Solutions, Self Defense and Best Practices

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Re: Solutions, Self Defense and Best Practices

Postby admin » Fri Jul 02, 2010 8:46 am

SEC will impose fiduciary standard on brokers: Barney Frank

Congressman makes prediction moments before House passes financial-reform bill; Senate up next

By Mark Schoeff Jr.

July 1, 2010
The overhaul of the U.S. financial system took a big step toward becoming law Wednesday evening when the House passed reform legislation 237-192. As a result, it's also looking more likely that brokers may soon be held to the same standard of care as investment advisers.

Indeed, just before the House vote, Rep. Barney Frank, D-Mass., highlighted the fiduciary duty section of the bill — a proposal Mr. Frank championed during two weeks of House-Senate negotiations on the final legislation.

The bill empowers the Securities and Exchange Commission to impose the same fiduciary duty on broker-dealers and insurance agents currently met by investment advisers. If the regulator chooses, it can require anyone providing personalized investment advice to retail clients to act in the client's best interests and to disclose any conflicts of interest.

“We gave the SEC the power to do it,” Mr. Frank said during the House floor debate. “And they're going to do it.”

Of course, the Senate still has to pass the bill — and that's hardly a lock. The upper chamber won't act on the 2,600-page measure, a combination of previously approved House and Senate bills, until after the weeklong congressional Independence Day recess. The fate of the measure in the Senate has been complicated by the death this week of Sen. Robert Byrd, D-W.Va.

The Senate Democratic caucus now numbers 58, two senators short of the number to overcome a Republican filibuster. Senate leaders this week have been working to secure the backing of all four GOP members who supported the original Senate bill in late May. Their votes are crucial because two Democrats opposed that measure.

The massive final bill, which touches on nearly every facet of the financial sector, must be approved by the Senate before it can be sent on to President Barack Obama to be signed into law.

The measure creates a mechanism for liquidating large institutions that pose a systemic threat to the economy, establishes a new consumer protection agency and imposes new rules for derivatives trading. It has been officially renamed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

“Today's House vote puts us on the cusp of passing a law that will give consumers greater protection and safeguard our economy against future financial crises,” Mr. Obama said following the House action. “It will put an end to the idea that any financial firm is too big to fail and therefore entitled to taxpayer bailouts.”

All but three House Republicans voted against the bill. Most GOP legislators criticized it for creating new government bureaucracies, increasing federal spending and taxes, restricting credit and failing to address the fundamental problems that caused the near collapse of the financial markets in 2008.

“Under the guise of financial reform, Democrats are pushing yet another bill that will kill jobs, raise taxes and make bailouts permanent,” Rep. Mike Pence, R-Ind., the third-ranking House Republican, said in a floor speech. “This legislation codifies the notion of ‘too big to fail.'”

To win over wavering Republican senators, the House-Senate conference was briefly reopened this week to remove a $19 billion fee on large banks to pay for the legislation.

Lawmakers replaced the tax with funds generated by shutting down the Troubled Asset Relief Program. That move is expected to raise about $11 billion. The rest of the bill would be financed by increasing the Federal Deposit Insurance Corp.'s assessment on insured deposits in financial institutions with more than $10 billion in assets. The FDIC would have until 2020 to ratchet up the charge from its current 1.15% level to 1.35%.

The change has not yet persuaded Sen. Scott Brown, R-Mass., to back the final bill. Mr. Brown supported the original Senate version.

“I appreciate the conference committee revisiting the Wall Street reform bill and removing the $19 billion tax,” Mr. Brown said in a June 30 statement. “Over the July recess, I will continue to review this important bill. I remain committed to putting in place safeguards to prevent another financial meltdown, ensure that consumers are protected and that this bill is paid for without new taxes.”
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Re: Solutions, Self Defense and Best Practices

Postby admin » Wed Jun 30, 2010 8:23 am

One of the solutions that I found, while attending investment conferences in the United States, was the UNIFORM CODE OF FIDUCIARY CONDUCT.

You can do a search for it on the net and you will open up an entire world of "best investment practices". I did, back a number of years and it really opened my eyes. It might be worth noting that when I was undertaking this journey, it would have been around or just prior to the days of things like "Google" etc, and investing in Canada back then felt a little like being in the dark ages, it was very much a learn as you go process. To find organizations in the US that were actively working on best practices all the time was like oxygen to a young investment "advisor" looking to learn and grow.

Sadly, here in Canada, we do not have to live up to a promise of "fiduciary" standards. The investment and banking industry can lead us to believe that they will, with advertising and such promises, but believe me, when you take them to court or try to hold them to these promises, you WILL lose trying to argue that they owed you any greater duty care than a used car salesman. That is pretty much my experience over thirty years anyway.

The reasons are this:

1. there is no agreed upon definition or application of "fiduciary" that allies to retail brokers or sellers of investment products in Canada (so to argue in court that they owe you any duty will be a losing game)

2. sadly, they can use your money and ten years of your life to out-lawyer you and delay until you are emotionally and financially exhausted. (this is a bully tactic and it is hoped someday that our banks will be responsible (legally) for not acting in a bully manner.

