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Finance Minister Sorbara & New OSC Chair Should Both Res

Postby urquhart » Tue Oct 11, 2005 6:37 pm

Both Ontario Finance Minister Greg Sorbara and New OSC Chair David Wilson should resign their posts pending the outcome of the RCMP investigation of evidence found in RCMP raids of the Sorbara firm's offices today and of the Bank of Nova Scotia in the Winter of 2005. Bank of Nova Scotia was the personal banker, corporate banker and investment banker of Royal Group Technologies., where misrepresentation in a prospectus and fraud is alleged to have occurred.

Oct. 11, 2005. 08:31 PM

RCMP raids Sorbara firm's offices
Ontario NDP immediately demand finance minister step down until probe completed


The RCMP raided the offices of the family company of Ontario Finance Minister Greg Sorbara today in its continuing investigation of Royal Group Technologies.
RCMP investigators executed search warrants and swept the offices of the Sorbara Group in the Vaughan community of Woodbridge in a probe for information particularly relating to deals with Royal Group, a major building products company.

Sorbara was a director and chairman of Royal Group but resigned after winning his area riding for the Liberals a few years ago.

In addition to the RCMP, the Ontario Securities Commission, Canada Revenue Agency, the U.S. Department of Justice and Securities and Exchange Commission are probing allegations of fraud at Royal Group.

Royal Group fired founder and former chief executive officer Vic De Zen and two other senior executives last year for their role in the purchase of a piece of property for $20.5 million and an immediate flip to the company for $27 million in 1998.

The news of the raid today led the Ontario Conservatives and New Democrats to call for Sorbara to step down while the police investigation is ongoing, Canadian Press reports.

Sorbara was previously involved in both companies. He is a former director of Royal Group and since being appointed finance minister has placed his holdings in blind management and resigned as director of the Sorbara Group companies, a firm run by his family.

Sorbara flatly refused today to step down.

"I am not the subject of the investigation, I'm not involved in the investigation, I've never been contacted by the RCMP," Sorbara said.

"I have not been involved in Royal Group for over two years now, I've not been involved in the Sorbara Group for over two years now, so I feel very comfortable that I am not the subject of the investigation."

But Conservative Leader John Tory said he's seen part of the search warrant and it specifically names Sorbara and several other people.

Sorbara said he has not seen the warrant but wouldn't be surprised if his name were included because of the fact he was formerly a director at Royal Group.

Tory pointed out though that in March 2004, McGuinty told reporters that Sorbara would step down if he became "the subject of an investigation."

The warrant, which only contains allegations, certainly indicates that is the case, so McGuinty must call for Sorbara's resignation, Tory said.

"I would think that if this document is genuine . . . that Mr. Sorbara will be consistent with that agreement Mr. McGuinty said he had - offering his resignation from the cabinet - and that if it's not offered, that Mr. McGuinty will request it," Tory said.

New Democrat Howard Hampton, echoing Tory's call, said Sorbara can't continue as finance minister when companies he used to be connected with are now under criminal investigation.

RCMP spokeswoman Michelle Paradis said she could not provide further details on the search as the investigation was ongoing.

Sorbara said he's been told there was a land transaction at one time between the Sorbara Group and Royal Group - which he excused himself from to avoid a conflict of interest - that was being examined.

This is the second time the Opposition has called for Sorbara to resign over his involvement with Royal Group.

In 2004, the investigation by police and the Ontario Securities Commission into Royal Group prompted calls for him to step down.

Sorbara kept his post, but severed himself from supervision of the OSC, a responsibility that now rests with a different ministry. He was also cleared of any wrongdoing by the province's integrity commissioner.

Police have also issued other warrants as it continues its ongoing criminal probe of Royal Group. In February it searched the head offices of Bank of Nova Scotia.

At that time, investigators were looking for documents and data, some dating back as far as 1996, linked to the business dealings of the troubled plastics maker, as well as founder Royal Group founder Vic De Zen and former employees Domenic D'Amico and Fortunato Bordin.

That warrant contained allegations of fraud, theft over $5,000 and publishing a false prospectus against De Zen, former chief executive Douglas Dunsmuir and former chief financial officers Gary Brown and Ronald Goegan. It also makes allegations of fraud and theft over $5,000 against Bordin and D'Amico.

The allegations, contained in a search warrant issued by an Ontario judge, have not been proven and the RCMP has not laid any charges as a result of its investigation.

The company has been under investigation since February 2004 for interactions between Royal Group subsidiaries Royal Building Systems, Roycon Ltd., Royal St. Kitts Beach Resort Ltd. and a numbered Ontario company.

with files from Canadian Press
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Cases Like This Not Prosecuted in Canada

Postby urquhart » Tue Sep 13, 2005 8:49 am

Why do Canadian regulators turn a blind eye to Canadain executives looting public companies? Here's another US prosecution of two US executives caught looting Westar Energy Inc. in Kansas.

September 13, 2005


Jury Convicts Westar Ex-Officials
Of Looting Millions From Utility

September 13, 2005; Page B2

KANSAS CITY, Kan. -- A federal jury found former Westar Energy Inc. Chief Executive Officer David Wittig and another executive guilty of looting the electric utility of millions of dollars.

Prosecutors claimed the two men, who were forced out of the Topeka, Kan., company in 2002, engineered extravagant salaries and benefits for themselves at the expense of shareholders, hiding much of their actions from the company's board and federal regulators.

