ SROs are NOT in the restitution business. And the RCMP- IMET according to [Craig] Hannaford usually only acts on direction of the SCs [Securities Commissions]. The RCMP have testified before the Senate Banking Committee that they will have to refuse cases, as will other forces because white collar crime is epidemic. The Force itself can't even handle most of the money laundering cases reported to it by Fintrac.

Why do people only wake up when their ox has been gored? This is the kind of stuff we investor advocates have been screaming about for over a decade - nobody listens til it's too late.

The RCMP couldn't even bust Bre-X....the only chance people have is civil court (cents on the dollar settlements years down the road - if they "win"). IDA arbitration and OBSI intervention are a sad joke. David Dodge of the Bank of Canada told the Canadian Club in TO recently that the Yanks think it is the “Wild West” up here. I can tell you the Brits have an even lower opinion. With all the news that has been in the media and online from Bre-X to Portus, plus all the lobbying by advocates - media, websites, public tribunals, etc., etc., I sometimes wonder if people live in caves....

The police have to prove "intent to defraud" to even get a case past Crown Counsel and into court. The brokerages and Mutual Fund companies always cut the[ sales] reps adrift and deny all responsibility. Fines levied by the regulators are rarely collected because all the perpetrator has to do is leave the industry - many have simply moved to the U.S. and started all over again. Etc., etc........” - Jim Roache , Investor Advocate
The deck is stacked against small investors. Makes you think twice about investing in Canada, eh.

[admin]

What is wrong with this picture?
NEWS RELEASE
[Print]
2005/51September 14, 2005
White Rock mutual fund salesperson who committed fraud in stealing clients’ money hit with maximum $250,000 penalty
Vancouver -- The British Columbia Securities Commission has issued the maximum penalty it can against a former White Rock, B.C.-based mutual fund salesperson who defrauded his clients of about $1.6-million during a six-year period.
Paul Robert Maudsley has been banned for life from trading securities, being a director or officer, and engaging in investor relations. He must also pay a $250,000 administrative penalty – the maximum fine the commission can impose on an individual -- as well as almost $60,000 in costs related to the hearing.
A commission panel found that Maudsley and his company, Shaylor Management Ltd. violated the Securities Act in committing fraud when Maudsley convinced 23 clients to redeem about $1.6-million in mutual fund holdings to invest in other securities. Maudsley did not invest any of the money, instead taking the clients’ money for his own use to fund his personal and lifestyle expenses, including, a self-admitted substance abuse problem described by a witness as “his cocaine and gambling habit and alcohol addiction.”
The panel also found that Maudsley failed to deal fairly, honestly and in good faith with his clients – nearly half of whom were elderly or vulnerable.
“He simply took their money, or caused Shaylor to do so – about as stark an instance of deceit as there can be,” said the panel.
“The evidence provides clear and convincing proof that Maudsley had subjective knowledge of the deceit, and that it would result in the deprivation of others.”
Maudsley committed his violations when he was a mutual fund salesperson at Investors Group Inc.’s South Surrey Regional Office in White Rock between 1996 and 2003. He was fired from the firm on Mar. 3, 2003.
The commission panel also permanently cease-traded Shaylor’s securities in the sanctions decision. The firm is permanently banned from trading securities and must also pay an administrative penalty of $500,000 -- the maximum that the commission can order against it. Shaylor must also pay costs of the hearing.
The B.C. Securities Commission is the independent provincial government agency responsible for regulating trading in securities within the province. You may view the decision on our website www.bcsc.bc.ca by typing in the search box, Paul Robert Maudsley or 2005 BCSECCOM 577. If you have questions, contact Andrew Poon, Media Relations, 604-899-6880.
© BC Securities Commission 2004

Here is what Ken K thinks is wrong:

Here's the point. He stole a lot of money and doesn't spend even 5 minutes in jail. Note the low limits on fines in BC.His employer isn't even sanctioned or given a wrist slap fine.Investors don't get a nickle back. Soon , abusive provincial limitations Acts will swing into action putting tight time pressures on investors for civil action.This is the kind of regulatory enforcement regime that simply does nothing to protect investors.ken kivenko http://www.bcsc.bc.ca/release.asp?id=2748