3. Speaking of lawyers, they retain more lawyers than you can, thus they connect socially with more judges than you can, thus there is a "loyalty bonus" that land in their favour. (speaking practically, it can mean that internal connections, cronyism and favouritism "might" play a part in your decision. Hey, I am not saying that judges and lawyers are bad, I am just saying they are human, and humans have been known to put such interests of self preservation and self promotion ahead of interests of professional service to you)

4. Even IF you are right, and even IF you should win, as one lawyer recently put it to me, "Larry, even with all those things in your favour, you might be asking a judge to alter the status quo, to go against the grain and change how "the system" operates. There are not too many judges out there who will stick their necks out in such a manner, regardless of right or wrong". Yes, this blew me away, but he is probably right and I probably have to learn someday that trying to change "the system" is an uphill battle where each and every step will be a fight with each and every participant. Why? Each and every person in the system (those who are not complaining, suggesting improvements etc) are fat and happy on the system, and each will be reluctant to change, even when change is needed. Welcome to the story of abuse by the Catholic Church as it applies to each and every institution on the planet.....namely........"protect the system at all costs, even if it is damaging the public". Where was I...........?

Oh yes, THE UNIFORM CODE OF FIDUCIARY CONDUCT, found in a bit of US legislation called the EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA). No kidding, they are so far of us in the states that they actually try to protect the public from financial abuse...........here in Canada, financial abuse is the name of the game by our top half dozen banks.

ERISA has a code of conduct for professional money management that everyone should at least read and try to understand. I did. I just was not allowed to put the principles into practice here in Canada while I worked as an "advisor" with a top Canadian bank.

they look like this:

UNIFORM CODE OF FIDUCIARY CONDUCT
♦ Prepare an Investment Policy Statement (IPS) and document all investment decisions. The IPS should be viewed as the business plan for the investment program, and a summary or minutes of all investment meetings should be kept.
♦ Diversify the portfolio according to the participants’ and beneficiaries’ risk /return profiles. Fiduciary portfolios should not be managed in a cookie-cutter fashion. Each portfolio will have unique cash flow requirements, legal restrictions, and risk and return objectives.
♦ Hire prudent experts to manage the investments. New fiduciary standards make it clear that it is neither the desire nor the intent to have the fiduciary actually make investment decisions, that responsibility being designated to managers. The fiduciary’s role is to manage the overall investment process, including the performance of due diligence and the selection of professional money managers.
♦ Control and account for investment expenses. The fiduciary is responsible for ensuring that the components of the investment program are reasonable prices, and that no one service vendor is being unduly compensated, including mutual funds, money managers, custodians, consultants, and brokerage firms.
♦ Monitor the activities of service vendors. The fiduciary MUST follow a due diligence process in selecting a money manager and then continue monitoring on an ongoing basis to ensure that the manager adheres to approved investment strategies. Likewise, the fiduciary MUST review the activities of their attorney and investment consultant to ensure that the plan’s interests are being served first and foremost.
♦ Avoid prohibited transactions and conflicts of interests. The most common breaches include investing assets in international securities outside the reach of U.S. Courts (for ERISA plans), or using the entrusted assets for unrelated business purposes or personal gain.

This is one of the best practices I sought and found by travelling and learning in the US and elsewhere. It is essential to know this standard, or deal with someone who knows it is you wish to truly find an independent professional to help you with your investments. Unless you do this, you will be dealing with a Canadian Bank who is allowing a former bank teller type person to sell you bank products intended to maximize the profits to the bank........not you. Welcome to investing in Canada, and welcome to systemized, legalized financial abuse.
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Re: Solutions, Self Defense and Best Practices

Postby admin » Thu Jun 17, 2010 7:02 am

As a result of a request from a conservative party person, who wrote to me yesterday, asking me if I might give them a proposal of what needs to change to improve the public interest and public protection. Here is item number two that I send to him, short and sweet. Do not look for it to be enacted anytime soon, since the ability to purchase "exemptions" to securities laws is one of the greatest magic profit making machines ever invented for those who wish to sell financial products. Consumers are not thought of properly in this equation.
-------------------------------------------------------------------------

Dear R,
A second item which would constitute something approaching “best practices”, would be to tighten up a loophole that allows conflicts of interest at the securities commission to flourish........namely the granting of legal exemptions to financial sellers and manufacturers of products without having to follow a public-safe procedure, provide public notice, nor allow public access to the reasons or rational used to grant permission to skirt our laws.

I enclose the short, simple sentence from the newly proposed federal securities rules for an example of how vague and open to interpretation this is. As it stands it has been used some 5000 times in the past decade, often at considerable benefit to those who apply and pay for legal exemption, and billions of dollars of damage to the unsuspecting and unprotected public.

Not one single securities commission in Canada will explain nor will answer simple questions nor provide “public interest” reasons as to why they allowed very damaging exemptions to infect our economy.

It is a secret.

It is in my opinion a crime of negligence, breach of trust and failure to provide honest services to the public, by the ASC.

This section should be expanded (or removed) to include conditions, public notices required, some professional process to be followed, and some protection on allowing the public to view fully this section anytime it is in use. Anything less is secretive and failure of professional practices.



Easiest web site I could find to give an example of this special loophole.
http://www.fin.gc.ca/drleg-apl/csa-lvm-eng.asp

Site of the regulations proposed for the new national securities regulator.

Exemptions
236. If the Chief Regulator considers that it would not be prejudicial to the public interest to do so, he or she may, on application or on his or her own initiative, make an order exempting a person, trade or security from any provision of Parts 3 to 10 or of the regulations.

----------------------------

the first item I proposed is posted in this forum topic on Feb 11, 2010, and was a resolution for a federal party policy convention
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Re: Solutions, Self Defense and Best Practices

Postby admin » Fri Jun 04, 2010 7:25 am

Know Your Adviser
Here is a summary of some questions that appear on a form designed by financial blogger Preet Banerjee to assist people interviewing prospective financial advisers. You can comment or submit ideas for additional questions on Mr. Banerjee’s blog, at wheredoesallmymoneygo.com.

