Regulators in your pocket

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from The Privatization of Regulation: Five Models of Self-Regulation

AUTHOR/AUTEUR:Margot Priest
SOURCE/SOURCE:Ottawa Law Review/Revue de droit d'Ottawa

CITED/CITÉ:(1997-1998) 29 Ottawa L. Rev. 233-302 (1997-1998) 29 R.D.
Ottawa 233-302
http://www.investorvoice.ca/Research/Ma ... models.txt


The Disadvantages and Limitations of Self-Regulation


2. Favouritism
¶ 123 The self-regulatory structure, usually an SRO, is likely to be
dominated by larger or long-established firms. It is those firms that have the
resources to organize and run the SRO. The SRO may pursue the interests of
those firms and not the membership at large, let alone the public interest. [See
Note 162 below] The controlling members may be immune from the enforcement and
discipline activities of the SRO and may even use them against dissident members
who seek a greater role. The structure may therefore discriminate against
certain industry members, particularly smaller firms or practitioners in certain
areas (e.g., floor traders or medical general practitioners). The purported
advantages of flexibility and swift response to changing conditions may be lost
because the controlling group has a vested interest in preserving the status
quo.

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from The Privatization of Regulation: Five Models of Self-Regulation

AUTHOR/AUTEUR:Margot Priest
SOURCE/SOURCE:Ottawa Law Review/Revue de droit d'Ottawa

CITED/CITÉ:(1997-1998) 29 Ottawa L. Rev. 233-302 (1997-1998) 29 R.D.
Ottawa 233-302
http://www.investorvoice.ca/Research/Ma ... models.txt


The Disadvantages and Limitations of Self-Regulation


3. Narrow Regulatory Concerns
¶ 124 Successful self-regulation must consider more than the immediate
concerns of the regulated industry. The ultimate objective is the protection of
the public interest, even if this be indirect through the stabilization or
protection of a particular industry. Securities self-regulation, for example,
is aimed at protecting the public from fraudulent or abusive practices;
professional self-regulation is aimed at protecting the public from incompetent
or dishonest practitioners. Self-regulation, however, may tend to consider only
the interests of the industry or that portion of the industry governed by an
SRO. This, of course, is closely aligned to the failing of favouritism, noted
above.

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from The Privatization of Regulation: Five Models of Self-Regulation

AUTHOR/AUTEUR:Margot Priest
SOURCE/SOURCE:Ottawa Law Review/Revue de droit d'Ottawa

CITED/CITÉ:(1997-1998) 29 Ottawa L. Rev. 233-302 (1997-1998) 29 R.D.
Ottawa 233-302
http://www.investorvoice.ca/Research/Ma ... models.txt


The Disadvantages and Limitations of Self-Regulation


4. Under-Regulation
¶ 125 Self-regulation may result in "under-regulation" because of lack of
enthusiasm on the part of industry members. Self-regulation often develops in
order to avoid more direct government regulation and the protective aspect may
dominate. The foxes may be more interested in the chickens than they are in
controlling the other foxes. Indeed, self-regulation may be thought of as the
ultimate form of regulatory agency "capture."
¶ 126 There may also be under-regulation because of the self-regulatory
body's reliance on the involvement of industry members who have other business
interests. Many SROs rely on professional staff, not volunteers, for their
work. Nonetheless, the governing bodies of SROs, the discipline committees, and
the individuals who are responsible for setting the direction for the
organization tend to be volunteer members from industry. Because only the
larger firms can afford to use their people in this way, this tends to
perpetuate the control in the hands of a select few.

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from The Privatization of Regulation: Five Models of Self-Regulation

AUTHOR/AUTEUR:Margot Priest
SOURCE/SOURCE:Ottawa Law Review/Revue de droit d'Ottawa

CITED/CITÉ:(1997-1998) 29 Ottawa L. Rev. 233-302 (1997-1998) 29 R.D.
Ottawa 233-302
http://www.investorvoice.ca/Research/Ma ... models.txt


The Disadvantages and Limitations of Self-Regulation


5. Over-Regulation
¶ 127 While lack of enthusiasm and part-time personnel may lead to
under-regulation, there is also an incentive to over-regulate by
self-regulators. An SRO may try to justify its existence, its growth, its
influence, and its increased professionalization by expanding its regulatory
role. It may also be trying to fend off an increasingly interested government
regulator. As the SRO uses more paid professionals and fewer volunteers, it may
become a structure that competes with government regulation. It can become
vulnerable to all the ills of a bureaucracy: rigid hierarchies, desire to
expand territory, and placement of the interests of the organization before its
mandate. [See Note 163 below] The resulting over-regulation, especially the
artificial inflation of entry requirements, can result in an overall reduction
in the access to or increase in the cost of service available to the public.
When the number of practitioners is reduced or the price is increased, some
consumers will do without the service, obtain it from unqualified practitioners
or, in some cases, do it themselves. This reduces the overall service level.
[See Note 164 below]

[admin]

from Richard J Finlay at www.finlayongovernance.com


Bre-X: The Giant Fraud that Started with a Bang Ends with a Regulator’s Whimper
August 26th, 2007
From the stock market watchdogs who permitted the premature listing of the company to the cops and regulators who were unsuccessful in bringing even a single fraudster to justice, Bre-X was a colossal failure at every level.

It’s not surprising that the Ontario Securities Commission has decided not to appeal the acquittal of John Felderhof, the only person ever to be charged in the infamous Bre-X fraud. Frankly, there have been so many strange twists and remarkable disappointments with this case that there is really little left to be astonished about. As we noted here with chagrin even before this recent setback, the OSC is clearly losing its appetite for criminal prosecution, partly because it has been doing so badly in that regard and partly because it has a leadership culture that prefers to retreat to its less aggressive era. This was pretty much reflected in a statement by OSC chair David Wilson, who told Macleans recently that the agency’s priority was “not to beat the drumbeat of more criminal cases.” As we observed previously, there were many problems with the case, and where it was heard at Canada’s lowest court level, that were beyond the OSC’s control. But if you look at the length of time it took to have the case tried (seven years), the three- year-long motion and appeal interval where it was trying to have the judge removed, and the full year it took for the judge to write his decision (there was no jury in this case) the outcome was probably as predictable as the bewildering process that gave birth to it.

So it is that the largest mining fraud ever has now become the biggest bungled case of its kind in history. From the stock market watchdogs who permitted the premature listing of the company on the prestigious TSE 100 without due diligence to the shut-eyed independent directors, credit rating agencies and analysts who saw only the glitter of fools gold and eventually to the cops and regulators who were unsuccessful in bringing even a single fraudster to justice —and now have given up entirely— Bre-X was a colossal failure at every level. It might also serve as a cautionary lesson to today’s old line boardroom stalwarts who argue that too much emphasis has been placed in recent years on structure and that there is no connection between the architecture of corporate governance and corporate performance. I will have more to say about the confused logic and selective memory of those who would move the boardroom back to the future in another posting. But it would be hard to find a worse example of corporate governance than Bre-X — unless of course you were looking at Hollinger Inc. during Conrad Black’s era or Research In Motion more recently or the nearly 25 percent of companies listed on the TSX Venture Exchange that do not comply with even the minimum disclosure regarding their own boardroom practices which is required as a condition of listing by that exchange.

