Investors Scrutinizing the Regulators

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Securities Regulation In CanadA


Fox Guarding the Hen House

   

 

WELCOME

 

The purpose of this web site is to provide information to the investing public on how self regulatory organizations (SROs) operate in the Canadian Securities Industry.

Not what they say, not what you hear, but what they do. Not what they purport to be or appear to be - but what they are.


All I have is a voice, To undo the folded lie


Another Time by W. H. Auden published by Random House. Copyright © 1940

Quis custodiet ipsos custodes?

(Who is guarding the guardians?)


 

Canadian Non-Bank ABCP

14 September 2008

"Who's watching your money?"

23 November 2008


Ontario Standing Committee on Government Agencies Review of the

Ontario Securities Commission

02 December 2008

 

 

Court deals blow to IDA discipline

16 July 2008

 

"We are pleased -- we are free to regulate effectively in the public interest without concern that we are subject to legal action from individual investors"

- Jeff Kehoe, IDA enforcement litigation director

Source: http://www.rgm.com/articles/idawins.html  Oct. 26, 2002

 

Throughout the web site you will see pictures/banners such as the one below. 

By clicking on these pictures/banners you will be directed to the associated video.

April 26, 2008

Going for Broke (video)

Paula Todd investigates how investors can lose their life savings at the hands of brokers at respected bank-owned brokerage firms.

 

I have received hundreds of requests for the broker database from across Canada.  Many individuals are not able to find it on the web site, here is a link to the page.  Should you have any questions with respect to its content, you may email us at info@investorvoice.ca


Todd:

How would you characterize the problems in the regulation of the securities business right now?

Flaherty:

Too complicated.  Too expensive.  Too bureaucratic.  Overlap.  Inefficient.   Ineffective. 

All of those things.

Todd (commentary):

Flaherty has been trying to get the provinces and territories to agree on a new system of policing securities.

Flaherty:

Some have said that Canada's enforcement is an embarrassment, internationally.  That may be putting it a bit strong.

Todd:

How would you put it?

Flaherty:

Umm.. it's close to an embarrassment, certainly.

Todd (commentary):

Flaherty favours a kind of court system for investors.  One stop, where everyone could go to sort out their problems.

Flaherty:

I think we have to make sure that this is a system that not only has strong rules, but strong enforcement, that's independent.

Todd:

Independent of the investment industry?

Flaherty:

Yes. Yes, oh yes.

 

Self-regulation doesn't protect the public from Bay Street, it protects Bay Street from you.


 

Special Committee to Review the British Columbia Personal Information Protection Act (PIPA), Vancouver, British Columbia

MFDA submission

…some third parties may consider that the MFDA’s Rules may not fall within the scope of “the laws of Canada or a province”.
 

“Third parties may also contest the MFDA’s standing as a “public body” or “law enforcement agency”, or at least not have sufficient certainty that they feel they can rely upon this exception.”

“…the MFDA generally operates through delegated authority from its recognition as an SRO.”

12 February 2008


Robert Kyle,  InvestorVoice.ca submission

I would strongly suggest to this Committee that those ‘Third Parties’, referred to by Mr. Devlin, includes all consumer/retail investors across Canada.

...

I believe all of the above are critical issues and ask that these concerns be carefully considered prior to making any revisions to PIPA.

29 February 2008


Report of the Special Committee to Review the

Personal Information Protection Act

 

 Excerpt (page 29)

17 April 2008

SELF-REGULATORY ORGANIZATIONS

The Committee received another request to broaden the scope of the consent exception for an investigation from the Mutual Fund Dealers Association (MFDA) of Canada, the national self regulatory organization (SRO) for the distribution side of the mutual fund industry.

...

... we received different opinions from the Commissioner and government on the question of whether it is appropriate to establish a separate regulatory scheme under the PIPA for national SROs operating in British Columbia. Pending a resolution of this matter by the parties involved, we recommend that:

12. no amendment be made to section 18(1)(j) of the Act.

 

How safe is your investment - or not.

