Securities law "exemptions". A license to steal?

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This story comes to us from the experiences of our American neighbours, but it must be remembered that many products sold in Canada as triple A rated "asset backed commercial paper" were nothing but thinly disguised Credit default swaps where someone like DeutcheBank was using Canadian taxpayer monies as a loss prevention strategy for any losses it experienced on it's sub prime mortgage portfolio. Here, for posterity is as simple an explanation as I have found to show the manner in which adult men will act irresponsibly if it makes them millions........

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Credit default swaps are insurance products. It’s time we regulated them as such.
Posted: 17 Mar 2012 06:00 AM PDT
Barry Ritholtz
Washington Post
March 10 2012
http://www.ritholtz.com/blog/2012/03/cr ... roducts-it’s-time-we-regulated-them-as-such/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29
~~~

Last week, Greece officially defaulted on its debt. (Unofficially, it defaulted long ago.) This formal default on about $100 billion triggered payment of $3 billion in credit-default swaps. These are the non-insurance insurance products that pay off in the event of a default.Let’s take a closer look at the tortured history of the swaps and see why they should be regulated as commercial insurance policies.

Our story thus far: CDS obtained their favored status as unregulated insurance policies courtesy of the Commodity Futures Modernization Act of 2000. It was sponsored by then-Sen. Phil Gramm (R-Tex.) — and benefited Enron, where his wife, Wendy, was a director on the board. The energy company had discovered the fast profit of trading energy derivatives, which was much easier to achieve without those pesky regulations. Late in the year, the CFMA was rushed through Congress. Passed unanimously in the Senate and overwhelmingly in the House, it was mostly unread by Congress or its staffers. On the advice of then-Treasury secretary Lawrence H. Summers, the bill was signed into law by Bill Clinton.

No one associated with this awful legislation has yet to be rebuked for it. Anyone who actually read this debacle and recommended it should be banned for life from having anything to do with public policy or economics.

Why? The act was a radical deregulation of derivatives. It was an example of the now widely discredited belief that banks and markets could self-regulate without problems. Management would never do anything that put the franchise at risk, and if it did, it would be suitably punished by the shareholders.

It didn’t quite work out that way. Across Wall Street, nearly all senior management involved escaped with their bonuses and stock options intact. Lehman chief executive Dick Fuld lost hundreds of millions of dollars and now must scrape by on the mere $500 million or so he squirreled away.

The act did more than change the way derivatives were regulated. It annihilated all relevant regulations. First, it modified the Commodity Exchange Act of 1936 (CEA) by exempting derivative transactions from all regulations as either “futures” (under the CEA) or “securities” (under federal securities laws). Further, the CFMA specifically exempted credit-defaults swaps and other derivatives from regulation by any state insurance board or regulator.

Hence, the law created a unique class of financial instruments that was neither fish nor fowl: It trades like a financial product but is not a security; it is designed to hedge future prices but is not a futures contract; it pays off in the event of a specific loss-causing event but is not an insurance policy.

Given these enormous exemptions from the usual rules that govern financial products, you can guess what happened with the swaps. A very specific set of economic behaviors emerged: Companies that wrote insurance typically set aside reserves for expected risk of loss and payout. When it came to swaps, the companies that underwrote them had no such obligation.

This had enormous repercussions. The biggest underwriter of default swaps was AIG, the world’s largest insurer. Without that reserve-requirement limitation, it was free to underwrite as many swaps as it could print. And that was just what it did: AIG’s Financial Products unit underwrote more than $3 trillion worth of derivatives, with precisely zero dollars reserved for paying any potential claim.

Though this may sound utterly absurd today, circa 2005 it was considered brilliant financial engineering. Consider this quote from Tom Savage, the president of AIG FP: “The models suggested that the risk was so remote that the fees were almost free money. Just put it on your books and enjoy.”

Ahhh, free money — how could that dream ever go wrong?

As it turns out, quite easily. Underwriting swaps was enormously lucrative — so long as you don’t count that unpleasant crashing and burning into insolvency at the end.

Oh, and that massive $185 billion AIG government bailout. Aside from those tiny hiccups, there was some good money to be made.

It was more than just AIG. While the radical deregulation wrought by the CFMA led to AIG’s self-directed collapse, it also helped steer two of the largest securitizers of mortgages — Bear Stearns and Lehman Brothers — into insolvency. Perhaps they were lulled into complacency, believing (wrongly) that they were hedged against losses. The CFMA led to their demise, and it was indirectly responsible for the collapse of Citigroup, Bank of America and Fannie and Freddie. It also was a significant factor in the near-death experiences of Goldman Sachs, Morgan Stanley and quite a few others.

Despite the CFMA’s horrific fatality toll, it has never been overturned. Parts of it were modified by Dodd-Frank regulations, but not the insurance exemptions. Today, these swaps are cleared through exchanges or clearinghouses — but they are still exempt from all insurance regulatory oversight. Which is bizarre, because they are little more than thinly disguised insurance products, with the CFMA kicker that there is no reserve requirement.

Which brings us more or less up to date — and onto more topical issues, such as Greece. Two weeks ago, the International Swaps and Derivatives Association said that “based on current evidence the Greek bailout would not prompt payments on the credit default swaps.”

That is an odd statement about a tradable asset — based on evidence? Typically, an option or futures contract expires, and it either is in or out of the money. Any tradable asset — stocks, bonds, futures, options, funds, etc. — settles on its own. There is a market price the asset closes at, a total volume of sales, and a final print for the day, month, quarter and year. No interpretation is required. Why on earth would anyone need a committee ruling for a trade?

On Friday, the ISDA committee ruled that Greece formally defaulted. Thank goodness that was cleared up. Had they failed to do so, it would have fatally damaged the swaps market and made sovereign debt financing much more expensive.

What makes this issue so fascinating is not whether Greece has or has not technically defaulted. Rather, it is that there is a committee of conflicted interested parties rendering a verdict on that issue.

Funny, no sort of group declaration is required when a futures contract or an option must settle. No committee decision is required. Which (again) is why credit-default swaps look, sound and act a lot more like insurance than they do other tradable assets.

Why does it matter if swaps are not insurance? In a word, reserves. That is the key difference between insurance and swaps. State insurance regulators actually require reserves from insurers — a lot of reserves — to ensure payments can be made in the event any payable event occurs. The swaps industry does not require reserves. Not even one penny against billions in potential losses.

I think you can see why this matters so much. Swaps are a lot less profitable as an insurance product than they are as a trading vehicle. That is the primary issue that we all should be concerned about. It is exactly how AIG blew itself up. There is nothing that prevents the marketplace from doing it again. We could very well see a repeat unless this gets resolved. Indeed, the odds heavily favor such an event occurring, unless we collectively do something to stop it.

Credit-default swaps are insurance products. It is well past time we regulated them as such.