Mr. Wittig and former Chief Strategy Officer Douglas Lake were found guilty of conspiracy, wire fraud, circumventing internal controls and money laundering.

The jury deliberated for 7½ days before convicting Mr. Wittig on 39 counts and Mr. Lake on 30 counts. Each count of wire fraud, the most serious of the charges, is punishable by up to 20 years in prison and a fine of as much as $1 million. Testimony about whether the government can recover money from the executives is expected to start Tuesday.

Attorneys on both sides declined to comment immediately after the verdicts. Messrs. Wittig and Lake have denied the charges, saying their actions were legal, approved by the company's directors, and disclosed in corporate filings.

Mr. Wittig, who became chief executive of Westar in 1998, helped to turn the Midwest utility into a fast-paced deal machine and hired Mr. Lake, a former colleague of his at what was then Salomon Brothers, to become his deputy. Mr. Wittig earned more than $25 million in his seven years at the company.

After some success, Westar's deal frenzy began to falter. The company's stock price fell from $44 to $9 and the company came under pressure from shareholders and regulators. In September 2002, Westar hired the New York law firm Debevoise & Plimpton LLP to conduct an internal investigation, which uncovered many of the details in the grand jury indictment.

The former executives' first trial ended in mistrial last year after jurors were unable to reach a consensus on more than half of the charges.
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OSC Ignores Experts Reporting Securities Violations

Postby urquhart » Sat Sep 10, 2005 9:55 am

The fact that the OSC ignores expert consultants, like Duff Young, reporting illegal securities activiites at Portus indicates that the OSC problems go beyond incompetence to wilful neglect.

I had the same experience with the OSC when I was an informed and honest director reporting stock trade manipulation, continuous disclosure misrepresentation, unauthorized related party transactions, illegal issuer bids, and failure to file insider trading reports at Technovision Systems Inc. (whose business was acquired by Uniserve Communications Corporation trading on the TSX Venture Exchange). Not only did the OSC enforcement staff ignore me, they proactively spent hundreds of hours defending the public company and six Ontario control persons whom they acknowledged had committed this list of securities offences. The OSC preferred to protect the securities violators since it believed there was not sufficent public interest to warrant the use of their limited investment resources to conduct enforcement action for the illegal issuer bids and failure to file the insider trading reports. I and five minority shareowners made ten formal requests for the OSC enforcement staff and commissioners to enforce the filing of the insider trading reports and we were denied these request on all ten occasions.

Subsequently, the BCSC enforced the filing of four of six insider trading reports, which provided evidence that the Toronto corporate lawyers in the control group and their Bay Street legal counsel lied to the OSC in saying that the common shares in the illegal issuer bid were sold well below the market, when in fact they were sold above the market at the time. These shares were sold while the control persons were in possession of material negative insider information. The evidence of OSC shoddy investigation and of the lies made to the OSC are once again before the OSC Chairman for review. The code of OSC silence and OSC protection continues for this group of Bay Street lawyers, chartered accountants and senior executives. The investing public cannot have any confidence in the integrity of the OSC given the growing body of evidence that the OSC ignores directors and expert consultants reporting securities violations. As Federal Finance Minister Ralph Goodale says : "Canada cannot afford to be the backwater of the world's capital markets". Let's start by shaking up Canada's publicly recognized weak enforcemcent operations at provincial securities commissions: the ASC, MSC, OSC and the Quebec's Financial Management Authority.

OSC told of Portus troubles
KPMG seeks investor claims, return of cash
Analyst says he informed market watchdog of irregularities but got no response

Wojtek Dabrowski

Saturday, September 03, 2005

An independent consultant hired by Portus Alternative Asset Management Inc. before its collapse this year contacted the Ontario Securities Commission with concerns about the hedge-fund firm as early as December, 2003, but claims none of his phone calls were returned.

Duff Young, a popular fund analyst retained by Portus as a consultant in mid-2003, also claims the regulator failed to contact him after the hedge-fund firm imploded in February of this year after he again contacted the OSC.

"I have been calling them for a year and a half. I've got records of nine or 10 phone calls that were unreturned," Mr. Young said in an interview. He claims he called a number of OSC officials with detailed, specific messages -- some offering inside knowledge of Portus -- which were never returned.

Eric Pelletier, a spokesman for the regulator, confirmed that "it looks like [Mr. Young] contacted several different people.

"From what I understand, he did receive at least one call back."

However, Mr. Pelletier said he did not know who returned Mr. Young's call, when, or whether an actual conversation took place. Mr. Young, a former senior vice-president at Merrill Lynch Canada, denies ever hearing back from the OSC.

Portus, which sold so-called "funds of hedge funds," had 26,000 investors -- many of them small -- and about $730-million in assets under management when regulators effectively shut it down this February.

The RCMP is conducting a criminal investigation into the firm's collapse and its aftermath, which included the departure of co-founder Boaz Manor for Israel and allegations he tried to siphon off millions of dollars in investors' funds.

In its latest report to Ontario Superior Court yesterday, KPMG Inc. -- Portus's court-appointed receiver -- said it is ready to begin the work of soliciting claims from Portus investors. It hopes this will lead to money being returned to clients. The Financial Post reported last month that KPMG was preparing for the move.

KPMG also estimated that, without counting redemptions, a total of $749.8-million and US$52.8-million was invested in Portus.

The receiver also now alleges that more than US$8.6-million in investor funds was, as recently as July 8, inappropriately transferred on Mr. Manor's orders from Swiss bank accounts to accounts in Hong Kong. KPMG is trying to have the money frozen.

