INVESTMENT INDUSTRY HARVESTSociety’s Largest Economic Drain?Executive Summary: In a recent report by the Small Investor Protection Association of Canada, we were shown how easy it was to pull the wool over investors eyes. To conceal the true license of investment sellers, hiding their commission-sales role and giving
investors a falsified impression of professional trust and agency duty. In Canada, over 100,000 Investment Advisors do NOT hold an Advisor license, nor the implied duty of care.
See report at SIPA titled:
Advisor Title Trickery http://sipa.ca/library/SIPAsubmissions/500%20SIPA%20REPORT%20-%20Advisor%20Title%20Trickery%20October%202016.pdfImagine if our most trusted financial institutions were misinforming or misdirecting their trusting clients, in order to glean more money for themselves. Imagine how much money could be made if it were possible to profit, from deceiving the public. In Canada.
“Where the fundamental nature of the relationship is one in which customer depends on the practitioner to craft solutions for the customer’s financial problems, the ethical standard should be a fiduciary one that the advice is in the best interest of the customer. To do otherwise —
to give biased advice with the aura of advice in the customer’s best interest — is fraud.”
(this was the nutshell argument of report #1, Advisor Title Trickery)
James J. Angel, Ph.D., CFA and Douglas McCabe Ph.D., McDonough School of Business, Georgetown University, “Ethical Standards for Stockbrokers: Fiduciary or Suitability?” Sept. 30, 2010
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1686756Then we learned that salaries of the top Securities Commission regulators in Canada are in the range of $500,000 to $700,000+ and those salaries are 100% funded by the industry, and not government.
http://www.investoradvocates.ca/viewtopic.php?f=1&t=105#p3900In this report, we look at a fraction of the costs imposed upon Canadian society and investors, arising as a consequence of the deceptions in the previous report. We view a partial record, by no means complete, of the financial harm to Canadians over the last two or three decades.
investment harms to Canadians, by investment industry professionals,appear to equal or exceed the financial cost of each and every crime in the land.
Why is this important?If this were found to be possible, it would constitute one of the largest economic drains in the entire nation, and an injustice to every honest citizen. We let the numbers speak for themselves, and hope readers will add their voices, corrective comments, and forward this report to legislators both Provincially and Federally.
Lets begin with one example of the net effects of Investment Industry Self Dealing, before we get into the math:
Click to enlarge image and to zoom in
Jan 8, 2017 Globe and Mail story on bank misbehaviour, by Rob Carrick, linked here:
http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/bad-behaviour-from-the-big-banks-try-their-competitors/article33542334/Annual Cost to Canada From “Professional” Financial Trickery Believed to be in excess of $50 Billion each yearTrickery in this report is understood as professional self-dealing, deceptions, and abuse of market dominance, among other tricks and tactics. These result when investment sales agents, Dealer Representatives and commission salespersons, intentionally conceal their license and registration categories, as well as their agency duty to investors. These deceptions are contrary to Canada’s laws, as well as moral codes or conduct, and yet appear to be rampant and accepted, exempted, or ignored, by all regulatory bodies. The public is thus led into a false sense of trust based on deliberately false information.
Some Examples Of Dealer Self Dealing:--Three divisions of Canadian Imperial Bank of Commerce have reached a settlement deal with the Ontario Securities Commission after revealing
they overcharged fees to clients for up to 14 years
.
An OSC statement of allegations said some clients were also not advised they met the minimum investment thresholds to qualify for lower-cost mutual funds within the same class, and instead were sold funds with higher management expense ratios. The OSC said the problem stretched back to August, 2006.
CIBC is the latest in a string of investment firms to face an OSC hearing for overcharging clients on mutual fund or account fees.
