There is something amiss in David Brown's June 3, 2005 claim to the Toronto Star that it was the OSC who has sought an audit of its enforcement by the Auditor General of Ontario. Unless, David Brown has had a change in heart since he argued at the November 2004 OSC Facing the Issues Conference that an enforcement audit by the Auditor General of Ontario was unnecessary since the OSC had just been subject to such an audit recently. See my correspondence below to the OSC Commissioners, which confirmed that David Brown was disingenuous when he alleged the Auditor General of Ontario had already completed an audit of OSC enforcement.
From: Urquhart [urquhart@rogers.com]
Sent: Wednesday, November 10, 2004 10:31 AM
To:
'dbrown@osc.gov.on.ca';
'pmoore@osc.gov.on.ca';
'swolburghjenah@osc.gov.on.ca';
'pbates@osc.gov.on.ca';
'rdavis@osc.gov.on.ca';
'hhands@osc.gov.on.ca';
'tmcleod@osc.gov.on.ca';
'lmorphy@osc.gov.on.ca';
'rshirriff@osc.gov.on.ca';
'sthakrar@osc.gov.on.ca';
'wwigle@osc.gov.on.ca';
'dknight@osc.gov.on.ca';
'jstevenson@osc.gov.on.ca'
Cc:
'inquiries@osc.gov.on.ca';
'cmcfarlane@osc.gov.on.ca';
'epelletier@osc.gov.on.ca'
Subject: Important Matters for Consideration of the OSC Board of Directors
To the Board of Directors of the Ontario Securities Commission:
David A Brown, Q.C.
Paul M. Moore, Q.C.
Susan Wolburgh Jenah
Paul K. Bates
Robert W. Davis
Harold P. Hands
M. Theresa McLeod
H. Lorne Morphy Q.C.
Robert L. Shirriff, Q.C.
Suresh Thakrar, FIBC
Wendell S. Wigle, Q.C.
David L. Knight
I am writing this correspondence to bring to the attention of the Ontario Securities Commission Board of Directors two important matters for their consideration:
(1) There Has Been No External Audit of the OSC Enforcement Operations’ Efficiency and Integrity Since 1994
At the Dialogue With the OSC 2004: Facing the Issues Conference, I asked David Brown, Chairman of the OSC Board of Directors, the question: Would the OSC be willing to be subject to an external audit of the OSC enforcement operations, so that the public would have confidence that the securities offences occurring in the province were receiving enforcement actions and were fairly selected? Mr. Brown responded that this was not necessary since the OSC was subject annually to a financial audit by the Provincial Auditor of Ontario and that this dealt with financial and other matters. Susan Wolburgh Jenah, OSC Vice Chairman had answered my question earlier in the day on whether the OSC enforcement operations had ever been subject to an external audit by the Attorney General’s office or any other Ontario government appointed official. Her answer was that she had no knowledge of such an audit, which Michael Watson, Head of OSC Enforcement, did not refute from his position on the same panel. Due to the apparent contradiction in David Brown’s answer and Susan Wolburgh Jenah’s answer to my questions on any external audit of the OSC’s enforcement operations, Michael Watson announced in the Enforcement break-out panel that there had been a thorough external audit of the OSC enforcement operations ten years ago by the Solicitor General’s office.
Being the fact-based research professional that I am, last week I called John McDowell, a Director of the Provincial Auditor of Ontario and auditor responsible for the Ontario Securities Commission annual financial audit. Mr. McDowell advised me that his office prepares the annual financial audit, which gives the opinion that the OSC financial statements were fairly presented in accordance with GAAP. This annual audit does not provide any audit or opinion on the efficiency and integrity of the OSC enforcement operations. Furthermore, the Office of the Provincial Auditor of Ontario has never completed a Special Value for Money Audit, which it is empowered to do for any Ontario government program, such as OHIP or social benefit programs. So, my conclusion is that David Brown has been disingenuous when he implied to the Conference audience that the Provincial Auditor of Ontario has completed an external audit of the OSC enforcement operations, when he knew full well the context of my question. The Office of the Provincial Auditor of Ontario telephone number is 416-327-2381. Their website is
http://www.auditor.on.ca/english/aboutu ... _frame.htm.