For Your Information - Segregating your nest egg.

Segregation - The safekeeping of a customer's securities in a separate location when the securities have been paid for in full. Segregated securities may not be commingled with the securities of the broker-dealer and they may not be used by the broker-dealer to collateralize loans.

What you will find in the small print of your account statement:

(eg.)  Any free credit balances (excluding registered plans) represent funds payable on demand which are not segregated and may be used in the conduct of our business.

Segregated securities may be used by the registrant, by sale or loan, whenever a client becomes indebted to a registrant but only to the extent reasonably necessary to cover the indebtedness.

You will receive a interest payment, in most cases, on any cash sitting in your account. Albeit, is the 1-3 % you receive, justify the risk you take it not having your monies segregated???

 

Ontario Government to appoint a committee to conduct the next review of Ontario’s Securities Act. (see Ontario Budget 2008)

Budget 2008

The question is; why bother???  The majority of the recommendations from the last review, even though tabled to the legislative in October 2004, have still not been implemented.  Obviously the current government holds little regard for the 700,000 investors who were represented at the 2004 Finance Committee Hearings.   What a waste of time, energy and taxpayers' money.

Dwight Duncan and Gerry Phillips are directly to blame.  Let's hope the Finance Committee is not loaded up with Liberal MPPs because they are not blameless - for they continue to remain silent even though they formed the recommendations at the 2004 Finance Committee Review 3 1/2 years ago.

Ontario ponies up millions for financial education

28 March 2008

Great, I hope all the MPPs, including the Finance Minister, sign up for the course.  Hell, I'd even pay higher taxes - that would be money well spent.

 

Government of Canada Appoints Expert Panel to Review Securities Regulation

Ottawa, February 21, 2008

The Honourable Jim Flaherty, Minister of Finance, today announced the chair and members of an expert panel charged with providing advice and recommendations on securities regulation in Canada.

The Panel

 

A Two - Tier System for the Retail Investor

Currently, aggrieved retail investors who present a legitimate claim of a contravention of a provincial securities act are directed by the securities commissions to contact a self-regulatory organization (“SRO”). The SRO, not being a creature of statute, regulates its members and those registrants employed by the member by contract. The terms of that contract are the by-laws and constitution of the SRO. The securities commissions have “recognized” the SROs for the purpose of regulating its members subject to those terms. The contract however does not extend to the public as they are not a party to that contract.

The consumer/retail investor, with a valid claim, has the right to have their claim investigated and, if warranted, adjudicated by direct application of the relevant Securities Act and not by terms of a contract to which the consumer is not a party. To exacerbate the problem further is that there are no statutory remedies within the current regulatory structure available to the retail investing public even though it was contemplated and incorporated into the Securities Acts. As an example, the following can be found within the Ontario Securities Act.

128.  (1) The Commission may apply to the Superior Court of Justice for a declaration that a person or company has not complied with or is not complying with Ontario securities law.

(3) If the court makes a declaration under subsection (1), the court may, despite the imposition of any penalty under section 122 and despite any order made by the Commission under section 127, make any order that the court considers appropriate against the person or company, including, without limiting the generality of the foregoing, one or more of the following orders:

13. An order requiring the person or company to compensate or make restitution to an aggrieved person or company.

Securities Act ,c. 11, s. 375; 2006, c. 19, Sched. C, s. 1 (1).

The following is the Ontario Securities Commission’s (“OSC”) answer to a question posed by an investor with respect to restitution. It is an extract from the transcript of the 2005 OSC Town Hall Forum Questions and Answers;

“The OSC does not, in fact, have the power to order a court to grant restitution. What it does have is the discretion under section 128 of the Securities Act to apply to the court for a declaration that a person has not complied with or is not complying with Ontario securities law. The court may then order a wide range of remedies, including an order for compensation or restitution.