Sales Person or Financial Adviser?

1. Are you a full-time adviser, or do you have a part-time job not related to financial advice?
Ideal answer: Full-time adviser

2. Does your firm hold sales contests or provide sales incentives?
Ideal answer: No

3. What is your main method of compensation?
Ideal answer: flat or hourly fee, although this is not a deal breaker by any means

4. Do you provide full disclosure of all fees and commissions paid by clients?
Ideal answer: Yes, for each recommendation

5. Do you mainly use products from your own company?
Ideal answer: No

Qualifications and Competence

1. What investment management qualifications do you have?
Ideal answer: CFA is the gold standard, but others show expertise as well

2. Are you licensed to trade options?
Ideal answer: Yes

3. Will you show clients your own personal portfolio so they can see if you practise what you preach?
Ideal answer: Of course.

4. What financial planning designation do you hold?
Ideal answer: The RFP, CLU and CFP are among several that show expertise.

5. Are you licensed to sell insurance products?
Ideal answer: Yes

Client Services Offered

1. Do you provide an investor policy statement (explains how a client’s portfolio was created and what will happen in various situations)?
Ideal answer: Yes

2. What kind of financial plan do you provide clients?
Ideal answer: A comprehensive plan involving investments, estate planning, budgeting and tax.

3. Do you provide a written summary of all meetings to recap recommendations, etc.?
Ideal answer: Yes

4. How many people are on your team?
Ideal answer: A few, to provide several points of contact.

5. What kind of contact will we have?
Ideal answer: Annual face-to-face meetings, plus periodic phone calls and comment in falling markets.

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Re: Solutions, Self Defense and Best Practices

Postby admin » Fri Jun 04, 2010 7:22 am

It’s your financial adviser’s job to study up on you as a new client, so one of the first things you’ll do together is complete something called a Know Your Client form.

But what about your adviser’s background? You should know as much about your adviser as he or she does about you, but posing the right questions is beyond most people because they don’t know what to ask.

Introducing the new online Know Your Adviser form, a tool developed by financial blogger and fund industry executive Preet Banerjee for people to use while interviewing prospective advisers. You simply ask some key questions, score the answers using Mr. Banerjee’s rating system and then use the final tallies to help you pick the right adviser.

Next step: You and your new adviser tackle the Know Your Client (KYC) form on the way to building the financial plan of your dreams. Or not.

KYC forms typically look at the amount of time you intend to keep your investments, the amount of risk you can stand, your objectives as an investor and your level of knowledge about investing. The idea is to build a profile that ensures the client interests are served by the portfolio their adviser designs.

Mr. Banerjee, an ex-broker who works in the mutual fund industry while maintaining the Where Does All My Money Go blog (wheredoesallmymoneygo.com), has a more skeptical view of the KYC form.

“I’m sure it does protect the client to a certain extent,” he said. “But in my experience and my training, it was more to protect the adviser. If the investor complains about a transaction, you can say, no, this was in your risk tolerance.”

The Know Your Adviser form serves only the interests of you, the client. In fact, there’s an opportunity for people like you to have a say in what it’s final version looks like.

A draft version of the KYA form can be viewed on Where Does All My Money Go, which Globe readers have voted their favourite investing blog (read about it here). Care to collaborate on building the final version? Both individual investors and advisers are invited to comment or provide additional questions that may be used to improve the form.

As it stands now, there are 20 questions divided into four categories.

(Advocate comments.......the above is correct, the KYC form is used to both protect the company from client complaints, and also to "mold" the investing direction of the customer in the direction wanted by the salesman. It was designed by and for the company, not client protection.)
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Re: Solutions, Self Defense and Best Practices

Postby admin » Wed Jun 02, 2010 7:37 pm

below is the type of question and answer that I deal with occasionally, to give you an idea of investment thinking:
Hi Larry

just want to say i had my eyes opened wide!!! after your presentation at the seniors centre last week

i am the one who said i had a burning question for you after the session ended

here it is:

i have some investments with sun financial corp. and some with the bank and have had since my early working years -- some still never having been touched since i first started working and had my own bank account..

-- now the dilemma i face is whether or not i should take all my money out of the bank and put it all into sun financial which my broker there is trying to get me to do which he says will help him distribute my portfolio better. he has sent me forms to fill out and i am very uneasy and reluctant about doing this --- my "inner" something tells me i dont want to do that for reasons i dont even know (other than what i learned from you at the seminar but i had these feelings even before you talked and have been stalling for the same reason!!!) i know a bit about investing but not as much as i should and my broker has done a good job for me as far as making money -- but i also lost a pile in this last recession..

you mentioned real estate as a good option but i am not prepared at this stage in my life to get into that so i guess i am asking

what would you suggest i do and what do i tell my broker re not giving him all my money
to invest. it just doesnt "feel" right to be doing that!!! maybe i am being too cautious or just not wanting to take any more risks! seems the more we save for retirement the faster it gets eaten away -- just like you said!!

waiting to hear from you if you have time --- thanks in advance for your good information seminar and the time you have to take to answer my question

Glen

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Larry reply

I will try to answer your question Glen,

I don't think you should be putting all your eggs in one basket (sun life or anyone) as the salesman would like you to do. That is just not the best planning, and especially not when a consumer in canada has no assurances yet that any salesman has to act in the customers best interests. I am sorry that this is the case, but it is what it is. I am trying to change this shortcoming in securities regulations but I am only one man against a rather large foe in this argument.