Further, Mr. Manor's Israeli lawyer -- who has maintained he is innocent -- has told the receiver that US$11.6-million of investor funds was used to buy "precious metals -- precious stones." KPMG has demanded that money be returned and that Mr. Manor stop trying to "control and/or manipulate" Portus funds.

Mr. Young says he first became concerned in late 2003 that Portus -- or Paradigm Alternative Asset Management, as it was then known -- was purporting to be the Canadian subsidiary of U.S.-based Paradigm Global Advisors LLC.

Although Portus once had a key consulting relationship with Dr. James Park -- Paradigm's head of investments -- the two firms were not related as businesses. Nor, it was later revealed, was Dr. Park managing Portus's money.

Mr. Young says that, at the time, he was unable to investigate on his own, having signed a non-disclosure agreement with Portus. In December, 2003, his lawyer recommended he contact the OSC. He took the advice, but "nobody ever called me back, not once."

He said his other 2004 calls to OSC officials also concerned the manner in which Portus disclosed its fees to investors and other marketing practices.

Mr. Young ended his work for Portus in February, 2004, the same month he wrote a stern memo to co-founders Michael Mendelson and Mr. Manor, warning them they were headed toward "scandal."

Although he was frustrated with the OSC in this case, Mr. Young said he still views the agency as a valuable regulator of Ontario's capital markets.

The Post reported late last month the OSC hopes to have an internal action plan for beefing up hedge fund rules sometime this fall.
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Ontario Court Judge Now Recognizing OSC Legal Misconduct

Postby urquhart » Sat Sep 10, 2005 9:06 am

Now the judges of the Ontario Superior Court of Justice are recognizing the improper conduct of OSC enforcement staff. Here's a quote from Justice Khawley in today's Toronto Sta article covering yesterday's court proceeding on the sentencing of Alan Rankin for insider tipping.

Justice Khawly said he found it "abhorrent and unprofessional" that the OSC filed some materials the day before the sentencing.


Sep. 10, 2005. 01:00 AM

OSC twist delays sentencing of Rankin until October

Agency to present expert testimony on insider tips
Ex-investment banker guilty of giving pal advice



Former RBC Dominion Securities managing director Andrew Rankin will have to wait at least another month to find out his sentence for sharing insider stock tips with an old friend.

The sentence, which was supposed to be handed down in provincial court yesterday, was delayed amid legal squabbles over new expert testimony in the high-stakes case.

Rankin's sentencing is now scheduled for Oct. 19.

"This matter is going ahead on that date, come hell or high water," Justice Ramez Khawly sternly warned lawyers for both sides yesterday.


Lawyer Brian Greenspan, left, and his client, Andrew Rankin, head for court earlier this summer during trial for tipping.

Rankin is "absolutely disappointed this didn't get resolved today," his lawyer Brian Greenspan said, adding that members of the 40-year-old's family had come from California and Eng-land to show their support. "He very much wants to move on with his life and this prevents it from happening."

The Ontario Securities Commission is asking the judge to impose a penitentiary sentence — more than two years — in the case, which is the first tipping conviction in Canada.

Prosecutors plan to call John MacNaughton, former president of the Canada Pension Plan, to testify about the impact of leaking confidential information on the capital markets.

Greenspan told the court yesterday that the OSC took too long to provide him with its submissions and, as a result, he has not been able to assess the evidence or retain his own expert.

"It is a time-honoured practice to arrange an orderly exchange of documents well in advance so both sides can fairly address the issues," he said. "We simply can't proceed. This is not the way that Mr. Rankin has a right to have his counsel proceed," Greenspan said.

Justice Khawly said he found it "abhorrent and unprofessional" that the OSC filed some materials the day before the sentencing.

He also questioned the need to have expert testimony on the harmful nature of tipping and insider trading, a concept he called "purely common sense."

In July, Rankin was found guilty of 10 counts of tipping his friend Daniel Duic to pending takeovers or deals involving 10 Canadian companies from 1999 to 2001. Rankin was found not guilty on 10 counts of insider trading.

The court heard during the six-week trial that Duic, who made about $4.5 million using the information, reached a settlement deal with the OSC in November 2001. He agreed to pay $1.9 million in penalties and testify against Rankin.

While the court heard that Duic treated Rankin to expensive trips and dinners, there was no evidence that Rankin, who was suspended from RBC in April 2001, personally traded on confidential information.

OSC prosecutors declined yesterday to specify what sentence they are seeking for Rankin. Each count of tipping carries a maximum penalty of two years in jail plus $1 million in fines.
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Postby admin » Thu Sep 01, 2005 12:43 pm

Since breaking securities law is often (in my experience) ignored in favor of things convenient in Alberta, the new ASC Chairman has quickly learned that ASC wrongdoings should also go unnoticed.

It would be quite a world if everyone, especially those charged with regulatory responsibility could simply close their eyes, cover their ears and repeat, "hear no evil, see no evil...........".

Apparently William Rice chooses this approach and asks that the ASC be allowed to "move on", without public disclosure of investigatgions into the activities at the ASC. He specifially asks, "At what point do we get an entitlement to carry on with our responsibilities..............?"

I speak for more than just myself when I answer: "Mr. Rice, you get an entitlement to carry on with your responsibilites when you find the courage and the integrity to stand up, admit the wrongs of the past, and allow the public to decide if you and your organization is worthy of the responsibility you ask for."
To ask for the facts to remain hidden while asking for our trust is fairly naive, contradictory and selfish.