~~~
http://www.ritholtz.com/blog/2012/03/cr ... roducts-it’s-time-we-regulated-them-as-such/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29
Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of “Bailout Nation” and runs a finance blog, the Big Picture at Ritholtz.com. Twitter @Ritholtz

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Mother Jones

Corporations Hate Regulation, Until They Love It
By Kevin Drum on Fri. November 11, 2011 3:00 AM PDT

Lindsey Turner/Flickr
The "Volcker rule" is a simple thing. Basically, it says that if you're a bank that takes deposits and benefits from federal deposit insurance, you can't also make risky trades that might blow up your bank and cost the taxpayers a bundle. Wall Street never liked the rule, because banks make a lot of their money these days trading for their own accounts and didn't want their trading profits cut off. They fought the idea in Congress, but in the end, the Dodd-Frank bill that passed in 2010 included a version of the Volcker rule in its final draft.

Was this a victory for common sense? Hardly. Last month regulators unveiled their first take on the actual implementation of the Volcker rule, and it had become a monster. "Only in today's regulatory climate could such a simple idea become so complex, generating a rule whose preamble alone is 215 pages, with 381 footnotes to boot," complained American Bankers Association Chief Executive Frank Keating.

Poor banks! But step back for a moment. How did Paul Volcker's baby get so bloated? Keating's crocodile tears aside, the answer is: banks. When it comes to financial regulation, fighting against new laws is merely their first line of defense. When they lose, as they did in the Dodd-Frank battle, the action simply moves to the regulatory agency charged with implementing the law. James Stewart explains what happened next:

When the proposed regulations for the Volcker Rule finally emerged for public comment, the text had swelled to 298 pages and was accompanied by more than 1,300 questions about 400 topics.

…"Here's the key word in the rules: 'exemption,'" former Senator Ted Kaufman, Democrat of Delaware, told me. "Let me tell you, as soon as you see that, it's pronounced 'loophole.' That's what it means in English." Mr. Kaufman, now teaching at Duke University School of Law, earlier proposed a tougher version of the Volcker Rule, which was voted down in the Senate. "We've been through this before," he said. "I know these folks, these Wall Street guys. I went to school with them. They're smart as hell. You give them the smallest little hole, and they'll run through it."

This is probably the biggest reason that no one should take too seriously Republican complaints about burdensome regulations strangling the economy. The truth is that most reformers prefer fairly simple rules. In the tax world, they'd prefer to simply tax all income. In the environmental world, they'd prefer to set firm limits for pollutants. In the financial world, they'd prefer blunt rules that cut off risky activity at its knees.

But businesses don't like simple rules, because simple rules are hard to evade. So they lobby endlessly for exemptions both big and small. This is why we end up with tax subsidies for bow-and-arrow makers. It's why we end up with environmental rules that treat a hundred different industries a hundred different ways. It's why financial regulators don't enact simple leverage rules or place firm asset caps on firm size. Those would be hard to get around and might genuinely eat into bank profits. Complex rules, conversely, are the meat and drink of $500-per-hour lawyers and whiz kid engineers. If the rules are complicated enough, smart lawyers can always find ways around them. And American corporations employ lots of smart lawyers.