I am not sure I am too fired up about about the "returns on my money" that some broker claims to be able to get me, and I know I would much rather settle for a "return OF my money". In other words safety before return for someone in your situation.

If you are able to live within certain means that would be best, but I know not everyone can get by on the meager returns now available.

There is probably no short answer to your question, but I wanted to give you my thoughts that I agree with you that it might not be best to gather up your savings and turn all over to a salesman, no matter how nice a guy he happens to be. He still is a commission salesman, misrepresenting himself as an "advisor" despite any words to the contrary, so the relationship begins on a lie from the getgo.

I would rather see you buy strong, blue chip, dividend paying companies, (only the best of the best) if you absolutely HAD to invest in equities. I think that is the direction your sun life guy would want to steer you in with the argument that the only way you will get higher returns is with those. Problem is, while he might be right about equities getting higher long term returns, he will make no mention of the risk (perhaps) and little to no mention of his commissions (perhaps), plus little to no mention of the Sun Life Mutual fund management fees, which will take 1/3 or more of any potential return you may see. The costs are just too high with these guys and you take all the risk while they earn far too much of a percentage of your returns.

I am talking too much, and I apologize. I keep coming back to my underlying problem and that is that in Canada, we are so enamored and so captured by our large banks and financial institutions that we let them get away with murder, and the result is that they do not have to act in your best interests, and they do not have to follow any rules that say they must act in your interest. They get a free ride on both counts, first they get to say that the rules force them to act in your best interest, second that they police the rules themselves (or people that they pay), so it is a win win for them and a lose lose for customers.

Stay away from the sales guys until this little problem gets corrected. (Write a letter to the ALberta Securities Commission or ALberta Finance Minister Ted Morton asking him to fix this if you want to be part of the solution, and copy me in the letter and any response you get) I am sorry I have no stronger answers for you at this exact moment. I know a guy or two who charge a straight 1% fee for expertise and then go about helping people get the best of the best (and lowest cost investments) but unfortunately they reside in Toronto, and so I know nobody but straight "sales" types here locally.

I will ponder this a bit more for you, and let you know if I come up with a better answer. If you have questions, please feel free to shoot them towards me, and I will try to help if I can.

cheers

larry
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Re: Solutions, Self Defense and Best Practices

Postby admin » Sat May 29, 2010 9:02 am

U.S. Committee for the Fiduciary Standard, a group of prominent U.S. investment advisors which have been circulating a petition to advance this issue. Their petition cites five “core principles”:
? Put the client’s best interests first.
? Act with prudence; that is, with the skill, care, diligence and good judgement of a professional.
? Provide conspicuous, full and fair disclosure of all important facts.
? Avoid conflicts of interest.
? Fully disclose and fairly manage in the client’s favour, unavoidable conflicts.



advocate comment.......Canada is not yet ready to move to this standard. It is still too profitable to do business the "old way", and our bankers who control the system (and the government evidently) are satisfied that financial abuse of citizens suits their interests better than best financial practices.

shame on canada
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Re: Solutions, Self Defense and Best Practices

Postby admin » Sat May 29, 2010 8:56 am

Fellow Citizens in the Fight Against White Collar Crime.

The National Securities Regulator is not the panacea for prosecution and deterrence of white collar crime, when its governance structure is opaque and controlled by the investment industry itself. There is a high risk, based on what we know so far about what is proposed for the governance structure and the integration of securities regulatory and criminal enforcement, that the new National Securities Regulator will have less output and less integrity in criminal enforcement than what we have today. There will be almost no prospect for the systemic fraud at the highest levels of the investment banking industry to be stopped, without an independent Securities Crime Unit.

If you watch the video at www.ismymoneysafe.org, one will come to realize that even with a National Securities Regulator, the process of dealing with Earl Jones and other rogue fraudsters would likely be the same as now. In billion dollar plus public market frauds, the National Securities Regulator will be in a better position to cover up the frauds and protect the senior executives and professionals involved, unless you also have the independent SCU in place to keep these people in check.

My understanding is that the Federal Government intends to integrate criminal policing with administrative enforcement within the National Securities Regulator. This will be the fox guarding the hen house. David Wilson, Chairman of the OSC, has over $15 billion billion in losses on Income Trusts, a product which has a deceptive yield and was shut down in the US. Income Trusts were started up in Canada, after it was shut down in the US when the US Department of Justice imposed a deferred criminal prosecution on Prudential Securities, which had to pay $2 billion in restitution to its investor victims and a $40 million fine for selling the same product to seniors and other unsophisticated investors. After this US criminal prosecution, Canada's Income Trusts developed into a $200 billion dollar industry, that acted as predator of senior investors.

The real fraud in ABCP will probably never be dealt with by the RCMP IMET, yet some like Diane are aware of how the fraud was executed and have explained it to the regulators. If you go to the site www.investorvoice.ca and move to the right, you will see our citizens' fight for restitution on ABCP. Scroll down and you read all the stories. Diane and Henry Juroviesky, a Toronto lawyer, got a $188 million settlement for 1800 families and worked at pushing the regulators to force another $140 million settlement. The retail ABCP owners are now trying to get criminal justice and it is one hell of a fight.

The same players involved with the regulators for the National Securities Regulator are working to ensure that the RCMP IMET will remain controlled by integrating them with the regulator. They have it set up now that a criminal investigation can only start if it is referred from a regulator to the RCMP IMET. One cannot go direct to the police as we want for the SCU.