The OSC has only used this redress mechanism once...”

http://www.osc.gov.on.ca/Investor/Forum/TownHall/th_20050614_q-and-a.pdf , Question 4, pg.1

 


 

Ontario Government supports SROs,

ignores Ontario Investors and the

2004 Finance Committee Recommendations

Min. Gerry Phillips, responsible for OSC and IDA at the time of the recommendations.

Correspondence with

M.P.P. Michael Prue

M.P.P. Joseph Tascona

Hon. Gerry Phillips

&

Ombudsman Ontario

 

16 Mar 2004- 25 Sept 2008

Minister of Finance now responsible for OSC, IDA and MFDA.

The committee recommended the government establish a task force to review the role of self-regulatory organizations, or SROs, as they are commonly known.

Mr. Phillips it has now been over 3 ½ years since the recommendations were first tabled to the Ontario Legislative Assembly on October 18, 2004.

"Mr. Phillips, other than making promises to the public on this specific recommendation, have you taken any further steps?"

  • Why have you not acted on this all-party recommendation to date?
  • When will you act?
  • Who will comprise the task force if you proceed with your commitment?
  • Will you include consumer/investors on that task force?

MPP Michael Prue tries to hold Ontario Government accountable

"We also talked during all of those days with the committee about the self-regulating organizations, or SROs. The committee believed that this was an absolutely pressing issue that needed to be dealt with. All three parties voted that something had to be done with the SROs."

02 May 2006

03 December 2007

 


The arguments in favour of self-regulation share the view that SROs should be concerned by their reputation; if reputation is valuable in an industry characterised by asymmetric information about quality, then SROs will attempt to build a reputation of good quality. This would be done, firstly, by monitoring and enforcing quality, and secondly, by informing consumers about quality provision.

Can Self-Regulation work?. A game-theoretic approach.

May 18, 2001

 

 

Markarian v. CIBC World Markets Inc.

[2006] J.Q. no 5467

In a landmark case, Montreal Superior Court Judge Jean-Pierre Senècal awarded more than $3 million, including $1.5 million in punitive damages, to retirees Haroutioun and Alice Markarian, who had unwittingly guaranteed the trading losses of people they didn't know at the behest of their former CIBC Wood Gundy broker, Harry Migirdic. The brokerage invoked the guarantees to seize $1.4 million from the Markarians in 2001, leaving $2.54 in their accounts. Senècal called CIBC's conduct "reprehensible" and said it "cruelly failed" in its duty to protect its clients and supervise its employee. CIBC subsequently settled out of court with several other former clients of Migirdic, who was terminated in 2001.

Harry Migirdic, whose mishandling of client accounts led to losses in the millions, tries to conceal himself from a photographer at the Palais de Justice in January 2005.

[313]

...  CIBC was thus complicit in the fraud and actually benefited from it.  Protecting clients was less important than protecting itself.

[401]

In the opinion of the Court, the conclusions of the Court in Marseille v. Bourque and Valeurs mobilières Desjardins27 apply here:

The defendant ... is liable for its employee, since it exercised no control whatsoever over his actions. What is much more important, the Court notes a laxness in establishing measures that would enable the defendant to verify the actions and decisions of its brokers.

[402]

The defendant seriously failed to fulfil its obligations as a mandatary to watch over for the interests of its clients and protect them. CIBC's supervision proved ineffective and, at certain times, non-existent. But there were many signs that should have prompted energetic intervention and controls. The defendant's failures led the plaintiffs into the trap laid for them.

[403]

ClBC must be found liable for the fraud to which the plaintiffs fell victim. It is
liable for it not only indirectly, but directly.

[614]

Daniel Bowering, Compliance Department officer, was mandated by CIBC to investigate Migirdic's fraud and he testified. He wrote to his bosses at the end of his investigation that the firm should probably absorb the Markarians' losses, given all the irregularities committed by Migirdic, Migirdic's statements, the Markarians' statements and all the information revealed in Bowering's investigation. Bowering's recommendation was not followed.

[615]

So why was everything blocked? Why were the false guarantees exercised? Why did CIBC seize the Markarians' assets?

[616]

Because Tom Monahan, the president of CIBC Wood Gundy, decided that was what to do.