In the entire decade since the scandal unfolded, not a single agency, regulator or individual has admitted even the slightest responsibility, however indirect, for this calamity. No apology has ever been made to the investors who lost billions or to the larger investing public which has an irrefutable stake in the integrity of the capital markets and the institutions that guard them. No criminal has ever been convicted. You would almost think Bre-X were an inexplicable act of nature for which no mortal can be held accountable. At least not in Canada.

If the Bre-X fiasco occurred elsewhere, and certainly if it happened in the United States, outraged legislators and congressional committees would be in full flight holding hearings to find out why the company went so far beyond the arm of justice. They’d call aggrieved shareholders as witnesses and demand that stock market officials, regulators and justice department chiefs appear before them. They’d want to know if this case was symptomatic of any larger problem and whether such a travesty could happen again in the form of another memorable name. But in Canada, where it is hard to imagine a more dysfunctional system of securities regulation and boardroom crime policing, the biggest disaster in mining history ends with barely a whimper. And the politicians go back to sleep.

Exactly ten years ago, in an Op-Ed column in the Financial Post, I first brought to public light a number of the corporate governance failures that allowed Bre-X to happen. As we close the book on this sad saga, I thought it would be interesting to reprise the article that in many ways foreshadowed all the other failures that came to be associated with that scandal.




Bre-X Was A Failure of governance

J. Richard Finlay

Originally published in the Financial Post, August 1997

Continuing denials of culpability by former directors of Bre-X Minerals Inc. and securities regulators show once again that there is a predictable rhythm to corporate governance issues in the wake of disaster. In what has become the corporate version of line-dancing, academics and the media stamp their feet in demands for reform, regulators scurry for cover from the descending wrath of shareholders, and directors pirouette in elegant assertions that things will change. But when the revivalistic music stops, exhausted directors too often slump back into their boardroom seats, returning to their customary somnolent ways. The ritual is recurring in the Bre-X debacle.

Bre-X was a massive fraud to be sure. But it was also a massive failure of corporate governance. And the failure occurred on a number of fronts. With its insider board, dubious disclosure record, curious insider trading patterns, ever-expanding boasts about ore deposits and confusion about who owns them, Bre-X was a time bomb waiting to go off. But those who could have defused it heard only the siren song of fast money and not the tick, tick, tick, of impending ruin.

Of Bre-X’s board of six, only two members qualified as independent directors. The TSE’s guidelines for publicly traded companies call for a majority of outside, independent directors. This did not appear to bother many institutions or funds. When directors began to engage in heavy insider trading, regulators and advisors should have seen the signs and looked deeper into the details of the operation. Previous problems about licensing and ownership should have provided clues. Few followed that trail. When directors made ever-exaggerated claims about the size of the Busang find, regulators and investment advisors could have demanded more details. None did.

At its height, Bre-X had a market capitalization greater than Imperial Oil, Bombardier, Inco and Molson combined. And that was without any sales or profits. That alone should have prompted major financial institutions and pension funds, to say nothing of regulators, to take a closer look at the company. It never happened.

Another board that should also be doing some soul-searching is the TSE’s. The TSE’s guidelines on corporate governance raise an interesting question: Why does the TSE itself not comply with them?

Of the TSE’s board of 14, only four directors qualify as being independent. That’s far from a majority and far short of its own guidelines on corporate governance. Would a board composed of a majority of independent directors who are unaffiliated from member institutions have been more cautious about Bre-X? Would it have been more wary about putting Bre-X on the blue chip composite index when the company had no track record and when there were so many unanswered questions? Like many things about this scandal, we may never know. But we do know from the past, and from the TSE’s own study, that independent directors make for better boards. And better boards are motivated by the longer view, not necessarily the fastest buck.

Modern corporate governance practices, as every regulator and investment advisor has been taught, have grown out of disasters like Bre-X. The collapse of Great Britain’s Royal Mail Steam Packer Company in the 1930s (which, like Bre-X, also had a board of six directors) and Robert Maxwell’s empire, the S & L scandal in the United States and the demise of Confederation Life and dozens of other financial concerns in Canada all have involved failures of corporate governance. Had those lessons been applied in the Bre-X case, the fraud likely never would have achieved the level it did because institutional investors and regulators simply would not have endorsed a company that failed to practice even the most elementary standards of good corporate governance.

Directors, regulators and investment advisors are paid to read the signs of disaster as well as the portents of profit. The investing public is still waiting for an explanation as to why they failed in their duty over Bre-X.


from Richard J Finlay at www.finlayongovernance.com
read more of this man if you want some straight talk from a very experienced individual. He has been around the block once or twice.

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Canada called soft on corporate crime
Retiring Teachers' CEO slams lack of oversight, shortage of prosecutions

September 12, 2007
Laura Bobak
Canadian Press

Canada is "missing the boat" because many white-collar criminals aren't held accountable, says Claude Lamoureux, the outgoing chief executive officer of the Ontario Teachers' Pension Plan.

"In Canada, white-collar crime is treated lightly by our legislators and our courts," Lamoureux said at a conference of the Canadian Institute of Chartered Accountants yesterday.

"We have had our share of scandals. They occur regularly. We tolerate insider trading by not investigating cases when they occur, by not prosecuting them, or worse, by asking for a level of proof in court that is next to impossible to achieve."

Lamoureux pointed to a recent published report that stated more than 1,200 corporate executives have been convicted in the United States by the multi-agency U.S. Fraud Task Force over the past five years.

In contrast, he said, only one high-profile case has been successfully prosecuted in Canada by the Royal Canadian Mounted Police's white-collar crime unit, known as IMETS. That case involved British Columbia fraudster Michael Mitton.

"The investing public is right to ask, when will we see action?"

Part of the problem in Canada, Lamoureux said, is that an auditor is too close to the company he or she investigates.

He also said many provinces don't have enough money to hire staff to crack down on violations and are "pretending to oversee" securities regulation.

Lamoureux also spoke about the need to pool the country's resources to fight breaches of securities law.

Some say the current system of multiple agencies across the country is good because it creates competition.

In Lamoureux's view, however, the level of enforcement is sinking.

Meanwhile, the level of concern among investors is increasing, he said. He pointed out that a 2006 Task Force to Modernize Securities Legislation in Canada got more comments on the issue of enforcement than on any others.

Lamoureux also called for greater transparency in financial reporting by public bodies, including governments and hospitals, many of which he said do not appear to report liabilities of maintaining social programs and depreciation of assets such as crumbling public infrastructure or medical equipment.

"We have seen the results in an overpass that collapsed in Quebec, and there are many more across Canada that are under threat," he said.

Lamoureux steps down from his job at Teachers' in December.

[admin]

Why all the fuss?
MADELAINE DROHAN
The Globe and Mail
Friday, September 13, 2007 at 2:40 PM EDT

OTTAWA — It is convenient to see Canada's continued failure to join most of the civilized world and set up a sensible system of securities regulation as one more battle in the long-running war pitting parochial provincial politicians against an overbearing Ottawa. Canadian history is replete with similar disputes, many of them nonsensical. But is this the whole story?