Hugh Urquhart
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Re: Solutions, Self Defense and Best Practices

Postby admin » Mon May 03, 2010 10:00 am

Below are some clips and comments from Bill C-52, Justice Minister Rob Nicholson's efforts to stiffen penalties for white collar crime.

Unfortunately, some clever crafters got hold of the bill as introduced and removed all impact of this bill for public markets fraudsters, those who like a "goldman sachs" sell stocks, bonds, sub prime mortgages, mutual funds etc. Read along to see how they did this:
First we show what the criminal code looks like. I will put the interesting part in green so you can follow it along.


Current Text of Criminal Code (R.S., 1985, c. C-46)
Act current to April 9, 2010
Fraud

Fraud

380. (1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service,
(a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding fourteen years, where the subject-matter of the offence is a testamentary instrument or the value of the subject-matter of the offence exceeds five thousand dollars; or
(b) is guilty
(i) of an indictable offence and is liable to imprisonment for a term not exceeding two years, or
(ii) of an offence punishable on summary conviction, where the value of the subject-matter of the offence does not exceed five thousand dollars.
Affecting public market

(2) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, with intent to defraud, affects the public market price of stocks, shares, merchandise or anything that is offered for sale to the public is guilty of an indictable offence and liable to imprisonment for a term not exceeding fourteen years.
R.S., 1985, c. C-46, s. 380; R.S., 1985, c. 27 (1st Supp.), s. 54; 1994, c. 44, s. 25; 1997, c. 18, s. 26; 2004, c. 3, s. 2.


Immediately below is the draft of Bill C-52 as introduced last year (2009). You will note that the section on fraud as it applies to "public markets" fraudsters has been removed: (it is the green section (2) above)

Current text of Bill C-52 as it was proposed 2009

http://www2.parl.gc.ca/Sites/LOP/LEGISI ... 2&List=toc

BILL C-52
An AAct to amend the Criminal Code (sentencing for fraud)
Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:
SHORT TITLE
Short title

1. This Act may be cited as the Retribution on Behalf of Victims of White Collar Crime Act.
R.S., c. C-46

CRIMINAL CODE
2. Section 380 of the Criminal Code is amended by adding the following after subsection (1):
Minimum punishment

(1.1) When a person is prosecuted on indictment and convicted of one or more offences referred to in subsection (1), the court that imposes the sentence shall impose a minimum punishment of imprisonment for a term of two years if the total value of the subject-matter of the offences exceeds one million dollars.

Now the question will be whether or not Justice Minister Nicholson resubmits the NEW C-15 with or without the free gift to public market fraudsters. It will speak volumes if the public markets fraudster "exemption" is still in. I could be wrong and I very often am wrong, but if this bill is not "repaired" when Nicholson submits it May 3, 2010, after being informed in Justice Committee's of it's shortcomings, it will be a clear signal (a second signal) that the public markets boys own the political boys.

Amazing that we even consider applying criminal code sanctions to fraud artists but we allow our sophisticated friends who own large financial corporations a free "do not go to jail pass". Shouldn't that itself be a criminal code violation, Breach of Trust?

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Re: Solutions, Self Defense and Best Practices

Postby admin » Wed Apr 28, 2010 10:17 pm

Looters1.jpg
I debate with myself whether or not the investment industry should be forced to set up an investor compensation fund to compensate members of the public who are abused and victimized by the industry. Most, including myself would say no, but here is partial reason why it might be necessary.

It might be the only way that the industry is motivated to clean up it's own act. Lets look at how brokers and investment salesmen work now. They earn as much money as they can. The industry polices itself. The RCMP is utterly incapable of keeping up to speed on the crimes and schemes that these intelligent, cunning people can invent. This means that the sky is the limit to their earnings, and the only, restriction to the amount of money, or schemes or scams that occur against the public is the personal conscience of each and every member of the industry. We know how that is going.

That is just not working. Nor are we even close to catching up to them and making a system that does work. We may always be ten to twenty years behind the crooks, so perhaps we put a business honesty requirement (a real money cost, not just words) on their right to be in this money business. Right now there is nothing. There is no requirement to keep people from entering the financial industry and using the credibility (what is left) of the industry to steal as much money as they can possibly steal.

Soooooo.........perhaps if they had some skin in the game, so to speak. Perhaps if they had some pretty serious insurance premiums or compensation fund premiums to pay in order to help keep the system honest, perhaps they might care about the crimes of the guy in the next cubicle, the company next door, and the next ponzi scheme. Perhaps.

I worked two decades in the business and there was little incentive to stop other people from ripping clients off. If you spoke out against abuse of clients, it was more likely at a cost to your own career, but that is another story. (see http://www.breachoftrust.ca ) It was a free world where the crimes paid, and if you want an image in your head of what it was like, imagine the LA riots. The residents of downtown LA learned that the Los Angeles police department were parked outside of the area, afraid to enter in for fear of the public. The residents went wild. They ran in the streets, stealing anything they could put their hands on knowing that the rule of law was gone.
Now imagine that this happened in Canada for the last twenty years, in the financial industry. I was there from 1984 to 2004. I saw it. The police does not come to answer any more than 1% or 2% of financial crimes. There is no law, and the only difference in the looting is that the financial con men do it in boardrooms, and they wear suits.

A compensation fund that paid victims back out of every financial service provider pockets just might make a few more of them in opposition to rampant looting. It might make Canada less of a free ride for crooks. I am not sure it is the only solution, but might be part of the solution.
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Re: Solutions, Self Defense and Best Practices

Postby admin » Mon Apr 12, 2010 10:12 am

Business scandals dog Canadian markets

If Bernie Ebbers had started his ill-fated telcom company in Alberta instead of Mississippi, critics argue he'd still be sporting his trademark boots and blue jeans instead of an orange jumpsuit.

