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Royal Commission or Judicial Inquiry Case #1

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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Fri Jul 01, 2011 3:58 pm

Would-be whistleblower found dead
by Steven Lamb (December 31, 2004)

A would-be whistleblower from the financial services industry has been found dead, apparently of suicide. Reports say Kent Shirley was found dead in his parents' home on Christmas Eve.

Shirley was embroiled in a constructive dismissal lawsuit against Advocis' founding chairman Brian Mallard, with both sides alleging regulatory wrongdoing. Shirley was an assistant in Mallard's Assante practice in Saskatoon, between 1996 and January 2004.

According to court documents, Shirley alleged Mallard "condoned, engaged in and required Shirley to engage in unethical behaviour and/or illegal conduct." Mallard denied the charges, calling the suit "extortion".

Shirley had turned files over to the Saskatchewan Securities Commission, the MFDA and the RCMP. The legal battle found its way into the national news media in an article by Jonathan Chevreau in the National Post. Chevreau reported the death this week on Wealthyboomer.com.

For some, Shirley was seen as a whistleblower fighting for investment transparency.

Stephen Gadsden, CFP, a former Assante planner and current contributor to FundLibrary.com, has posted an "An Open Letter to Canadians" on his website, saying: "[Shirley's] death represents, at the very least, an example of the ultimate consequences of corporate and regulatory sweep-it-under-the-rug-and-hope-it-goes-away business practices that have plagued Canada's financial services industry for decades."

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(12/31/04)
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Fri Jul 01, 2011 3:57 pm

An Open Letter to Canadians

By Stephen Gadsden, December 28, 2004

While what follows is not intended to besmirch or otherwise impugn the character of
anyone, I am angry and provoked. This is because I just read John Reynolds’ book Naked
Investor.

It also brought to mind experiences I had while a branch manager with Fortune Financial
(1994-1998), Equion (1998-1999) and Assante Financial Management Ltd. (2000-2002).
Let me begin with my last dealer first.

Assante, as you may know, was the brainchild of Michael Nairne and Martin Weinberg
and was hatched back in the mid-1990s. Their plan was to take the original company,
Equion, which was a small Winnipeg-based investment firm, and use it as a core around
which to build their new company and launch it as a public company in 2000.

Their strategy was to buy out other small financial planning and investment firms and
lock them into the new Assante structure. They did so by way of a complicated share swap
scheme.

If this conversion venture proved successful, both Nairne and Weinberg stood to pocket
millions of dollars as Assante’s publicly-traded shares increased in value.

As a new branch manager with Equion I had reservations about this plan.

You see, before joining Equion I had been a successful branch manager at Fortune
Financial, Richmond Hill. With 22 brokers and financial planners under my direction, my
branch office was rated one of the top producing offices in the country.

After three years at the helm I was unceremoniously dumped by the principal shareholder
and owner of Fortune, David Singh. I angered Mr. Singh because I would not buy any of
his company’s shares and “support” his enterprise. Neither would I support his new
proprietary mutual fund products called Infinity Funds.

When asked by attendees of my public seminars about Fortune’s Infinity Funds, I
suggested people interested in them purchase the funds on a dollar-cost averaging basis
since they were new and unproven. I recommended that people not invest large lump
sums in Fortune’s proprietary funds at the time.

After moving to Equion in June 1998, I witnessed a similar kind of development.

I was offered an opportunity to buy privately-held shares of Equion before the scheduled
transformation of the firm into Assante in 2000. I politely declined the offer, preferring to
wait and see how Equion’s transformation transpired.

2 of 5

Like Fortune before it, Equion, too, had been developing a range of proprietary
investment products called Artisan Portfolios and Optima Funds.

In 1999 I attended a company-wide sales meeting in Mississauga, Ontario. At this
meeting Artisan and Optima products were introduced and promoted heavily by Mr.
Nairne and included glowing testimonials from senior Equion sales representatives.

The presentation for these products was based on two ideas. First, as “managed”
portfolios, both Artisan and Optima products allowed sales people more time to market
their franchises and build their businesses rather than continue to worry about the choice
and monitoring of third-party mutual funds offered by manufacturers such as Mackenzie,
Templeton and Trimark.

Second, Equion executives told the audience that the mutual fund industry was becoming
increasingly litigious. Financial advisors who sold mutual funds would be held
increasingly liable by their clients for portfolio performance. Artisan Portfolios and, in
particular, the Optima Strategy product would act as a bulwark against such developing
industry trends.

The assertion was, of course, that diversified portfolios and managed portfolios required
little or no mutual fund advisor input. The conclusion was, and the representatives I
talked to after the presentation understood, that putting clients’ capital in Artisan and
Optima products would better protect Equion’s mutual fund sales people from client
wrath and future stock market risk.

I had only one nagging issue. Would Artisan and Optima products live up to the billing?

With the Equion transition complete, Assante was launched and got its systems up and
running in 2000. Once accomplished, the company again turned its attention to the
promotion of its Artisan and Optima products.

I had already researched Equion’s original Artisan and Optima product-presentation and
concluded that as a group Artisan and Optima products were young, below-average
performers, and expensive to own when compared to alternative mutual fund products
previously available in Canada’s investment marketplace.

Out of two hundred or so clients I serviced as a Chartered Financial Planner, I had only
one client who purchased Assante’s Optima Strategy product, a kind of fund-of-funds
management format. After two years of watching her capital go nowhere, she left
Assante, much to my dismay.

With one or two exceptions, Optima products had not done that well over the years. It
hadn’t helped either when an oversight on Mr. Nairne’s part resulted in Optima funds
being performance-rated before management fees, which resulted in better investment
performance than the funds actually had achieved.

3 of 5

Assante admitted to its sales force that those of its proprietary products that were poor
performers were due to a restrictive management style.

Assante promised that, in future, a more comprehensive management style would be
applied to help mitigate the effects of future securities market risk.

As time passed, many managers and their sales reps, some of whom were top sales
producers and Assante stock holders, sold their clients out of their original third party
mutual fund portfolios and poured millions of dollars in proceeds into Assante’s Artisan
and Optima products.

I, for one, did not participate in this conversion process.

My partner and I then attended a branch manager and Assante executive meeting at the
Sheraton Toronto North Hotel on Highway 7 at Leslie Street on or about April 22nd 2002.

At this meeting we were horrified to hear Mr. Nick Mancini, Executive Vice-President,
Assante, tell us that Assante executives and other principal shareholders expected all
managers and sales representatives to redeem up to 80% of their clients’ money that was
not invested in Assante investments and reinvest the proceeds in Assante’s Artisan and
Optima mutual funds.

Mr. Mancini gave a number of reasons why such a conversion to Assante-owned mutual
funds was a great idea. Here are three of them:

1. Such activity would be good for all Assante shareholders. This is because
Assante’s fee income charged to clients of its Artisan and Optima funds was
higher than fee income Assante received from third party fund companies such as
Trimark. By raising Assante’s cash flow the company’s balance sheet would look
much better and attract other potential Assante stockholders.

2. Assante shareholders could benefit from an increase in the price of the company’s
publicly-traded shares.

3. Those Assante managers and sales reps who sold their clients into Assante’s own
products would benefit not only because of increasing Assante stock prices, but
they would retain greater control of their clients’ monies through the company’s
Artisan and Optima products.

I couldn’t see any advantage to my clients to convert a portion of their third-party mutual
funds and I refused to do so. I couldn’t justify moving my clients out of above-average
performing and less costly mutual funds to Assante’s Artisan and Optima products.

On September 30th 2002 the axe dropped and I was “fired without cause” by Assante.
The transfer of my securities licence was cleared with restrictions on January 2003.

4 of 5

During this period my clientele and business equity were allocated to another Assante
representative.

After 21 years of service I have since left the financial services industry as a product selling
advisor.

But, this little story doesn’t end here.

You may be wondering why I waited until now to convey this one small experience of
Fortune, Equion and Assante.

Over the past few years I have listened to similar accounts from other mutual fund sales
people and have watched as similar stories passed in and out of the media, all without
consequence or resolution. The final provocation for me occurred with the following:

• Jon Chevreau’s brave call for further investigation of apparent breaches of
securities law by an established sales rep and one-time founding member of a
national financial planners association called Advocis. See Chevreau at
Assante lawsuit bears a closer look - http://www.investorvoice.ca/PI/1166.htm

• According to a respected source, Mr. Chevreau’s attempts to investigate these
issues further have been spiked by his handlers which, as an investigative reporter
and journalist, I know often occur when a company or person receives threatening
letters, impending lawsuits or “slap suits” as they are otherwise called, or is the
object of collusion by parties with similar, vested interests.

• The release of John Reynolds’ expose of the self-serving, turtle-like acts of our
Canadian securities regulators and their appointed Self-Regulatory Organizations
(SRO’s) such as the Investment Dealers Association (IDA), the newly minted
Mutual Fund Dealers Association (MFDA), and our very own securities
Ubermensch, the Ontario Securities Commission (OSC). See Reynolds at
http://www.penguin.ca/nf/Book/BookDispl ... 37,00.html.

• I was recently informed that a courageous securities industry “whistleblower”
with boxes of incriminating evidence once in his possession, was found dead
under as-yet-to-be-determined circumstances on Christmas Eve 2004.

His death represents, at the very least, an example of the ultimate consequences
of corporate and regulatory sweep-it-under-the-rug-and-hope-it-goes-away
business practices that have plagued Canada’s financial services industry for
decades.

Consumer and industry rights advocate, Joe Killoran, goes so far as to call the
unfortunate death of this one-time mutual fund sales assistant a “blatant collective
murder” where government regulators, SROs, and corporations should be held
accountable.

5 of 5

On the other hand, remember Royal Trustco? How about Bre-X? What about our
big banks’ involvement in the Enron fiasco? Has Air Canada’s humiliating
bankruptcy and fall from grace, and the wealth of thousands of stock holders who
were dragged down with it, been investigated properly?

Oh yes, let’s not forget Nortel, and the recent imbroglio of mutual fund market
timing. The list goes on and on.

I am truly amazed.

Canadians should start thinking seriously about what’s been happening to their fortunes
over the years and why.

Just how long will we continue to tolerate the greed, manipulation and rot that appear to
permeate our financial service industry from top to bottom?

How long will we continue to ignore the damage and pain that has been inflicted, and
continues to be inflicted, on investors and advisors alike by a financial system that is
clearly out of control in its duplicitous, self-dealing drive for profits?

Where is the raft of class-action lawsuits by Canadians who have been suckered by
corporate robber barons who hide behind entire law firms, manipulate the media and
infect an already twisted, self-serving and conflicting regulatory environment?

And not the least, how will Canada’s financial services community and industry
regulators compensate a struggling, conscientious young man who wanted to better the
financial system by revealing transgressions of the most lurid kind, but got death instead?

Something sure stinks in Canada’s financial services industry. Where is Eliot Spitzer?

Stephen Gadsden, B.A., M.A., CFP (1991)
Aurora, Ontario
Canada
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Sat Jun 25, 2011 4:03 pm

Screen shot 2011-06-25 at 5.02.17 PM.png
Nov. 16, 2002: Jon Chevreau’s 1st column


“Beware advisors who sell their own funds”

As in-house funds are added to the mix, investors should question how "independent" these advisors are.

Why they push in-house funds is no mystery. "Distribution is a low-margin business, but manufacturing is where the real money is," says fund analyst Dan Hallett. Assante makes 0.05% margin on distribution, but 1.2% making and selling its Artisan and Optima Strategy funds.

A disturbing trend at some firms are edicts that advisors sell a set percentage of in-house funds. One is Assante, reading between the lines of a recent piece in The MoneyLetter by Stephen Gadsden, a former Assante advisor who balked at filling client portfolios with in-house funds.