Keep this firmly in mind the next time you hear someone from the Chamber of Commerce complaining about how many thousands of pages of regulations they have to comply with. Some of that is inevitable: We live in a complex world, and that means the rules are sometimes complex too. But they don't have to be anywhere near as complex as they end up being. We could have a simple tax code, simple environment rules, and blunt financial regulations. We could probably cut the size of agency regulations by 10 times if we wanted to.

But businesses don't want to. Sure, they'd prefer no regulation at all, but they know that's not in the cards. So in public they bemoan complexity, but in private they fight endlessly for more of it. To their lawyers, every single extra page is an extra opportunity to make more money.
http://m.motherjones.com/kevin-drum/201 ... complexity

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TEN LARGEST BANKRUPTCIES from http://blogs.wsj.com/deals/2011/10/31/m ... cies-ever/
(AND SOME OF THE LEGAL PERMISSIONS THEY RECEIVED TO VIOLATE CANADIAN SECURITIES LAWS)

1) Lehman Brothers Holdings, September 2008: $691 billion in assets, TWO EXEMPT FINANCINGS AT ASC
2) Washington Mutual, September 2008: $327.9 billion
3) WorldCom, July 2002: $103.9 billion
4) General Motors, June 2009: $91 billion, five exemptions
5) CIT Group, November 2009: $80.4 billion, SIX EXEMPTIONS, EIGHT EXEMPT FINANCINGS
6) Enron, 2001: $65.5 billion, ONE EXEMPT FINANCING
7) Conseco, 2002: $61.4 billion
MF Global: $41 billion (as of Sept. 30), ONE EXEMPTION ONTARIO
8) Chrysler April, 2009: $39.3 billion, FIVE EXEMPTIONS, ONE EXEMPT FINANCING
9) Thornburg Mortgage May, 2009: $36.5 billion
Pacific Gas & Electric Co., 2001: $36.15 billion

GOLDMAN SACHS 16 EXEMPTION ORDERS AT ASC, 509 EXEMPT FINANCINGS, (ONE FOR $56 MILLION)
JP MORGAN, NINE RESULTS UNDER EXEMPTION ORDERS AT ASC, ONE EXEMPT FINANCING “J.P. MORGAN DIGITAL GROWTH OFFSHORE SPECIAL L.P.” PROCEEDS FROM ALBERTA OF $1.9 MILLION
TWENTY FIRMS GRANTED PERMISSION TO SELL TOXIC SUB PRIME MORTGAGE INVESTMENTS IN ALBERTA
NO EXPLANATION, NO NOTICE, NO PUBLIC INPUT, NO PUBLIC ANSWERS
Is this a criminal Breach of Trust?

[admin]

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Question: What are Canadian Securities Regulators doing letting investment firms violate our laws.......violate our consumers?

Answer: None of your business

http://www.osc.gov.on.ca/en/SecuritiesL ... global.jsp

IN THE MATTER OF

MF GLOBAL CANADA CO.

(the Applicant)

DECISION

UPON the application (the Application) by MF Global Canada Co. (the Applicant) to the Ontario Securities Commission (the Commission) for a decision pursuant to (i) section 80 of the CFA granting relief from sections 42, 43, 44 and 45 of the CFA and (ii) section 147 of the OSA granting relief from section 36 of the OSA, which contain the requirement to deliver certain confirmations and statements of trade to customers in respect of trades in commodity futures contracts and commodity futures options as well as equity options in the context of trade "give-ups".

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

(they state this with each of thousands of legal exemptions, but never back it up. OSC works very much "below the law" at protecting consumers, while simultaneously acting as if they are "above the law" on accountability and the damage they do to consumers)

==================================================

http://blogs.wsj.com/deals/2011/10/31/m ... cies-ever/

OCTOBER 31, 2011, 10:38 AM ET
MF Global: Likely Among the 10 Biggest Bankruptcies Ever

By Shira Ovide

MF Global, the brokerage run by former Goldman Sachs chief Jon Corzine, today filed for bankruptcy protection, becoming one of the highest-profile U.S. victims of bad bets on European government debt.

With the Chapter 11 filing, MF Global also is likely to be added to the ignominious list of the 10 largest bankruptcies in U.S. corporate history. Here is that list, according to research firm BankruptcyData.com, and based on the value of each company’s assets before its bankruptcy filing.

Based on MF Global’s disclosed assets in its bankruptcy filing, it is likely to slot in just ahead of Chrysler as the eighth-largest U.S. bankruptcy.