Source: Financial Post article, Thursday, Sept 1, 2005 by Claudia Cattaneo
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E-mail to Ontario Standing Ctte on Finance and Econ Affairs

Postby urquhart » Thu Aug 25, 2005 2:48 pm

Dear Honourable Minister of Government Services Gerry Phillips, Opposition FInance Critic Jim Flaherty, NDP Finance Critic Michael Prue and the Members of the Ontario Standing Committee of Finance and Economic Affairs:

On October 18, 2004, the Ontario Standing Committee on Finance and Economic Affairs tabled its report on securities regulation, where recommendation four was: "The Standing Committee believes that the status quo is unacceptable, and recommends that the government initiate a review of the Legislature’s oversight of the Ontario Securities Commission."

This summer, the U.S. criminal charges on Hollinger executives and CIBC announcing Cdn $3.3 billion of SEC settlement and Enron class action settlements is casting sunlight on the incompetence or corruption at the RCMP and OSC. As a Canadian, I continue to be embarrassed and appalled by the broken state of Canada's securities enforcement system and of the Ontario Securities Commission, in particular. Here is just a sample of this summer's scathing media coverage on the Ontario Securities Commission.

Turning a blind eye – it’s the Canadian way
21 August 2005
Globe and Mail

"For truth-seeking investors and regulators, Hollinger was an easy target - "low-hanging fruit," to use a street term. The OSC above all should be ashamed."

Canadian agencies criticized
20 August 2005
Toronto Star

"Canada is a much smaller community than the U.S., with an old-boys network and deference to authority. "Are aspects of school background, previous reputation and other factors sometimes affecting the way cases are treated?" Smedmor asks. "We have to ask whether the police have the independence to do their job without political or other factors impacting decisions.""

The me-too syndrome
20 August 2005
Globe and Mail

"once again U.S. authorities forcefully moved matters ahead - far different from the style of regulators in Ontario"

CIBC Shares Drop After $2.4 Billion Enron Settlement
03 August 2005

"After CIBC paid $80 million in 2003 to settle a suit brought by the U.S. Securities and Exchange Commission, Linda Thomsen, then the agency's deputy director of enforcement, described the bank as "an aider and abetter of the Enron fraud.'' The SEC accused CIBC of helping make 34 transactions look like asset sales so Enron could conceal its debts."

OSC plans to cut fees for firms
13 August 2005
National Post

"It's a drop for everybody and it's actually great that it's particularly good for the smaller issuers, because there is an ability-to-pay issue there," Charlie Macfarlane, the commission's executive director, said in an interview yesterday.

Since October 18, 2004, there have been numerous letters of request from Ontario investors and associations to the Auditor General of Ontario for an audit of the enforcement operations of the OSC. I am forwarding to you on a private and confidential basis, another serious complaint filed with the Auditor General of Ontario, questioning the integrity of Ontario Securities Commission senior enforcement staff and their prosecution procedures. This complaint has been filed by:
Joel Fried, Department of Economics,University of Western Ontario, London, Ontario, N6A 5C2, Phone: 519-661-2111 Ext. 85272

Joel Fried has authorized me to show this complaint to government officials who can help to convince the Auditor General of Ontario that he should conduct an audit of the enforcement operations at the Ontario Securities Commission. Also, I sincerely hope that the Ontario legislature will proceed to implement recommendation four of the Ontario Standing Committee on Finance and Economic Affairs report on securities regulation: the OSC must be made accountable to the Ontario legislature through annual hearings at the Ontario Standing Committee on Finance and Economic Affairs.

Diane Urquhart
Mississauga South, Ontario
Telephone: 905-822-7618
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Globe and Mail Editorial on OSC Enforcement Problems

Postby urquhart » Mon Aug 22, 2005 7:07 am

Globe and Mail, Saturday, August 20, 2005, A18
The me-too syndrome
There were sensational developments in the Hollinger case this week, and once again U.S. authorities forcefully moved matters ahead - far different from the style of regulators in Ontario, where Conrad Black's private holding company, Ravelston Corp., and Hollinger Inc., the newspaper holding company he formerly chaired, are incorporated. For investors, it's yet another discouraging example of how slow and tentative Canada's fragmented system of provincial and territorial securities regulation can be.
U.S. federal prosecutors indicted David Radler, Lord Black's long-time lieutenant, Mark Kipnis, Lord Black's former corporate lawyer, and Ravelston, alleging that they fraudulently diverted $32-million (U.S.) from the Chicago-based operating company Hollinger International Inc. Lord Black was not charged, and he declined to comment. However, there was widespread speculation that charges are looming. None of the allegations against Lord Black have been proved in court, and he has vigorously contested a slew of civil suits brought against him over the past two years.
So far, however, there has been a disheartening me-too element to the Canadian investigation of Lord Black and his associates. Investors and analysts on Bay Street have been familiar with the byzantine structure of his holdings for years, but matters came to a head only after Tweedy, Browne Co. LLC, a New York-based investment firm with a minority stake in Hollinger International, went public with allegations about questionable payments to Lord Black. In November, 2003, the U.S. Securities and Exchange Commission confirmed that it was investigating. The Ontario Securities Commission didn't confirm that it was investigating until January, 2004.
Last August, Hollinger International's board of directors published a scathing report accusing Lord Black of running a "corporate kleptocracy." In November, the SEC filed an $85-million (U.S.) civil fraud suit against Lord Black, Mr. Radler and Hollinger Inc. But it took until this March for the OSC to announce allegations that were a rehash of the U.S. charges. And the OSC blocked a shareholder vote to take Hollinger Inc. private - a vote Lord Black would have won only after Richard Breeden, the former SEC chairman hired as counsel to Hollinger International's board, flew to Toronto and pleaded with the OSC to disallow it.
The U.S. system, with its crusading investor activists, attack-dog litigation lawyers and publicity "hungry prosecutors, may look gauche in comparison to Canada's genteel provincial and territorial commissions. But it sure gets things moving.
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Postby admin » Sun Aug 21, 2005 9:40 am

When I called BCSC lead investigator Steve Plumber, (after my brother had called and written unsuccessfully) to discuss why they were not investigating the Kelowna BC, case of Murdo McDonald. Murdo was then 92 years old and suffering from various ailments, including dementia.