Last spring, Assante changed its policy to encourage advisors to drive up to 80% of assets into its funds, Gadsden says. A three- tiered commission grid best rewards advisors selling in-house funds, he says.

The danger for clients is that overweighting in-house funds may displace superior, less costly external funds. Gadsden says Assante's new business policy is "a big conflict of interest between working on behalf of a client's best interests and working for Assante's corporate profitability."

Assante spokesperson Gail Grainger confirms 40% of Assante's assets are in in-house funds, but denies it puts pressure on advisors to sell them or that they are paid more to do so. "I beg to differ," Gadsden counters. "I was at the spring 2002 company managers' meetings.

Many branch managers informed of the scheme were in an uproar. It's impossible for Assante advisors' recommendations to be objective."

Trailer fees on Optima Strategy funds are higher than external funds, and advisors who own Assante stock can profit by filling client portfolios with its funds.

While not as egregious as Assante, Cartier is no exception to some of these trends. It sells five fund groups -- AGF, AIM, Fidelity, Mackenzie and Templeton -- plus its own Cartier funds. It now also sells Cartier funds through outside advisors.
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Thu Sep 23, 2010 1:59 pm

The issue I have concerns about was a legal issue in a Calgary Court House a few years ago now. At that time I was not involved in any way except to attend the courtroom and observe with interest.

What I saw was a court case where a young man was involved, with evidence of wrongdoing against a former employer.

The young man's home (in Red Deer) was invaded with an Anton Piller order (private search warrant) where he was forced to turn over all incriminating evidence against his former employer, AND he was forbidden in writing to contact the police or "any authority", despite it being fully known to the lawyer who drafted this order, that the young man was in contact with and co-operating with both police and regulatory agencies.

I feel that this young man's constitutional rights, not to mention rights to not suppress evidence etc., etc were stolen from him in this case. There is much more that was done in a damaging manner, but I will spare you the entire load of info.

The young man fully expected the wording in this Anton Piller order to be overturned, and attended Calgary Court just prior to x-mas 2004 to see if such a motion had been filed. It turns out that the judge HAD indeed overturned that portion of the order preventing him from speaking to certain authorities, but his lawyer failed to file this motion for a further nine months time.

The young man took his own life in an apparent suicide x-mas eve 2004.

It prompted me to put parts of his story into my film BREACH OF TRUST, The Unique Violence of White Collar Crime. http://www.breachoftrust.ca video chapter six available on the net

I have about twenty pages of document summary and timeline to outline the extent of the loss of liberties involved here, and the subsequent gain of money to those involved.

I am saddened by the extent of corruption and conflict of interest allowed by our professional and legal system in order to "play" the system, and to gain financially from it.

The irony may also be that the judge that granted such an order (or was tricked into signing this order by a corrupt lawyer), has retired to head up a human rights commission in alberta..........funny how those things go.

Cheers and thanks
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Wed May 12, 2010 8:34 pm

image005.gif
image005.gif (5.57 KiB) Viewed 21155 times
CANADIAN BUSINESS MAG ONLINE
SEAN SILCOFF
2000-02-07
Glitz and misses

Investors might really get to like Marty Weinberg's wealth management company to the stars--if they could just figure out what it does


Some wealthy people collect art, while others collect rare wines or cars. Marty Weinberg collects heads. In his Winnipeg home are two heads in particular that action movie buffs will instantly recognize. One is the small gold statue that Harrison Ford snatches up at the beginning of Raiders of the Lost Ark. The other is a life-sized robotic model of Arnold Schwarzenegger's noggin from Terminator 2, complete with a control mechanism that allows Weinberg to move the model's eyes, mouth and ears.

If you think the 39-year-old Weinberg's taste in movie memorabilia is a bit strange, consider Assante Corp. (TSE: LMS), his burgeoning wealth management empire. Over the past five years, Weinberg has bought up a slew of mutual fund dealers and financial advisers on his way to creating the country's largest non-bank-owned financial planning firm, overseeing $26 billion in assets. His company is more than that: Weinberg's mission is to serve as "personal chief financial officer" to affluent Canadians, offering such services as tax advice, estate planning and bill payment--in addition, of course, to managing their investments. In the US, Weinberg has gone Hollywood in a different way, snapping up firms that manage the wealth and business affairs of movie stars and negotiate multimillion-dollar salaries for sports heroes.

Weinberg's client roster now includes about half the starting quarterbacks in the National Football League, as well as movie star Tom Cruise and TV host David Letterman. If you're compelled to yell "Show me the money!" at Weinberg (like the sports agent Cruise portrays in the 1996 film Jerry Maguire), the joke is on you: in October, Weinberg paid US$120 million for Steinberg, Moorad & Dunn, the California-based firm founded by the real-life inspiration for Jerry Maguire, super-agent Leigh Steinberg. "'Show me the money' is what we're trying to do," says Weinberg.

Funny, that's what Assante investors have been waiting for ever since Weinberg decided to turn his one-time hobby into a publicly traded company. Last spring, Weinberg tried to peddle Assante shares to institutional investors at $15 a pop and flopped big time. He had to slash the offering price to $9.50, only to watch the stock skid to $5.70 in October; it has yet to reclaim its May 1999 IPO price. You could argue that all financial services firms had a rough ride in the markets last year. But Assante has attracted scant institutional interest, little market activity and not one analyst report in its eight months as a public company. The biggest buyer of Assante stock is Assante itself: in late October the company announced plans to buy back up to 2.7 million--about 5%--of its own shares. "We think it's one of the best deals we can find," says Weinberg, who owns more than 14.5 million multiple voting shares (and 88% of voting control) himself. Assante is certainly growing by leaps and bounds: revenue for the first nine months of 1999 rose 135% to $228 million from the same period the year before, while earnings before interest, amortization and taxes climbed a steady 71% to $40.6 million. So why is Weinberg the only one buying the company?

Reason No. 1: he may be the only one who understands it. Before anything will change, Weinberg has to explain to investors exactly what his company does, what that's worth, and how to decipher the company's convoluted share structure--which makes it nearly impossible to come up with hard per-share earnings estimates. "It's not a simple structure, and that's what the market will need time to understand," says Timothy Lazaris, a financial services analyst with Griffiths McBurney & Partners, one of several Bay Street number crunchers now working on their inaugural reports (Lazaris's firm also partially underwrote the Assante IPO). "That's the role of the analysts and that's why we're taking a little bit longer than normal to understand it completely."

But even if the analysts offer up "buy" ratings, don't expect investors to respond immediately. Weinberg doesn't. "I think we will need a float somewhere in the area of two to three times what it is today. We'll also need adequate coverage of the company and the ability to show that we have executed several quarters of our strategy," he says. "We're more a listed private company than a public company right now. I guess in my own mind I have a one- to two-year target time frame to make Assante a real public company." That, no doubt, will come as a surprise to stockholders, who, last time they checked, owned shares in a "real" public company.

Every year around RRSP season, investors look out on the vast array of mutual funds and throw up their hands in confusion. But if anyone is having a hard time these days, it's the folks who actually peddle those funds and the people who manage them.

While Canadians poured money into mutual funds between 1990 and 1998, last year was a different story. There was a bigger roster of funds to choose from than ever. Yet sales dropped to $17.7 billion in 1999 from more than twice that amount the year before. Meanwhile, some of the biggest fund management companies in Canada--including Dynamic Mutual Funds Ltd. and Trimark Financial Corp.--have recently experienced net redemptions of tens of millions of dollars, according to the Investment Funds Institute of Canada. Small fund dealers, for their part, have found their businesses squeezed by the need to keep up to date in an industry that has become increasingly regulated, technologically advanced--and dominated by giant bank-owned competitors.

Meanwhile, another trend is affecting the money management world: a soaring number of baby boomers who have become wealthy in the prolonged bull market (an estimated 300,000 Canadians now have a net worth of $1 million or more). Many have arrived at the point where they want their extensive portfolios to encompass more than just mutual funds. At the same time, some find their financial needs expanding beyond basic wealth management, to such fee-based services as estate and tax planning.

Assante is designed to service this collision of trends. In the early 1990s, Weinberg dreamed up the idea of a fully integrated wealth management firm while working as controller with his father-in-law's electronics store. At the time, Weinberg was running an investment management firm, Loring Ward Investment Counsel on the side, managing customized portfolios for a group of affluent Winnipeg professionals in his spare time. Weinberg envisioned expanding his firm into a place where his clients, under one roof, could not only manage their money, but obtain tax advice, assistance with drafting an estate plan or insurance coverage. By treating otherwise separate functions and professionals as part of a coordinated "life management" team for the client, Weinberg believed he could offer a unique service that would surely give Loring Ward a distinct advantage over other money-management firms. He soon quit the family business and began looking for ways to expand his company.

While looking for a Bay Street partner to help him grow in the mid-1990s, Weinberg came upon Michael Nairne, a fellow Winnipeg native who had built Equion Group Ltd. of Toronto into one of the better-known mutual fund financial advisory firms in the country. The two understood each other and determined they would build their list of clients together by buying up financial planning firms, then selling them an expanded array of products and services.

After merging their companies to form Assante in 1995, the two embarked on a frenetic round of deal-making that saw them snap up a total of 13 Canadian and six US wealth management firms between 1996 and 1999. The idea was to purchase a company, keep the management intact and then leave it to operate as it had before. Only now, clients would be sold Assante's exclusive in-house investment products and services--primarily its exclusive Optima Strategy funds, available only to investors with $100,000 or more. According to Assante's 1999 prospectus, the in-house selling job proved highly effective: the longer a company was owned by Assante, the greater the share of Assante products its clients were likely to buy (from 11.4% of total assets in the first year to almost 50% after four years).

But Assante has faced critics at every step. Any fund company that both creates and sells its own funds risks being in conflict of interest, as former Ontario Securities Commission chair Glorianne Stromberg noted in her 1999 report on the mutual fund industry. After all, any managers who own Assante stock have a vested interest in pushing their in-house funds on clients--whether those investments are appropriate choices or not.

Beyond that, however, are questions surrounding exactly what it is the company brings to its clients. Assante charges a pretty hefty fee for its offerings. Those in-house Optima funds carry management fees in the 3% range--a high figure, when you consider the payback. "Their returns haven't been overly impressive," says Dan Hallett, senior analyst with FundMonitor.com. (For example, Assante's $951-million Optima Strategy Canadian Equity Fund--its largest fund--was in the bottom quartile of its peer group for the first 11 months of 1999, yielding a 2.9% return.) "If I were to sum up [Optima] in a word, it would be 'expensive.' We're really not big fans of this fund family."

But if cost-conscious clients find Optima funds too pricey, they'd be floored by the cost of joining Assante's high-end private client management program, where they get the "personal CFO" treatment. Across the industry, according to Kelly Rodgers, president of Rodgers Investment Consulting, clients with more than $1 million in assets can expect to pay management fees starting at 1% of assets, and declining as their net worth increases. Someone with between $1 million and $2 million worth of investible assets, for example, should pay about 1%. Compare that with Assante, where clients with comparable assets pay 2%--twice the typical amount.

Weinberg says that's like comparing apples and oranges, since he brings more than investing services to the table. "We charge for the value we bring to people's lives. We've focused on having clients live happily ever after by meeting a personal benchmark. If we minimize tax, give them income liquidity, allow them to retire when they are supposed to and not have risk creep into their portfolio--this client can go to bed happy. Combine that with all the other services--including bill payment, wealth management and tax and estate--and what you have is about 20% of somebody's life being looked after by one organization under one roof. We've just added 10 to 15 years in quality time to that person's life, for a fee."