1) Lehman Brothers Holdings, September 2008: $691 billion in assets

2) Washington Mutual, September 2008: $327.9 billion

3) WorldCom, July 2002: $103.9 billion

4) General Motors, June 2009: $91 billion

5) CIT Group, November 2009: $80.4 billion

6) Enron, 2001: $65.5 billion

7) Conseco, 2002: $61.4 billion

MF Global: $41 billion (as of Sept. 30)

8) Chrysler April, 2009: $39.3 billion

9) Thornburg Mortgage May, 2009: $36.5 billion

10) Pacific Gas & Electric Co., 2001: $36.15 billion

Source: BankruptcyData.com; SEC filings for MF Global asset size

More In MF Global

CME Group: Questions Persist Around MF Global Recordkeeping
Jefferies Would Like to Say It's Not MF Global
Surveying MF Global's Damage in Asia
MF Global Bond Investors Not Expecting Much Recovery
This Hedge Fund Bet Wrong on MF Global

[admin]

July 27, 2011

Bill Rice Chair,
Canadian Securities Administrators
Alberta Securities Commission
Suite 600, 250–5th St. SW
Calgary, AB T2P 0R4

Dear Mr. Rice:
Re: Point of Sale Initiative for Mutual Funds: CSA Staff Notices 81-319 and 81-321

We would like to reiterate our position to the CSA that FAIR Canada opposes the granting of exemptive relief to allow the early use of the Fund Facts document (“FF”) to satisfy the current prospectus delivery requirements as set out in CSA Staff Notice 81-321.1 FAIR Canada also opposes the CSA’s proposal in Stage 2 of the point of sale initiative to do away with the delivery of the simplified prospectus and allow delivery of FF, after the point of sale, to satisfy prospectus delivery requirements.

The point of sale initiative was originally aimed at providing investors with more meaningful and effective disclosure and was held out to be a significant investor protection initiative.2 The purpose of the point of sale disclosure framework was to provide a plain language document that would assist investors in their decision-making process prior to purchasing a mutual fund. Unfortunately, FF is still not required to be delivered prior to or at the point of sale. The document was not designed to be provided after the point of sale or to replace prospectus delivery requirements. If CSA members grant exemptive relief as outlined in Staff Notice 81-321, they will permit a use of the FF for which it was not intended or designed. It will also result in reducing the amount of information that investors receive, thereby preventing vital information from being provided to retail investors.

FAIR Canada opposes the process of granting exemptive relief as set out in CSA Staff Notice 81-321 without a formal public consultation process or legislative amendment. To grant such exemptive relief will be to effectively reduce long-standing investor rights. This is contrary to the purpose of securities regulation and the fundamental aim of the point of sale disclosure framework. We urge you to suspend the consideration of applications for exemptive relief until the concerns and interests of retail investors have been solicited and provided due consideration.
FAIR Canada recommends that a mutual fund’s simplified prospectus continue to be provided to investors either at the point of sale or with the trade confirmation. Eliminating the simplified prospectus delivery requirements runs counter to fundamental principles of securities regulation. FAIR Canada therefore opposes proposed Stage 2 of the point of sale initiative.

1 Submission on CSA Proposed Amendments to the Sale of Mutual Funds dated October 19, 2009 and email from Ermanno Pascutto to Howard Wetston, Q.C., OSC Chair dated March 9, 2011.

2. Canadian Securities Administrators, Staff Notice 81-319 (June 18, 2010), online: http://www.osc.gov.on.ca/documents/en/S ... us-pos.pdf.

161 Bay Street, 27th Floor | Toronto, ON | M5J 2S1 | 416-572-2039 | http://www.faircanada.ca
FAIR Canada agrees with the OSC’s Investor Advisory Panel3 that the many iterations of FF have yet to produce a document that is timely, clear and useful and that the existing FF is flawed and does not go far enough. The disclosure of risk, for example, is inadequate and misleading and must be improved. Until such time as FF is improved, regulators should not contemplate permitting it to replace the simplified prospectus.
We would be pleased to discuss our concerns with the current version of FF with you and look forward to the response of the CSA to this letter. FAIR Canada would welcome the opportunity to meet with you and other interested parties to discuss this important issue. Feel free to contact me at 416-572-2728 or at marian.passmore@faircanada.ca.

Sincerely,

Canadian Foundation for Advancement of Investor Rights
cc: Howard Wetston, Q.C., Chair, OSC
cc: Maureen Jensen, Executive Director, OSC
cc: Stephen Paglia, Senior Legal Counsel, Investment Funds, OSC
(on behalf of the CSA POS Working Group)
cc: Ermanno Pascutto, Executive Director, FAIR Canada

[admin]

No man really becomes a fool until he stops asking questions.
--Charles P. Steinmetz

SEC Routinely Exempts Companies From Rules Without Adequate Follow-up: Inspector General
First Posted: 06/30/11
Companies are routinely exempted from the Securities and Exchange Commission's panoply of rules and regulations, as long as they meet certain conditions -- but the agency rarely follows up to make sure that those firms are living up to their promises, according to a new report by the SEC's inspector general.

And more than half of those companies (60 percent) granted exemptions ended up violating the conditions of the SEC's order allowing them that dispensation.