BY THE CALGARY HERALDMAY 28, 2007

The solution for the powerful Ontario Teachers' Pension Plan is to buy stocks that trade in the United States, because it believes investor protection is superior there.

"The laws are lenient in Canada and crooks know it. They're not stupid," says Lamoreaux.



If Bernie Ebbers had started his ill-fated telcom company in Alberta instead of Mississippi, critics argue he'd still be sporting his trademark boots and blue jeans instead of an orange jumpsuit.

The Edmonton-born mogul is serving hard time for his part in the $11-billion US WorldCom fraud.

He joins a litany of disgraced CEOs that includes Enron's Jeffrey Skilling and Tyco's Dennis Kozlowski, both of whom faced swift justice, American style.

In Canada, many believe justice for domestic white-collar crime is too often delayed or denied completely, and that penalties for corporate skulduggery are akin to a slap on the wrist. Maximum sentences are rarely imposed, if the case crawls through the court system at all.

The textbook example is the massive gold-mining hoax of Bre-X Minerals, which a decade after the fact has yet to result in a single conviction.

"Things have definitely gone backward since Bre-X," argues Al Rosen, one of the country's most outspoken forensic accountants.

"The federal people point to the provinces, the provinces point (to) the federals. People point to different police forces and nobody does anything."

A police investigation into the Calgary company crumbled in 1999 without charges being laid.

Meanwhile, a long-running Ontario Securities Commission proceeding against former Bre-X senior vice-president John Felderhof simmers, awaiting a verdict. It's far from the only example.

There's theatre impresario Garth Drabinsky, who along with business partner Myron Gottlieb stands accused of bilking Livent investors and creditors while at the helm of the now-defunct theatre company.

He was indicted in New York in early 1999, but wasn't charged with fraud in Canada until 2002. The trial continues to drag on in Toronto -- almost a decade after Livent imploded.

It hardly sends a message that white-collar crime is taken seriously, say some of the country's largest investors.

"We're weak, we're wimps," says Claude Lamoreaux, chief executive of the Ontario Teachers' Pension Plan, which manages more than $100 billion in assets.

"If Martha Stewart can be in and out of jail when the Bre-X thing isn't over yet . . . it doesn't make sense."

Bre-X, even today, is something of a sore spot for Lamoreaux. The teachers' fund lost $100 million to the fraudulent gold find -- a fact, he says, that might be easier to digest if there were someone to haul away in handcuffs.

"Nothing beats having a few people in orange jumpsuits. If somebody commits a crime, I think they should go to jail," he says.

American media reports echo the suggestion that Canada is a haven for thieves, one that offers a hospitable environment for hustlers, penny swindlers and big-league fraudsters.

"Toronto Exchange Stumbles Badly in Handling of Bre-X Trades," shouted the headline of one Wall Street Journal story, while a critical editorial in the New York Times proclaimed that Canada "at least per capita" produces more stock market fraud than any other nation.

Most recently, an April story in Forbes magazine entitled 'Oh Canada' weighed in on the U.S. Justice Department's prosecution of media baron Conrad Black, branding him "the latest Northerner to get tagged with stock fraud" on American soil.

"Canada is America's largest trading partner. It's our number one foreign supplier of oil, natural gas and electricity. BlackBerry wireless e-mail comes from Canada, and so do auto parts. Now, for a hot new export: scandal."

Critics on both sides of the border say the main difference between the two countries is that America's regulatory environment is much harsher. High-profile cases tend to proceed faster and federal prosecutors and policing agencies have the kind of financial resources needed to chase corporate malfeasance.

"There is a shortfall in enforcement in Canada. That's probably the politest way to say it," says John Coffee, a professor at Columbia University Law School and former legal adviser to both the New York Stock Exchange and Nasdaq.

"Just look at Lord Black. The U.S. is enforcing law against a principally Canadian actor."

Much of the criticism is directed at the nation's market regulators, who say they're working hard with provincial justice ministers, prosecutors and police to push for faster enforcement.

There's always room to improve, admits Alberta Securities Commission chairman Bill Rice.

That includes changing the perception that Canada doesn't aggressively pursue rogue executives.

Rice, a former securities lawyer, feels Canada too often is an easy target. Without a trial to match the visibility of Enron or WorldCom, regulators here come up short by comparison.

The reality, he says, is that aggressive, U.S-style punitive action isn't the Canadian way when it comes to stock market scandals.

"There is an extreme cultural difference in our approach to criminal law enforcement. We certainly don't send people away for 25 years for these kinds of things.

"I happen to think our public would be horrified by it."

White-collar crime, fuelled by post-Enron reforms, is generally afforded greater publicity in the United States.

Newscasts routinely feature clips of a fallen CEO being led away from his office in handcuffs by an army of FBI agents.

The humiliating spectacle occurs so frequently on television that it's been dubbed the perp walk.

In Canada, there isn't an appetite for theatrics, argues Rice. And there is nothing to suggest the American "get-tough" approach has restored market confidence, he adds.

"Look at Enron, Tyco and WorldCom . . . the disappointment seems to come in making comparisons between what happens here versus what is projected through the media to happen in the U.S.," he said. "I'm not satisfied that their results are in fact better than ours. But the perception is there."