Here is what Larry thinks is wrong:
These Securities Commissions do nothing for investors, and white collar criminals have to practically kill their clients to get any sanctions whatsoever. The crimes described above are so very very obvious that third grade children could do an improved job of sanctioning them and providing some recourse to investors. Where the commissions fail is in the more subtle, more cleverly crafted methods of duping clients of their moneys, by "trained, trusted and professional", salespeople who take advantage of the clients faith and trust.
The securities commissions cannot even make a dent into the various frauds, deceits, misrepresentations in 99% of cases. I feel they do not even have the will to do so, since it would reflect so badly on how they have run the system under their watch. It seems they can only stand by and watch now, while the smarter or more ethical among them are leaving.
Even if they had the ethics to address white collar frauds, they have nowhere near the strength. the RCMP is on record as saying they only have manpower to investigate 5% of the commercial crime reported to them, and I suspect the Securities Commissions are similar.
It is still "buyer beware" for clients and white collar crime heaven for fraudsters here in Canada.

[Guest]

I am beginning to figure out (I think) the cause of what investor advocates find offensive inside the investment industry. The underlying causes are not limited to this industry only, but can be seen in many, many ethical failures. The tainted blood scnadal, accounting scandals, medical, phamacuetical, nuclear power, you name it. Lets take a look at the common themes.

Three essential ingredients and three separate crimes are typically found.

One ingredient is corporate and or personal greed. Found everywhere. Not difficult.

Second ingredient is beauracratic indifference. Workers etc., who just dont care enough to do their jobs correctly. Also fairly prevalent.

Third ingredient is regulatory failure, which may be related to number two above, but more likely is not just laziness. Most regulators find it difficult, if not impossible to admit large systemic problems exist under thier watch, so they become co-conspirators instead. They become part of the problem instead of part of the solution.

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 crimes taken from the book "DARK AGE AHEAD", by Jane Jacobs, from recommended reading list of Nick Murray, one of the self styled gurus of investment advisor behavior. The book points to the "failure of professionals to self regulate properly" as one of the five pandemic symptoms of a society that is in dangerous decline

[Guest]

Marked increase in the perception of corruption in Canada


Tuesday, October 18, 2005


By James Langton, Investment Executive



A global survey of corruption singles out Canada as suffering from an increased perception that it’s plagued by corruption.

The survey, published today by Transparency International, found that more than two-thirds of the 159 nations surveyed in its 2005 Corruption Perceptions Index scored less than five out of 10, indicating serious levels of corruption in a majority of the countries surveyed.

Canada ranks relatively highly, at number 14, ahead of countries such as Germany, the U.S., and Japan. Nevertheless, TI warns that the country’s image is heading in the wrong direction.

New long-term analysis of the CPI carried out by Prof. Dr. Johann Graf Lambsdorff shows that the perception of corruption has decreased significantly in lower-income countries such as Estonia, Colombia and Bulgaria over the past decade. “In the case of higher-income countries such as Canada and Ireland, however, there has been a marked increase in the perception of corruption over the past 10 years,” it reports. “Showing that even wealthy, high-scoring countries must work to maintain a climate of integrity.”

“Similarly, the responsibility in the fight against corruption does not fall solely on lower-income countries. Wealthier countries, apart from facing numerous corruption cases within their own borders, must share the burden by ensuring that their companies are not involved in corrupt practices abroad,” it notes. “Offenders must be prosecuted and debarred from public bidding. The opportunity for ensuring sustainable progress also lies in the hands of the World Trade Organization, which needs to actively promote transparency and anti-corruption in global trade.”

“The lessons are clear: risk factors such as government secrecy, inappropriate influence of elite groups and distorted political finance apply to both wealthy and poorer countries, and no rich country is immune to the scourge of corruption,” TI adds.

“Corruption is a major cause of poverty as well as a barrier to overcoming it,” said Transparency International chairman Peter Eigen. “The two scourges feed off each other, locking their populations in a cycle of misery. Corruption must be vigorously addressed if aid is to make a real difference in freeing people from poverty.”

Despite progress on many fronts, including the imminent entry into force of the UN Convention against Corruption, 70 countries - nearly half of those included in the Index - scored less than three on the CPI, indicating a severe corruption problem. Among the countries included in the Index, corruption is perceived as most rampant in Chad, Bangladesh, Turkmenistan, Myanmar and Haiti – also among the poorest countries in the world.