That, of course, assumes clients see value in taking any business away from their existing lawyers and accountants. (In fact, Assante usually just draws up the financial master plan, leaving the paperwork to outside accountants and lawyers.) Says Rodgers: "Why would I go to a financial planner for expert tax advice? Wouldn't I go to an expert tax lawyer or tax accountant? I've never had clients complain about it being too complicated to deal with their lawyer once every two years to update their will or to have their accountant do their taxes every year."

That may be so. But Assante's business model is based on a whole lot of people paying no heed to what Rodgers says. Already, the firm has about 2,000 client accounts (with average assets of $1.6 million under management) receiving its high-end service. And Weinberg's idea of cross-selling financial services--and pulling "embedded" value out of the bottom line--certainly seems to have excited the principals of the Canadian and US wealth management firms he's bought in the past five years--particularly Leigh Steinberg, who envisions building a gigantic sports agency, offering a full range of life-management services. But trying to pin a value on Assante itself is another matter. One thing is for certain: over the next few years, the company will issue millions of shares to managers to pay for the string of deals Weinberg has completed. But determining the exact number of shares and their value is difficult. A typical deal goes something like this: Assante pays the first instalment in cash. That is followed by a second payment of a fixed amount on a predetermined date (usually the third anniversary of the deal), where the number of shares is determined by the stock price on that date. Later, the owner can earn an indeterminate bonus of more shares, at an as-yet-undetermined stock price, if the firm reaches predetermined financial targets.

The deals are structured to ensure the head of an acquired company continues working toward better results and a higher stock price--while leaving Assante only to pay minimal up-front costs. That may sound clever, but chances are this complicated scheme is just too much for the average investor to comprehend, since it's impossible to predict exactly what the number of shares will be at any given time going forward. And if investors give up on the stock, imagine how all those managers who sold out for future shares will feel if the stock doesn't perform and their shares become overly diluted.

Well, there's at least one person who believes that it will all fit together. His name is Marty Weinberg. In fact, he sounds downright irritated when he's asked to explain for the umpteenth time exactly what winds of change he's blowing across the financial services industry from his perch 15 storeys above downtown Winnipeg. "It's absolutely logical, every single step of the way," he says.

Now comes the hard part--proving it works. Someday all those shares will be vested and the company will be easier to understand. By then, according to Weinberg, earnings should be at least four times what they are today and a loose network of independent firms will be integrated under the strong Assante brand name. If there is merit to his theory about the market for personal CFOs, Assante's financial results and stock price should prove him right. The underlying message in Marty Weinberg's confident, impatient voice seems to be, "Yes, yes, give me time and I will show you the money."
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Sat Dec 12, 2009 5:24 pm

I am posting this case about secret commissions being an offense under the criminal code as a similar example to the case of commission rebating, house brand fund sales, and bonus shares in the mutual fund received by salespersons in this case study proposal.

secret commissions means secretly or without the requisite disclosure. The Crown is not required to prove the existence of a corrupt bargain between the giver and the taker of the reward or benefit. It is thus possible to convict a taker despite the innocence of the giver.

He accepted the commission secretly and influenced the affairs of his principals.

lack of disclosure is an element of the actus reus of the offence of taking a secret commission under s. 426(1)(a)(ii) of the Code, and awareness of that lack of disclosure is an element of its mens rea.

By contracting secretly with Qualico, the Accused knowingly fettered what he held out to be his professional judgment and put himself in a criminal conflict of interest.

secret commissions are not acceptable as they compromise the integrity of our commercial life. The essence of this offence involves the taking of a "secret commission".

In the context of the "Secret Commission" cases, the fundamental duties of the agent are those arising from the fiduciary nature of the agency relationship. The relationship of trust focuses on the principal with the result that agents must not let their own personal interests conflict with the obligations owing to their principals. A conflict of interest exists when an agent is faced with a choice between the agent's personal interest and the agent's duty to the principal. Fridman, supra, put it in this way (at p. 153):

The intent of the section is that no one shall make secret use of an agent's position and services by means of giving him any kind of consideration for it. . . . [T]he intent in passing this section was and is to protect the principal, the employer, in the conduct of his affairs and business against people who might make use or attempt to make use of his agent.




R. v. Kelly, [1992] 2 S.C.R. 170; (June 11, 1992)

William Thomas Kelly Appellant

v.

Her Majesty The Queen Respondent

Indexed as: R. v. Kelly

File No.: 21719.

1991: October 31; 1992: June 11.

Present: L'Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin, Stevenson* and Iacobucci JJ.

on appeal from the court of appeal for british columbia

Criminal law ‑‑ Secret commissions ‑‑ Elements of offence ‑‑ Accused acting as financial investment advisor selling housing units to his clients ‑‑ Commissions paid to accused by development company for sale of units not disclosed to clients ‑‑ Whether accused guilty of corruptly accepting a reward or benefit under s. 426(1)(a) of Criminal Code ‑‑ Whether Crown required to prove existence of corrupt bargain between giver and taker -- Meaning of word "corruptly" ‑‑ Criminal Code, R.S.C., 1985, c. C‑46, s. 426(1)(a).

The accused was charged with four counts of corruptly accepting a reward or benefit contrary to s. 426(1)(a) of the Criminal Code. He was one of the principals of a company ("KPA") which offers, for a fee, financial planning services, including advice respecting investment in real estate and tax planning strategies. In 1980, the accused persuaded a property development company to give KPA the exclusive right to sell the units of its MURB project. KPA sold all the units, mainly to its clients, within the relatively short time prescribed in the agreement and received a commission from the development company for each unit sold. These commissions were the same as those which the development company would have paid to any salesman. At trial, the evidence indicated that KPA's clients were unaware of the commissions paid by the development company to KPA. At their initial meeting with new clients, KPA only gave vague and general information as to its sources of remuneration on a "white board". The accused himself later advised his associates that, with respect to the MURB project, he did not want further disclosures in writing. In defence, the accused testified that the clients purchasing the MURB units should have known of the commissions to be paid to KPA from two small references in the Offering Memoranda on the "Issuing and Sales Costs". The accused was convicted on all four counts. The trial judge found that he had an obligation to make full, frank and fair disclosure of the sales commission. The majority of the Court of Appeal affirmed the conviction. The question raised on this appeal is what the Crown must prove in order to obtain a conviction pursuant to s. 426(1)(a) of the Criminal Code. In particular, this Court must determine whether s. 426 has any application where the party making the payments was not part of a corrupt bargain with the taker.
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Thu Nov 12, 2009 12:13 pm

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Assante lawsuit bears a closer look
Mutual fund sales practices at centre of employment suit

Jonathan Chevreau
Financial Post

Thursday, August 26, 2004
The founding chair of Advocis is being sued by a former assistant to his financial planning practice at a division of Assante Corp.

In some ways, this is a classic David vs. Goliath tale. The goliath figure is Brian Mallard, a wealthy, often-quoted industry figure with multiple credentials and 32 years in the business.

He manages an Assante branch in Saskatoon. He also was -- from January, 2003 until May, 2004 -- the founding chair of Advocis, which represents Canada's financial advisors and insurance sales-people.

Facing him is a figurative David: Kent Shirley, a Saskatoon-based financial advisor who filed a constructive dismissal lawsuit in March. Shirley is suing Mallard personally, plus two companies bearing his name and Assante Financial Management Ltd.

Mallard's amended statement of defence and counterclaim, filed in Saskatoon in June, depicts Shirley as a troubled young man with a host of personal problems.

In an interview, Mallard indignantly dismisses the suit as an attempt to "extort" $50,000 from him: the amount Shirley borrowed from a bank to buy Assante stock from his (Shirley's) brother, also with Assante. Mallard cosigned the loan, pledging Assante stock as collateral.

Shirley won't speak on the record about his motivations, but far from shutting up and disappearing, the opposite seems to be happening.

What began as an obscure employment dispute is escalating into a case that could shed much light on sales practices in Canada's financial advice business.

Shirley provided extensive documentation to the Saskatchewan Securities Commission, the Mutual Fund Dealers Association (MFDA) and the RCMP.

His statement of claim alleges Mallard did not practise what he preached in his founding role at Advocis. Or as the document puts it in more formal language: "The Defendants condoned, engaged in and required Shirley to engage in unethical and/or illegal conduct."

The suit says the defendants "regularly breached codes, laws, rules and regulations and required him to do so as a condition of his continued employment." Shirley was expected to "participate in, and/or turn a blind eye to, the Unethical Practices."'

The alleged unethical practices include providing insider information to clients, making personal loans to clients, giving stock advice to clients, facilitating trades while not properly licensed to do so, selling personal stock to clients, and issuing personal guarantees on client accounts.

All those allegations are false, the defence argues, "brought solely to embarrass the Defendants and tarnish their reputations." The defendants "deny breaching ethical codes, laws, rules and regulations or requiring the Plaintiff to do so as a condition of his continued employment." Mallard's counterclaim also seeks damages for negligent or intentional misrepresentation and breach of contract.

In an interview, Mallard defends each charge, but admits he provided personal guarantees to some clients worried about bear market losses in 2000. However, he says this was acceptable practice before the MFDA set up shop.

Except for seven months' medical leave in 2002-2003, Shirley's suit says he was "employed full time" at Assante from 1996 until January, 2004.

Mallard denies Shirley was constructively dismissed; he says he was a contract worker rather than a salaried employee, and wasn't terminated but quit.

Either way, Shirley was afforded a bird's-eye view of internal incentives for advisors to replace third-party funds in client portfolios with more profitable in-house Assante product. He was also there as this strategy was parlayed into the ultimate sale of the firm to C.I. Fund Management.

It's this aspect of the case which has attracted the attention of Joe Killoran, who describes himself as "Canada's most feared investor advocate" [see http://www.investorism .com]. He believes the case illustrates how the industry is still not properly regulated.

Killoran focused on the sale of proprietary funds in a presentation last week to the Ontario Finance Committee's five-year review of the Ontario Securities Commission. He accused the OSC and other provincial securities commissions of "gross malfeasance" in the lax way they permit integrated fund manufacturer/ distributors to incent advisors to sell in-house proprietary funds.

This has become an issue in the United States, which is why Killoran forwarded Assante's pre-IPO business plan to New York State Attorney General Eliot Spitzer. Killoran drew Spitzer's attention to the sales practices of Assante's U.S. arm: Loring Ward International. Killoran says he contacted Spitzer because Canada does not have the whistle-blower protection laws the U.S. has had since 1989.

Killoran says the original business plan outlined payment of bonus Assante shares to advisors once they converted 40% of client assets to Assante's proprietary Optima funds. He says this practice skewed the provision of objective advice.

For his part, Mallard insists, "I have 500 clients that love me." In typically strong language, he adds he's "pissed off with a system that assumes every advisor is guilty."

He says the more interesting story is Assante's reaction to the suit, including the firing of at least one internal compliance officer.

Mallard says securities commissions have ceded authority to self-regulated bodies like the MFDA and the Investment Dealers Association. Rather than investigate alleged abuses themselves, the MFDA tells dealers they have received a complaint about an advisor. At its request, two Assante compliance officers audited the Saskatoon branch in May, Mallard says. One later moved to the MFDA.

This case may or may not end up swept under the rug. But from what I've seen, it merits closer attention.

© National Post 2004
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Thu Nov 12, 2009 12:11 pm

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Dec. 05, 2002: Jon Chevreau’s 4th column National Post


Fund awards all about sales

Finding a winning mutual fund has been a tough task the last three years, but most everyone in the fund industry was a winner at last night's annual Canadian Investment Awards & Gala.
.
.
None of Assante's in-house funds won awards last night, nor did the proprietary funds of their distribution rivals -- not even Investors Group Inc., unless you count Mackenzie, with four winning funds. Instead, Investors won the "Imagine Community investment award."
.
.
Other winners are listed at http://www.investmentawards.com, but it doesn't include my suggestion for "sleazy distribution award."
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Thu Nov 12, 2009 12:10 pm

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Dec. 03, 2002: Jon Chevreau’s 3rd column National Post


Love the firm, not the funds

Managing money for the wealthy is nice work if you can get it.