Corporate crime is notoriously difficult to detect, let alone prosecute, say those responsible for protecting investors from swindlers. It doesn't help, critics counter, that Canada has a patchwork of 13 provincial and territorial agencies regulating its stock markets. Canada is the only major developed country without a national securities watchdog, despite growing enthusiasm for the idea.

Supporters -- including federal Finance Minister Jim Flaherty -- point to the success of the U.S. Securities and Exchange Commission, arguing a single regulator here would cut red tape and protect Canada's capital markets.

"The SEC in the United States certainly seems more vigorous in its prosecution, and more successful," Flaherty told the Herald. "I think we could do better . . . there's quite a compelling argument that it's the right way to go."

Those in favour of a national commission say it would improve market vigilance. The SEC spends more than 35 per cent of its budget chasing white-collar criminals, while the Ontario Securities Commission, Canada's largest market regulator, spends less than 20 per cent on enforcement.

Provincial authorities in Alberta, B.C. and Quebec reject the idea, fearing regional interests would be usurped by an Ontario-centric behemoth.

Another suggestion -- one of 65 put forth by a 12-member industry panel last year -- is to create a national court to oversee criminal cases on securities violations, and civil liability cases.

In theory, that would result in cases being heard by a judge well versed in corporate crime -- and hopefully a timelier outcome.

Canada's less-than-stellar reputation is a concern to the TSX Group, which has launched a program to solicit new listings outside its borders. Chief executive Richard Nesbitt acknowledges Canada has a problem.

"We haven't seen the kind of enforcement that you've seen south of the border," he told reporters in April.

He cited the case of Bre-X -- wrangling its way through the justice system.

"Enforcement takes a long time in this country, on the judicial side, not the regulatory side," Nesbitt said.

Six years after Bre-X cratered, the RCMP created the Integrated Market Enforcement Team (IMET), a stock market SWAT team to take aim at corporate criminals.

The move came in the wake of colossal U.S. scandals Enron and WorldCom, which rocked markets and saw thousands of jobs evaporate.

"There was an acknowledgement around organized crime and other kinds of white-collar crime, money laundering, that the RCMP needed a specialized unit and resources to go with that unit," says former Liberal MP Anne McLellan, federal justice minister when Bre-X collapsed.

IMET has teams in Vancouver, Calgary, Toronto and Montreal, with headquarters in Ottawa. The squad includes legal advisers, forensic accountants, market experts and intelligence analysts. From 2003 to 2006, more than $40 million was spent on the program.

Since its inauguration, however, IMET has come under fire for putting only two people behind bars, while several other cases slowly work their way through the courts.

"There's been a lot of criticism, both publicly and internally, as to the fact the cases are taking too long . . . for the investigation to take place, to bring people to justice," says RCMP Supt. John Sliter, national director of the IMET program. "I'm in complete agreement with that critique."

Sliter says things have to move faster, but believes the whole system needs to be looked at, from the time a complaint is filed to when "the cell door slams shut."

The analysis should include prison sentences, the speed of prosecution and even the length of time it takes to get the court time needed for trials that could last months.

"I think there's an appreciation that at least we can conduct some very complex investigations," Sliter said.

"Are they afraid and trembling in their boots? Maybe not quite. But, hey, I think there's an appreciation that we exist."

The solution for the powerful Ontario Teachers' Pension Plan is to buy stocks that trade in the United States, because it believes investor protection is superior there.

"The laws are lenient in Canada and crooks know it. They're not stupid," says Lamoreaux.

"If another Bre-X happens, will there be a prosecution? What example do want to make of it? Because to me, justice that takes 10 years isn't much of an example."

tgignac@theherald.canwest.com

tseskus@theherald.canwest.com
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Re: Solutions, Self Defense and Best Practices

Postby admin » Wed Apr 07, 2010 8:56 am

03-ps20-3_bullyinghurts_weblg.jpg
Investor Bill of Rights
Larry Elford

I submit that the investment industry in Canada is an unrestrained bully, an 800lb gorilla if you will, and there needs to be steps taken to ensure a fair and level playing field for Canadians, and not just a free arena for financial abuse.
These are the basic rights that an investor in a developed country deserves. One who seeks help, or advice from those purporting to be professional, or advisors, or both.

The right to have the customer interests take priority over that of the advice giver.
(to use one specific commonly abused example, all other things being equal, if there are two or more nearly identical investment products available, the advice giver must direct the client towards the one which is most beneficial to the client and not the one which pays the advice giver the most commissions, fees, bonus or shares)

To be shown a copy of the actual license of the advice giver.

To know if the advice giver is compensated as a salesperson by commissions and/or fees on assets gathered.

To be told in writing, whether the advice giver, and the investment firm owes some duty of care, a fiduciary duty, or “no duty at all” to place the interests of the client first. Is the relationship one of a salesperson to a customer.

To an independent regulatory and investor protective body, outside of the capture, the funding, or the influence of the investment industry itself.

To have their investment plans, objectives, risk and reward tolerances placed in writing by the advice provider, such that a third party could understand what the client and the advice giver are agreed and embarked upon.

To have a simple, understandable written summary, from the advice giver, of each and every possible or potential form of compensation that is earned, could be earned, or earned indirectly as a result of the advice given by the advice giver.

To a written summary of all claims, judgements, awards against, penalties or any other sanctions against the professional standing of the advice giver and his or her organization.

To receive account statements that could be considered decipherable and understandable with regard to the age, the state of mind, the literacy and the competence of the client. (no financial or accounting jargon, plain language meant to inform not confuse)

To full disclosure of investment positives, risks and negatives, with full and accurate information. To a standard of the best of efforts and “best practices” by a prudent professional at the time.