When he fell down the stairs in his two story condo, he finally relented and made the decision to move to an assisted living facility. His trusted financial advisor Scott Ritchie of Kelowna told him he would help him sell his condo and move. He did. It turns out Mr Ritchie, a star revenue producer at RBC, took Mr Mcdonald to a lawyer and signed the condo over to himself with no money changing hands, no appraisal and a zero interest mortgage. Mr McDonald was sorely taken advantage of and could not even tell his family what had happened. He was unaware of what had taken place.

When they did discover the transaction and notify the BCSC, as I did. Steve Plumber's response was to tell us to take our concerns to the real estate association. Then when further discussion proved that we felt it to be a securities act violation he directed us to take it to the IDA. When we protested that he was the law, and they were the industry trade association (known for biased treatment of violations), he simply relied, "that is the way the system works".

The problem got solved shortly thereafter, as it became clear to RBC that this was indeed an embarrassing situation, but not with any help or assistance from the BCSC. Another blind eye turned (by those paid to investigate) to the detriment of Canadians.
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Toronto Star Aug. 20, 2005 - RCMP and OSC Toothless

Postby urquhart » Sun Aug 21, 2005 8:25 am

Aug. 20, 2005. 01:00 AM

Canadian agencies criticized
U.S. leads way on corporate investigations

Ontario has moved to toughen laws, penalties

When Canadian lawyer Alan Eagleson went to jail for ripping off the National Hockey League players' pension fund, it was because U.S. authorities laid charges.
When Canadian impresario Garth Drabinsky was hit with fraud charges in connection with his Livent theatre empire, it was because the U.S. Securities and Exchange Commission pursued him.
When (originally) Canadian entrepreneur Conrad Black and his (still) Canadian lieutenant David Radler, fell from power into disgrace and a mess of lawsuits, it was because U.S. officials delved into their dealings at Hollinger International Inc.
Note the pattern here?
In these cases and many others, Canadians accused of corporate fraud; cooking the company books; stealing from shareholders, pensioners and the taxman were hauled before the courts by people and institutions from south of the border.
Canadian police and securities regulators are not only toothless, their critics say, but they're also unwilling to even gum very hard against alleged corporate crooks.
This is not a new complaint. Nor is it confined to marginal players bleating from the sidelines.
Last December, Bank of Canada governor David Dodge complained international financial circles view this country's markets as the "Wild West."
Canadian regulatory agencies, police and prosecutors have lacked the expertise to "effectively pursue through to completion cases where rules have been breached."
Is Canada that far behind?
It's a matter of strong debate.
In the past couple of years, Ontario has imposed tougher securities laws, with stiffer penalties. The Ontario Securities Commission and the RCMP are working more closely.
"We've always been very proactive," says commission spokesperson Wendy Day. "It's just not accurate that Canada is behind the U.S."
The commission has more resources, she notes. The number of people in its enforcement branch has tripled to 90 in the past seven years.
RCMP Commissioner Giuliano Zaccardelli has said the force is ready to tackle corporate crime. "Do we share the desire to really grapple with these matters together? The answer from an RCMP perspective, is a resounding Yes," Zaccardelli, who spent 14 years in the force's commercial crime division, said in Montreal in January.
The perception that Canada lags, "is accurate, but I think it's changing," says Bill Mackenzie, president of Institutional Shareholder Services Canada, a branch of a Maryland firm that calls itself the world's leading provider of proxy voting and corporate governance services.
At the securities commission, "enforcement is much more robust. ...There's a lot more co-ordination going on. It's improving."
On the other side: "There is no sign of change; none whatsoever," says Al Rosen, a forensic accountant, whose firm has probed hundreds of corporations. "Instead, we're getting an absolutely disgusting public relations campaign — that they intend to change."
New laws haven't made a difference, he says.
"When you look at the evidence of serious prosecutions, it's pretty close to zero."
Corporate law matters a great deal.
On the large scale, Canada's economic health depends on whether people believe they can invest here under rules that are fair and enforced, says Charles Smedmor, a chartered accountant and fraud examiner.
The 1993 Nobel Prize for economics was awarded to Dr. Douglas North for demonstrating that an economy's prosperity was not dependent on natural resources, geography or climate, Smedmor says. The key ingredients include clear laws, honest police enforcement and objective courts.
"In Canada, it sadly appears we have a spotty record on enforcement of white-collar crime."
And the watchdog group Transparency International says this country's rating on perceived corruption is slipping.
At the personal level, corporate fraud destroys savings, Rosen says. "If it takes all your life to save $200,000 and you have a brokerage rip you off, what are you going to retire on?
"We have people who cry on the phone. They say they have to work to death because their pension plan got wiped out."
The experts offer a long list of reasons why American authorities get more results.
Canadians have a history of saying they don't want a society where lawsuits fly as often and far as they do in the U.S.
"Canadians think they can have a peaceful society by not doing a damn thing," Rosen says.
And they've "been seduced by people saying, `we'll solve it ourselves within the family.'"
Canada is a much smaller community than the U.S., with an old-boys network and deference to authority.
"Are aspects of school background, previous reputation and other factors sometimes affecting the way cases are treated?" Smedmor asks.
"We have to ask whether the police have the independence to do their job without political or other factors impacting decisions."
Corporate law is similar on both sides of the border. But U.S. rules can be changed much more quickly than those here, as when President George W. Bush, in the wake of the Enron collapse, declared war on corporate criminals.
The Americans have a strong central regulator, the Securities and Exchange Commission, which has traditionally wielded more power than Canada's provincial and territorial bodies.
U.S. district attorneys are elected. Many see the job as a stepping-stone to higher office. So they'll often pursue big cases to enhance their own profile.
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Postby admin » Sat Aug 20, 2005 6:23 pm