David Brown has been making public statements that the current OSC Commissioners only work 39 hearing days per year, and therefore there will be inadequate benefits to investors relative to the incremental costs of a new separate adjudicative tribunal. There was an all party consensus at the Ontario Standing Committee of Finance and Economic Affairs recommending the creation of a separate adjudication tribunal in Ontario, if no progress is made on the national securities commission within twelve months. This recommendation has also received the support in the Ontario Legislature of the Ontario Minister of the Management Board of Cabinet, Gerry Phillips, the Ontario Conservative Finance Critic, James Flaherty, and the Ontario NDP Finance Critic, Michael Prue. The implication of David Brown’s statement on only 39 hearing days per commissioner is that the OSC enforcement staff will be unable to bring more enforcement actions than the 1998 to 2003 average of 34 per year it brought to Commission hearings. So, there is either no more securities offences amongst the 777 average annual complaints to the OSC to be acted upon by the OSC, or there are inadequate enforcement resources to process the securities offences in the files of the OSC Enforcement Division. (The IDA gets another 1123 average annual complaints and completes an average 42 disciplinary actions annually during 1998 to 2003.). The context of my question was that if David Brown, or any others, were to attempt to squash the recommendation for a separate adjudication tribunal due to inadequate workload, then David Brown should be prepared to agree to an external audit of his enforcement operations to demonstrate to the Ontario public that there are only about 34 securities offences worthy of sanctions amongst its 777 complaints and the IDA’s 1123 complaints annually and that there is no need for additional enforcement resources to process the securities offences the OSC and the IDA have been unable to address. The additional rationale for David Brown being asked to complete an external audit of the enforcement operations would be to satisfy the alleged wrongdoers, the investor victims, and the Ontario public generally, that the selection of investigations and sanction actions is fair and free of backroom lobbying by any parties; conflicts of interest due to personal relationships or enforcement staff seeking favour for future employment prospects; or, simply the OSC staff attempting to manage the reputation of the financial industry and the capital markets. It would be apparent to public observers that there would be no resistance to an external audit of the OSC enforcement operations, given that one has not been done for ten years and if the OSC Board of Directors was confident in the efficiency and integrity of its enforcement operations.
(2) OSC Staff Is Unable to Get Osborne Report Up on Its Website That Is Readily Accessible, Quickly Downloadable and Electronically Transportable By E-Mail
The OSC’s inability to produce an acceptable electronic Osborne Report on the OSC report is difficult to comprehend as reasonable. Firstly, Honourable Coulter Osborne advised me by telephone on Friday, October 21, 2004 that the office of Bryan Finlay, Weirs Fould LLP, agreed to forward the original Microsoft Word Document of the Osborne Report on a computer disk to the OSC Communications Division in the next day or two after our telephone conversation. Please inform me whether or not this was received from the office of Bryan Finlay.
Secondly, in the event that Bryan Finlay’s office no longer possesses the original Microsoft Word Document file or has been remiss in sending it to you, it is difficult to comprehend why the OSC would not have any resources for the proofreading exercise that would be required to verify the attached 379 KB file supplied by Robert Kyle against the paper copies that the OSC has. By my estimation, as a former Managing Director of Equities Research publishing hundreds of similar documents per year, the proofreading would not be exhausting, as the time involved would be about 210 minutes, calculated on 105 pages at two minutes per page. The estimated cost of the proofreading would be about $175 assuming the proofreading was contracted out at $50 per hour. I figure that, you as an OSC legal counsel preparing correspondence on the matter, took at least one and one half hours to understand the technicalities of the Osborne Report file on the OSC website now and to prepare the long e-mail you have written. So, the OSC cost to provide a “no answer” must already be at least $225, just for your time alone. Furthermore, it is a disheartening revelation, when so many securities offences are unable to be processed, that an OSC lawyer is assigned to computer files rather than to enforcement operations.
Thirdly, I am thinking of the need for the OSC to achieve the widest possible distribution of the Osborne Report, since its recommendation to create a separate adjudication tribunal has been endorsed by all the parties on the Ontario Standing Committee of Finance and Economic Affairs, the Ontario Minister of the Management Board of Cabinet, Gerry Phillips, the Ontario Conservative Party Finance Critic, Jim Flaherty, and the Ontario NDP Party Finance Critic, Michael Prue. While there has been some media coverage on the recommendations of the Osborne Report, the Ontario public may wish to better understand what a separate adjudication tribunal would entail and why it would cause them to have greater confidence in the integrity of Ontario’s capital markets. A significant proportion of the Ontario public is now accustomed to finding information on the internet. This is now a preferred way to receive government reports, since properly structured electronic reports are convenient to access, easy to store and easy to transport to family, friends, professional advisors and business contacts. Electronic government reports on the internet save the OSC substantial costs, as well. I estimate the cost of producing and mailing one paper Osborne Report would be about $5.00, $2.00 dollars for the printing and $3.00 for the mail. So, at the $175 cost for the proofreading of the attached Robert Kyle electronic file, the OSC break-even relative to your decided option of offering paper copies of the Osborne Report is 35 people in Ontario.
This request for the OSC to get the Osborne Report up on the OSC website in a form that is readily accessible, quickly downloadable and electronically transportable by e-mail is clearly the best option. Surely, for the nominal effort and the $175 proofreading cost involved, the OSC would want to be expanding the breadth of public knowledge on the contents and recommendation of the Osborne Report. Restoring public confidence in the integrity of the markets is urgent given the public polls showing serious concerns about the OSC’s effectiveness in enforcement and the $4.3 billion net redemptions of Canadian equity mutual funds since June 2002.
Yours sincerely,
Diane Urquhart
Telephone: 905-822-7618