In one example, in May 2010 the SEC exempted credit rating agencies from rules intended to avoid conflicts of interest. Those agencies "have been widely criticized for contributing to the housing bubble and the financial crisis that followed by assigning top ratings to investments tied to toxic mortgages," notes the Washington Post.

In addition to the exemptions that essentially allow firms to violate securities laws, companies can also request "no-action" letters in which the SEC assures them that they will not be targeted with enforcement actions as long as the companies' description of their situation is factual.

Though compliance with these conditions is supposed to be reviewed by an arm of the SEC, "there is also no formalized process for monitoring or ensuring compliance with the conditions and representations in exemptive orders and no-action letters," according to the report.

The IG notes: "Exemptive relief was not intended to provide unrestricted or unlimited relief from the securities laws and rules, however."

Among the exemptions granted by the SEC:

To permit a registered closed-end investment company to make distributions of capital gains as often as monthly in any one year.
To allow funds to make and change subadvisory agreements without shareholder approval.
SEC Delays Trial of Ex-Goldman Exec (Raj's Alleged Tipster)

The most prominent Wall Street executive caught in the government's insider-trading probe got a bit of a break on Wednesday. The trial of Rajat K. Gupta, the former Goldman Sachs director and former head of McKinsey, on charges that he leaked secrets to convicted hedge fund trader Raj Rajaratnam, has been pushed back six months, reports The New York Times.

The SEC, which is bringing the case, has accused Gupta of telling Rajaratnam the confidential information that Warren Buffett's company, Berkshire Hathaway, was about to invest $5 billion in Goldman back in 2008. Gupta's lawyer calls the case "totally baseless."

It's not clear what accounts for the delay, though the Times's Peter Lattman notes that bickering between the Justice Department and the SEC could be involved.

State Regulators Blasted For Helping 'Gut' Consumer Protection

Consumer watchdogs are outraged at a recent decision by state insurance regulators to endorse legislation that they claim "gut[s] a central consumer protection" of health care reform -- saying it could cost consumers billions in higher health insurance premiums and lost rebates.

The legislation would preserve broker sales commissions and allow insurance companies to exclude broker commissions from their administrative costs when calculating how much they spend on health care, says Consumer Watchdog.

The group sent a sharply-worded letter to the National Association of Insurance Regulators, saying that the bill would severely weaken the only explicit consumer cost protection in the federal health reform law -- the requirement that health insurance companies spend at least 80 percent of consumers' premiums on medical care.

Lobbyists Pressure California To Weaken Bill To Enhance Transparency

After some heavy lobbying by health care providers, the California assembly watered down a bill requiring more transparent electronic health records. Originally, the "track changes" bill (SB 850) required doctors to record all changes made to patient health records, as well as who made the changes, and make that information available to patients, reports California Watch (hat tip: NextGov.com).

But after opposition from the California Hospital Association, California Medical Association and California Association of Physician Groups, the bill was weakened and then approved last week.

Offshore Drilling Fines Get Small Bump, But Regulator Wants More

The country's revamped offshore oil drilling regulator yesterday slightly increased fines for companies that violate drilling rules. But the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) wants Congress to let it raise the penalties much higher.

The bureau raised the civil penalties for violating the Outer Continental Shelf Lands Act from $35,000 to $40,000 per day and the cost of violating the Oil Pollution Act from $25,000 to $30,000 per day, reports the Houston Chronicle.

"Our hope is that new legislation will raise this amount significantly, which would enable us to use the threat and reality of civil fines as viable methods to encourage compliance with offshore oil and gas rules and regulations and meaningfully deter violations," said BOEMRE director Michael Bromwich.

WATCH: GOP 2012 Candidate Cain Won't Name Single Bad Regulation

Republican presidential candidate Herman Cain refused to get into specifics when asked by CNN's Eliot Spitzer to name a single government regulation that burdens businesses or stifles innovation.

Though the conversation remained cordial, Spitzer grew frustrated: "Generalities don't solve problems. Saying you want to get rid of excess regulations sounds good but it doesn't mean anything if you can't tell me which one, Herman. So tell me - -which one?"

Cain promised Spitzer, "The next time I come, I will have a specific one for you."

In addition, Cain conceded that he had not read the list of rules highlighted by President Obama's regulatory review this past spring, which required government agencies to submit those regulations which are duplicative or unnecessary -- "I have not seen the report," said the former pizza magnate.

http://www.huffingtonpost.com/2011/06/3 ... 88128.html

[admin]

http://www.osc.gov.on.ca/documents/en/Securities-Category3/rule_20110513_33-735_non-accredited-investors.pdf

Some interesting reading about sale of exempt securities to investors, results and needed changes.

[admin]

from section 104 Ontario Securities Act http://www.e-laws.gov.on.ca/html/statut ... .htm#BK117
CLICK THE IMAGE TO ENLARGE IT

The obvious problem with this, and the one that gets billions and billions from the pockets of vulnerable consumers (who believe in the "protect the public interest" bullshit from OSC etc) and into the pockets of billionaires is this:

Guess who gets to decide what is or is not in the public interest? The very same guys who play this legal trickery on the public, the same who promise honesty, fair dealing, and transparency. The ones who earn six figure salaries from fees and charges to the financial industry.