Assante Corp. of Winnipeg targets pro athletes and entertainment stars who completely delegate their financial affairs to others. They seem oblivious to high fees that would send any knowledgeable do-it-yourself investor running for the exits.

But rather than dishing out annual fees of 2.5% to 3% or more, you can instead be the beneficiary of such fees by buying Assante's stock (LMS/TSX) instead of its products.
.
.
There is what Veritas Investment Research calls a "seismic shift" occurring in the balance of power between fund companies and their distributors, particularly new channels such as Assante, Cartier Partners and IPC Financial Network.

Of the top 25 once-independent financial-planning firms that existed in 1996, 22 have been acquired by these consolidators. Assets are being shifted from brand-name external funds to more profitable in-house "multi-manager wrap" programs.

Some fund companies are irked they must compete with in-house funds for the attention of advisors, but one has decided if you can't beat them, join them. CI owns 6.2% of Assante, one of the largest non-bank financial services firms in the country and there is speculation it plans to acquire a controlling interest.

Certainly, the banks' research arms have Assante on their radar, with some initiating coverage with "buy" recommendations over the past two years. That wasn't always the case. It took years for Assante to shake off criticism of its early growth years and poor financials after its creation by founder Martin Weinberg in 1995.

Following its initial public offering in May, 1999, Assante "couldn't get a Canadian institution to buy our stock," says Kish Kapoor, Assante's executive vice-president.
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Thu Nov 12, 2009 12:09 pm

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Nov. 23, 2002: Jon Chevreau’s 2nd column National Post Newspaper


Independent advisors on endangered list
Compensation system presents some 'real conflicts'

Any investor willing to pay for good financial advice naturally expects it to be objective and independent.
.
.
Such advice-skewing blandishments were eliminated by the big fund manufacturers in the wake of Glorianne Stromberg's recommendations in 1995 and 1998. However, distributors seem to have escaped a new sales code rule from the Canadian Securities Administrators designed to prevent such conflicts.

"These arrangements are very troubling," says Stromberg, who was a commissioner at the OSC when her two reports shook up the mutual fund industry. "Intermediaries hold themselves out to clients as being independent and making sure clients' interests come first.

But their compensation system presents them with real conflicts which raise the question of whether their advice is skewed by what they will receive if they recommend proprietary product."

Such practices, she said in an interview yesterday, "should be setting off warning bells that the current regulatory and industry talk about doing away with the sales code will not be in the best interests of investors. So much for principles. It's time to update the sales code rules to deal with the new round of questionable practices that have developed."

At a minimum, these distributors and advisors shouldn't be allowed to describe themselves as independent, Stromberg says.

Some firms are indignant about this interpretation. Assante Corp. has acquired 18 dealers since 1995 but vice-president Kish Kapoor denies the firm even contemplated" a three tiered differential commission grid which allegedly would pay better on in-house funds and certain approved external funds. Kapoor says Assante is just standardizing the grids of the firms acquired.

But even without preferential grids or differential trailers, advisors personally invested in public fund distributors are motivated to sell in-house product. The more they sell of it, the more profits for the firm and the higher their stock will eventually be.

Bay Street makes a virtue of these practices.

TD Newcrest just issued a buy recommendation on Assante, enthusing that its "advisors also benefit financially" by shifting customer portfolios from third-party funds to in-house products.

"We suspect some advisors at Assante realize their actions can impact Assante's share price," it says, adding advisors make 1.2% on its in-house Optima product rather than 1% selling external funds.
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Sat Oct 03, 2009 3:51 pm

MEMORANDUM

Date: January 27, 2000

To: Assante

From: Martin Weinberg

Re: Canadian Business Article - February 7, 2000

Private & Confidential

The current issue of Canadian Business Magazine contains an article on Assante, which was reprinted in the Toronto Star on January 26, 2000. As with all media coverage, journalists attempt to write a "story" that will grab a reader’s attention. Although many of the facts articulated in the article were correct, the context in which they were used to support the journalist’s opinions led to implied conclusions that are inaccurate.

There are a number of issues that were raised during the interview that appear in the article. While I attempted to provide context and background to the journalist, it is inevitable that important and detailed information can get lost in the interests of ‘grabbing the readers interest’.

Therefore, I would like to take this opportunity to provide context, background and fact to a number of the key issues that were raised in the article, should you find yourself at the end of a telephone with a client who asks "What does all this mean?"

Assante’s Share Price in Context

In preparing to ‘go public’ Assante invited a broad group of investment bankers to value the shares of the company. The valuations ranged in the $13 -$15 range with one investment house providing a much higher valuation. At that time, our peer group was trading at 12X -14X EBITDA (earning before interest, tax, depreciation and amortization). From that point in time up until the date of pricing, the multiples of EBITDA in our industry collapsed, falling to under 6X or a 50% decrease in valuations. Our entire peer group including companies like Investors Group, Trimark, Mackenzie, Charles Schwab and Merrill Lynch all fell, some by more than 50% from their highs. Assante was re-priced at $9.50 or 37% below the initial valuation.

Since that point in time, Assante’s share price has bounced around settling in the $8.00 range. In light of the poor IPO environment (e.g. Manulife and TD Waterhouse) and a weak mutual fund industry, Assante has performed in-line with the rest of the industry.

Performance of the Company Vs Performance of the Stock

As I indicated to the journalist, the Assante story is complex. In each year since its inception we have more that doubled the size of the company and added new lines of business and services to broaden and enhance our service offering to clients. This has made it a complex and changing story for investors and analysts to follow.

In our report to shareholders for the third quarter of 1999, Assante reported an increase in revenue of 145%, an increase in EBITDA of 97%, an increase in after-tax-cash-flow of 90%, and an increase in net income of 210% outperforming every other company in our peer group.

In addition, year over year, we increased assets under administration by 110% and assets under management by 39%. Our net new sales as a percentage of ending assets were 34.3% as compared to IFIC at 15.5%. Our market share as a percentage of IFIC members increased. Assante has been one of few companies in the industry that has experienced net positive monthly inflows ranging between 3.5% and 19% during 1999.

Assante’s financial performance continues to be strong against the backdrop of a very weak financial services market. We will continue to focus our energy on managing the company and not on trying to manage the stock price. While Assante’s share price will continue to be buffeted about by market gyrations, our ability to create lasting shareholder value will be rewarded over time.

Analyst Coverage

The good news is both CIBC World Markets and Griffiths McBurney are in the final stages of their research reports and we should see coverage before the end of the first quarter. As analysts get to know and understand the company their coverage will assist others in understanding the company. It will assist investors in understand the unique service offering we are building and understand the long term value we are building.

Why hasn’t there been coverage until now?

Unfortunately, almost immediately after Assante completed its IPO in May 1999, Canada Life, Clarica (Mutual Life) and Manulife began final preparations for demutualization and their IPOs. Financial Services analysts who cover Assante spent the summer writing reports in preparation for demutualization and then the entire fall working on these very large IPOs. In fact, many underwriters have added a dedicated insurance analyst as this industry sector doubled in size with these three IPOs.

In addition, the lead financial services analyst at CIBC World Markets, our lead underwriter, left the company during the summer of 1999 and the company waited until they had a replacement before initiating our research report.

Institutional Interest

At the time of our IPO we made the strategic decision to go ahead with the issue in spite of a weak IPO market. We determined that it was important to take advantage of the

small window of opportunity that we believed was required to secure our position in the marketplace.

Although institutional investors purchased over 65% of the issue, many institutions want to see a larger float of stock, which allows them to get in and out of their positions with relative ease. Ideally, these investors would like to see a float of two or three times our current float. As escrow provisions fall away on the anniversary of the IPO each May and as we complete new acquisitions, we will see an increase in the number of shares available, which will make Assante stock more attractive to the larger institutional investors.

In addition, a significant part of my time in 2000 will be spent meeting with institutional and other investors throughout North America to tell the Assante story and build interest.

Life Management Services/Sports & Entertainment

Many clients, advisors and employees have been asking what life management services are and why we have been acquiring companies in the sports and entertainment industry.

You know that your clients have less time and their lives are becoming more complex. As we looked down the road we asked ourselves what would clients need and demand from their advisors today and in the future. We believe that within three to five years, our clients will be looking to their most "trusted advisor" to simplify their life by providing an increasing number of services including; investment, insurance, virtual banking, loans, mortgages, bill payment, and the coordination of many other aspects of their lives. They will also expect almost instantaneous results using digital technology.

Many of the leading edge services we intend to develop over the next few years will be provided by professional services firms with expertise, infrastructure and a proven track record. We have chosen partners in the U.S. that have the expertise and infrastructure to assist with delivering these and other services to our Canadian clients at various levels of sophistication and continue to seek other strategic partners for other Life Management Services. While the market may not see the need to have these services today, we are not prepared to wait until the private banks, large financial services firms, and other firms taking away clients from our advisors.

If we have learned nothing else from the last two years its that staying at the forefront of product and service development and back office technology is critically important to the success of your relationship with your clients and our success as a company. We are working hard on all of these fronts as our number one priority.

Fees

As the industry becomes even further commoditized, market share for investment products will go to the lowest cost delivery system. Discount brokers are offering to rebate commissions, the internet is gaining eyeballs that are now trading through a myriad of sites and banks are broadening their offering to include hundreds of third-party funds. Advisors are also considering "doing it all themselves" but have not considered the immense infrastructure costs, the ability to control asset classes and management styles, the expensive of top flight wealth management personnel, marketing, staffing, systems and other issues related to executing a strategy.

In the past, Assante decided to bundle the fees to include products, unique and sophisticated portfolio management tools, a customized wealth management plan, consolidated reporting, and consolidated tax reporting that are developed by tax, estate, and investment professionals. We outsource the ‘papering’ of these strategies to outside firms as it is not the highest and best use of our time.

My comment that the reporter was comparing apples and oranges stands. For example, Optima Strategy without the Asset Management Service offers a diverse group of asset classes that when priced on a stand-alone basis, are priced at "market" and are even lower after taking into account rebates for larger accounts. Our Private Client Program’s fees run from 2.5% down to .5% depending on the size of the portfolio. Our average fee runs about 2% and includes a dedicated client service manager and our wealth management program. The fees are tax-deductible if we are managing a taxable account, thereby potentially saving the client money compared to having the client engage a multitude of professionals and incurring significant costs that may not always be tax-deductible.

Assante’s Deal Structure

Assante’s acquisitions are structured to ensure maximum shareholder value. We typically negotiate a substantial portion of the purchase price as an "earn-out" to ensure we have partners who are as committed to the business as we are and that they must achieve certain financial targets before any of the "earn-out" is paid.

We believe that each of the transactions that we have completed have been accretive to our shareholders. That is, for Assante to issue additional shares to the vendor, the vendor must produce a bottom line that will increase the EBITDA per share after taking into account shares to be issued pursuant to the "earn-out".

In each of our acquisitions, the vendors have agreed to take a significant component of their consideration in Assante stock. In some cases, we have been able to reduce the number of shares at some point in the future (3 - 5 years) based on an improvement in our stock price. However, in these cases we have also negotiated the maximum number of shares that can be issued to satisfy the purchase price.

While our deal structures are perceived as complex by outsiders, they are designed to result in better alignment of achieving synergistic results from the vendors and protection for our existing shareholders.

As every one of our advisors knows, the value in any professional practice is in the relationship you have with your clients and we have never been prepared to see those relationships walk out the door after we complete an acquisition. For this reason, we have required that the principles of these firms sign long term service contracts with Assante inclusive of non-compete and non-solicitation provisions.

