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GET YOUR MONEY BACK! Misconduct and malpractice. Investment industry "best and worst practices". Information to improve public protection. Expert witness services for industry and investors. Forensic investment analysis. • View topic - Breach of Trust

Breach of Trust

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Postby admin » Fri Jan 27, 2006 4:10 pm

I am adding the response I received in regards to allegations of investment wrongdoing by Kent Shirley, from the (Sask) Minister of Justice and the Attorney General to this forum.

This due to the fact that they appear willing to add their names to the growing list of government officials willing to simply "look the other way" rather than attempt investigation. I sincerely hope I am wrong and I sincerely hope that there are no wrongdoings involved.

If an investigation is undertaken in the future, I expect that any government officials who have either assisted or looked away when notified, are recognized for their breach of duty, if any. I hope they realize the criminal nature of any failure to act to protect the public interest.

Here is paragraph number two from this letter:

"The Saskatchewan Financial Services Commission has provided me with a copy of their response to you with respect the the same issue. I am confident that the regulatory concerns raised by Mr. Kent Shirley have been thoroughly investigated and further action is not warranted".

Here is the response he refers to from the SFSC:

"The information provided by Mr. Shirley that related to Assante's sales practices was forwarded to the Ontario Securities Commission (OSC) because Assante's head office is in Ontario and the OSC is the principle regulator of the firm. We understand that the OSC investigated the matter and has closed its file".

Here is the action that the OSC claims to have taken:

"Staff of the Ontario Securities Commission (the "Commission") have been reviewing certain allegations made against the Assante group of companies. The review was focused and did not include matters that are within the jurisdiction of the Saskatchewan Financial Services Commission or the Mutual Fund Dealers Association of Canada."

Here is the only action I can find on the record taken by the Ontario Securities Commission in this or related matters:

The Ontario Securities Commission on April 15th, 1999 granted an exemption to the Assante Corporation, allowing them a "waiver" from the prohibitions against commission rebating. This exemption allowed representatives to switch clients from third party funds to prorietary funds, which according the OSC, has opportunity to increase earnings to the proprietary firm by between twelve and twenty six times.

To sum up:
One whistleblower complained. No investigation.
One whistleblower dead. No investigation.
Second whistleblower complains. No investigation.
Second whistleblower jailed. Still no investigarion.
One firm sold for $800 million. Congratulations.
$1 million spent to silence the whistleblowers. Still no investigation.
Provincial Securities Commissions implicated. No investigation.
RCMP contacted. They say they cannot get involved without "invite" from provincial securities commissions.
Attorney General contacted. No investigation.

It appears as if everyone is waiting and hoping for time to bury this one. The outcome will be interesting to say the least.
Last edited by admin on Fri Aug 03, 2007 9:52 pm, edited 1 time in total.
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UK's FSA Scrutinizing Investment Bank Market Abuses

Postby urquhart » Wed Jan 25, 2006 8:48 am

Banks face scrutiny over market conduct -UK's FSA
Wednesday, January 25, 2006 5:00:51 AM (GMT-05:00)
Provided by: Reuters News

LONDON, Jan 25 (Reuters) - Britain's financial watchdog aims to focus more attention this year on pursuing market abuse by institutions such as investment banks and hedge funds.
In a report on Wednesday, the regulator said this market abuse could involve market distortion or inappropriate use of, or disclosure of, insider information by individuals within these firms.
"We remain concerned that in some areas standards of market conduct may be falling below the required levels and that some firms continue to face high legal, reputational and regulatory risk from not having appropriate systems and controls in place," The Financial Services Authority (FSA) said in its Financial Risk Outlook for 2006.
The FSA said its scrutiny would involve reviews of trading and market behaviour as well as responding to allegations of market abuse.
Major investment banks have big proprietary trading operations, which trade with the bank's own cash, prompting concerns about conflicts of interest with customers.
The regulator has previously urged banks to manage these conflicts of interest or risk costly litigation and damage to their reputation.
The FSA also highlighted the significant exposure of investment banks to hedge funds through the banks' prime broking businesses, which provide share dealing and other services to hedge funds -- which are less-tightly regulated than traditional asset managers or institutional investors.
The regulator expressed concern that fierce competition in prime broking could lead to a relaxation of collateral and margin requirements, "or that investment banks could be reluctant to make margin calls on lucrative clients for fear that it could lead them to take their businesses to another broker."
Another worry for the FSA was multiple prime broker relationships among large hedge funds. "Such relationships can present potential risks: brokers may not be aware of the hedge fund's overall exposures."
As a result, the FSA urged prime brokers to look closely at the overall risk profile of the hedge funds to which they are providing services.
The FSA said it had been collecting data on the hedge fund exposures of a sample of large prime brokers in London and the result was broadly reassuring.
The larger exposures of the prime brokers were to larger, established hedge funds, and overall the amount of leverage was moderate.
"The data showed a healthy margin of collateral over minimum margin requirements," the FSA said.
(To read more on the FSA report, please double click on [nL24154983] or [ID:nL24154983].)
((Reporting by Jane Merriman, editing by David Holmes: jane.merriman@reuters.com; Reuters Messaging: jane.merriman.reuters.com@reuters.net; + 44 207 542 7974))
(C) Reuters 2006. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.
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Postby admin » Tue Jan 17, 2006 9:35 am