To immediate recompense by industry compensation funds for any misrepresentation, negligence, breach of duty, fraud, forgery or any criminal offense against the client or the public in general.

To fair, timely and adequate treatment and compensation for investment abuses where the client interests have been taken advantage of by the undue strength and expertise of the investment industry.

To damages of a multiple amount higher than the actual damages to the client, if the industry can be shown to practice any attempts at dishonesty, delay, bullying tactics, or anything less than the highest professional standards or care for a client who has a dispute or a complaint.  Investment sellers must not be seen to profit from investment abuses which cost them less in fines than they make in fees. Investment sellers must also not be allowed to abuse, silence, out-wait, or out-lawyer vulnerable clients with the unequal degree of strength, knowledge and power they possess over that of an ordinary individual.

To a clearly defined, prudent, and professional process for raising and resolving a complaint.  Not an industry smoke screen or an internal kangaroo court process which could be judged by friends of the investment industry or persons paid by the investment industry.

To know if the investment firm has a clear and concise written policy of fairness, honesty, and professional due diligence towards whistleblowers or employees who tell the truth about inappropriate corporate behaviors or customer abuses.

To have financial abuse matters handled objectively by “non-industry” paid persons. To recover credibility the industry must provide an approach and complaint process where independent, objective, trained police agencies or financial experts handle matters which involve financial abuse or criminal or potential criminal violations. Not a process where complaints are handled internally, by industry trade and lobby groups, or by regulators or self regulators who are tied or paid for by the industry.

If you invest in any country which does not have (or does not enforce) these kinds of rights and protections for each investor, you will be placing your economic future at risk of loss or theft. You do not even have to be an investor to be financially abused by the investment industry, as recent economic events have shown. This industry has managed to infect public institutions, governments and entire economies with an unchecked, self regulated, unrestrained greed.

To be candid, Canada is failing on nearly all of these rights and basic protections. Canadians are totally under the care and protection of industry paid, industry driven organizations, which means that you are being protected entirely by the foxes of the industry, or worse, by regulators who are paid by those foxes.   The financial system of Canada is designed and built to put as much wealth in the pockets of the industry as possible, at the expense of, and by abusing your future.  Research for http://www.breachoftrust.ca  suggests that the lack of these investor rights is costing Canadians more each year than the cost of each and every other crime in Canada combined.

More tricks of the investment trade found free of charge at http://www.investoradvocates.ca

Larry Elford (former CFP, CIM, FCSI, Associate Portfolio Manager, retired) worked twenty years inside bank owned brokerage firms in the country and retired in 2004, after failing at convincing his industry to clean up its sales tricks. He writes, blogs and has completed a one man doc film project on what he learned as a broker at http://www.breachoftrust.ca

His public education work is completely free of any sale pitch, any product, or any cost. He speaks to community groups free of charge to warn and educate people about investment tricks of the trade. Feel free to publish, duplicate or distribute this article as it is without copyright protection. He can be reached at lelford@shaw.ca
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Re: Solutions, Self Defense and Best Practices

Postby admin » Sun Mar 28, 2010 9:05 am

http://www.fsa.gov.uk/pages/Library/Com ... /056.shtml

Here are some details about how much further advanced they are in the UK about placing the investment customer interests ahead of the self interests of the industry. Here in Canada with such strong (five major banks) financial players, combined with such weak (regulators bought and paid for by industry) regulation or enforcement, we simply blow smoke up the public skirts and lie to the public about how well we serve them. (advocate)

The Retail Distribution Review (RDR) aims to put the customer in charge by providing them with vital information about the cost and nature of the advice they are receiving. They will be able agree the cost of that advice with their adviser, rather than it being decided by the provider of the product. From the end of 2012, firms will have to be upfront about how much they charge for their services, and no longer hide the cost of their advice behind the cost of a product. Looks like the FDM hit the UK before it hit Canada.
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Re: Solutions, Self Defense and Best Practices

Postby admin » Sat Feb 27, 2010 5:24 pm

“The Investor’s Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between” by William Bernstein
In a nutshell

Must read book for investors; Bernstein calls it the way he sees it. He starts off with the observation that only a very small minority of investors will succeed at managing their own investments (this by the way makes me wonder why am I authoring a website of DIY investors?) because they lack the four essential requirements for success: interest, mathematical inclination, understanding of financial history and emotional discipline to execute strategy. Nevertheless, he then proceeds to fill his short (<200 page) book with valuable advice. It’s an easy read, which could pay you a lifetime of dividends; it might even help save you from eating cat food in retirement.

-“Muggers and worse” is one of the chapters I enjoyed the most; he calls them the way he sees them: “the prudent investor treats almost the entirety of the financial industrial landscape as an urban combat zone”. He argues that a combination of incompetence, motivation to make money and “agency conflict” are at the root of the raw deal that investors get from the industry. A key reason why the public is not as well protected when doing business with the brokerage industry as when we go to a doctor, lawyer or accountant is because brokers are not fiduciaries like other professionals. Bernstein says that you’ll do fine if you “act on the assumption that every broker, insurance salesman, mutual fund sales person and financial advisor is a hardened criminal”.
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Re: Solutions, Self Defense and Best Practices

Postby admin » Sat Feb 27, 2010 9:44 am

"Active ETFs will do to the mutual fund industry what iTunes did to the CD. It is so much better for the investor because they have a low management fee - in this case, 0.70 per cent." - Ken McCord, president of AlphaPro Management commenting on mutual fund managers joining the active ETF movement .
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