With 60 plus lawyers at the OSC, ask them for a reason why the law is exempted and this is what you are likely to get, "Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision.”

Then ask them why they do this without giving public notice to consumers, and ........well I put the letter from the OSC that answers this in chapter four of http://www.breachoftrust.ca
More legal tricks played to hurt consumers. More shame on a crown agency. More evidence of fraud played on the public by these agents.

[admin]

this from section 104 (1) of the Ontario Securities act found at http://www.e-laws.gov.on.ca/html/statut ... .htm#BK117

Exemptions
(2) On application by an interested person and subject to such terms and conditions as the Commission may impose, if the Commission is satisfied that it would not be prejudicial to the public interest, the Commission may,
(a) decide for the purposes of section 97.1 that an agreement, commitment or understanding with a selling security holder is made for reasons other than to increase the value of the consideration paid to the selling security holder for the securities of the selling security holder and that the agreement, commitment or understanding may be entered into despite that section;
(b) vary any time period set out in this Part or the regulations related to this Part; and
(c) exempt a person or company from any of the requirements of this Part or the regulations related to this Part. 2007, c. 7, Sched. 38, s. 8.
-------------------------------------------------- advocate comments below-------------------
The problem appears to be that the securities commission do not:

1. inform consumers when the law has been exempted with regard to investments or advice they receive
2. allow public input into the decision making process, just accepts input from the party that seeks to skirt the law
3. give reasons, nor follow a process to document the process by which they confirm that they are satisfied that it would not be prejudicial to the public interest
4. answer questions posed by the public on the matter
5. seem to worry about the optic of letting those who pay you, those you regulate, violate the laws in semi secrecy
6. admit that billions and billions of dollars have been lost to consumers, gained by financial advice givers and millions paid to securities commissions to facilitate this "swapping of money" from customers.
7. Give better reasons on most exemptions than "Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision.”

[admin]

Goldman Sachs turns up hundreds of times in Alberta Securities Commission search, and same in Ontario Securities Commission search.

Dozens and dozens of "decisions" to allow Goldman to offer investment products, advice, or to allow them to operate while skirting the laws of our provinces.

Interesting place to find the securities commission in. Secret deals, no public notice, Goldman doing things of a criminal nature in the US. Us letting them operate here as well as giving them room to skip our laws. Unfortunately it is but one example out of many thousands where the securities regulators in Canada have been found to have sold out the public protective interests in favour of "loyalty" to friends in industry.

I could almost live with this IF the securities commissions would show a professional process followed, and some prudent reasons for each exemption. They do not. Instead one finds this answer to support most decisions ""Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision.” Upon further enquiry, they clam up completely and refuse to display public interest reasons for their actions.

People who are professional do not act like this. People who have done nothing wrong, have no need to hide the reasons for their actions. The securities commissions seem to operate on the principle of "hiding" their behaviours. Shame.

http://www.albertasecurities.com/Inside ... rders.aspx scroll down this page to see some exemption orders, (permission to skip the law)

http://www.osc.gov.on.ca/en/21087_26713.htm search any given year, looking for “decisions” and you will see hundreds of times the commission allows permission to skip the law, without telling you the investor. There are billions of profits in here for those who look. And billions of hurt to the public interest.

Ethical Securities Commission employees who may wish to let greater truth come into the open, can send information about these areas, anonymously to

Public Interest Leaks
Suite 309,
440-10816 Macleod Trail SE
Willow Park Village
Calgary, Alberta T2J 5N8
The information will be disclosed in the most appropriate manner of benefit to the public interest. You are not required to disclose your identity in any way.

[admin]

Goldman Sachs turns up hundreds of times in Alberta Securities Commission search, and same in Ontario Securities Commission search.

Dozens and dozens of "decisions" to allow Goldman to offer investment products, advice, or to allow them to operate while skirting the laws of our provinces.

Interesting place to find the securities commission in. Secret deals, no public notice, Goldman doing things of a criminal nature in the US. Us letting them operate here as well as giving them room to skip our laws. Unfortunately it is but one example out of many thousands where the securities regulators in Canada have been found to have sold out the public protective interests in favour of "loyalty" to friends in industry.

http://www.albertasecurities.com/Inside ... rders.aspx scroll down this page to see some exemption orders, (permission to skip the law)

http://www.osc.gov.on.ca/en/21087_26713.htm search any given year, looking for “decisions” and you will see hundreds of times the commission allows permission to skip the law, without telling you the investor. There are billions of profits in here for those who look. An billions of hurt to the public interest.

In the explanation of “Why?, you will see this statement most often,
"Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision.”

[admin]

Larry,

Did you ever see this information about exempt securities before?

It makes them look harmless to someone who invests in mutual funds
which normally have the prospectus attached (supposedly) to any sale.