Sorbara's Royal troubles
'Reasonable grounds': RCMP alleges former Ontario treasurer may have committed crime

Wojtek Dabrowski, with files from Heather Sokoloff
Financial Post


Tuesday, January 17, 2006



CREDIT: Peter J. Thompson, National Post
Greg Sorbara, a former director of Royal Group Technologies and briefly the Ontario minister of finance.

There are "reasonable grounds" that Greg Sorbara committed a crime in relation to two Ontario land deals in 1996 and 1997 involving Royal Group Technologies Ltd. and a private firm headed by his brothers, the RCMP alleged in documents released yesterday.

Mr. Sorbara, the Ontario Liberal who resigned in October as finance minister, was a Royal Group director from 1994 and 2003 and sat on its audit committee when the land deals -- worth $2.5-million -- took place.

Royal Group bought two plots of land in Brampton, Ont., northwest of Toronto, from a company named Sam-Sor, part of Sorbara Group. The firm is partly owned by Mr. Sorbara, as well as his brothers, Edward and Joseph.

"Greg Sorbara failed to notify [Royal Group's] external auditors, KPMG, about ownership in a company involved in the transaction and this failure also supports my reasonable grounds that he committed a criminal offence," RCMP Staff Sgt. Mel Young wrote in documents filed in court in late September and made public yesterday.

The documents -- parts of which have been blacked out -- also reveal the U.S. Federal Bureau of Investigation is investigating Woodbridge, Ont.-based Royal Group, although little detail is given regarding the scope of that probe.

Yesterday, Mr. Sorbara again denied any wrongdoing and told reporters he had no knowledge of the Brampton land deals until 2004, when forensic accountants hired by Royal Group's directors began to ask questions.

"I first became aware of the fact that Royal Group Technologies purchased two small pieces of property from the Sorbara Group in November, 2004, when I was being interviewed by Kroll [a forensic accounting firm], in conjunction with an investigation that the board of Royal had set up under a special committee," Mr. Sorbara said. "I found out at that time as well that they had been purchased at fair market value, and that they had subsequently been sold by Royal Group Technologies.

He added, "It would be impossible for me to disclose something that I didn't know anything about."

However, in handwritten notes to the National Post shortly after his resignation in October, Mr. Sorbara's response to a question about deals between the company and his brothers appeared to differ.

"When I heard, years ago, that my brothers were negotiating a land sale I specifically asked to be excluded from any discussion or correspondence because of my responsibilities at Royal," Mr. Sorbara wrote.

The court documents make other allegations not specifically related to Mr. Sorbara.

The documents state that forensic accountants have found $203-million in related-party transactions that were not disclosed between 1995 and 2004. Of the total, $77.9-million were related-party transactions that should have been disclosed in Royal Group's financial statements, the RCMP alleges. As well, $95-million in foreign-exchange transactions is included in the overall sum.

"The shareholders of Royal Group Technologies, however, were never informed that the specific individuals were using this company and making transactions to obtain favourable foreign exchange rates internationally," the documents allege. "The shareholders were not advised that the company was being used to further the personal benefit of a select group of individuals."

The hundreds of pages sworn by Staff Sgt. Young were filed to obtain further search warrants in the RCMP's ongoing investigation of Royal Group and a number of its former officers and directors, including founder Vic De Zen.

When the warrants were served in mid-October, they revealed the Mounties were investigating allegations Mr. Sorbara defrauded investors and creditors of Royal Group.

The allegations, which have not been proven in court, span 1996 to 2002. The Mounties also are investigating whether Mr. Sorbara took part in publishing a false statement, or prospectus, to convince potential investors to become Royal Group shareholders. This led to Mr. Sorbara's resignation.

While the investigation into alleged wrongdoing by Mr. Sorbara has focused on the two land deals, the Mounties probe of Mr. De Zen's activities has looked closely at a beach resort in St. Kitts. The RCMP alleges Mr. De Zen signed 1,700 cheques relating to the resort between late 1997 and early 2003.

The forensic accountants working for the RCMP have also concluded $32.5-million in transactions between the resort and Royal Group or related companies should have been disclosed.

Mr. De Zen and a number of Royal Group officials -- but not Mr. Sorbara -- were owners of the Royal St. Kitts Beach Resort.

Mr. Sorbara also said yesterday he hopes for a speedy resolution of the RCMP's investigation, adding, "It's not a nice thing to live with."

He said while he had a 25% equity interest in the Sorbara Group, he was never involved in the management or control of its land-development and property interests.