Finance Minister Jim Flaherty, for whom the creation of a national body has become a personal crusade, crossed swords this week with his Quebec counterpart, Monique Jérôme-Forget over the need to revamp the complicated system. Two weeks ago, Alberta Premier Ed Stelmach insisted he saw no need for the single body.

Yet there another set of important players who don't feature in this purely political version of events, even though they have the most to gain or lose: the companies who use the securities system. Their absence from the field of battle is puzzling.

If having 13 securities commissions, with 13 sets of rules, regulations and fees, is really as cumbersome and inefficient as we are led to believe, shouldn't there be a deafening business chorus demanding change? Yet while we hear isolated calls for common sense to prevail, there is no concerted business campaign.

The reason is that business is not as united as you might think. Consensus is needed for Canada to unravel this particular regulatory tangle.

Right now the community is divided into three groups: those who support a national regulator, those who are opposed, and those who don't have a strong opinion.

The first group is large, but not terribly vocal, although groups like the Canadian Bankers Association and individuals such as Claude Lamoureux of the Ontario Teachers' Pension Plan have spoken out forcefully. Those with no opinion tend to be smaller companies or industries who only deal with one jurisdiction and don't see a problem with multiple jurisdictions.

And then there are the opponents. While it's tempting to dismiss them as complacent or conservative, they have legitimate concerns.

The first is that people from Ontario, who understand little and care even less about industries outside their province, would dominate the new system. There are oil and gas firms in Alberta, for example, that would much rather continue dealing with their provincial regulator.

Some are uneasy about giving up familiar regulations for a set of rules that have not yet been formulated. Why trade the known, however imperfect, for the unknown, argues Peter Brown, chairman of Vancouver-based Canaccord Capital, especially if the new rules are written with an Ontario mindset and turn out to be more rigid than the old?

Jobs could be lost, not just at some of the 13 securities commissions, but also in the service community that has grown up around them. Will all those lawyers and accountants still be needed if 13 commissions are replaced by one? Probably not. They will not go quietly into the night.

Finally, there is the loss of regulatory competition, another point raised by Mr. Brown. The commissions in British Columbia and Alberta challenge Ontario by proposing innovative approaches to regulation. If competition is good for business, he says, isn't it good for regulation as well?

It's clear that as Mr. Flaherty pushes for the creation of a national regulator, he is not just taking on some of his provincial and territorial counterparts, but some powerful players in the business community as well.

Until recently, the finance minister was trying to sell an idea based on the recommendations of a panel set up by the Ontario government and headed by Purdy Crawford. (Ontario is solidly behind the idea.)

The panel proposed a common regulator, where the provinces, territories and federal government had a seat at the table, but where neither Ottawa nor Ontario ran the show. It suggested keeping five regional offices across Canada, with each having a specific expertise (possibly derivatives in Montreal, commodities in Winnipeg, venture capital in BC, and oil and gas in Alberta). This would preserve jobs in those cities. And it recommended that the new regulations lean towards principles rather than rules, akin to the Financial Services Authority in Britain.

However, that plan still left open the question, important to business, of what the new regulations would look like. So the finance minister decided to set up a panel whose task is to put flesh on the bones of his proposed common regulator. The panel has been dismissed in some quarters as yet another study into a matter that has been studied to death. But it has the potential to resolve the current impasse.

Its members have not yet been selected. (Mr. Flaherty said this week, in an interview from New York, he is being picky because he wants to get the right people, but expects to be done within weeks.) Once they are in place, they will draw up a new Canadian securities act and a regulatory structure. The hope is that a more concrete proposal will allay the fears of business and the provincial and territorial finance ministers.

Business supporters of the idea will still have to do their bit. Nancy Hughes Anthony, the new president of the Canadian Bankers' Association, agrees and says supporters will be making their case more vocally in the future.

Even if all objections are satisfied and agreement reached, it will still take months, perhaps even years, before a new national regulator is in place.

In the meantime, we should all be thankful for Bosnia Herzegovina, which saves Canada from the ignominy of being the only country in the western world without a national regulator. The leaders of Bosnia Herzegovina are still attempting to bridge deep divisions left as a legacy of civil war. Our excuses look pretty limp in comparison.

mdrohan@globeandmail.com

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Politiians and Attorney General's need to act . Investors are being mauled.Soon there will be no middle class.
Start by changing Limitation Act back to 6 years. Make IMET produce or fire the lot and replace with some Spitzers . Ditto for provincial regulatory Chairs . Enforce what you can now instead of wrist slaps and tighten up the laws on white collar crime. Difficult but not rocket science. AND make our accounting system investor- responsive - CICA can't continue to avoid investor protection issues.


Craih Hannaford was a great cop but the system wore even him down .Imagine what small retail investors endure.

Ken K


Felderhof's last shot
CanadianBusiness.com - Toronto,Ontario,Canada
But that's not happening in Canada, as two former high-level members of the RCMP's Integrated Market Enforcement Teams (IMET) recently told Canadian ...



--------------------------------------------------------------------------------

Felderhof's last shot
John Gray
Canadian Business Online, September 25, 2007

Like a nightmare that Canadian investors just can't seem to awaken from, John Felderhof, the former chief geologist of Bre-X Minerals Ltd., was back in the news last week. Felderhof, who was acquitted in July on charges of insider trading and issuing false press releases, took the opportunity to poke investors and regulators in the eye one last time. "I have always maintained, and now the court has found, that the tampering that took place at [the mine] was 'unprecedented in the history of mining,'" he said in a press release issued by his lawyer. "It is my firm belief that no amount of regulation can be put into place to prevent a sophisticated and well-planned fraud. I do hope that the next time a case similar to Bre-X comes along, the regulators … in Canada will take a good hard look at the facts before rushing to a hasty judgment, destroying whatever shareholder value might still be saved."

Felderhof was the only Bre-X executive to be charged in what turned out to be the most notorious mining fraud in Canadian history. Investors lost more than $6 billion when the company's claim that it had found the world's largest gold deposit was shown to be nothing more than fool's gold. After a lengthy legal battle, Judge Peter Hyrn disagreed with the Ontario Securities Commission's allegations that there was an abundance of "red flags" that should have given Felderhof pause before selling millions of dollars in stock and telling investors that the company had struck gold.

Felderhof is right about one thing: no amount of regulation will stop people who are determined to commit a fraud as massive as the one Bre-X turned out to be. The only effective weapon against fraud is to create a regulatory and justice system that forces company executives to act in the best interests of shareholders and that can assure investors that those who violate the law will be caught and punished severely for their crimes.





But that's not happening in Canada, as two former high-level members of the RCMP's Integrated Market Enforcement Teams (IMET) recently told Canadian Business. In a cover story in our latest issue, you can read about the frustration and seemingly insurmountable hurdles faced by Craig Hannaford and Bill Majcher. Both men have earned their stripes in Canada's battle against white-collar crime. Hannaford oversaw the investigation of the Livent fraud case while Majcher helped nabbed corrupt Canadian lawyers Martin Chambers and Simon Rosenfeld in the now famous RCMP-FBI Bermuda Shorts undercover operation. "The system is pretty much non-existent," says Majcher of Canada's inability to capture and punish fraudsters. "You can fix something that is hemorrhaging, but if the body is already lifeless you have to start fresh."