it just reinforces to me the that Canada is a "buyer beware" investment environment, Advocates have been saying this for some time, but not too many have been listening. It is nice to have some evidence to support this finally coming to light.
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"The OSC above all should be ashamed"

Postby urquhart » Sat Aug 20, 2005 9:37 am

Eric Reguly says today in his G & M column:

"The OSC above all should be ashamed."

The criminal prosecutions of Hollinger executives by Illinois Attorney General is casting sunlight on the incompetence/corruption at the RCMP and OSC. As a Canadian, I continue to be embarrassed and appalled by the broken state of Canada's securities enforcement system.

Globe and Mail Report on Business, Saturday, August 21, 2005

Turning a blind eye – it’s the Canadian way


Acouple of enthusiastic investors I know run tons of money and adore dissecting companies to expose hypocrisy, greed, accounting tricks and outright deception. When their fishing exp_ditions prove fruitful, they often tell the securities regulators. Years ago, they examined non-compete payments collected by the companies owned by Conrad Black, David Radler and of the rrnember sof the Hollinger and Ravelston family.
They told the Ontario Securities Commission what they found. No response. They waited, but got no hint from their contacts that the OSC had any interest in pursing the matter. Scroll forward and Mr. Radler, who was Lord Black's closest associate on this side of the Atlantic, is under indictment for fraud. So is Ravelston, the private Canadian company owned by Lord Black, Mr. Radler and other Black associates that ultimately controlled the lIollinger International newspaper collection. Lord Black is under criminal investigation, though he hasn't been charged.
So have Canadian regulators and cops finally got their man? Forget it. Mr. Radler got nailed by the United States Attorney for the North District of Illinois, in Chicago. The downfall of him, Lord Black and a media empire that once spanned three continents is almost entirely the doing of American investors, regulators and law enforcement officials, even though the cast of characters and companies are for the most part Canadian (Lord Black dropped his Canadian citizenship in 2001).
The indictments of Mr. Radler, Ravelston and Hollinger International lawyer Mark Kipnis on Thursday alleged the three defendants "cheated public shareholders in the U.S. and Canada, as well as Canadian tax authorities of tax revenue," Wasn't that sweet of the Americans to point out Canadian taxpayers may have been victims too? It saved the Canadian authorities the effort of finding that out for themselves (the RCMP says it con: ducted a "review" of the fraud allegations in early 2004, but found nothing worth pursing in Canada).
Lord Black's and David Radler's fall from grace, in short, has been a i national embarrassment. Their tribulations can only reinforce the international perception that Canada is either lax or cowardly, or both, when it comes to nailing the nasty actors of the corporate stage.
The perception, of course, is a bit unfair because they do things differently in the United States. The American state and federal justice system is cruelly efficient at squeezing guilty pleas and settlements out of defendants. One technique polished to near perfection is rewarding the fink.
Take WorldCom. Barbara Jones, the U.S. District Court Judge in Manhattan, identified Scott Sullivan, WorldCom's former finance chief, as the real "architect" of the $1 I-billion (U.S.) WorldCom fraud. But Mr. Sullivan provided evidence against his boss, the hapless Canadian dimwit Bernie Ebbers. For his generous co-operation, Mr. Sullivan got sentenced to five years; Mr. Ebbers got 25 years', a probable life sentence for the 63-year-old.
It appears they are attempting something similar in the Hollinger case in Chicago. The indictment says Mr. Radler is "co-operating with the investigation and expects to enter a guilty plea at a later date." Watch him get a relatively light punishment if any evidence he provides leads to Lord Black's indictment.
The American justice system is also more political and inherently promotional than Canada's. Note that state Attorneys-General, such as New York's Eliot Spitzer, the scourge of Wall Street, are elected officials. The elected like to get reelected or run for a higher office (Mr. Spitzer wants to be governor). That means they cherish good press, which in turn means their instinct is to go after high-profile targets. The bosses of the U.S. Securities and Exchange Commission are not elected, but don't want to be shown up by Mr. Spitzer and his kind. So, in the spirit of competition, they too train their crosshairs on the big quarry.
In Canada, prosecutors and regulators are less trigger happy and less inclined to be media whores. Because they're "Canadian," they tend to be less confrontational.
They certainly have fewer resources than their U.S. counterparts. This may help to explain why lesser targets, such as Ontario broker Mark Valentine, typically c1utter the hit list. Those targets are more of a sure thing simply because they have less capacity to fight back. If you're launching a war, make sure the enemy's firepower doesn't exceed your own.
But none of the differences can explain why the Canadians left the dirty work to the Americans on the Hollinger file. Everyone in this country - investors, regulators, the media - knew Hollinger companies and officials of various descriptions were collecting ample bonuses and non-compete fees. But no one asked the Hollinger dudes to justify the amounts or explain their accounting. Or if they did, they gave up too early. That much is obvious.
As the sorry Hollinger saga enters its final days, it's worth remembering that its collapse was triggered by a low-profile New York fund management firm called Tweedy Browne. Tweedy is not full of forensic accountants, securities lawyers or ex-gumshoes. It is just an investor and it just asked the question: Can you justify the non- compete fees? When Tweedy didn't get satisfactory answers, it went to the SEC. Not long after, Lord Black was gone as CEO of Hollinger International.
Canadian investors could have gone through the same process. Ditto the OSC. For truth-seeking investors and regulators, Hollinger was an easy target - "low-hanging fruit," to use a street term. The OSC above all should be ashamed.
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Postby admin » Thu Aug 18, 2005 6:13 pm