In July, three Bank of Nova Scotia divisions agreed to pay $20-million to compensate almost 46,000 clients who overpaid for investments back to 2009. Mutual fund giant CI Investments Inc. reached a deal in February to return $156-million to 360,000 clients who bought mutual funds over a five-year period when the company failed to detect errors in calculating fund valuations. In 2014, three subsidiaries of Toronto-Dominion Bank agreed to repay $13.5-million to clients who were overcharged fees.
http://www.theglobeandmail.com/report-on-business/cibc-divisions-reach-deal-with-osc-over-excess-client-fees/article32521943/-Morningstar article, which stated "Total fund management expenses paid in 2002 added up to more than $10 billion." and it appears to me to be a calculation of the "sum total" of management fees paid by Canadian mutual fund investors.
http://investoradvocates.ca/viewtopic.p ... star#p3251Would investors willingly pay each of these costs if they knew it was a “fee grab” and not investment “Advice”, as promised?
Canadians Mutual Fund Fees up to 100% higher than U.S.
http://archive.constantcontact.com/fs07 ... 97878.html-From page 14 “Only Canadian and Indian investors pay more than 2% for available-for-sale equity funds.” and “Canada, India, Italy, and Spain are the only countries with locally domiciled equity fund expense ratios above 2.00%.”
-From Page 15 “Canada is the only country in the survey with TERs (total expense ratios) in the highest (cost) grouping for each of the three broad categories.”
http://corporate.morningstar.com/us/doc ... ce2011.pdf-page 22, “Among the 22 countries in this survey, Canada has the highest annual expense ratios for equity funds, the third highest for bond funds, and tied for the highest for money-market funds.”
-page 58 “ Canada has the highest overall expense ratios, scoring signi cantly higher than every other country for equity funds, and higher than every country except for locally domiciled Spain funds for money market funds. “
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clients are being robbed of returns
Subject: CSA Consultation Paper 81-408 - Consultation on the Option of Discontinuing Embedded Commissions demonstrates massive DIY investor abuse
If we examine tables 13 and 15 of the CSA consultation document we find that only $12 Billion of the $30 billion in mutual funds are D class which means that $18 billion is invested in full trailer commission paying funds. Since discount brokers cannot and do not provide investment advice , clients are being robbed of returns. Clients are not being treated fairly, honestly and in good faith as required by securities laws. We've been asking IIROC for years to enforce the law ; we're still waiting for an answer. By the way, at 1% trailing Commission , that amounts to $180,000,000 that isn't going towards the retirement funds of Canadians!
http://www.osc.gov.on.ca/en/SecuritiesLaw_sn_20170110_81-408_consultation-discontinuing-embedded-commissions.htm===
-“a failing F- grade in the category of ‘fees and expenses’, the lowest grade of all countries surveyed.” )
We pause here for a quick breath, and a sub total of financial harms to Canadian society from these sales tricks, dressed up as trusted “Advice”:
It seems like
mutual fund self dealing comes in between
$25 Billion per year, and $50 Billion per year, depending on whether we rely on U of Toronto Pension study numbers of 2007, or bring this up to date with 2017 numbers.
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The latest statistics provided by the Canadian Securities Administrators (CSA) showed that in 2011 mutual fund investors paid $4.6 billion in trailing commissions to advisers and their firms, representing 34% of total revenue from MERs for that year.
[url]http://www.moneysense.ca/save/investing/mutual-funds/investors-dont-have-to-wait-for-canada-to-bury-trailers/
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Alberta’s Robb Engen, a fee based planner recently wrote this about the cost of trailing (hidden) commissions to Canadians: According to a recent study by York professor Douglas Cumming, there are three ways that trailer fees cause harm to investors:
1.) More money is steered towards mutual funds that have higher trailer fees;
2.) Money is less likely to be taken out of mutual funds with poorer performance among funds that pay higher trailer fees, and;
3.) Mutual funds that raised their trailer fees experienced a drop in performance, while funds that lowered their trailer fees experienced a rise in performance.
Canadian securities regulators have been mulling a ban of trailer fees or embedded commissions for over two decades. The mutual fund industry, as you can imagine, is vehemently opposed to such a ban.
Canadian investors hold more than $1 trillion in mutual fund investments and pay over $5 billion in trailer fees every single year. Robb Engen
http://findependencehub.com/commission-based-advice-suitability-dangerous-combination/Sales practices that maximize commission costs to customers and commission revenues to broker =up to $X bil each year on $YY bil per year in funds sales, @5% Deferred Sales Charges (DSC) ???