Since the high- profile, fraud-related collapse of iconic U.S. companies WorldCom and Enron, a federal U.S. white-collar crime task force has secured more than 1,200 convictions against rogue CEOs, CFOs, corporate counsels and VPs. In stark contrast, Canada's IMET has secured just two convictions against a single person: Michael Lee Mitten, a career fraudster with more than 105 criminal convictions. And while high-profile executive defendants like Conrad Black, Bernard Ebbers and Dennis Kozlowski face decades in prison for their crimes, Mitton could be back on the street as early as next year after serving a mere one-sixth of his six-year sentence.

There are plenty of reasons why there is such a disparity between the treatment of criminals in the U.S. and Canada. American cops have greater powers (in fact, as Majcher and Hannaford point out, under Canada-U.S. treaties, American cops have more power over Canadian citizens than do the RCMP). Canada lacks a national regulator that can aggressively pursue violators rather than quibble over which provincial commission should take responsibility. Canada also lacks a grand jury system that can use the power of the courts to compel witnesses to testify, and it has a court system that allows defendants with money to delay a trial for years. If by some miracle Canadian regulators manage to secure a criminal conviction, even the worst, habitual offenders are pretty much guaranteed to spend only a few months in prison.

One has to wonder if the real problem isn't the systemic hurdles to pursuing fraudsters, but rather the culture of complacency in Canada. After all, we are the country of peace, order and good government. And while a massive fraud like Bre-X is incredibly disruptive to the peace and order of Canada's financial system, almost as disruptive would be an aggressive regulator, a criminal investigation and crackdown on those who violated their positions of trust in connection with that fraud. Once-trusted executives are dragged before the courts, and those in charge of institutions that rely on investor confidence are asked pointed questions whose answers may undermine that trust. And in the end, shareholders rarely get their money back, though at least they get the satisfaction that those who profited from crimes have to pay a substantial penalty.

Craig Hannaford isn't hopeful that we will be able to improve our lacklustre track record in nabbing white-collar criminals. Not even a national securities regulator will solve the problem unless we address the plethora of other weaknesses in our criminal justice system when it comes to white-collar crime. "We don't seem to have the political will," he says. "Politicians get up and say we can solve this with a national securities regulator, but the problems are not going away." Hannaford's pessimism will be justified until Canadian regulators, politicians and investors start taking white-collar crime much more serious

[admin]

Six years to get justice, and still no criminal prosecutions. This example typifies the poor protection that Canadians receive from all thirteen securities commissions.


Ex-CIBC World broker barred for life
The Gazette
Published: Friday, October 12
A Montreal investment representative has been slapped with a lifetime ban from the brokerage industry for misconduct that included defrauding a client, misappropriating client money and borrowing money from clients without the knowledge of his firm.

The Investment Dealers Association of Canada imposed the ban on former CIBC World Markets broker Robert John Travers as part of a settlement agreement signed on Sept. 12 following an IDA hearing.

According to the settlement agreement, Travers admitted to failing to disclose to CIBC World Markets, for periods between March 2000 and May 2002, his involvement in two companies.


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Font:****Travers was president and majority shareholder of one of those companies, Renaissance Recycled Rubber Inc., and a director of the other.

The broker admitted to soliciting and accepting loans from several clients to finance Renaissance without CIBC's knowledge.

As well, he misappropriated $5,000 from one of his clients and also defrauded the client's company by falsely representing terms of a share transfer for a guarantee.

Travers, who worked at a CIBC World Markets sub-branch at 600 de Maisonneuve Blvd., resigned from the firm on Oct. 11, 2002, and has not worked as a broker since then.




© The Gazette (Montreal) 2007

[admin]

The sad thing about this case is not that there are psychopaths out there preying on Canada's financial consumers, that goes without saying. I personally think that the percentage of population with this tendency who work in financial services is close to 20%.

The sad part of this and too many other stories is the complete lack of ability to prevent, protect, or prosecute effectively any fraudster in Canada. The system is truly one where white collar crime does indeed pay, and pay very well in Canada.

see more below on Ian Thow as the latest example:

Many players to blame in Thow scam
This case represents one of the most callous and audacious frauds this province has seen, BCSC panel says

By David Baines
Vancouver Sun


Wednesday, October 17, 2007

CREDIT:
Ian Thow

On Wednesday, a B.C. Securities Commission hearing panel told us what we already know about Victoria Investment executive Ian Thow and the scam he perpetrated on dozens of clients.

"This case represents one of the most callous and audacious frauds this province has seen," the panel concluded. "Thow preyed on his clients by offering them non-existent securities and instead using the funds to support his lavish lifestyle. He took their money and betrayed their trust. He has left a trail of financial devastation and heartbreak."

BCSC enforcement staff originally accused Thow of defrauding dozens of clients out of as much as $30 million in a variety of non-existent investment schemes. For the purposes of the hearing, however, they narrowed it to 26 clients, who invested $8.7 million and lost about $6 million. Of this amount, forensic accountant James Blatchford traced $5.4 million and found that Thow didn't spend any of it as he said he would.

The panel will consider an appropriate penalty - which will almost certainly include a lifetime ban from the B.C. securities market - at a later date. Meanwhile, Crown prosecutors are considering what criminal charges to lay.

It is appropriate to cast Thow as the villain, but it's trite to dismiss the victims as dupes who were too stupid or greedy to know better. Evidence arising from the BCSC hearing shows the story is much more complicated. What might have been easily exposed as a fraud-in-progress was heavily masked by the trappings of legitimacy.

As noted in previous columns, one of those trappings was Thow's status with Berkshire Investment Group.

"People may wonder why did you give Thow that much money without having documentation," said one witness, as quoted in the BCSC decision. "But we had worked with Ian Thow since 1993 and we trusted him. You know, he was the senior vice-president of Berkshire. . . . One of the major products that the financial industry sells is trust, and we trusted him after 12 years of working with him. So that's why we did it."

The message here is that, if Berkshire had been more discriminating about who it named to be a senior vice-president, clients may not have been exposed to his treachery.

Then there was his relationship with Berkshire's principal, Michael Lee Chin:

"Thow invited clients to presentations and dinners involving Michael Lee Chin," the panel noted. "Many were impressed that Thow introduced them to Michael Lee Chin, often having them photographed with him. Thow touted these events to his clients as 'billionaire's presentations,' or an 'opportunity to meet a billionaire'."

In fact, it was Berkshire that touted these events as a "Spend an evening with a billionaire." This gave Thow's grandiose representations some real corporate legitimacy. Once again, the message is that if Lee Chin had been more wary and kept Thow at arm's-length, Thow could not have used him to the extent that he did.

Another thing that gave Thow legitimacy, the panel noted, was his wealth.