Assante’s Normal Course Issuer Bid

We began purchasing shares in November of 1999. Since then we have bought about 80,000 shares or just over .1% of the outstanding stock the company. We will continue with our share buy-back program, once the fourth quarter blackout is lifted. We continue to believe that the company is undervalued.

Going Forward

As we work together to build this company we must not just focus on quarterly performance, we must focus on the long term. Your practices and this company were not built overnight. We all have many ambitious goals ahead of us. Building a solid organization that stays at the forefront of our industry is a never-ending challenge that we must all continue to pursue with passion and hard work.

Staying out of the media is not necessarily an option if we want to continue to tell our story so that investors and clients understand what we are building. We have always led the way and risen to the challenge. In leading the way, there will be bumps.

I hope this letter has helped you put the comments of the article in context and given you some information you can share with clients and colleagues. If you have any questions, please forward them by email to Meg Sintzel, Vice President, Communications, at msintzel@assante.ca.

Sincerely,

Martin Weinberg
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Fri Sep 18, 2009 10:37 pm

Screen shot 2011-06-25 at 5.02.17 PM.png
Assante lawsuit bears a closer look
Mutual fund sales practices at centre of employment suit

Jonathan Chevreau
Financial Post

Thursday, August 26, 2004
The founding chair of Advocis is being sued by a former assistant to his financial planning practice at a division of Assante Corp.

In some ways, this is a classic David vs. Goliath tale. The goliath figure is Brian Mallard, a wealthy, often-quoted industry figure with multiple credentials and 32 years in the business.

He manages an Assante branch in Saskatoon. He also was -- from January, 2003 until May, 2004 -- the founding chair of Advocis, which represents Canada's financial advisors and insurance sales-people.

Facing him is a figurative David: Kent Shirley, a Saskatoon-based financial advisor who filed a constructive dismissal lawsuit in March. Shirley is suing Mallard personally, plus two companies bearing his name and Assante Financial Management Ltd.

Mallard's amended statement of defence and counterclaim, filed in Saskatoon in June, depicts Shirley as a troubled young man with a host of personal problems.

In an interview, Mallard indignantly dismisses the suit as an attempt to "extort" $50,000 from him: the amount Shirley borrowed from a bank to buy Assante stock from his (Shirley's) brother, also with Assante. Mallard cosigned the loan, pledging Assante stock as collateral.

Shirley won't speak on the record about his motivations, but far from shutting up and disappearing, the opposite seems to be happening.

What began as an obscure employment dispute is escalating into a case that could shed much light on sales practices in Canada's financial advice business.

Shirley provided extensive documentation to the Saskatchewan Securities Commission, the Mutual Fund Dealers Association (MFDA) and the RCMP.

His statement of claim alleges Mallard did not practise what he preached in his founding role at Advocis. Or as the document puts it in more formal language: "The Defendants condoned, engaged in and required Shirley to engage in unethical and/or illegal conduct."

The suit says the defendants "regularly breached codes, laws, rules and regulations and required him to do so as a condition of his continued employment." Shirley was expected to "participate in, and/or turn a blind eye to, the Unethical Practices."'

The alleged unethical practices include providing insider information to clients, making personal loans to clients, giving stock advice to clients, facilitating trades while not properly licensed to do so, selling personal stock to clients, and issuing personal guarantees on client accounts.

All those allegations are false, the defence argues, "brought solely to embarrass the Defendants and tarnish their reputations." The defendants "deny breaching ethical codes, laws, rules and regulations or requiring the Plaintiff to do so as a condition of his continued employment." Mallard's counterclaim also seeks damages for negligent or intentional misrepresentation and breach of contract.

In an interview, Mallard defends each charge, but admits he provided personal guarantees to some clients worried about bear market losses in 2000. However, he says this was acceptable practice before the MFDA set up shop.

Except for seven months' medical leave in 2002-2003, Shirley's suit says he was "employed full time" at Assante from 1996 until January, 2004.

Mallard denies Shirley was constructively dismissed; he says he was a contract worker rather than a salaried employee, and wasn't terminated but quit.

Either way, Shirley was afforded a bird's-eye view of internal incentives for advisors to replace third-party funds in client portfolios with more profitable in-house Assante product. He was also there as this strategy was parlayed into the ultimate sale of the firm to C.I. Fund Management.

It's this aspect of the case which has attracted the attention of Joe Killoran, who describes himself as "Canada's most feared investor advocate" [see http://www.investorism .com]. He believes the case illustrates how the industry is still not properly regulated.

Killoran focused on the sale of proprietary funds in a presentation last week to the Ontario Finance Committee's five-year review of the Ontario Securities Commission. He accused the OSC and other provincial securities commissions of "gross malfeasance" in the lax way they permit integrated fund manufacturer/ distributors to incent advisors to sell in-house proprietary funds.

This has become an issue in the United States, which is why Killoran forwarded Assante's pre-IPO business plan to New York State Attorney General Eliot Spitzer. Killoran drew Spitzer's attention to the sales practices of Assante's U.S. arm: Loring Ward International. Killoran says he contacted Spitzer because Canada does not have the whistle-blower protection laws the U.S. has had since 1989.

Killoran says the original business plan outlined payment of bonus Assante shares to advisors once they converted 40% of client assets to Assante's proprietary Optima funds. He says this practice skewed the provision of objective advice.

For his part, Mallard insists, "I have 500 clients that love me." In typically strong language, he adds he's "pissed off with a system that assumes every advisor is guilty."

He says the more interesting story is Assante's reaction to the suit, including the firing of at least one internal compliance officer.

Mallard says securities commissions have ceded authority to self-regulated bodies like the MFDA and the Investment Dealers Association. Rather than investigate alleged abuses themselves, the MFDA tells dealers they have received a complaint about an advisor. At its request, two Assante compliance officers audited the Saskatoon branch in May, Mallard says. One later moved to the MFDA.

This case may or may not end up swept under the rug. But from what I've seen, it merits closer attention.
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Re: Royal Commission or Judicial Inquiry

Postby admin » Fri Sep 18, 2009 8:02 am

Assante adds to sports agency collection


This time it's hockey players


Wednesday, April 5, 2000

INVESTMENT EXECUTIVE
Canada's Newspaper for Financial Advisors
By IE Staff

(April 5 - 09:30 ET) - Winnipeg’s Assante Corp. has acquired another sports agency. M.D. Gillis & Associates Ltd., a firm that specializes in hockey players.

Assante is paying an undisclosed quantity of cash for Gillis. The deal also carries an earn-out of 147,604 special shares which have liquidation value of $19 per share. These shares are escrowed and will be earned based on achieving financial targets over the five years following closing. Assante currently trades at about $5.

The Gillis agency was founded in 1991 by former Boston Bruin and Colorado Rockies player Mike Gillis. It currently represents Pavel Bure, Pat Verbeek, Bobby Holik and assorted other NHL players. This deal is the fourth acquisition so far for the Assante Sports Management Group.

"We are delighted to have Mike join the Assante team," says Martin Weinberg, president and CEO of Assante, "This acquisition is consistent with our strategy of partnering with the leading firms in each of our chosen lines of business."

Weinberg says that Assante’s strategy in the sports management business is to bring its wealth management services to these clients and to build critical mass of sports management experience.
-IE Staff
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Re: Royal Commission or Judicial Inquiry

Postby admin » Fri Sep 18, 2009 8:01 am

the following article has been removed from the Canadian Business web site !!

http://www.canadianbusiness.com/feature ... 598&page=2


SEAN SILCOFF
2000-02-07
Glitz and misses

Investors might really get to like Marty Weinberg's wealth management company to the stars--if they could just figure out what it does

Some wealthy people collect art, while others collect rare wines or cars. Marty Weinberg collects heads. In his Winnipeg home are two heads in particular that action movie buffs will instantly recognize. One is the small gold statue that Harrison Ford snatches up at the beginning of Raiders of the Lost Ark. The other is a life-sized robotic model of Arnold Schwarzenegger's noggin from Terminator 2, complete with a control mechanism that allows Weinberg to move the model's eyes, mouth and ears.

If you think the 39-year-old Weinberg's taste in movie memorabilia is a bit strange, consider Assante Corp. (TSE: LMS), his burgeoning wealth management empire. Over the past five years, Weinberg has bought up a slew of mutual fund dealers and financial advisers on his way to creating the country's largest non-bank-owned financial planning firm, overseeing $26 billion in assets. His company is more than that: Weinberg's mission is to serve as "personal chief financial officer" to affluent Canadians, offering such services as tax advice, estate planning and bill payment--in addition, of course, to managing their investments. In the US, Weinberg has gone Hollywood in a different way, snapping up firms that manage the wealth and business affairs of movie stars and negotiate multimillion-dollar salaries for sports heroes.

Weinberg's client roster now includes about half the starting quarterbacks in the National Football League, as well as movie star Tom Cruise and TV host David Letterman. If you're compelled to yell "Show me the money!" at Weinberg (like the sports agent Cruise portrays in the 1996 film Jerry Maguire), the joke is on you: in October, Weinberg paid US$120 million for Steinberg, Moorad & Dunn, the California-based firm founded by the real-life inspiration for Jerry Maguire, super-agent Leigh Steinberg. "'Show me the money' is what we're trying to do," says Weinberg.

Funny, that's what Assante investors have been waiting for ever since Weinberg decided to turn his one-time hobby into a publicly traded company. Last spring, Weinberg tried to peddle Assante shares to institutional investors at $15 a pop and flopped big time. He had to slash the offering price to $9.50, only to watch the stock skid to $5.70 in October; it has yet to reclaim its May 1999 IPO price. You could argue that all financial services firms had a rough ride in the markets last year. But Assante has attracted scant institutional interest, little market activity and not one analyst report in its eight months as a public company. The biggest buyer of Assante stock is Assante itself: in late October the company announced plans to buy back up to 2.7 million--about 5%--of its own shares. "We think it's one of the best deals we can find," says Weinberg, who owns more than 14.5 million multiple voting shares (and 88% of voting control) himself. Assante is certainly growing by leaps and bounds: revenue for the first nine months of 1999 rose 135% to $228 million from the same period the year before, while earnings before interest, amortization and taxes climbed a steady 71% to $40.6 million. So why is Weinberg the only one buying the company?

Reason No. 1: he may be the only one who understands it. Before anything will change, Weinberg has to explain to investors exactly what his company does, what that's worth, and how to decipher the company's convoluted share structure--which makes it nearly impossible to come up with hard per-share earnings estimates. "It's not a simple structure, and that's what the market will need time to understand," says Timothy Lazaris, a financial services analyst with Griffiths McBurney & Partners, one of several Bay Street number crunchers now working on their inaugural reports (Lazaris's firm also partially underwrote the Assante IPO). "That's the role of the analysts and that's why we're taking a little bit longer than normal to understand it completely."

But even if the analysts offer up "buy" ratings, don't expect investors to respond immediately. Weinberg doesn't. "I think we will need a float somewhere in the area of two to three times what it is today. We'll also need adequate coverage of the company and the ability to show that we have executed several quarters of our strategy," he says. "We're more a listed private company than a public company right now. I guess in my own mind I have a one- to two-year target time frame to make Assante a real public company." That, no doubt, will come as a surprise to stockholders, who, last time they checked, owned shares in a "real" public company.

Every year around RRSP season, investors look out on the vast array of mutual funds and throw up their hands in confusion. But if anyone is having a hard time these days, it's the folks who actually peddle those funds and the people who manage them.