Wrap accounts, (fund of funds), house brand funds, etc. Wrap accounts (from the following image) made up 91% of mutual fund sales in this 2007 image from the industry:
Investors’ capital is steered towards funds that have higher trailer fees;
We appreciate that the industry has a substantial financial interest in keeping trailer fees in Canada, with over $5 billion per year charged to Canadian investors. My co-authors and I have no financial stake one way or the other. We simply report what the data indicate. Blame the data. Please don’t shoot the messenger.
Douglas Cumming, J.D., Ph.D., CFA, is Professor and Ontario Research Chair, York University Schulich School of Business
http://www.moneysense.ca/save/investing ... iler-fees/=======
Canadian Mutual Fund charges trim $25 billion each year according to Keith Ambaschteer U of Toronto
University of Toronto 2007 pension study suggested that costs to Canadians of $500 million weekly, from Canadian mutual fund products alone when compared to institutional pension fund costs.
If the Canadian people, are being harvested by $500 million (2007 actual study figures) to $1 billion WEEKLY (our 2016 estimates), it is time that the financial regulatory forces of this nation received a gentle wake up, perhaps a shake up.
The $25 Billion Dollar Pension Haircut, University of Toronto, 2007
https://docs.google.com/file/d/0BzE_LMP ... NGYxODAzZjMutual funds- excessive fees ( Canada has highest in the world) Morningstar report 2011
viewtopic.php?f=1&t=177&start=30#p2245END OF MUTUAL FUND ANNUAL “HARVEST” NUMBERSToxic new issues, faulty income trusts, junk securities sold to the public = $20 billion each year (see detailed posting to follow)
Fractured regulators = $10 billion each year Prof John Coffee, Columbia University, or approx $100 billion out of pockets of investors since this article was written in 2007.
viewtopic.php?f=1&t=105&p=3844&hilit=coffee#p3844Double/Triple dipping fund (trailer commissions on top of advisor fees on top of sales commissions, on top of fund Management expense fees) =$1 bil (conservative estimate based on personal experience from 20 years in industry)
Dealers pushing fee-based account charges (adding unnecessary fees to clients accounts) = $500 million per big bank (estimate based on personal experience inside industry, also See footnotes in RBC management presentation page 15 and 24
http://www.investisseurautonome.info/PD ... gement.pdf (also called “reverse churning”)
Churning clients for commissions, unknown. (note: Britain has banned the use of commissions as a form of compensation for those who call themselves financial advisors)
I met with an elderly investor recently…..with a large account which her “advisor” (truly a commission salesperson representing the interests of dealer revenues) wanted to put him into the latest and greatest Investment Dealer trend, a “Fee Based Account”. This would have merely added 2% fees to the account and otherwise done little else, and would have added sixty thousand dollars to this account.
As client age, they become more and more vulnerable, and (non fiduciary) advisors/dealers find ways to squeeze greater amounts of fees from their trusting elderly clients. The trend toward fee-based accounts and products is like creating an “annuity” to the dealer, from the accounts of their clients and not always done for the best interests of the investor.
Canadian investors should not need financial “bodyguards”, to protect them from financial “advisors”
(aka salespersons).
Investments of Ill-ReputeCanadian investors lost an estimated total of $1.9 billion in the fifteen financial scandals reviewed
http://faircanada.ca/wp-content/uploads ... -02221.pdfA Report on A Decade of Financial Scandals
FAIR Canada Calls for a National Action Plan to Tackle Investment Fraud
http://faircanada.ca/submissions/report ... ppendix-b/“Canada appears to have a serious problem with financial fraud and government, regulators, police and prosecutors do not seem to be effective at prevention, detection and prosecution.”
“Financial Crimes Devastate Individuals - As of July 2009, an estimated 1.3 million Canadians have been victims of fraud at some point during their lives. In many cases, investors lose a significant part of or their entire life savings. The impact on their lives is devastating and irreversible.”