TI says that corruption undermines the economic growth and sustainable development that would free millions from the poverty trap. Fighting corruption must be central to plans to increase resources to achieve the goals, whether via donor aid or in-country domestic action, it insists. Also, foreign investment is lower in countries perceived to be corrupt, which further thwarts their chance to prosper.

<snip>

“Corruption isn’t a natural disaster: it is the cold, calculated theft of opportunity from the men, women and children who are least able to protect themselves,” said David Nussbaum, TI’s chief executive. ”Leaders must go beyond lip service and make good on their promises to provide the commitment and resources to improve governance, transparency and accountability.”

An increase in perceived corruption from 2004 to 2005 can be measured in countries such as Costa Rica, Gabon, Nepal, Papua New Guinea, Russia, Seychelles, Sri Lanka, Suriname, Trinidad & Tobago and Uruguay. Conversely, a number of countries and territories show noteworthy improvements – a decline in perceptions of corruption – over the past year, including Estonia, France, Hong Kong, Japan, Jordan, Kazakhstan, Nigeria, Qatar, Taiwan and Turkey.

[Dave CP]

I don't think sending your complaints to the advertising media and industry regulator OSC is as affective as lobbying the RCMP IMETs unit for change. The Integrated Market Enforcement Team is responsible for gathering intelligence. Their mandate is to protect investors and
disrupt criminal activity in Canadian Capital Markets. They accomplish the task partly by sharing information with investors. The times I've been in contact with them I was impressed by the officers willingness to listen. I still want to see more action though like the raids on BNS.

[Guest]

good comment. I think it was in one of Jon Chevereau's National Post articles where the head of the RCMP was quoted as saying they had the resources to investigate only 5% of the commercial crime reported to them.

It would be very helpful if they were given proper resources to do the job of law enforcement. The regulators do nothing to assist, and then find their next job inside the industry it seems.

I look forward to the day when we have enough police resources to ensure Canada is not the fraud capital of the western world.

[Guest]

Think about it. Our American neighbours could actually use our own "Grown-in-Canada" soft wood lumber stumpage subsidies to create, build, ignite and deliberately burn a fire wall separation between Canada and the U.S. when it comes to our Canadian financial companies:
banks, insurance companies, fund companies, etc., from exporting their inappropriate "Made-in-Canada" business practices plus operating their U.S. subsidiaries [ did you know that our Royal Bank of Canada has quietly become the 8th largest U.S. securities dealer !! ], etc., plus IMAGINE what will happen IF their dual listings on the NYSE / NASDAQ , etc., exchanges are cancelled?

Subject: TheStar.com 10-22-05 - Protect yourself against fund fraud Fundco financial assault


This is an interesting and controversial article. Note that in fact some of Canada's biggest bank-owned brokerages e.g. TD Waterhouse and independent fundcos e.g. Investors Group were in fact deeply involved in the market timing scandal.

U.S. headquartered Fidelity, the world's largest fundco played it straight.

Fifteen Canadian firms, including bank-owned fundcos, were never sanctioned by the OSC and have never come forward and admitted their breaches of fiduciary duty.
The length of a manager's track record, and how well the funds have fared, have proven to be of no value in predicting scandalous behaviour. Remember too that issues like related party dealings and soft dollars are still open issues. I won't even mention excessive fees,deceptive ads or abusive sales practices.
CIBC, a trusted Canadian Bank paid one of the largest settlements in history [ $2.4 billion ] in the Enron scam and were found guilty of aiding and abetting US hedge funds in their [ market timing ] pillaging of US mutual funds.
Royal [ Bank ] has set aside hundreds of [ $500 ] millions of dollars.
BNS appears to be ensnared in the Royal Group fraud and aggravated law enforcement so much that [ RCMP ] IMET had to prosecute a search warrant [ on Scotia Plaza ].
Sun Life owns MFS funds in Boston -- ( and Sun Life owns 34% of infamous CI Funds [ which in turn owns 100% of Assante's closets that are full of skeletons ] ) -- MFS one of the U.S. mutfunds severely sanctioned by the SEC and NY-AG Eliot Spitzer for abusing investors.