"Clients testified about Thow's large waterfront home, his aircraft [including a Cessna 182 single-engine aircraft, a Bell 206 helicopter, a Cessna Citation X personal jet, and a Cessna Bravo personal jet], his sports and luxury cars [including two Mercedes, a Cadillac Escalade, a Corvette, and a Porsche Boxster], his boats [a SeaRay ski boat and a Boston Whaler] and his 56-foot Sea Ray yacht. All of these, Thow told his clients, he owned outright."

I think it's obvious that if Berkshire had made more concerted efforts to reconcile Thow's lifestyle with his income, his duplicity might have been exposed at a much earlier date.

Then there was Thow's tight relationship with ScotiaBank, one of Canada's big five banks. Client after client testified how Thow induced them to borrow hundreds of thousands of dollars by remortgaging their homes through Dalene Payne, a loans officer at ScotiaBank in Victoria. Here are some excerpts from the BCSC decision:

▌"To help fund the investment . . . Thow also arranged for [two elderly clients] to obtain a line of credit through a loan officer with a Victoria branch of Scotiabank. This loan was a major source of funds for their investment."

▌"To help fund the investment . . . Thow arranged for [another client] to borrow $50,000 from Scotiabank from the same loan officer."

▌"To help fund the investment, Thow recommended that [another couple] mortgage their home. . . . He sent them to the same loan officer at Scotiabank, where they obtained a mortgage, raising $375,000."

▌"Thow recommended that they sell their mutual funds and draw down a line of credit secured by a mortgage on their home that they had previously arranged with the previously-mentioned loan officer at Scotiabank. They did, raising $90,000 from the sale of their mutual funds and $300,000 from the line of credit."

These excerpts, by no means exhaustive, show that Thow was trotting his clients into the bank on a regular basis and getting them to raise large sums of money against their homes for bogus investments. If the bank had been more vigilant with its clients and less deferential to Thow, his scam might have been nipped in the bud.

Then there was the legitimacy provided by the media, which lionized Thow for his community endeavours and philanthropy.

"We thought he was a paragon of virtue," one client told the hearing. "He was running Crime Stoppers and he was always donating to these various charities, and he just seemed, like, you know, the man of the hour."

My review of the Victoria Times-Colonist archives shows the newspaper gave him 35 favourable mentions before the scandal broke. Most related to charitable donations which he had pledged, but not delivered on. The charities kept silent. If somebody had spoken up, he would have been exposed as a phony at a much earlier date. At a minimum, if the newspaper had been less fawning, Thow couldn't have marketed his duplicity with such ease.

I am not suggesting that anybody other than Thow is legally culpable. I am simply saying that, in financial matters, people should always be skeptical. In this case, several key players - his employer, his boss, the bank, local charities and media - accepted Thow at face value. This acceptance provided a basis for investors to trust him. It was a mistake that everybody, not just investors, should acknowledge.
dbaines@png.canwest.com


© Vancouver Sun

[admin]

Protecting Bay Street from you
Self-regulation failing to serve small investors
Jonathan Chevreau, Financial Post
Published: Saturday, November 03, 2007
http://www.canada.com/nationalpost/fina ... 4c66a-d6d8
-42a1-a0d1-cbf14f46a2e8
When it comes to protecting small investors from predators in the financial
industry, "the bad guys are winning," says financial advisor John De Goey.

The regulators and organizations that consumers believe are there to protect
them instead "protect the reputation of the industry and industry firms,"
says De Goey, the author of The Professional Financial Advisor.

De Goey, who is also a senior advisor with Toronto-based Burgeonvest
Securities Ltd., went public with criticisms of his industry after
witnessing last week's Investor Forum. This was hosted by the Ontario
Securities Commission and self-regulatory organizations such as the
Investment Dealers Association of Canada (IDA) and Mutual Fund Dealers
Association (MFDA). As with a similar "town hall" meeting two years earlier,
this was billed as an opportunity for aggrieved retail investors to confront
the heads of these organizations about their complaints.

De Goey didn't spare the press in his criticism, either, which he says
portray financial advisors as the "baddies" instead of the real culprits.

"Member firms and regulators are far, far worse in perpetrating misdeeds
than all but the most deceitful of advisors."

Securities industry watchdog Robert Kyle agrees the bad guys are winning,
but doesn't agree the would-be reformers are losing. The only reason either
forum happened in the first place is that the industry was forced to
respond, Kyle says. "We don't get credit for what we do but ultimately we
are forcing change."

His Web site atwww.investorvoice.ca monitors Canada's self-regulatatory
bodies, displaying the following slogan: "Self-regulation doesn't protect
the public from Bay Street. It protects Bay Street from you." While consumer
advocates had high hopes the Investor Forum might lead to positive change,
most I talked to were disappointed by the sketchy answers their questions
received. For example, consultant Diane Urquhart asked the IDA's recently
appointed president, Susan Wolburgh Jenah, whether it would intervene if
investment banks sold defective income products to seniors. According to a
transcript of the session, Wolburgh Jenah replied (in part) "to the extent
that there are fraudulent, misleading practices taking place ...that is
definitely something that we would, obviously, take an active interest in
and we look for that sort of thing."

Little wonder Urquhart later told me she was "shocked by how poor the
answers were." She described all four leaders at the Investor Forum as
"complacent and disingenuous to Canadians about providing investor
protection."

Kyle dismissed the whole exercise as "another fluff job."

One frustrated attendee was Dr. Pamela Reeve, whose struggle to get
financial redress from a major bank brokerage took almost three years to
resolve. She says the regulators' approach to handling complaints at
investment firms is "not in the public interest and is inadequate to protect
investors."

Even the apparent victories seem hollow. One example is the OSC's pioneering
Fair Dealing Model. When first unveiled, this made explicit three types of
client/advisor interaction, ranging from clients making most of their own
decisions to the other extreme of advisors deciding on behalf of clients.

But when it ended up in the industry's lap, it was watered down to the point
it was "bastardized," Kyle says. He believes small investors remain
unprotected because regulators defer to the self-regulated bodies. But if a
"bad guy" commits a fraud, they can leave the industry and the IDA can't do
anything about it.

Another disillusioned attendee said: "It's interesting that all the consumer
protection agencies have been set up by the industry on little islands of
their own. If you don't like what they do, there's nothing you can do about
it."

Readers can judge for themselves the quality of the industry's answers to
the questions at the forum's plenary session. The full 55-page transcript of
the one-hour Q&A can be viewed at the OSC's Web site at
www.osc.gov.on.ca/Investor/Forum/frm_index.jsp. - Jonathan Chevreau blogs at
www.wealthyboomer.ca

jchevreau@nationalpost.com


© National Post 2007

[admin]

This month the attached article in Canadian Business asks why there are no investigations on the sale of Third Party ABCP by investment dealers who had alleged insider information that was material and not disclosed to the buyers. Pension funds, corporations, governments and thousands of individuals now own $35 to $40 billion of frozen paper of questionable value. The vendor group should make the buyers whole, when one considers the negligence and/or deceit within this Made-in-Canada defective investment product. However, hush money settlements and denial of transparency to new buyers of the Third Party ABCP, and of the restructured long term notes, should not spare the vendor group and DBRS from investigations on their alleged misconduct.