Other Common Investment Toxins To Canadian’s Financial HealthPPN’s -(Principle Protected Notes) excessive fees, opaque disclosure
LSIF’s- just don’t make money A labour-sponsored venture capital corporation (LSVCC), known alternately as labour-sponsored investment fund (LSIF) or simply retail venture capital (RVC), is a fund managed by investment professionals that invests in small to mid-sized Canadian companies. The Canadian federal government and some provincial governments offer tax credits to LSVCC investors to promote the growth of such companies.
Structured products – complex/expensive, forensic analysis of one bank structured product discovered up to five layers of fees buried in them. A veritable bounty of fees to the investment bankers peddling these.
Bad new issues, faulty income trusts, junk securities dumped onto the public = $20 billion each year (see detailed posting to follow)
Sales practices that maximize commissions to customers/rev to broker =1 bil each year $20 bil per year in funds sales, @5% DSC
Double dipping (fees on top of commissions or vice versa) =$1 bil (ultra conservative estimate based on personal experience from 20 years inside industry)
Reverse Churning: The art of placing as much of ones clients into annual-fee- based accounts, and then collecting an annuity of up to 2% from every dollar in every client account, every day of the year.
Fee based accounts, where the objective is to create a “fee annuity” to the dealer and not necessarily or primarily in the interests of the investor.
More Investments of Ill-Repute ONE-OFF JUNK INVESTMENTS
$39 billion in this short list of 73 one-offs
Average of $500 million per “investment”
HERCULES MANAGEMENT $40mil
VICTORIA MORTGAGE $50mil
CANADIAN COMMERCIAL BANK $1 bil
NORTHLAND BANK $230mil
PRINCIPAL GROUP $500mil
STANDARD TRUST $50mil
TEACHERS INVESTMENT AND HOUSING CO-OPERATIVE $150mil
CASTOR HOLDINGS $2bil
BRAMALEA $1bil
CARTAWAY $450mil
GOLDEN RULE RESOURCES $350mil
BRE-X $ 6 bil
CONFEDERATION LIFE $10bil
SHAMRAY GROUP $7mil
LIVENT $500mil
YBM MAGNEX$650 mil
JEVCO INSURANCE$30mil
COREL $500mil
PHILLIPS SERVICES $2.6 bil
MERIT ENERGY $100mil
KING'S HEALTH CENTER$100mil
CINAR $1.4 bil
VISUAL LABS$300mil
HOLLINGER $500mil
CROCUS $150mil
PORTUS $120mil
NORTHSHIELD $500mil
NORBOURG $80mil
List Source Diane Urquhart, independent consulting analyst. Toronto.
Income Trusts sold with a deceptive yield$8 billion of investor losses on 46 income trust IPO's and secondary
offerings down more than 30%, where investment bank marketing
materials gave deceptive yields and assurances of low risk to seniors
seeking income and preservation of capital. Not the subject of any SRO or
provincial securities commission regulatory restrictions or investigations.
For details see:
m
http://www.sipa.ca/Harm Caused by Exemptions to Our Laws One crime was $32 billion Thousands of exemptions granted in secret for which no data is available, but some details shown below
8764 exemptions appear online at the Alberta Securities Commission
Exemptions to the law are the hidden way in which investment product makers and sellers can dispose of defective products….silently dumping them onto the consumer without notice of the defects, or warning of the exemptions. No public notice need be given when laws are exempted. No public input or discourse is allowed, and you may never know if you have been the victim of an investment which received an exemption to be sold to you, by the regulator who was charged with protecting you. It feels like a world where the regulator is “running a business within a business”, which endears them to the industry, feathers some nests and justifies the industry paying our Canadian regulators up to $700,000 salaries. (for a “government” regulator:).
The regulatory racket of granting exemptive relief from the law, appears not to be making things better for the public, but in “milking” things better…from the public.
PS. Provincial regulators when asked, will give no protocols, no procedures and no public interest reasons for granting exemptions to our laws. They act completely above the need to be accountable to the public.