While Canadians poured money into mutual funds between 1990 and 1998, last year was a different story. There was a bigger roster of funds to choose from than ever. Yet sales dropped to $17.7 billion in 1999 from more than twice that amount the year before. Meanwhile, some of the biggest fund management companies in Canada--including Dynamic Mutual Funds Ltd. and Trimark Financial Corp.--have recently experienced net redemptions of tens of millions of dollars, according to the Investment Funds Institute of Canada. Small fund dealers, for their part, have found their businesses squeezed by the need to keep up to date in an industry that has become increasingly regulated, technologically advanced--and dominated by giant bank-owned competitors.

Meanwhile, another trend is affecting the money management world: a soaring number of baby boomers who have become wealthy in the prolonged bull market (an estimated 300,000 Canadians now have a net worth of $1 million or more). Many have arrived at the point where they want their extensive portfolios to encompass more than just mutual funds. At the same time, some find their financial needs expanding beyond basic wealth management, to such fee-based services as estate and tax planning.

Assante is designed to service this collision of trends. In the early 1990s, Weinberg dreamed up the idea of a fully integrated wealth management firm while working as controller with his father-in-law's electronics store. At the time, Weinberg was running an investment management firm, Loring Ward Investment Counsel on the side, managing customized portfolios for a group of affluent Winnipeg professionals in his spare time. Weinberg envisioned expanding his firm into a place where his clients, under one roof, could not only manage their money, but obtain tax advice, assistance with drafting an estate plan or insurance coverage. By treating otherwise separate functions and professionals as part of a coordinated "life management" team for the client, Weinberg believed he could offer a unique service that would surely give Loring Ward a distinct advantage over other money-management firms. He soon quit the family business and began looking for ways to expand his company.

While looking for a Bay Street partner to help him grow in the mid-1990s, Weinberg came upon Michael Nairne, a fellow Winnipeg native who had built Equion Group Ltd. of Toronto into one of the better-known mutual fund financial advisory firms in the country. The two understood each other and determined they would build their list of clients together by buying up financial planning firms, then selling them an expanded array of products and services.

After merging their companies to form Assante in 1995, the two embarked on a frenetic round of deal-making that saw them snap up a total of 13 Canadian and six US wealth management firms between 1996 and 1999. The idea was to purchase a company, keep the management intact and then leave it to operate as it had before. Only now, clients would be sold Assante's exclusive in-house investment products and services--primarily its exclusive Optima Strategy funds, available only to investors with $100,000 or more. According to Assante's 1999 prospectus, the in-house selling job proved highly effective: the longer a company was owned by Assante, the greater the share of Assante products its clients were likely to buy (from 11.4% of total assets in the first year to almost 50% after four years).

But Assante has faced critics at every step. Any fund company that both creates and sells its own funds risks being in conflict of interest, as former Ontario Securities Commission chair Glorianne Stromberg noted in her 1999 report on the mutual fund industry. After all, any managers who own Assante stock have a vested interest in pushing their in-house funds on clients--whether those investments are appropriate choices or not.

Beyond that, however, are questions surrounding exactly what it is the company brings to its clients. Assante charges a pretty hefty fee for its offerings. Those in-house Optima funds carry management fees in the 3% range--a high figure, when you consider the payback. "Their returns haven't been overly impressive," says Dan Hallett, senior analyst with FundMonitor.com. (For example, Assante's $951-million Optima Strategy Canadian Equity Fund--its largest fund--was in the bottom quartile of its peer group for the first 11 months of 1999, yielding a 2.9% return.) "If I were to sum up [Optima] in a word, it would be 'expensive.' We're really not big fans of this fund family."

But if cost-conscious clients find Optima funds too pricey, they'd be floored by the cost of joining Assante's high-end private client management program, where they get the "personal CFO" treatment. Across the industry, according to Kelly Rodgers, president of Rodgers Investment Consulting, clients with more than $1 million in assets can expect to pay management fees starting at 1% of assets, and declining as their net worth increases. Someone with between $1 million and $2 million worth of investible assets, for example, should pay about 1%. Compare that with Assante, where clients with comparable assets pay 2%--twice the typical amount.

Weinberg says that's like comparing apples and oranges, since he brings more than investing services to the table. "We charge for the value we bring to people's lives. We've focused on having clients live happily ever after by meeting a personal benchmark. If we minimize tax, give them income liquidity, allow them to retire when they are supposed to and not have risk creep into their portfolio--this client can go to bed happy. Combine that with all the other services--including bill payment, wealth management and tax and estate--and what you have is about 20% of somebody's life being looked after by one organization under one roof. We've just added 10 to 15 years in quality time to that person's life, for a fee."

That, of course, assumes clients see value in taking any business away from their existing lawyers and accountants. (In fact, Assante usually just draws up the financial master plan, leaving the paperwork to outside accountants and lawyers.) Says Rodgers: "Why would I go to a financial planner for expert tax advice? Wouldn't I go to an expert tax lawyer or tax accountant? I've never had clients complain about it being too complicated to deal with their lawyer once every two years to update their will or to have their accountant do their taxes every year."

That may be so. But Assante's business model is based on a whole lot of people paying no heed to what Rodgers says. Already, the firm has about 2,000 client accounts (with average assets of $1.6 million under management) receiving its high-end service. And Weinberg's idea of cross-selling financial services--and pulling "embedded" value out of the bottom line--certainly seems to have excited the principals of the Canadian and US wealth management firms he's bought in the past five years--particularly Leigh Steinberg, who envisions building a gigantic sports agency, offering a full range of life-management services. But trying to pin a value on Assante itself is another matter. One thing is for certain: over the next few years, the company will issue millions of shares to managers to pay for the string of deals Weinberg has completed. But determining the exact number of shares and their value is difficult. A typical deal goes something like this: Assante pays the first instalment in cash. That is followed by a second payment of a fixed amount on a predetermined date (usually the third anniversary of the deal), where the number of shares is determined by the stock price on that date. Later, the owner can earn an indeterminate bonus of more shares, at an as-yet-undetermined stock price, if the firm reaches predetermined financial targets.

The deals are structured to ensure the head of an acquired company continues working toward better results and a higher stock price--while leaving Assante only to pay minimal up-front costs. That may sound clever, but chances are this complicated scheme is just too much for the average investor to comprehend, since it's impossible to predict exactly what the number of shares will be at any given time going forward. And if investors give up on the stock, imagine how all those managers who sold out for future shares will feel if the stock doesn't perform and their shares become overly diluted.

Well, there's at least one person who believes that it will all fit together. His name is Marty Weinberg. In fact, he sounds downright irritated when he's asked to explain for the umpteenth time exactly what winds of change he's blowing across the financial services industry from his perch 15 storeys above downtown Winnipeg. "It's absolutely logical, every single step of the way," he says.

Now comes the hard part--proving it works. Someday all those shares will be vested and the company will be easier to understand. By then, according to Weinberg, earnings should be at least four times what they are today and a loose network of independent firms will be integrated under the strong Assante brand name. If there is merit to his theory about the market for personal CFOs, Assante's financial results and stock price should prove him right. The underlying message in Marty Weinberg's confident, impatient voice seems to be, "Yes, yes, give me time and I will show you the money."
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Re: Royal Commission or Judicial Inquiry

Postby admin » Wed Jul 29, 2009 8:26 am

THE PERFECT CRIME
A HOW TO GUIDE
Written by Larry Elford, (former CFP, CIM, FCSI, Associate Portfolio Manager, retired)

I am about to tell you how to commit the perfect crime. A crime worth billions, and one in which no police become involved. Impossible you say. Sit back, relax, and let me tell you about my former career.............

You only have to promise to honor the “code of silence” by which all white collar criminals abide. Tell no one!

It begins like this. If you wish to rob a bank, you are subject to the criminal code of Canada, and that is a bad thing...............however, in order to make it the perfect crime, I have to change your line of thinking. I encourage you to stop momentarily, and turn the entire crime around. Imagine putting on a suit and joining the financial services industry. When a bank wishes to rob the public, there is no police force in the country that has figured out this “reversal robbery” that we have perfected in Canada. Now you are getting into an area where crime really does pay.

By now I probably do not have to convince you that far too many financial types are greedy enough to lie and steal from the public. The recent economic crisis has given us enough examples to convince the most trusting financial fan. And somehow our financial regulatory system has “fostered” this environment, has allowed it to happen.

The other shoe to drop, two shoes in fact, that I will ease you into over the course of this article is how our financial system is rigged to allow these abuses, without penalty. Lets start at the bottom of the economic food chain, with your local salesman or saleswoman selling investments and mutual funds. They we will slowly climb the ladder to learn how easy it is to commit the perfect crime against an entire economy.

There are about 130,000 registered “salespeople” in Canada (source Investment Industry Regulatory Organization of Canada, IIROC) with their three month securities course as the major educational requirement to start selling financial products by commission. They begin from day one with a major misdirection of the public. They earn the license that says “salesperson” on it, or at least it did every single day for the last thirty years until the securities commissions struck the word “salesperson” from their documents to hide this misrepresentation. They did this last month. July, 2009 to be precise. From now on you will be served by a guy with a three month correspondence course, who goes by the license category of “dealing representative”. Whatever that means. We still get to misdirect and misrepresent. We still win. You still lose.

They are trained as salespersons. Hired to sell, expected to sell or leave. In the business, the letter they get when their sales production is not high enough to satisfy the sales manager is called an “achieve or leave” letter. Client returns do not come into play, nor into measurement, it is an entirely sales and commission driven system. You are paid by an “eat what you kill” model based on commissions on transactions or fees based on your assets under administration. And yet the industry refers to it’s salespersons as advisors, trusted professionals, and advertises that “your interests come first”. “We are here to help you find the proper investment” would be a common industry promise. This is not what they deliver. For example:

According to the Investment Funds Institute of Canada, (IFIC) 80% of mutual funds sold in the past two decades or so, were sold using the highest commission paying class of funds, the DSC class. DSC stands for deferred sales charge, and it produces the biggest commission possible, in the quickest possible time, and a naturally resulting highest cost to the client. This violates the aspects of a professional advisor, the code of ethics of the entire industry, and the suitability requirements that each and every transaction must meet in this industry. The requirement to “minimize” the transaction costs to those people who you claim to “advise”, not maximize those costs. Clients have every right to ask for all their money back, but, as we shall see, this industry is self regulating, meaning we police ourselves, so they have no one to help them get their money back. We police ourselves, and you are out of luck.

The next trick of the trade, and most recent, for your local investment “salesperson” is the substitution of poorer performing and higher cost “house brand” mutual funds for independent funds. According to the Investment Funds Institute of Canada 92% of mutual fund sales in 2007 were made into something called “wrap” funds. These wrap funds include funds made up of other funds, proprietary, (house brand) funds and who knows what else. A “fund of funds” earns a fee upon fees, which is not good for you the investor. According to the Ontario Securities Commission Fair Dealing Model proposals, an investment firm earns from 12 to 26 times greater fee income when they sell you the “house brand” or the house “wrap” account. This is why you may have been sold proprietary funds, and not likely because your dealer has found a better way to manage funds than all the independent experts. They have just found a better way to get 2% more from your trust relationship. (Imagine if every doctor you visited had their own “house brand” pills to sell to you)

Double dipping, charging fees on top of commissions, or commissions on top of fee based accounts, also runs rampant by those investment types wanting to be named “vice presidents” at their firms. It is just another method of gaining or skimming an extra percentage or two in fees from the trusting client. I wont say that each and every salesperson out there is in this skimming mode, but the sales numbers paint a pretty ugly picture of an 80/20 balance of sales commissions coming before professional advice.

On to more tricks of the trade. Mutual fund fee abuse is a $25 billion dollar haircut each and every year in Canada, according to Keith Ambaschteer at the University of Toronto. Professor John Coffee of Columbia University adds that having 13 provincial and territorial securities commissions deducts another $10 billion from the Canadian economy each year. These two independent experts put us at $35 billion behind each year without even talking of specific investment examples. That is enough money to run my province of Alberta for an entire year.............money used simply to “feed” the greed and self interest of those running Canada’s financial system. Thanks guys, you are doing an amazing job.