audit is underway at the alberta securities commission. They are looking into three areas;

1. the process by which the ASC investigates complaints or serves the public (is it working, does it serve?)
2. The employment allegations.
3. The appointment and or appropriateness of board members.

If you have information that would be of value to the auditors, they are open and willing to listen.

I encourage you to contact the auditor in charge of this file if you have any information that would shed light on if and how well the ASC serves the people it is charged with serving.

contact is Ed Ryan
Auditor General of Alberta

I can attest to my own experience that the ASC does not in fact even bother serving the public if they are complaining about a member of the IDA. The system calls for a simple referral of the complaint to the IDA which in effect is like referring an abused person to the abusers association. Please tell them if you have similar experience. If enough people speak out it may find its way into the final report.

Final report will be found eventually at
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Postby admin » Mon Aug 15, 2005 1:41 pm

Let the auditor audit the ASC

Terence Corcoran

Financial Post

Thursday, May 05, 2005

The swirl of allegations surrounding the Alberta Securities Commission, from the absurd image of sex dolls in executive offices to charges of bias and conflict in the enforcement of securities law, warrant full investigation. Less clear is who should conduct such investigations, and under what authority and mandate.

Alberta Finance Minister Shirley McClellan has elected to depend on the province's Auditor General, Fred Dunn. The scope of his investigation, routine under audit legislation, is pretty broad. He looks for fraud and makes sure codes of conduct and policies regarding standards of business practice and behaviour exist. The ASC's enforcement system, the subject of extreme claims of conflict and bias, will also be reviewed this year. That part of the audit will examine "systems" to respond to complaints of violations of securities law. It will also review "procedures" and "processes" in place to make sure investigations and decisions are "adequately documented."

The ASC's commissioners have gone to court to try to limit Mr. Dunn's ability to conduct his audit. They implied that the auditor might fail to uphold strict confidentiality provisions in the securities act. He might also break solicitor-client privilege embedded in securities enforcement procedures. The commission wants to be able to review the auditor's report before it's made public, possibly some time in July.

An Alberta court will decide these and other issues next week. From one perspective, the auditor general may have the upper hand. Section 14 (4) of the Alberta Auditor General Act transfers the confidentiality in the securities law to the auditor. If the auditor picks up information that is confidential under securities law, he "holds that information under the same restrictions respecting disclosure as governed the person from whom the information was obtained."

The auditor general appears to have the edge on the legal status of confidentiality. But there's more to this case than this narrow legal issue. Even if the securities commission fails to win its attempt to limit the auditor, it's hard to avoid the observation that the commission has been subject to a most unusual form of persecution and its attempt to protect itself against further damage is more than understandable.

The ASC is now surrounded by serious and disturbing allegations, although the various charges need to be sorted out and isolated. There are three threads. One alleges sexually inappropriate behaviour, including circulation of explicit e-mails and the existence of a sex doll in one office. The second involves allegations of an oppressive management environment that included favouritism. The third claim is that enforcement matters were decided on the basis of conflict of interest and bias, especially on the part of chairman Stephen Sibold and David Linder, executive director.

The first two areas, while of interest to outsiders, surely can be dealt with internally if the allegations are true. Bad management isn't yet a crime. The important public policy issue is the alleged failure in enforcement.

The most public denunciation of the commission comes from Wayne Alford, former enforcement chief. In a letter to Alberta's former revenue minister in January, 2004, Mr. Alford listed what he said were "four incidents" in which Mr. Sibold and Mr. Linder failed to authorize prosecution of prominent Canadians for securities infractions.

There is the Calgary lawyer, "a former partner of Sibold," involved in a "strong" case of insider trading. But Mr. Sibold and Mr. Linder are said to have instructed staff not to pursue the lawyer. Another former partner of Mr. Sibold is alleged to have been let off in a case of providing misleading information. Mr. Sibold is also said to have "objected strenuously" to staff commencing enforcement against "a prominent Canadian businessman."

These are serious, damaging allegations that deserve a full investigation. Whether such an investigation can ever be carried out to full public satisfaction is another question. The names of the people involved cannot be disclosed without breaching confidentiality provisions of the law. Short of a full public inquiry, something that might be technically impossible due to confidentiality, the auditor general's review is the only sensible option.