[621]

Monahan acknowledged that Migirdic's fraud justified his dismissal. He acknowledged that it did not, however, prevent ... the guarantees from being executed.

[638]

CIBC thus became the accomplice in Migirdic's fraud and did everything in its power to benefit from it directly.

-Superior Court Judge Jean-Pierre Senècal


So why hasn't  L'autorité des marchés financiers (the Quebec Securities Commission) or the Investment Dealers Association of Canada taken action against CIBC World Markets and those individuals who were complicit in the fraud???  Why haven't they reported this to the police???  Does the IDA believe that the supervisory role was exercised properly?  Or is it because they would lose a member of their Board of Directors and that it would reflect poorly on the IDA? 

The IDA claims that this case has been reported to the police.  Really? I doubt it very much.

 

The Investment Dealers Association

of Canada' Comset

(Complaints and Settlement  Reporting System)

This is the information that the IDA does not want the public to see.

 

ASC Releases Oversight Review of

IDA Prairie Office

11 June 2007

Extract

Throughout the report we have highlighted certain deficiencies as significant. Significant deficiencies are findings that fit into one of the following categories:

  • Contravention of the terms of the delegation or recognition orders

(see Gordon Simpson v IDA)

  • Items that may effect the IDA's ability to continue to meet the terms of the delegation or recognition orders

  • Significant procedural deficiencies

  • Repeat findings that the IDA has not sufficiently addressed

  • Supervisory issues


Alberta Securities Commission report highlights 'deficiencies' at IDA office

01 August 2007


ASC audit reveals IDA deficiencies

31 July 2007

"the ASC says that one forgery case originally resulted in a reprimand, while another, which involved a designated person forging a signature and misleading the IDA, ended with a warning letter."

"[The IDA says] that there are two types of forgery issues — one that involves fraud and another that is simply a case of a dealer filling in a missed signature for his or her client — and that the two are dealt with differently. "A forgery is not always a forgery," he says. "It's not that simple in most circumstances.""

-Warren Funt, VP. Investment Dealers Association of Canada

 

Pearls of Wisdom from the IDA

"A forgery is not always a forgery."

Warren Funt, V.P., Western Canada, Investment Dealers Association

(Responsible for all of the member regulation activities, registration, sales compliance, financial compliance and enforcement, west of the Ontario/Manitoba border.)

-Advisor.ca; ASC audit reveals IDA deficiencies, 31 July 2007

 

IDA Misrepresentation (By-law 20)

 

“Since the IDA has no authority to regulate former members or former approved persons either under its bylaws or in contract, it has no jurisdiction.”

 

William F. Ready, Q.C., Commissioner

Saskatchewan Financial Services Commission

 

The Ian Thow Affair

Berkshire Securities Inc.

..Berkshire has adopted the approach that it was in the dark about what Thow -- who constantly told clients he had a close relationship with Lee-Chin -- was doing and, hence, is not responsible. However, it has made settlements with some of Thow's clients, including some who invested with Thow on the understanding that the money would be used to buy shares in National Commercial bank of Jamaica, an entity controlled by AIC.


Provided a line of credit or loan from which funds were procured and transferred to Thow and his numbered companies.


In 2002 the AIC Group, led by Jamaican-Canadian billionaire Michael Lee-Chin, acquired 75% of the shares in the National Commercial Bank. Backed by AIC Limited - Canada's largest privately held mutual fund company.


Michael Anthony Lee-Chin

Ian Thow

Ian Thow, left, and Michael Lee Chin pose in front of Thow’s executive jet in an undated photo.

National Post, Panel frowns on Berkshire settlement. 24 October 2007

 


 

Honourable Peter Cory

The IDA established a Task Force to Modernize Securities Legislation in Canada which prepared a report entitled Canada Steps Up.  Within that report is a Research Paper entitled Critical Issues in Enforcement which is authored by The Honourable Mr. Justice Peter deCarteret Cory and Marilyn L. Pilkington.