I expect there are no investigations planned on the matter since the key regulators responsible for the Third Party ABCP crisis are now in positions that enable them to interfere with the start of investigations and with the competency of any investigations undertaken. This communication discusses the previous and current roles of Nick LePan, David Brown and David Wilson in contributing to the current Third Party ABCP crisis and how these men have the potential to influence whether proper investigations of alleged misconduct are undertaken.

The November 5, 2007 Canadian Business magazine article, "Credit markets: Issues of trust," written by Thomas Watson, says:

"The CFO can’t understand why regulators are sitting on the sidelines. “There should be an investigation. We think there were people who were told [material] things that we should have been told when buying ABCP.” "

"But with dealers involved in the secretive restructuring, officials at the companies and institutions that stand to lose millions are biting their tongues; they won’t cry out for an investigation into possible unethical trading until they know where they stand with regards to recovering investments."

"When asked who is responsible for investigating whether Canadian banks were given insider-like information and then sold non-bank paper knowing buyers could soon be left holding something worthless, an OSFI spokesman replied: “Securities dealers or brokers are subject to oversight from the securities regulators of the provinces in which they do business. In addition to securities regulators, there are other dealers and brokerage bodies that operate on a self-regulatory basis.”
When Canadian Business asked the Ontario Securities Commission the same question, spokesperson Laurie Gillett said the regulator was watching troubled buyers of ABCP very closely: “Anyone with exposure [to troubled ABCP] will need to consider what information to the market they will have to provide to meet their clear obligations. We are very aware and are rigorously reviewing disclosure documents. Companies and investment funds that do not make full disclosure can expect to hear from us.”

The OSC did not respond to questions about who was responsible for watching sellers in this market."

I wrote in my independent research report, "Another Made-in-Canada Defective Investment Product - Pensions 10092007":

"[Office of the Superintendent of Financial Institutions] OSFI B-5 regulation below, clearly shows that OSFI permitted the banks to sign what I call "the Made-in-Canada defective liquidity agreements" for the Third Party ABCP.



OSFI B-5 Regulation says:



"Liquidity support is a commitment to lend to, or purchase assets of, an SPE in order to provide investors with assurance of timely payment of principal and interest. Liquidity support may include a general market disruption clause. A general market disruption can be defined as a disruption in the Canadian commercial paper market resulting in the inability of Canadian commercial paper issuers, including the SPE, to issue any commercial paper, and where the inability does not result from a diminution in the creditworthiness of the SPE or any originator or from a deterioration in the performance of the assets of the SPE.""


"So, now Canadians discover there is another regulatory agency that protects the major Canadian banks, at the expense of no investor protection for investors. Even the OSFI role to supervise and ensure the solvency of federally registered pension funds has taken a back seat to serving the Canadian banks by allowing them to sign liquidity agreements that they knew would have virtually no benefit to the ABCP pension fund owners. The Federal Office of Superintendent of Financial Institutions has effectively assisted the banks to skim fees from the ABCP conduits, which reduced the interest paid to the retail investors, Canadian pension funds and corporations owning ABCP.

"The Ontario Securities Commission has taken advice from the issuers, investment bank distributors and securities lawyers who design new investment products, rather than from their own experts or retained independent experts. The OSC has a Commodity Futures Advisory Board that consults with and advises OSC staff on: developments in the nature of contracts and manner of trading; and, the influence of trading in contracts on the economy of Ontario. All four OSC Commodity Futures Advisory Board participants are directly involved in the vendor group for the defective Third Party ABCP.



David Ellins
Coventree Capital Group Inc.

Carol Pennycook (Chair)
Davies Ward Phillips & Vineberg

Stephen Elgee
BMO Nesbitt Burns

Jim Sinclair
Northwater Capital Management Inc.





Davies Ward Phillips & Vineberg is one of three legal firms that signed off on the 23 problem ABCP conduits listed in Figure 2. David Brown, the former Chairman of the OSC and the Current Chairman of the RCMP Task Force on Governance and Cultural Change, is a current Counsel with the firm Davies Ward Phillips & Vineberg.



Both David Brown, the former OSC Chairman, and David Wilson, the current OSC Chairman, failed to detect since 2001 that DBRS was giving top investment grade ratings to Third Party ABCP that did not meet the international standard for sound liquidity agreements. Coventree Capital, Nereus Financial, Northwater Capital Management and Dundee Securities are Ontario registrants. The OSC was not able to prevent the loss to the Ontario Government that has publicly disclosed it exposure to Third Party ABCP at $863 million amongst three entities.



Similarly, Jean St.-Gelais, Chairman of Quebec's l'Autorité des marchés financiers, appears to have been oblivious to the significant participation of Quebec registrants in defective Third Party ABCP: Caisse de dépôt et placement du Québec, National Bank, Desjardins Bank Securities, Laurentian Bank Securities and Société Générale Securities."

OSFI introduced its culpable Regulation B-5 in July 1994 and revised it in November 2004. Nick LePan served as Superintendent of Financial Institutions (OSFI) for Canada from September 2001 to October 2006. Previously, he had served at the Office as Deputy Superintendent (Supervision) from 1997, in which capacity he was responsible for overseeing the Supervision programs for banks, other deposit-taking institutions, life and general insurers, and federally regulated private pension plans. Mr. Le Pan joined OSFI as Deputy Superintendent (Policy) in 1995, and was responsible for OSFI’s input into legislative development, regulations and guidelines, as well as various international and Canadian regulatory coordination efforts. In 1995, before joining OSFI, Mr. Le Pan served as Special Advisor in the Department of Finance, leading a task force that finalized a government white paper on the supervisory, deposit insurance and policyholder protection regime. He also served the Department as its Assistant Deputy Minister, Financial Sector Policy Branch, leading the 1992 review of Canadian financial institutions legislation.

Finance Canada announced that the Honourable Stockwell Day, Minister of Public Safety and the Honourable Jim Flaherty, Minister of Finance, appointed Nick Le Pan to serve as senior expert advisor to the RCMP on its Integrated Market Enforcement Teams (IMETs). This announcement came in the attached May 14, 2007 Finance Canada Media Release, "Senior expert advisor to RCMP named to bolster fight against white collar crime." This release says "Mr. Le Pan will help develop and guide the implementation of a plan to improve the effectiveness of the RCMP’s IMETs, which investigate and prosecute major corporate fraud and capital market crimes." Stockwell Days says, "With the expertise that Mr. Le Pan brings to the table, we will be better equipped to effectively investigate and prosecute these serious crimes." "Strong enforcement is critical to protect investors and promote healthy capital markets in Canada," said Minister Flaherty. "Mr. Le Pan brings a unique skill set to this task, and has the knowledge and experience to carry it out."


As long as David Wilson is Chairman of the OSC, Chairman of the CSA Policy Co-ordination Committee, Chairman of the Public Accountability Board Council of Governors (where the OSFI Superintendent is a member) and Co-Chairman of the Federal-Provincial Justice Ministers Securities Enforcement Working Group, there will be no securities investigations (nor referral of criminal investigations to the RCMP) about the alleged misconduct associated with the Third Party ABCP crisis. Also, as long as David Brown is Chairman of the Task Force on Governance and Cultural Change at the RCMP and Nick LePan is Senior Expert Advisor to the RCMP Integrated Market Enforcement Team Unit, there will be no RCMP criminal investigation about the alleged misconduct associated with the Third Party ABCP crisis.




