Theresa Tedesco, Chief Business Correspondent

Friday, April 01, 2005

The four-page missive delivered in January, 2004, to Greg Melchin, Alberta's former revenue minister, claimed there was a "two-tier regulatory regime" with one set of rules for "normal" people and another for the "powerful." The letter also alleged senior executives engaged in favouritism among staff, exchanged "erotic" e-mails, and condoned an "open display of sex toys" in the regulator's offices.

TIM FRASER / CANWEST NEWS SERVICE

Stephen Sibold, chairman of the Alberta Securities Commission, has called his detractors “cowardly and depraved individuals.”

The letter, written on Jan. 9, 2004, by Wayne Alford, a former ASC enforcement director, lists four incidents of what he described as "significant ethical failing," and warned that "should they become public knowledge, would certainly bring the administration of Alberta's securities laws into disrepute if not open ridicule."

Mr. Alford, who resigned from the securities watchdog in December, 2003, urged Mr. Melchin to "intercede" and "address the abuses at the ASC."

The government viewed Mr. Alford as a credible complainant, and as a result hired Robert Clark, a former Alberta ethics commissioner, to investigate the allegations of misconduct. However, sources say Mr. Clark was unable to convince other potential complainants to co-operate and the probe ended. Even so, the provincial government decided not to reappoint Stephen Sibold, chairman of the provincial securities watchdog, to a second, five-year term.

Mr. Alford, who now operates a law practice in Calgary, declined to comment. However, sources say he wrote the letter to follow up on a complaint he made to one of Mr. Melchin's assistants. Mr. Alford joined the ASC in 1999 and was enforcement director from 2001 to December, 2003.

In his correspondence, Mr. Alford said he was concerned about the "ethical standards practiced" by Mr. Sibold and David Linder, executive director at the ASC. Mr. Alford listed several examples of what he described as interference in enforcement cases by Messrs. Sibold and Linder of which he had "first-hand knowledge," although he did not disclose the names of individuals or companies involved.

Mr. Alford also claimed Messrs. Sibold and Linder treated the regulator "as their private domain," and "they are prepared to use their unchecked power to benefit those that please them, regardless of fairness to the balance of the staff."

The former enforcement director wrote that he brought his concerns to the attention of three ASC commissioners, but to no avail. "I was told not to 'rock the boat' as I too may someday wish to once again access the trough," he wrote.

Mr. Alford's allegations are the latest in a series that have raised questions about the credibility of one of Canada's largest securities regulators, which is responsible for governing all publicly traded companies in Alberta and provides oversight of the TSX Venture Exchange.

Last week, the Post reported that current Finance Minister Shirley McClellan ordered the ASC's board of commissioners to investigate similar claims against Messrs. Sibold and Linder made by a group of six whistleblowers at the regulator.

The ASC's nine part-time commissioners hired Calgary lawyer Perry Mack three months ago to probe allegations that senior officials at the securities body interfered with enforcement cases, engaged in favouritism and condoned lewd conduct among staff. Mr. Mack interviewed about 30 former and current ASC staff who were encouraged to step forward with immunity before tabling a report to the commissioners on Feb. 16. Sources say he was given a copy of Mr. Alford's Jan. 9, 2004, letter to Mr. Melchin.

For their part, Messrs. Sibold and Linder provided lengthy written responses to Mr. Mack on March 21. Both executives vehemently denied the allegations and also served notice they intend to take legal action against the Post for its articles.

Since then, the ASC board has reviewed the findings and will report to Ms. McClellan. The Minister, and also Deputy Premier, can overrule any recommendations made by the government-appointed commissioners. Sources say a decision is expected next week.

Meanwhile, sources say most of ASC's senior management has revolted against Messrs. Sibold and Linder over what they claim to be an oppressive work environment that has fostered deep tensions and resentment among many of the ASC's 119 employees.

Last week, in an internal e-mail to staff, Mr. Sibold called his accusers "cowardly and depraved individuals," and threatened to "prosecute these depraved individuals."

Since then, the ASC chairman has struck a more conciliatory tone. In another e-mail late last week, he told employees "[I am] very proud of your work and accomplishments," and urged them to continue their efforts that have made the ASC "an effective and efficient securities regulator" that market participants "know they can rely upon."

Mr. Sibold blamed "six or seven current and former employees" for the turmoil, adding "our organization is bigger than any one person or small group of people and our reputation will continue to attract the respect we deserve."

It is not known whether Messrs. Sibold and Linder ever responded to Mr. Alford's January, 2004, letter of complaint or were even aware of it.

In it, Mr. Alford outlined three examples of what he claimed were "serious breaches of conflict of interest, or alternatively, serious demonstrations of bias" by Mr. Sibold.

In one case, Mr. Alford claimed Mr. Sibold decided whether the commission would pursue an enforcement action against a Calgary lawyer, who was also a former law partner of Mr. Sibold, in connection with an insider trading case. In the end, according to Mr. Alford, enforcement staff "received instruction from Sibold and Linder not to pursue this case even though the case was strong and in the opinion of staff, completely sustainable."

