Wednesday, July 13, 2005
When David Berry, the former head of the preferred share group at Scotia
Capital, was dusted on June 30, he achieved a special distinction: He
became the last person at the firm to have a compensation scheme based on
direct drive -- which is also known as "eat what you kill."
Berry was the beneficiary of a contract that paid him a fixed percentage
of the action: The larger the profits, the larger his payout. In recent
times such contracts -- at least in bank-owned firms -- have been largely
Not only was Berry, who declined comment for this column, punted out the
door, his firm took the highly unusual step of reporting some of his
alleged trading transgressions to Market Regulation Services. And for good
measure, after declining to comment the day before on Berry's departure to
this newspaper, the story, in lurid detail, appeared in Canada's other
"It's sneaky and cheap.'' noted one market participant.
Many who contacted this columnist were less than impressed with the
actions of the bank, given Berry has made Scotia a ton of dough.
"Their objective was clear. They wanted to get him off that contract,"
said one source. "If they wanted to get Dave off the deal they should have
paid him what they had to pay him including a bonus and severed him
properly. That's the only way to do it."
This source said Berry -- who has been with Scotia Capital for about a
decade -- had a deal that paid him, at least in the early years, 20% of
the group's profits. When Berry signed that deal, Scotia Capital was a bit
player in preferred shares. One competitor estimates Scotia Capital
captured 60% of the business with Berry behind the wheel.
"He had a better grasp of all the market players and how to put buyers and
"If you can make $80-million for the company, why shouldn't they pay him
20%? That's a good deal for everybody. And sure it means that Berry makes
more than [senior management] which ruffles their feathers," added
"They never were happy with the direct drive."
Another market participant said: "It's very odd for a company to find one
of their own employees in violation of some very minor stuff and then tell
RS about it. If they find some minor transgression through their internal
audits you'd think they would give the employee the opportunity to clean
up and not just finger him to RS."
Adds another participant: "Scotia has to realize that it bears some
responsibility for having allowed for these transactions to take place.
It's not clear to us that any clients suffered any injury as a result of
Berry's supposed transgressions."
As for the alleged transgressions, it's not known whether they are new or
whether this has been part of the way he did business for years. If the
latter is the case, then why did the bank decide to take action now?
"In my mind, it was the contract that got the ball rolling. That was the
impetus for compliance to start looking for any violation. And I guess
they kept looking before they found something," said one observer.
Another participant disagreed with the characterization, in a recent
newspaper article, that Berry was overly flashy. "He is very low key. Sure
he makes a s---load of money. And he does have a fancy car which he rarely
took to work. Normally he takes the subway. In the summer he rides his
bike," he added, noting that one of the so-called fancy parties mentioned
in the article was the annual Charity Toy Tea.
One person who has been to the Berry household estimated it occupies about
5,000 square feet -- half the size noted in the other paper. "How many
guys live in $5-million houses in Toronto? The guy made a lot of money."
"Who gives a s--- that he drives a Ferrari and paid cash for his house,"
"Do you think his boss has a mortgage and drives a Hyundai?"
We asked Scotiabank the following questions:
- Was the bank trying to get Berry to unwind or cancel his contract?
- Was the matter of Berry's compensation ever discussed at the board
- Were the transgressions Berry is alleged to have made something he has
done for years or something new?
- Has RS, as part of its regular audit of the firm, ever uncovered any of
- Has Scotia ever tipped off another employee to RS?
Scotia declined comment on the first two questions. For the next two
questions, it said it will await the outcome of the RS investigation. "We
will let them do their work," said a spokesperson. For the fifth question,
the bank said it has provided the regulators "with information about