Every one of our major financial institutions is in hot water, albeit primarily with U.S. litigators and regulators. The biggest crooks it turns out are the big guys. Canadians are too complacent and ultra-ineffective in lobbying Govt.

No new rules on market timing are in place and fund governance regulations remain elusive due to intensive industry lobbying.

Some ways to protect small investors - set up an investor protection fund for fundcos, install real governance boards and use civil action when required.


Also, force more disclosure and commentary on unusual transactions esp. with related parties and actually enforce securities law with a stick rather than a [ nod, nod, wink, wink ] wrist slap.

AND get rid of [ the abused investor ] debilitating [ 2 year ] Limitation periods [ to file an action ] in every province.

Right now as things stand the entire system is hard wired against the small investor -- something has to change.

In 2004, 85% of investors claims were denied by OBSI and I expect the balance got cents on the dollar.

Trust everyone but shuffle the deck.



Oct. 22, 2005. 01:00 AM

Protect yourself against fund fraud



Some risks for mutual fund investors are acceptable. Some are not. Falling into the latter category are embezzlement and fraud.

No one likes it when the price of a fund goes down because of what's happening in the stock or bond markets. But funds don't go straight up, and losses over shorter periods can, we hope, be overcome.

Far less likely, but nonetheless a small possibility, is the nightmare of mutual fund assets disappearing from a company because of criminal activity. This type of loss isn't supposed to happen, according to conventional wisdom over the years from fund-industry participants and the Investment Funds Institute of Canada. As the institute notes on its website, the regulatory regime for mutual funds has checks and balances. Assets the fund firm manages for investors must be held by a custodian. In theory, the fund manager can't get its, his or her hands on the securities and cash.

Annual audited financial statements are also intended to safeguard investors. Still, according to the allegations coming out of Quebec in three fund-company investigations, a lot can happen between audits.

The largest case involves Norbourg Asset Management Inc. of Montreal, assets of which the Quebec securities regulator has frozen because of its suspicions that about $130 million in mutual fund assets has gone missing. Also suspended because of suspected misappropriation of assets are two smaller Montreal-based fund-management firms, @rgentum Management and Research Corp. and Les conseillers en valeurs Planiges Inc. None of the allegations have been proven.

If the regulators or the courts can't recover missing assets, investors are out of luck. No investor protection fund exists to compensate victims of fund-company fraud or embezzlement.

For that reason, the three Quebec investigations, along with others such as the scandal over the Toronto-based Portus group of companies, hedge funds from which were not offered by prospectus, have sparked renewed demands for an investor protection fund that covers fund-company malfeasance.

But if the recent comments by newly appointed institute chair Brenda Vince are any indication, the fund industry remains cool to the idea. Speaking at the institute's annual convention last month, Vince said she believes the majority of responsible, well run fund companies should not be asked to pay for the sins of the few.

Vince, who is president of RBC Asset Management Inc., favours increased regulation, including higher capital requirements. She says personal liability and having capital at risk can serve as considerable deterrents.


For individual investors in mutual funds offered by prospectus, the risk of loss as a result of fraud is small.

The firms now under investigation in Quebec are tiny players that together represent substantially less than 1 per cent of the industry's assets under management.

Still, it's fair for investors to ask, how can I ensure that I'm dealing with a reputable fund firm that's not going to abscond with my money?

While rankings and ratings for fund performance are available, there are no equivalent measures for integrity and honesty. Investors themselves have to judge fund firms and the people behind them.

The size of a fund firm and its parent, and how much the subsidiary manages, might provide some comfort. None of the current fraud cases, for instance, involves big brand-name funds sponsored by a major bank or insurance company, nor a large, independent Canadian company, nor the Canadian subsidiary of a major foreign money-management firm.

But, in fairness to entrepreneurial money managers who have gone out on their own and served their clients well, company size and asset size ought not to be determining factors.

The length of a manager's track record, and how well the funds have fared, are much more relevant and meaningful.

Come to think of it, if you choose managers who have been superior long-term performers, you'll probably be doing an excellent job of screening out any crooks.


--------------------------------------------------------------------------------
Rudy Luukko is investment funds editor of Morningstar Canada.