Minister of Public Safety Stockwell Day and Minister of Finance James Flaherty need to come to terms with the potential for David Brown and Nick LePan in their current senior advisory roles with the RCMP to influence whether proper criminal investigations of alleged misconduct in the Third Party ABCP market takes place or not. These men should be replaced by independent experts that have no conflicts of interest associated with the parties alleged to be responsible for the Third Party ABCP crisis. Federal Government entities have disclosed ownership of at least $939 million of Third Party ABCP, while PSP Investments, manager of the Public Service Pension Plan, has not disclosed its Third Party ABCP ownership notwithstanding its participation in the Montreal Accord Group (NAV Canada owns $368 million, Canada Mortgage and Housing owns $257 million, Greater Toronto Airport Authority owns $249 million, Canada Post owns $65 million).

Furthermore, new Ontario Minister of Finance Dwight Duncan needs to be certain that David Wilson, Chairman of so many committees involved in decisions affecting investigations of the alleged Third Party ABCP misconduct is not in a conflict of interest related to his previous role as Chairman of Scotia Capital Markets, and has no bias against the initiation of investigations on defective investment products sold by investment banks, such as most income trusts and Third Party ABCP. The best way to be certain about the OSC - Third Party ABCP situation is for Finance Minister Dwight Duncan to replace David Wilson, with a new OSC Chairman that is not a former investment banker and that has a record of achievement on investor protection issues. At the very least, Ontario Finance Minister Dwight Duncan should appoint a special independent investigator on the sale of Third Party ABCP by investment dealers, aided by DBRS, who had alleged insider information that was material and not disclosed to the buyers. This special independent investigator should also examine how the various Ontario entities decided to purchase $863 million of the Third Party ABCP, which is now frozen and of questionable value (Ontario Financing Authority owns $700 million; Ontario Power Generation owns $103 million and Ontario Teachers Pension Plan owns $60 million).


Diane Urquhart

[admin]

Lawyer defends OSC's record on crime

Nov 28, 2007 04:30 AM

Madhavi Acharya-Tom Yew

It's unfair – and incorrect – to say that U.S. regulators are better than their Canadian counterparts at rooting out and punishing stock-market crime, according to a panel discussion put on by the Ontario Securities Commission yesterday.

It's essential to recognize and respect the differences between the two systems, securities lawyer Jeffrey Leon said. "Too many people look at Canada and compare it to the United States and say, `What enforcement?'" Leon said.

"It doesn't mean more is better. It doesn't mean bigger is better. We shouldn't judge our success by headlines. The Canadian system is predicated on balance."

Michael Watson, head of enforcement for the Ontario Securities Commission, said that jail sentences of 10 years or more for white-collar criminals are "just not going to happen here. It's not part of the Canadian justice system" and it's not what the general public wants.

There's no evidence that a longer jail sentence deters white-collar crime, he added. "Other than vindictiveness, I'm not sure why people are saying jail sentences are not long enough."

Our justice system is a reflection of Canadian culture, Watson told reporters later. "The attitude in Canada is that there is a lot more room for compassion, and understanding and rehabilitation."

Investor activist Ken Kivenko called these views "frightening."

"Double-check your perception," he said, adding that even the governor of the Bank of Canada has said there is a problem with securities regulation and fighting white-collar crime in Canada. David Dodge has made headlines with comments that Canadian markets are viewed as a "wild west" by global investors.

David Wilson, chair and chief executive of the OSC, said that Canadians who want longer jail times should look to legislators and politicians, not regulators. "It's not my job as a Canadian regulator to talk about criminal sentences," he said, when asked to comment by reporters after the panel discussion.

Critics say the OSC is slow to move on cases where U.S. regulators also tread, such as Nortel Networks Corp. and disgraced media mogul Conrad Black and Hollinger Inc.

Black now faces jail time after being found guilty by a U.S. jury of obstruction of justice and pocketing improper non-compete payments. The OSC issued allegations in March 2005, but the case was put on hold pending the U.S. proceedings.

In May 2007, Nortel agreed to pay $1 million to the OSC to settle allegations of misleading accounting. In October, the company agreed to pay $35 million in a deal reached with the U.S. Securities and Exchange Commission.

Strong investor protection and effective enforcement are among the OSC's top priorities for the next five years, Wilson said in his opening address, which kicked off the commission's day-long conference.

The Securities Fraud Enforcement Working Group has delivered recommendations to provincial justice ministers, such as better sharing of resources and more legal tools for investigators, he noted.

In June, the commission appointed a new executive director, Peggy Dowdall-Logie. The agency is in the process of hiring a special independent adviser on enforcement and ethics matters.

(Advocate comments.......does anyone else get the feeling that the OSC acts as an apologist for bad investment firm behavior? With the last job of the chairman, that of an investment industry exec, how could we expect anything less. When will we learn not to put foxes in charge of the henhouse?)

[admin]

with credit to ken at www.canadianfundwatch.com for some of the best, hardest hitting facts and figures on systemic investment abuse:

Ken K


2007 a disastrous year for investor protection

As one keen observer noted " Things are getting better and better but not
fast enough to prevent them from going from bad to worse ". 2007 was one
for the record books. In virtually every area of investor protection, the
gatekeepers failed.

Mutual fund fees in Canada have remained the highest in the world. Sales of
high fee products and services were accelerated on unsophisticated buyers-
Wrap accounts, proprietary funds and PPN's grew look weeds. "Educational"
seminars broke their way into retirement homes targeting what's left of
Freedom 55'rs cash. For the first time, normally safe money market funds
came under threat as the ABCP fiasco wormed its way through the financial
system.

The Canadian Imperial Bank of Commerce (CIBC) told us that its mutual fund
subsidiary - Talvest Mutual Funds lost a backup computer drive containing
information on around 470,000 clients. Income trusts continued to cut or
eliminate distributions as predicted by analysts at Accountability Research
nearly two years ago. . Norbourg fund investors are getting cents on the
dollar for their losses. The Bre-X mining fraud ended with nobody being held
accountable and investors living with the multi-billion dollar haircut. The
scandalous Ian Thow case, wherein investors lost $30 million, made national
headlines pointing out that the alleged rogue fund salesman is resting
comfortably in Seattle

Not a single province took steps to increase the oppressively short
limitation periods despite pleas from investors and consumer groups. The
mutual fund POS disclosure system improvements continue to be caught in a
bureaucratic swamp. Fund governance took a small step forward but now there
are now essentially no related party prohibitions in effect. Customer
complaint and dispute resolution processes at the IDA and MFDA did not
result in any changes in 2007 except yet more proposals. And any thought of
a national regulator remained tied up in a political quagmire.