Progressive Conservative critic Bob Runciman said in a statement yesterday Mr. Sorbara should have immediately told Premier Dalton McGuinty in November, 2004, of his interview with the forensic investigators hired by Royal Group.

"This is another example of the McGuinty government not living up to the standards of integrity that they said they were going to uphold when elected in 2003," Mr. Runciman stated.
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Postby admin » Thu Jan 05, 2006 12:32 am

The other really interesting portion of Terry Corcoran's editorial of January 4th, 2006 in the post was the bottom window titled, "The Criminal Code says.............."

It provided some excerpts from the criminal code, sections 122 on Breach of Trust by public officer.

"Section 122 Every official who, in connection with the duties of his office, commits fraud or a breach of trust is guilty of an indictable offense and liable to imprisonment for a term not exceeding five years............."

Anyone elses mind jump to lapses at the ASC, OSC, Sask FSC and others when they read this kind of thing or is it just me (and about a thousand other investment experts in Canada who are in the know)?

Fascinating reading. It goes on from there and I will post it in entirety if I can sometime.

What is fascinating, is that if some of the cases of regulatory failure discussed elsewhere in this forum can be proven, then we are looking at potential criminal code violations for quite a few officials involved with the investment industry. I am not sure they are aware of this. I certainly was not.

I am, however, aware of numerous cases in Canada where investment officials have looked the other way at securites act violations, have ignored damages to small investors who cannot afford to be damaged, who have turned away from doing the jobs they were charged with, and paid to do.

They seem to be doing this because of the close links, (some say incestuous) between the regulators and the industry in Canada. Employees, consultants, directors, you name it, and they swap positions to and from industry and regulatory body on a far too frequent basis.

Study the industry long and hard enough and you can pull out dozens, if not hundreds of cases where regulators have looked the other way at securites act violations, using as they admit, the fact that "some cases are too small or not significant enough to pursue". (imagine hearing that if you were wiped out by fraud) Or worse, saying, "some defendants were too large and too powerful to pursue". (see Professor P. Puri Osgood School of law, University of toronto study that suggests this reason for ignoring the law in some cases)

http://www.rotman.utoronto.ca/cmi/

Do I think that anyone in an official capacity will be rounded up and arrested for looking the other way at rules intended to protect clients, while fully enforcing all rules that protected the industry? No.

I do, however see an almost daily increase in public awareness in who some of these organizations actually represent, who pays their budgets and salaries, and who they deal the cards more favorably towards.
This increased awareness is constant, is inevitable, and yes, there just might be a few "officials" who have done a rather poor job of things during their tenure. Again, if one looks at some of the cases, situations and failures documented on various web sites Canada wide, disclosure is coming closer and closer. If it comes to seeing some face the consequences, then so be it.
Last edited by admin on Fri Aug 03, 2007 9:49 pm, edited 1 time in total.
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Breach of Trust

Postby admin » Wed Jan 04, 2006 11:54 pm

Terry Corcoran's editorial in the post today was titled "Breach of Trust", and took a rather interesting look at the trading on income trusts.

While I give Terry credit for some great editorials recently, and find myself agreeing with his comments more and more.........(which will certainly scare him if he should learn this)..............I have to question one of his thoughts in the article.

He states that "insider trading requires insider trading by someone who is an insider of a corporation based on insider information". I am not making this up, he used the word insider four times in one sentence. Some kind of record. But I digress.

I was under the impression that when I was a broker in the industry, if someone called me to make a trade, using a tip, or specifically using information that was not yet available to the general public, news that had not been officially released, that this person would be trading on inside information.

If I knew this to be the case, and encouraged or accepted the trade or acted on it myself, then I would be trading on inside information.

If I called my sister-in-law and told her about the information and she traded on it, then she would be trading on inside information.

No, I do not agree with Terry's statement, and and not sure it covers all the bases. Information could come from a corporate spy who is watching the company. It could come from a geologist. Or a janitor. I am not sure it has to come (and only come) from an employee of the corporation. If that is truly the way the law reads, then it would look to me like they may have missed a bunch of other sccenarios.

If I knew something about a company.......such as upcoming success, failure, or financing plans, I could also not trade in advance of the public in this info. Neither could the outside accountants, lawyers or others.

I say inside trading could easily apply to government officials, finance department officials, and IDA members, Securities Commission members or political party members.

Terry goes on to say,"The leak of government policy into the market, or to anyone, cannot be inside corporate information". He inserts the word "corporate" at his discretion and it was not part of the income trust info that we are dealing with recently. This insertion of an irrelevant term does not make his argument correct. The inside information was pertaining to not yet released to the public government policy and is inside information that puts those who have knowledge of it at a distinct advantage in the markets over those who do not. It is inside information, ragardless of who they are employed by.
That is my opinion. I could be wrong, and I certainly invite informed correction. Keep writing Terry. Your stuff is great.

advocate
Last edited by admin on Tue May 22, 2007 11:31 pm, edited 1 time in total.
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