Bruce

http://www.osc.gov.on.ca/documents/en/I ... est_en.pdf

Exempt securities

Some securities can be sold without a prospectus. These are called “exempt”
securities. Examples include hedge funds and principal protected notes.

These investments are not for everyone. If you buy an exempt security, you may
not have the same legal rights as you do when you buy under a prospectus.

If you are interested in these types of investments, ask a financial adviser to
explain how they work, including any guarantees, the risks and the fees.

Find out if other investment strategies may be more appropriate for you.
“Financial advisers have an obligation to ensure that they recommend only
investments that are suitable for their clients. “

(like hell they do........this may be in the law somewhere, but it is sure as hell not in the practice, nor in the enforcement of the law.........a joke is how I take the comment in quotations)

(if I had five cents for each investment which was sold while being “knowingly” not in the best interests of the client, and/or knowingly unsuitable, I would be living next to Bill Gates......the words are simply words, nothing more)

This is the first time I have said this in public, but is so blatantly wrong that I will say it now. The securities commissions are LYING to the public with this comment, and further that the securities commissions have a nearly unblemished record of ignoring large financial abuses of the public by those investment industry people who pay their salaries. In a sound system of justice, these people would be answering to crown prosecutors for the things they do to investors. Public Beware.

These investments are not for everyone. If you buy an exempt security, you may
not have the same legal rights as you do when you buy under a prospectus.

If you are interested in these types of investments, ask a financial adviser to
explain how they work, including any guarantees, the risks and the fees.

[admin]

These 2 items make the point

- the system is broken

No wonder ETF's /DIY are growing rapidly

Ken K

Latest exemption hurts investors:

Securities regulators have granted dealer members of self-regulatory organizations a full 12-month exemption from new disclosure requirements that are due to take effect later this month under registration reform. The Ontario Securities Commission Bulletin, reports that the Canadian Securities Administrators are giving investment dealers and mutual fund dealers an exemption from new disclosure requirements that are scheduled to take effect on Sept. 28 as part of the controversial registration reform rules. The new requirements are designed to improve firms’ disclosure to clients about their respective roles and duties, and fees, among other things. Similar requirements are to be imposed by the dealers’ respective self-regulatory organizations (the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada) under the “Client relationship model” reforms that the SROs have been tinkering with for many years ( the remains of the Fair Dealing Model ). The MFDA finalized its proposed reforms earlier this year, but is still awaiting ratification by its annual general meeting in December.

IIROC is also still finalizing the latest version of its CRM (“Client relationship model”) proposals, which will then be released for public comment. The Bulletin indicates that, as the SRO requirements will not be in effect by the deadline under the registration reform rule, each regulator has issued an order that exempts dealers that are members of IIROC, the MFDA, and mutual fund dealers in Quebec, from those requirements until the SRO requirements take effect, or until September 28, 2011, whichever comes first.

Is it any wonder that investors and the advocacy community have lost confidemnce in the regulatory system? http://www.oscbulletin.carswell.com/bb/ ... .htm#1_1_6

IIROC review shows big gaps in controlling “ new products” - no lessons learned

http://docs.iiroc.ca/DisplayDocument.as ... anguage=en

From March to May of 2010, IIROC conducted targeted regulatory examinations at a representative sample of Dealer Members who distribute structured products. Specifically, the review tested for adequate written policies, procedures, and underlying operational controls on “new products” introduced for sale to retail and institutional clients. The objective of this New Product Due Diligence review was to determine whether, and how, Dealer Members have incorporated the IIROC Guidance Note into their business practice. The disappointing results are extremely disturbing.

[admin]

Feb 8, 2010

To: Ted Morton, Alberta Finance Minister

Dear Mr. Morton,

Why can investment sellers violate the law in Alberta and sell tainted products?
Why does our crown Alberta Securities Commission allow this? Profit from this?

More than a billion dollars of substandard investments have been sold in Alberta, with the permission of the Alberta Securities Commission. (ASC).  In Canada $32 billion has gone missing with bad commercial paper (ABCP).  

The cost of  every other crime in the country is approx $40 bil according to Justice Canada, so we have that one financial crime equalling nearly every other crime in Canada combined.  

Legal exemptions have allowed substandard investments and advice to be sold by the thousands to Canadians, without notice being sent to the investors.  

The questions that went unanswered by Iris Evans after eight requests. Ted Morton third request.

-What public interest is served by allowing financial laws to be violated?  

-Why are laws allowed to be broken without public input and public notice?

-Why is Alberta Finance suppressing this, rather than protecting the public?

Here is the answer received to date from the Alberta Finance:

“In this particular situation (ABCP) it appears the commissions carefully considered the situation and acted properly in granting the exemptions.”

Here is the official reason given by the ASC:

“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.”

There is a damaging incestuous relationship between the financial services industry and our government securities regulator. Our Minister of Finance should be moving forcefully towards honest accountability. Anything less may constitute a breach of trust.