The U.S. had to come to Canada's rescue in dishing out justice in the Nortel
and Conrad Black cases The OSC lost one of its few insider-trading attempts
at prosecution in the infamous Andrew Rankin case. In a precedent setting
case, the IDA had one of its cases thrown out because they failed to act
fast enough within the statute of limitations period. Investors had to fight
their own battle in a fee ripoff case- the Paliare Roland Class Action on
unauthorized foreign exchange transactions in RRSP's and RRIF's, with an
industry insider amongst the lead plaintiffs

The OSC published a staff report highlighting grossly misleading marketing
materials by portfolio managers. A number of independent studies suggested
that Canadian corporate disclosure practices are highly deficient. A Quebec
consumer protection group of found that advisers rarely did know their
clients before making investment recommendations. An independent assessor
made 24 recommendations to improve OBSI, recommendations made by investor
advocates nearly three years ago. . The CSA published a study suggesting
that over one million Canadians have been subjected to fraud and the trend
is for things to get worse. Keith Ambachsteer's Losing Ground Report
illustrated that the measured Canadian mutual fund average return shortfall
(before sales charges) of 3.8% per annum relative to similar mandates
executed by Canadian pension funds suggests the average Canadian mutual fund
has not been producing fair value for fund investors. An Alberta Securities
Commission report cited deficiencies with the IDA's prairie region's
practices-everything from registration to staff turnover , outright forgery
, missing information and inconsistent enforcement issues

The 2007 OSC Investor Forum demonstrated once again the degree of financial
assault prevailing in Canada. The MFDA felt it necessary to warn firms and
"professional " advisers that using pre-signed blank forms, churning funds
and stealth advising really are nasty practices. The Toronto Star ran a
series of articles showing how ineffective the OSC really has been in
regulatory enforcement. At the 2007 Dialogue with the OSC a senior
Commission executive told the audience to forget about long jail terms for
white collar criminals -incredibly, he also asserted that that was the way
Canadians wanted it. As the year came to a close, the Le Pan report
concluded that the RCMP IMET was indeed a dysfunctional entity. We could go
on but we think you already have a sense of just how naked and exposed
Canadian investors really are.

The Securities Regulators continue to issue exemption after exemption

Why have a Securities Act if exemptions are handed out like candy? It might
be said exemptions suggest there is collusion between the regulators and the
perpetrators. Here is an example if we've translated the jargon even
half-way correctly. Several bank-owned fund companies have received
regulatory relief from the investment prohibition in subsection 4.1(1) of NI
81-102 -the relief now will allow their funds to invest in private
placements they have underwritten, subject to several conditions . The
beneficiaries included the fund management affiliates of CIBC, RBC funds
Bank and Bank of Montreal and Guardian Group of Funds.

They sought and received an OSC exemption to allow their funds to purchase
privately placed securities, notwithstanding that their affiliates have
acted as underwriter of the issue. But to talk about transparency in the
same document that is written in language we just don't understand - read
English - is surreal - whether we're right or wrong in trying to figure it
out. This allows the funds (affiliates/subsidiaries) to buy and inflate the
values of stocks underwritten by their parent companies (banks, etc) - or at
least keep a floor under them - or the reverse - to short them, if they are
going to tank. If the stocks go up, the Banks win; if it looks like they
will go down the funds can short the stock and still make money-with
transaction fees all around no matter what happens. If you don't understand
the gobbledy gook in the MRRS decision, should you be in mutual funds? And
if you think most advisors do, we have a causeway in PEI to sell you!
http://www.oscbulletin.carswell.com/bb/ ... 48.htm#toc#toc CIBC
Asset Management Inc. et al. - MRRS Decision [thanks to Jim Roache for
alerting us to this]





DISCLAIMER
Information contained herein is obtained from sources believed to be
reliable, but the accuracy is not guaranteed. The material does not
constitute a recommendation to buy, hold or sell. The purpose of this
Document and others in the series is to educate investors by bringing
together personal finance information from a variety of sources. It is not
intended to provide legal, investment, accounting or tax advice and should
not be relied upon in that regard. If legal or investment advice or other
professional assistance is needed, the services of a competent professional
should be obtained.

[admin]

Richer rogues not on radar
New study on corporate crime suggests system is stacked in favour of influential
industry insiders
Dec 05, 2007
Tyler Hamilton TORONTO STAR
Business reporter
Regulators charged with pursuing insider traders and other market scammers tend to target
small-time crooks and shy away from high-profile figures with deep pockets and powerful
lawyers, according to a new study out of Queen's University.
"What happens is that they bifurcate the population of rogues," says study author Laureen
Snider, a professor of sociology who has spent 25 years researching corporate crime and the role
of regulatory agencies.
"They try to concentrate their resources on where they're more likely to get action."
As part of her latest research, Snider conducted a number of anonymous interviews with
enforcement officials at the Ontario Securities Commission and the British Columbia Securities
Commission, as well as some RCMP officers within the force's four-year-old Integrated Market
Enforcement Team.
She discovered immense frustration and a sense that the system, the way it's designed, is
stacked against enforcement officials and in favour of industry "stakeholders" who help determine
the rules that oversee them.
"You're dealing with very powerful actors, and these actors are referred to by and large as
stakeholders, so they get the chance to shape legislation," Snider explains.
The OSC, for example, routinely holds consultation meetings with those in the financial industry,
giving the perception that the regulator's primary role isn't to protect investors.
Snider says it's a model that gives unusual power to those in the financial sector who are
regulated, pointing out that such an approach doesn't happen, and would never be accepted, with
traditional criminal enforcement. "The police don't habitually consult prospective burglars on
Criminal Code changes, but regulatory agencies must negotiate with those they are charged with
regulating."
http://investorvoice.ca/PI/3301.htm 12/7/2007
It's a major problem, she adds, "if you believe in equality. Our system is theoretically premised
on equality."
During her interviews she also discovered that lawyers representing powerful clients routinely
flood regulators and investigators with paperwork, resulting in major case delays as staff pore
over a seemingly endless stream of documents and data.
"One of the officials I interviewed called it death by 53 cartons and boxes," she recalls.
OSC enforcement director Michael Watson, speaking at an investors gathering last month in
Toronto, said it isn't unusual on specific cases to have to sift through hundreds of thousands of
document pages. "It's just a function of the electronic age," he said.
"Right now we have four cases we're working on that have more than three million pages of
documents. So the cases are getting bigger from that point of view."
Claude Lamoureux, the recently retired president and chief executive officer of the Ontario
Teachers' Pension Plan, characterizes it as a battle "between a peewee hockey team and an NHL
hockey club."
"Those being investigated or charged will understandably bring substantial high-quality resources
to bear to defend themselves," wrote Nick Le Pan, a special adviser to the federal government, in
a report released on Monday that examines how to make the RCMP's enforcement team program
more effective.
"The program is `playing in the big leagues' and needs to act that way."
Snider, however, says it's challenging playing in the big leagues if the way the system is
designed has major imbalances and other flaws.
"There's no way I defend it, but in order to understand why regulators make the decisions they
do and why their hands are tied as they are, you have to look at that context."
Richer rogues not on radar Page 2 of 2
http://investorvoice.ca/PI/3301.htm 12/7/2007