Canada Steps Up

04 October 2006

Marilyn L. Pilkington.

The Investment Dealers Association of Canada  placed the following constraint within the Invitation to Comment:

"As a guideline to assist you in your comments to us, we would like to refer you to our mandate and terms of reference. The Mandate does NOT ask us to make recommendations as to what is broken and needs fixing."

 

This report was paid for by the IDA out of the IDA Discretionary Fund as a "Public Interest Project".  The total bill is not in yet, but it is approximately $5 million according to sources at the IDA.  The monies held within this fund are those from monies which the IDA collected from market timing, disgorgements of ill gotten gains etc.. etc... Those monies that could not be returned to aggrieved investors  because, the IDA claims, they are unable to do so.


Extract (page 242)

ii. Jurisdiction

To the extent that SROs are trade associations, it is reasonable that they exercise their powers only with respect to the conduct of their members.
However, they have become more than trade associations.

Legislation authorizes securities regulators to recognize SROs and to review their by-laws, rules, financial affairs and decisions. In effect, it appears that SROs, subject to the review of regulators, are exercising delegated regulatory authority over the conduct of their members. If they are hampered from doing so effectively by limits on their jurisdiction, the gaps must be addressed.

It appears that, if SROs make decisions without access to relevant information, or their decisions cannot be enforced, the problem cannot be corrected on review. Either additional powers must be provided to the SROs or a different system of regulation must be put in place. In light of the importance of the work undertaken by the IDA and other SROs, and the seriousness of the matters they investigate and prosecute, it is important to address and resolve their appropriate role and jurisdiction within the system of securities regulation. Any ambiguity as to whether SROs are exercising statutory powers of decision, and are thus subject to the protections guaranteed by the Canadian Charter of Rights and Freedoms, should also be resolved.


Extract (page 174)

7. Self Regulated Organizations


• There should be a review of the appropriate roles, jurisdiction and powers of Self Regulatory Organizations (“SROs”) in the enforcement of standards within the securities industry and the assessment of penalties.

 

 

 

Paul Bourque

 SVP  Regulation, IDA

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

- Paul Bourque

Penalties needed

01 November 2004

 

6 YEARS EARLIER (almost to the day)

 

Joe Oliver, ex-President, IDA

Evidence given before the

Senate Standing Committee

on

Banking, Trade and Commerce


 

"The IDA is Canada's only national entity with delegated responsibility for securities regulation and investor protection."

- Joe Oliver

02 November 1998

 

The Medical field has coined a term for this.

SCHIZOID

 

The IDA claims investors are confused and misinformed. 

Based on the above, it's not hard to figure out why.

Government or Private Club?

 

 

Joe Oliver, ex-President, IDA

Evidence given before the Ontario Standing Committee on Finance and Economic Affairs


 

Our national platform allows us to work effectively on joint investigations with ... the SEC.

- Joe Oliver

18 August 2004

 

IDA Ontario District Council

[IDA] counsel argued that a broad interpretation of IDA by-laws would require [Gruson's] attendance at a joint IDA and SEC interview.

We concluded that no such broad interpretation should be made in this case.

- IDA Ontario District Council, 23 December 2004

 

To better understand why - here is a letter sent to the Minister responsible for the OSC and IDA prior to the decision.

08 November 2004

 

 

 

Joe Oliver,

ex-President, IDA

Evidence given before the Ontario Standing Committee

on Finance and Economic Affairs


 

…our disciplinary process loses credibility when it imposes well-publicized and substantial monetary penalties but has no effective means to enforce the penalties.

- Joe Oliver

18 August 2004

 

Complaint to Competition Bureau

 

 

 


 

The Public must demand change, everyone else has interests to protect

Individual investors must help push for the major reforms needed in the investment marketplace, says Glorianne Stromberg.

Glorianne Stromberg is a securities lawyer, a former Commissioner of the Ontario Securities Commission and a frequent commentator on the financial services industry.

    EXCELLENT READ

Listen Up, Bay Street

21 September 2002