Mr. Sibold is also alleged to have become involved in a case involving another Calgary lawyer who had been investigated for providing misleading information to the Toronto Stock Exchange. The unnamed lawyer was also a partner at Mr. Sibold's former law firm in Calgary. Mr. Alford wrote that Messrs. Sibold and Linder instructed enforcement staff to "discontinue enforcement action" against the individual. Instead, the ASC issued a public notice that provided guidelines for lawyers about their obligations when dealing with regulators.

"The enforcement action was terminated notwithstanding staff's opinion that the case was strong and completely sustainable," Mr. Alford wrote.

In the third example, Mr. Alford claimed Mr. Sibold "objected strenuously to staff" who commenced an enforcement action against an unnamed, prominent Canadian businessman for alleged insider trading. After reviewing the file, Mr. Sibold's view, according to the letter, was that "there was no case" against the businessman, and he ordered his staff to "seek a quick and very insignificant settlement to the file." However, ASC enforcement lawyers involved in the case objected in writing to Mr. Sibold. In any event, the businessman subsequently "admitted to all of staff's allegations relating to insider trading."

As well, Mr. Alford described an "open and constant flirtation" between Mr. Sibold and a female ASC lawyer for more than two years that involved the "exchange of a large number of erotic computer images" and "the open display of sex toys." Mr. Alford claimed the lawyer was promoted to a senior position was created by Mr. Sibold without posting the job internally or opening it to competition, which is the normal practice at the ASC. It is not known if the woman had a chance to respond to the complaint or was even aware of it.

Mr. Alford also described the behaviour of Mr. Linder, his direct boss, as someone who abused his position. For example, Mr. Alford said the executive director "prohibited" Mr. Alford and other ASC staff from approaching a prominent oil and gas industry executive to explain his role in a merger.

According to Mr. Alford, his boss "stated very clearly that there were two sets of rules: those that apply to normal people and those that apply to powerful," the letter declared. "He made it clear that rules for the powerful applied in this case and we were not to raise any concerns with this gentleman."

As a result, Mr. Alford said the behaviour of Messrs. Sibold and Linder in these instances portray a "disregard for the commission's proper role as an objective regulator." He said the actions "reflect a view that it is appropriate to protect friends, present, former and future business associates, and the powerful."

Mr. Alford also accused Messrs. Linder and Sibold of operating the commission "to do as they please. They feel no duty to ensure that the organization is operated in a manner that is fair, open, and in the best interests of the commission as a whole. It is, in short, operated in a manner that best suits their personal goals and ambitions."

Mr. Alford asked that the information provided in his letter be used "as the foundation for a review of the actions" of Messrs. Sibold and Linder.

A month later, in February, 2004, the government retained Mr. Clark, who had been Alberta's first ethics commissioner from 1992 to 2003, to investigate. Sources say the 68-year-old career politician interviewed Mr. Alford at length, although Mr. Alford declined to identify the names of individuals and companies without immunity. Sources said Mr. Clark was not able to corroborate the claims because he was unable to convince others to step forward for his investigation.

In fact, sources said Mr. Clark received anonymous information from sources who refused to identify themselves, which created a credibility conundrum for the government.

"The Minister took it seriously and he did have it investigated but there wasn't enough information to act on," said a source familiar with Mr. Clark's probe in 2004. Added another: "The Minister got a letter from a credible source who left the ASC under not the nicest circumstances. Then you get some deep throats making allegations about this crazy stuff going on inside but you're not hearing anything from companies or the public."

A regulatory source familiar with the events said that many ASC staff members were aware of Mr. Alford's letter of complaint to the government. "At the time, nobody went forward because they were too scared," said the official who asked not to be named. "They were prepared to let Wayne [Alford] do all the work but they were flabbergasted that [the government] didn't have enough information to pursue it."

In any event, Mr. Melchin, who was then Revenue Minister, decided last fall not to reappoint Mr. Sibold to a second term.

After the Alberta election last fall, Mr. Melchin moved to the Energy Department and was replaced in Finance by Ms. McClellan. Sources confirm she received a letter in December, 2004, signed by three ASC commissioners asking her to reconsider the government's decision not to reappoint Mr. Sibold to a second term.

ASC staff learned of that initiative and some employees worried the government would change its mind about Mr. Sibold. As a result, on Dec. 23, a group of whistleblowers gathered in a rented Calgary office and telephoned Thomas Cooke, an Edmonton-based commissioner and member of ASC's audit committee, to relay a litany of complaints. During the two-hour conference call, the clandestine group described a "dysfunctional" agency with questionable management practices, lax governance and a "toxic" atmosphere that contributed to staff departures in recent years.

Mr. Cooke provided a summary review of the conference call to his fellow ASC commissioners and to Robert Bhatia, Alberta's deputy minister of Finance in January. Mr. Bhatia was already aware of Mr. Alford's letter from 2004 and Mr. Clark's inconclusive investigation. Soon after, Ms. McClellan ordered the commissioners to probe the recent allegations and report to her office.