Perhaps special provisions should be made to protect some of the people involved against possibly unfounded allegations. Even without such protections, everybody involved may ultimately have to depend on the integrity of the auditor general. He must abide by the law, which means he must protect confidentiality of information regarding companies and others who are alleged to have broken laws.

There is no reason to think the auditor general would break his own act. But he also needs to neutralize the star-chamber atmosphere that now surrounds the commission. That means his audit must include a thorough review of all sides of these issues, conducted in private and without full disclosure of all the details. It's a tall order, but it's the only way to do it.
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OSC Says It Does Not Have Powers to Obtain Restitution

Postby urquhart » Thu Aug 04, 2005 7:23 am

Yesterday the SEC secured a 10 year prison term and a restituion order of $3.27 billion against an ex-Cendant executive for accounting fraud. David Brown, at the May 2005 Toronto Town Hall Meeting, was not speaking honestly when he said the OSC does not have to power to obtain restitution for aggrieved investors. S. 128 of the Ontario Securities Act explicitly provides the OSC a tool to secure restitution for investor losses similar to that used by the SEC against the ex-Cendant executive. When I confronted David Brown with this power available to the OSC he admitted that indeed this was true and that the OSC tried it once in court and it was not very successful. Perhaps it is now time for the OSC to seek restitution orders under S. 128 from the Ontario court and for the Ontario court judges to wake up to the severe consequences on investors of white collar crime and the need to deter white collar crime by Canadain executives, lawyers and accountants. See the ex-Cendant executive penalties in the Associated Press article below.

Ex-Cendant executive gets 10-year prison term Shelton also ordered to pay $3.27-billion

Thursday, August 4, 2005 Page B10

Associated Press

HARTFORD, CONN. -- Former Cendant Corp. vice-chairman E. Kirk Shelton was sentenced yesterday to 10 years in prison and ordered to pay full restitution for his role in an accounting scandal that cost investors and the company more than $3-billion (U.S.).

U.S. District Judge Alvin Thompson ordered him to pay $3.27-billion to New York-based Cendant, including an initial payment of $15-million by October and monthly payments of $2,000 a month once he is out of prison.

The $3.27-billion figure would cover what Cendant -- a hotel franchisor and travel company that also owns the Avis and Budget car-rental companies -- spent to settle shareholder litigation, pay its legal fees and conduct various financial audits, prosecutors said.

Mr. Shelton, 50, must surrender to the Bureau of Prisons by Sept. 2. He asked to be located at a federal prison in Pennsylvania.

He was convicted Jan. 4 on 12 counts of conspiracy, mail fraud, wire fraud, securities fraud and making false statements to the U.S. Securities and Exchange Commission. Prosecutors said he inflated a revenue report by $500-million at Cendant's predecessor, CUC International Inc., to drive up the stock price. The fraud was reported in 1998, causing Cendant's market value to fall $14-billion in one day.

The allegations of fraud at Cendant were among the first of corporate accounting scandals to spark outrage from investors in recent years. At the time, the $3-billion fraud was the largest case of accounting fraud in the United States, prosecutors said.

The SEC urged the judge to send a message to the business community when sentencing Mr. Shelton. In a letter to Judge Thompson, the securities watchdog said the Cendant fraud adversely affected the public's perception of U.S. securities markets, which could hurt the ability of companies to raise capital.

Prosecutors had argued for a harsh sentence, saying Mr. Shelton showed no remorse for his actions.

Jim Cramer, a CNBC television financial commentator, managed a hedge fund that suffered $17-million in losses after the Cendant scandal became public. Mr. Cramer said he had considered selling the fund's 600,000 shares of Cendant, but was persuaded to buy another 200,000 shares because of a Cendant conference call. Soon after, the stock value slid 46 per cent.

"I was in disbelief people could tell such lies," he said.

Mr. Cramer urged the judge yesterday to issue a strong sentence. He said business executives are watching the case closely.

"Crime, no matter what the colour of the collar, must never pay," Mr. Cramer said.

Mr. Shelton's lawyer, Thomas Puccio, said his client had been fired by the time of the conference call that Mr. Cramer cited.

Mr. Puccio said he would appeal the sentence. He has said the case is atypical because Mr. Shelton did not directly benefit from the scheme. He, like Cendant stockholders, lost millions of dollars.

More than 100 people sent letters of support to the judge, urging him to issue a lenient sentence. Many cited good deeds Mr. Shelton has done over the years, from helping family and friends financially to volunteering his time at the YMCA in Stamford, Conn.

Judge Thompson said that while he recognized Mr. Shelton has led an admirable life, he could not ignore the magnitude of the crime.
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No-one Goes to Jail for 5 Years Let Alone 30 Years in Canada

Postby urquhart » Wed Jul 13, 2005 8:56 am

It is not surprising that Canada is a destination for stock market scams. TThe number of white collar crime cases with jail sentences can be counted on two hands and no0ne goes to jail for 5 years let alone the 30 years Bernie Ebbers has just got.

11:40am 07/13/05
Ex-WorldCom CEO Ebbers sentenced to 30 years -- WSJ (MCIP, VZ) By Carolyn Pritchard
SAN FRANCISCO (MarketWatch) -- Bernard Ebbers, the former chief executive officer of WorldCom Inc. (MCIP) , was sentenced to 30 years in prison on Wednesday, almost three years after the telecommunications company collapsed in a massive accounting fraud, the Wall Street Journal reported on its Web site. Ebbers was convicted in March of all nine counts against him, including conspiracy and securities fraud, related to the $11 billion scandal, the Journal noted.
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