Add in asset back commercial paper ($32 billion), junk bonds, limited partnerships, movie deals, MURBS, tax shelters, tainted income trusts, Nortel, Bre-x, YBM, Northshield, Portus, Crocus, and all the other so-called legal investments that I cannot even remember at my advanced age, and you have a perfect recipe for skimming more money from bad investment products and intentionally bad advice than the cost of each and every other crime in Canada.....combined. (Nortel alone was responsible for evaporating up to $366 Billion. You do the math on the rest)

According to Justice Canada, all the other crime in Canada is costing us in the neighborhood of $40 billion each year. I can come up with over $60 billion each year myself without resorting to much more than a napkin, but I am truly looking forward to Prof P. Puri’s upcoming study of the amount of damages due to white collar crime in Canada. Prof Puri is an associate law professor who teaches about white-collar crime at Osgoode Hall Law School at the University of Toronto and publishes insightful reports on the nature of the financial system in Canada. Reports you should read.

The police, where are they while this is going on? Prof Puri has a study on this as well, and she concludes that the crooks are rich and powerful and well funded, while the police are outgunned in all aspects. But you should read it yourself.

I have learned that the police tend to concern themselves with the criminal code of Canada, and while fraud, negligence, breach of trust, etc fall under this code, they have been sold a nice package of goods to ignore this code in most financial cases. Those instances are usually when these crimes occur within the financial industry in Canada. Why? Because the financial industry (those cunning, manipulative, wealthy power brokers who we now know are not to be trusted) have set up something called a “self-regulatory system. They have set it up, funded it, staffed it. Here is the secret foundation of the perfect crime. “Own or control the entire investigation system.” In fact, the financial industry pays the salaries and costs of even our crown agency, the provincial securities commissions, through fees paid to them. They have their own act called the securities act. They police it, they enforce it. The trouble is that they enforce it to their advantage, and not in a manner fair to the public. If there are three parties living in this financial relationship, one being the financial dealers, two being the regulators, and three being the public, two of them are sleeping together and one is alone, in the basement, in the dark. Scared. Enough about me. I am talking about the public. While the regulators (securites commissions, and self regulators) are making passionate love to the financial industry, or vice versa, the public is simply being screwed and ignored. Not possible you say? Are we not a highly civilized, developed country? Let me tell you more.

Canada is the only developed country in the world that does not have a national securities regulator. Instead we have 13 provincial regulators in an economy the same size as Texas. I have always said that each of these territorial commissions act a lot like every bad sheriff in every bad Smokey and the Bandit movie I have seen. Acting and behaving as if they are above the law. They just keep proving it year after year. Each of these securities commissions is supported by fees paid to them by the financial industry. They purport to serve two opposite interests, one being to protect the public at large, and two being the smooth functioning of the financial industry. I can attest that after thirty years of study, they are skipping the first, and serving the second. This is where the money comes from.

For one example, on each securities commission complaint intake process, is an instruction that they will not deal with a member of the public, unless they have first gone to the industry sponsored “self regulatory” body, which is often just a trade and lobby group for the industry. So we have a crown corporation, refusing to serve the public, and instead sending them with complaint to the very association of whom they are complaining about. (mutual fund or investment dealers) It is a bit like sending an abused child to go and complain the the very persons he or she was abused by. It does not work for the victim but it works perfectly for the abuser. We win, the public loses again.

The investment dealers association (IDA) (one of our industry trade bodies that posed as a regulator) split itself in two parts a few years back to place better optics on the fact that they were a trade and lobby group pretending to be a regulator.

Thirteen provincial and territorial securities commissions defer statutory obligations away from themselves (who are charged with handling them) and to these self regulatory agencies, who cannot even claim to know what job they are supposed to be doing.

For example, here is what the Ontario Securities Commission says to a customer with a complaint:

“The OSC has recognized the Investment Dealers Association ("IDA") as a self regulatory organization (1995, 18 O.S.C.B. 5293). As such, the IDA has the authority and the jurisdiction over its members to enforce Ontario securities law as well as IDA rules, regulations and by-laws.” (These days they defer to IIROC, a newer version of the IDA, or MFDA (Mutual Fund Dealers Association)

“As there are no provisions to circumvent this process, the OSC is unable to consider your request for a regulatory review of your matter.” This from a letter to an abused investor dated Aug 25, 2004. They give a similar answer today, as does each of the thirteen provincial and territorial securities commissions, despite them being the statutory body charged with this duty. They brush it off.

Here is what the IDA (what todays Industry body used to call itself) claimed in 1998:

"The IDA is Canada's only national entity with delegated responsibility for securities regulation and investor protection." - Joe Oliver former president of Investment Dealers Association, 1998 Evidence given before the
Senate Standing Committee on Banking, Trade and Commerce

Here is what the IDA’s Paul Bourke said to the Financial Post in 2004:

"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." Nov 3, 2004


"The IDA is a private organization and can set its own rules."
Financial Post May 9, 1999.
"...the IDA is not an arm of the government.  We are not acting as an agency or a delegate of the securities commission."
This from former IDA legal counsel Brian Awad
National Post Newspaper titled “IDA called on constitutional grounds”

It appears that the relationship between the provincial securities commissions and those self regulatory agencies employed by the Investment dealers and also by the mutual fund dealers is a very confused and troubled, but incestuous one. They are in bed together, and the stories of the affair do not match each others version.

Need more convincing that the provincial regulator may be bought and paid for?

From Alberta Auditor General report
“ASC is the industry-funded organization responsible for overseeing the capital
market in Alberta. It administers the Alberta Securities Act, the Securities
Regulation and Securities Commission Rules.”
source
Report of the Auditor General on the Alberta Securities Commission’s Enforcement
System

The Alberta Securities Commission collected some $24 million in fees in 2009, (source Alberta Securities Commission 2009 annual report) some of those fees no doubt came from the unique and interesting practice of selling exemptions to the law as described above, our Securities Act. Did you read that correctly? I will repeat it just in case you missed it. They collect money for giving financial firms “hallway passes” to skip out of having to follow our provincial laws! There are several thousand investments and investment companies who have paid money to your government protective commission, and purchased permission to violate the laws. This list can be found at any securities commission in the country by searching the word “exemption”. How would you feel if your Food Inspection Agency were knowingly allowing tainted and defective food to be sold? How would you feel if your Health Agencies were earning “fee income” from granting drug companies the right to spread infection? Your provincial securities “regulator” is doing something very much like this, and has done so several thousand times without so much as a peep of honest and transparent disclosure. This is not honest services and if looked at carefully, it may not even be legal.
This is the second shoe I told you I was going to drop on you, earlier on in the article. The second conspirator in being able to commit the perfect “reverse” bank robbery.

Need a very specific example or two?

The Alberta Securities Commission granted “approximately twenty investment firms” (Source, Alberta Finance and Enterprise) the right, for a fee, to sell tainted and toxic subprime mortgage investments, called Asset Backed Commercial Paper. Honest disclosure would call them Liability Backed Commercial paper but that shows just how easily the securities commission can be fooled into subservient compliance to the finance industry. There was no public debate on whether laws should be violated for these particular companies, nor for these particular investments. This was done behind closed doors. There was no public notice given that certain investments were being sold into our economy while not meeting our laws........or did they meet our laws once a legal exemption has been purchased? Or were they illegal investments that had somehow been made “legal” on paper, but not in actual substance? It matters not, they are your problem, not ours. What matters is that the crime is perfect if you have bought a pass to make that which was illegal, legal. You cannot lose.

They are $32 million worth of a problem for the City of Lethbridge. They are $18 million worth of a problem to the University of Calgary who were probably told by an investment person, that these were top rated, safe investments. I suppose the legal exemption needing to be met because they were precisely the opposite of top rated and safe, was forgotten in the zeal to make an $18 million dollar sale. Understandable in light of the excitement. Can you imagine what a used car salesman would tell you in order to make an $18 million dollar sale? Now apply that to a guy with a 90 day securities course and you pretty much have the picture.

The Alberta Treasury Branches were in a position of failure by having placed nearly half (47%) of each and every dollar of deposit that they held into these toxic investments. Source Report of the Auditor General of Alberta,  www.oag.ab.ca/files/oag/Oct_2008_Report.pdf The irony here is that Iris Evans is the Finance Minister in charge of the ATB, which nearly failed under her watch, by being infected with toxic investments which were allowed by the ASC, another agency under her watch.

Our economy was infected with a known toxic product, which the financial firms in Canada wanted to dump, knowing that they were not up to par? Securities Commissions are and have been “hesitant” to investigate this crime due to their part in approving the stuff. They are starting to come around, now due to a public awareness campaign by a small group of investor advocates. How am I so sure they knew in advance they were crap? Because they had to apply for an exemption to our securities laws in order to sell them. They had to put in writing the exact shortcomings of these investments. They had to file an application to exempt, which in itself is an admission that these products did not meet the law.
Why did the securities commission grant this permission to sell crap into our economic food chain. Here is the exact wording which grants the decision to grant them this permission from thirteen provincial and territorial securities commissions:

“Each of the decision makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met”.

In other words “we have no freaking clue what we are doing but our salaries (at the securites commission) are approaching $200,000 and we will go along with whatever we are told to do by the people that pay these great salaries”. (authors interpretation)

The Saskatchewan Financial Services Commission even has a booklet on their web site called “How to Raise Capital Using Exemptions”. It indicates how to approach and work with the SFSC to assist in selling securities in Sask that need a little help going around the law.

I could dwell on this a bit further, and may come back to it, but I have to digress just a little to further look into a favorite word at the securities commission. “Decision”.

In the case of retired Calgary firefighter Gordon Simpson, who had a bad experience with his investment dealer, and made a complaint to the Securities Commission. He was told by this crown agency to go elsewhere, that he had to take his complaint instead to the industry sponsored investment dealers association. An industry trade body that we have already looked at and the supreme court of Canada has decided that this trade body “does not owe a duty of care to the public. Only to their own members. Of course Mr. Simpson’s case was dismissed by the IDA, as most often happens when you take any complaint to the very association of members of which you are complaining. He appealed this “decision” by the IDA. Guess what? His appeal was denied. They would not even hear his appeal. There were two strange reasons given. One is that the IDA has their own special meaning for the word “decision”, (like Bill Clinton does for sexual relations) and they say this to Mr. Simpson, “a refusal to carry on with investigating a complaint was not actually a “decision” and therefore could not be appealed”.
In further argument, they say further that “Therefore, not every decision meets the definition of “decision” for the purposes of the Act.”

In case that logic was not bulletproof enough, they had a backup reason to go with. Another reason given for not allowing Mr Simpson to appeal the brush off decision was that Mr. Simpson was “not a party directly affected by the decision” not to pursue his case and therefore he was not allowed to appeal. This is the second time I have heard the investment dealers association pull this excuse out of imaginary lawyer land......they gave the same foolish logic to a Mr. Jim Roache of Ottawa when his case also was dismissed out of hand. Mr Roache is quoted as having said, “if I was not a person directly affected by this, who the hell was? It was my savings, my retirement, my failed marriage.......” The Investment Dealers association was unable to grasp this simple logic (something about $200,000 salaries) and they were unable to answer Mr. Roache.

Where was I, now that I have gotten the “decision” thing off my chest? Oh, we have covered how the securities commission appears to be doing a one sided job of refereeing the relationship between the public and the investment dealers. We have confirmed that this referee is indeed paid by the investment dealer side of the relationship, and that they (securities commission) refuses to deal directly with the public. They will, however take money from, and deal directly with any industry player who wishes to violate the laws and place the public at harm. Thanks. You guys are awesome!