These matters have caused billions of dollars to be siphoned out of our economy assisted by 13 securities commissions.   Will you Mr. Morton please take steps to answer these questions for the benefit of Albertan’s?

Larry Elford

[admin]

Feb 15, 2010

A.P. (Anthony) FOZARD, Staff Sergeant
RCMP Integrated Market Enforcement Team  (Vancouver) 
2200-401 West Georgia Street, Vancouver
British Columbia, Canada  V6B 5A1
Telephone: (604) 602-4455
Facsimile: (604) 331-1222
EMail: anthony.fozard@rcmp-grc.gc.ca

From: Larry Elford, former CFP, CIM, FCSI, Associate Portfolio Manager, retired

Re: Vancouver IMET file 2010-771

Dear Mr. Fozard,

I write to you with supplemental information regarding the complaint made by Canadians into the sale of Non Bank Asset Backed Commercial Paper (ABCP).  I appreciate that the RCMP have confirmed the opening of a criminal investigative file into the sale of ABCP, as have law enforcement agencies in other countries.  

Public documents are available that indicate that our provincial securities regulatory agencies provided essential help to sellers of this ABCP, to the financial benefit of the securities commissions as well as the investment sellers, and to the detriment of the public interest. I feel that the RCMP should also be made aware of these documents and of the propensity of securities commissions to act in a complicit manner with investment firms who are abusing the public. If these allegations are found to have merit, then we are talking about breach of the public trust by our provincial securities commissions.

None of the public securities commissions have been willing to answer public questions on what process was followed and what public interest is served by letting substandard investments (those which did not met our laws) be sold without notice to Canadians. Of the approximately 5000 instances where securities commissions have let investment firms skirt our securities laws, I find no examples of public input or public notice of these deals. This may put them in a category of secrecy which further reflects poorly on the process and of those who allow our laws to be skirted.

It appears indicitive of a captured regulatory system and one with incestuous relationships with the investment industry which appear to preclude proper duties of care being delivered to the public. 

I write with slight reservation, knowing that not only have the securities industry claimed the right to self-police on matters such as this, but that the RCMP IMET has allowed securities regulators and self regualtory members to work on its force and advise from the position of an RCMP “insider”.  This could be construed as a conflict of interest were it neccessary to investigate the industry or regulators who are paid by this industry.
I urge you to take public steps to show that your force is willing and capable of separating from the investigation, regulators or self regulators who are in fact paid and supported by the very industry you are investigating.

I further ask that the regulators themselves be investigated for breaches of the public trust.

Specific example include, but are not limited to:

The granting  (to investment dealers) of permissions to violate Securities laws in order to help facilitate the sale of known defective investment products, and the simultaneous failure to ensure that the public were notified of this “exemptive relief” process before they invested in the products.

Failure to disclose market risks that were known to the regulators (as evidenced by the need for legal relief application) and intentionally veiled from public view by the industry.

Self-Preservation of regulatory agencies positions through moral disengagement and motivated forgetting towards a securities industry that funds the salaries of all investment regulators in Canada. Dishonest deed by agents of the crown. Failure to provide the duty of care promised to the public by a crown agent.

Regulatory and self regulatory board governance failure. Using boards composed of industry members and very little to none who represent the public interest.

Regulators knew or ought to have known that legal exemptions were detrimental to the protections intended by laws, and that by skirting them, the public was and is being placed at risk. 

Granting of legal exemptions to the financial industry without notice or due process with the public is indicitive of an “abuse of discretion” by an agent of the crown. Hiding the process from the public adds fuel to the argument of an abusive act.

Consistant record of favoritism toward the investment industry, with literally thousands of such behaviors (permissions granted to violate securities laws) that favor the industry and damange the public. Never a public notice was given. No public input was allowed.

Criminal allegations may include but not limited to the following against the provincial securities regulators and self regulatory agencies:


-Failure to provide the public with honest services
-Breach of duty to protect the public

-Regulators knew or should have known enough about their stated protective role in matters that affect the public interest to avoid allowing thousands of exemptions to be granted to those who sell investment products and advice.
-Breach of the public trust.
-Negligence.
-Negligently and intentionally failing to protect the public interest through a conflicted securities regulatory system.
-Breaching securities laws and practices that were intended to protect the investing public. Professional complicities with the investment industry that constitute a conflict of interest.


These matters have caused billions of dollars to be siphoned out of our economy, into the hands of investment sellers.  Some of the matters may involve civil recourse from the agencies involved, and some may be criminal in nature.  I trust that the RCMP will take these matters as seriously as the damage to our Canadian economy.  I also trust that the RCMP IMET will take professional steps to separate all aspects of this investigation, from the regulators and self regulatory persons who are on IMET committee’s, and whose regulatory agencies may be suspected of criminal code offenses against Canadians.

Yours,

Larry Elford, former CFP, CIM, FCSI, Associate Portfolio Manager, retired
Founder of www.investoradvocates.ca