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.
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"
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.
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 segregatedandmay 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.
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...”
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.
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
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.)
“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.
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.