Where do we go from here? Need a few more examples? A few hundred more? How about several thousand? What will it take? I have submitted documents into the legislatures of several provinces and into Ottawa, with two “poster child” cases of knowingly abusing the public trust with legal exemptions, and with a failure by the Alberta Finance minister (and the Finance Minister before her) to rein in this abusive behavior. I have requested a provincial inquiry under the provincial inquiries act, but that would mean that the Alberta government would have to investigate themselves. What odds do you give that the Alberta government is honest enough, and transparent enough to look into its own participation in doing billions of dollars of damage to Albertans and to our economy? How about the other 13 governments involved? Any bets?

I am getting ahead of myself. I was still focused on the securities commission in Alberta, fighting for their very lives (salaries) against the threat of a national securities commission. What would they possibly do to earn salaries as high as $700,000, if their jobs were taken away. Who would print all the paper? Who would do the job of not protecting the public, while strenuously claiming to protect the public?

These agencies will tell you that they have changed, that they have seen the light and they are new and improved. Each year and each scandal they tell us that. Certainly they have changed some names, some have even changed the name of the organization (The Investment Dealers Association having split it’s lobby group apart from the regulatory side, The Investment Industry Regulatory Organization Of Canada IIROC). Perhaps some of this change is true. It is my belief that these organizations are not coming clean, not admitting wrong in any case, and simply making optical moves to appear clean. They continue every day to violate the public trust and sell off the public interest in favor of their own interests. It is your financial future at stake. Your economic health. Are you willing to place it entirely at risk to foxes and lawyers who pay themselves hundreds of thousands to do things like this?

A few years back the Alberta Auditor General was trying to do an audit of the Alberta Securities Commission. There were allegations of two tier treatment, one for the rich and powerful, and another for the rest. There were ASC employees who were attempting to come forward to tell of this. There were stories of blow up sex dolls in the ASC office, and an atmosphere that was simply inappropriate. Did the ASC submit willingly, as does a group that has nothing to hide? No. They paid about $1.2 million in legal fees to challenge the right of the auditor to audit this crown agency. After a lengthy debate, the auditor was finally allowed to do his job, and he found a systemic failure to follow practices and procedures of any kind in too many cases. They failed. To add insult to injury, they fired a few of the very people who were trying to help the public interest and tell the truth about the commission. Those people violated the industry code of silence, which says that your loyalty to your employer must always take priority over your loyalty to the public interest. No leaks. No losses.


The top person at the ASC earned in excess of $700,000 last year. (source 2009 annual report of ASC). At the Ontario Securities Commission there were at one time some 90 employees who EACH were earning more that the very top man at the SEC in the US. These salaries paid by the very industry that they are purporting to regulate. In my opinion and experience they are paid this much to say “yes” to the industry. Is it impossible to imagine that this government regulator would become overly influenced and biased by this lucrative arrangement? At the very least it does not follow a process of best practices.
“With 90 OSC employees making more than the chairman of the SEC, it’s time to look at the Ontario securities regulator’s performance and accountability
Its chair and just one of its vice-chairs together make more than all five members of the U.S. Securities and Exchange Commission combined, including SEC chairman Christopher Cox” http://finlayongovernance.com/


Studies of the enforcement activities of US and Canadian securities regulators and police tell us that the USA did over 600 times more prosecutions than done in Canada during the same time period. Source Canadian Business Magazine Editorial Board, Aug 2007. For the time period 2002 to 2007.

Financial penalties are 10 times higher in the United States than the average Canadian fine. Source Prof P. Puri, Osgood Law School of Canada.

In the US fraudster Bernie Madoff was found guilty and in jail within 6 months. Jailed for 150 years. In Canada, by contrast, Livent Inc. founders fraud trial took the Canadian system eleven years. Six months verses eleven years. Conrad Black had to be prosecuted in the US despite his Canadian background and business interests.

When a broker is fined in Canada by the Investment Dealers self regulatory body (IDA, IIROC, whatever comes next) you will be surprised to learn that the dealership body keeps the money. That is correct, they keep it for themselves. The victims get nothing. I suppose it helps pay their salaries. While at the Ontario Securities Commission, the vice chair Susan Wolbergh Jenah earned $446,000 according to OSC filings. Here she signed exemption orders allowing toxic investment paper to violate securities laws and be sold, which we have talked about earlier. She then jumped ship, and moved to the investment industry self regulator, earning some $700,000. In this capacity she then made the announcement that most investment dealers did not understand this toxic investment paper that they were selling (headlines Oct 2008 lethbridge herald and national). It is ironic that she herself signed the paper allowing these products to be sold in Canada, and then with a doubling of her salary, she then learns that this product she exempted was not understood. It makes me wonder if we double her salary again, to $1.5 mil, what would she then say? I makes me wonder how much money it would take for a public officer to do the job of protecting the public and ignore for a moment the focus on simply protecting ones job. It is also ironic, that I find that the more a person is paid, the greater the likelihood that they will instead act to protect their own livelihood. Strange beast this capitalism that I have worshiped for so long. Time for me to grow up, and move beyond the sandbox mentality that only knows three words, “me, mine, more”.

Where was I? Yes, we were looking at how new and improved these regulatory agencies and self regulators are, and how proactive they are at keeping ahead of the white collar crime curve. Compared to Europe, Australia, and USA, they are at least ten to twenty years late and a few billions short. But hey, the good news is that they are earning a good salary to protect us from crooks.
Where are the regular police agencies when fraud, forgery, negligence, breach of trust and other occur? They are busy with the criminal code, and not very involved with our securities act. They too, are believers that the securities people have things under control. Needless to say, the securities people take care of their own, and rarely even refer criminal offenses to the real police. The RCMP has had a few of these regulators and self regulators join the force, (while keeping their six figure salaries) as volunteers, so some of these financial people have actually infiltrated the RCMP commercial crime unit. This quote from a senior RCMP investigator when asked

“Unless the matters you are concerned about are referred to the RCMP IMET through one of our participating agencies (OSC, IDA, MFDA,MRS) it will not be considered for investigation.”

Source:
Supt. Craig S. Hannaford
Officer in Charge
GTA Integrated Market Enforcement Team
Royal Canadian Mounted Police

Are you beginning to see how “perfect” this system is for getting away with anything?
Remember, shhhhhh. Code of silence.
These investment regulators have truly infected our entire system. They have taken over. I have spoken to many financial victims who have gone a few years trying to solve their financial abuse, and they agree it is almost similar to a hypothetical situation: imagine your local police agency decided to lower their work load, and they “designate” the Hells angels as the “self regulatory” body capable of policing all cocaine and prostitution offenses. After all they are the largest market participant. That would be a very logical “decision” according to some of the self regulators I know of. Then when you have suffered a crime by any drug user, and you go to the police, they would say something like the ASC does, “we have recognized the Hells angels as the regulatory body in this area, and thus we are unable to process your complaint and we ask that you contact the Hells Angels in this matter.............” Off you would go, to try and have your problem resolved by the self regulator. If they get your money, or your property back from the druggie that stole from you, do you think the Hells angels would keep it?
The investment dealers do.

Top industry experts across Canada are calling for a national Securities Crime unit. The RCMP is truly incapable of doing the job. In 200? They were on record of having a full caseload with only 8 cases. By 2007 they had only one prosecution in canada while during the same period the us authorities had over 1200. This national securities crime unit would include investment experts, and might be expected to owe a loyalty only to the public, and not to the very criminals they are investigating. They would certainly not be allowed to be paid by those they are investigating, as is today’s system. A proceeds of crime funded agency could operate with very little public cost. The sooner we get started towards “best practices”, the sooner the stealing of your economic efforts will begin to slow.

We have looked at the crooks, the cunning and clever financial manipulators who manage to steal about half of the economic production of the entire financial system and investment returns the average man is hoping to live and retire on. We have looked above them to the self regulators who are hired and paid by these very people. We have gone up a level to the government regulators who we find, amazingly are also funded by the industry. The only area left untouched in this expose is the role of Purdy Crawford, a private industry lawyer, and why he became the head of the $32 billion dollar restructuring plan, with no government regulators in sight. Another day. Another story.

Where does the buck stop? With your finance department or attorney general who is usually in charge of each provincial securities commission? I have asked Iris Evans of Alberta Finance, in addition to the ASC, for years now, to answer a few questions, if they can, for the benefit of a confused public:

In what public interest are the legal exemptions that were granted to the “twenty” firms selling ABCP , and to mutual fund companies, who applied for and received a legal exemption to “rebate” or “kickback” commissions while they worked diligently to switch clients from independent mutual funds to their own house brand. Two simple case studies out of thousands of legal examples of breaking our laws. These two deserve a public inquiry. I wont say trust me because that saying is usually reserved for people who are NOT to be trusted, but believe me if you will, there are two case studies that will shock and amaze you. What public interest is served by exempting the laws Mrs finance Minister?
What public input or debate was allowed (or why not) into these permissions to violate our laws prior to them being granted?
What public notice was given (or why not) to those people or organizations to warn them prior to purchase
Where is the public inquiry into these matters? Where is the honest disclosure and transparency, or will we have to take your word that everything is fine?
Can you please protect the public in these matters, or will we continue to see protection of the possible crimes, the regulators and politicians in these matters?

So far our finance minister in Alberta (and every other province in the country) cannot answer these simple questions.


Not even Las Vegas lets people count the money unsupervised. Canadians, wake up. This country is your casino. Each person in this country owns a slice of ownership of this great economy of ours, good, bad or otherwise. If it fails, you fail. If it suffers, you suffer. And we are allowing clever, powerful folks to count the money unsupervised. I am here to tell you that they are putting as much as they possibly can in their pockets. It is documented. It is part of the public record. It is something that they can and will refuse to investigate. They win, we all lose.

Get financial minds out of the game of pretending to police themselves.
Or, if your tastes run to riches without morals, get yourself a suit and tie, and commit your crimes within the jurisdiction of the Securities Act of any province. The police will never even know about it. The Criminal code of Canada is for pickpockets and small change artists. The real money is made within the securities game. We own each and every referee in the game.

At the beginning of this article I asked the question.
If I wish to rob a bank, I am subject to the criminal code of Canada.........but if a bank wants to rob the public, what are they subject to?
Answer?
Nothing. No police will come. No commission will raise an eyebrow. No regulator exists in Canada that is not paid by those very banks and financial companies. No self regulator exists that does not represent the interests of its members over the interests of the public.
That is my experience. I have twenty years inside the industry, and nearly thirty now studying it from within and without.

Tell your provincial MLA to conduct a public inquiry into the two case studies, as well as the thousands of other times our laws have been hijacked. Your very economic health depends upon it.
Case study # 1 is titled “Commission kickbacks lead to an $800 million dollar windfall”
Case study #2 is titled “How to steal $32 billion dollars and not get caught”


Larry Elford is a former financial broker, and former CFP, CIM, FCSI, Associate Portfolio Manager, now retired, who left the industry after being unable to associate with the corruption involved. He documents what he experienced at www.breachoftrust.ca and counsels victims of financial abuse free of charge through www.investoradvocates.ca


The first crime is the actual abuse of trust, whether it be a financial advisor taking advantage of his client for personal gain,, child abuse, malpractice, embezlement, bribe, whatever.

The second crime is the cover up, involving individuals of considerable power or influence who were not involved personally in the initial wrongdoing, but whose sense of loyalty is stronger than their attachment to honesty and openness. Since exaggerated loyalty may be the very quality that gives such people power and influence (think Liberal party hacks and Adscam), it is hard to know what can be done about loyalty as self serving weakness.

The third crime is the hoodwinking of police and the public with false assurances that all is well.

(last three from the book "DARK AGE AHEAD", by Jane Jacobs
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