Some examples of exemptive relief from our public protective laws:
commission kickback exemption
Securities law "exemptions". A license to steal?
viewtopic.php?f=1&t=143At this web site are 42 posts about exemptions granted to avoid our laws [url]http://www.investoradvocates.ca/viewtopic.php?f=1&t=143&sid=e30dcbdb8214411b092ca9003bf442d3
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At this post are “ABCP's of stealing $35 Billion. Case study 2 for inquiry” 139 posts covering the largest crime in Canadian history, the lifting of $35 Billion from the pockets of Canadians. All aided with securities commissions who granted “exemption” to our protective laws to enable faulty products, toxic products, junk investments to be dumped on the public. In each exemption case the justification given by each Securities Commission was the same, and it was this exact reason: “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.”
The non-bank ABCP market collapsed in August, 2007, leaving investors holding about $35-billion of frozen notes, including 2,542 individuals with investments totalling $317-million.
Private (non regulatory authorities) "negotiate" free do not go to jail passes for participants in return for a refund of small investors monies, and when they have legal immunity, they still do not return the money as promised. (see Purdy Crawford for get out of jail on this one and on $1 bil tobacco smuggling cleanup) Governments have to bail money into this sinking ship in order for small investors to get refunds. Thanks Purdy, keep up the great work you do for……….
http://www.investoradvocates.ca/viewtopic.php?f=1&t=177&start=30#p2249$2 billion was taken from the PSPP (the pension plan of retired judges and RCMP) at the same time that judges were granting "immunity" from prosecution to those responsible (I assume they do not know to this day, but the PSPP annual report for 2008 includes the write downs)
Each of these toxic pools of sub-prime debt, did not meet the rating requirements to be sold to the public, but Dealers were stuck with the product and desperately needed to “dump” them like a hot potato.
Enter the byzantine world where Securities Commission will accept a “fee”, and without notice to the public, or warning to investors, will allow public protective laws to be “exempted”, which allows some fairly bad investment products to be unloaded upon the investing public.
Here is a fraction of the investors (from memory only) who got these toxic products dumped on them by salespersons, posing as “advisors”.ALBERTA TREASURY BRANCH (>1.2billion)
UNIVERSITY OF CALGARY (18 Million)
UNIVERSITY OF ALBERTA (50 Million)
CITY OF LETHBRIDGE (30 Million)
City of Hamilton ($90 mil+)
RETAIL INVESTORS (4.2 Billion)
Over 2500 smaller investors……some whose lives were ruined with alcoholism, depression, suicide, family breakup. The list of harms to society includes far more than merely being Canada’s greatest economic drain. It is putting some of our most vulnerable people, often seniors, into poverty and despair.
http://www.investoradvocates.ca/viewtopic.php?f=1&t=177#p2610Regulator fines and settlements from the 7 investment banks who settled, and the Coventree fine was only $140 million. All of the investment banks received immunity from lawsuits.
The fines imposed in the end amounted to less than one half of one penny for each and every dollar missing.
More than a hundred pension funds in Canada had invested their cash directly or through their manager in commercial paper backed by financial assets. About $16 billion in total. This was not by greed, but by fiduciary duty to maximize the return on assets to their participants. A possible error, but there was also a tragic lack of information in this fully deregulated market.
There are big name losses among those pension funds: Domtar ($455 million), Ontario Teachers ($60 million) and plans for university professors of Western Ontario ($30 million), Alberta (over $40 million) and British Columbia, the pension fund of credit unions ($60 million), Canada Post ($27 million), but also more pension funds managed by the Caisse de dépôt et placement du Québec ($12,600 million) and the Public Sector Pension Investment Board ($1,972 million).
http://www.investoradvocates.ca/viewtopic.php?f=1&t=140&start=45#p1912The Public Service Pension Plan of Canada (PSPP) took a writedown/loss in their 2008/2009 financial report for approximately $2 billion dollars. This is the pension plan for retired RCMP and judges. Ironically, the RCMP did not even know their pensions were being robbed, when they worked alongside the regulatory bodies to quietly close a complaint file alleging criminal activity. The RCMP also did not seem to know that the regulatory bodies they “collaborate” with, are the very agencies who granted exemption to our laws to allow these tainted investments to be sold in Canada.
When I search for the word “Exemption” at my local securities commission I get 8,764 results. But not a single document to justify the exemptions as being in the public interest.
I recall one exemption which was granted to a bank, late one friday evening, when one the bank’s underwriting department, was having difficulty selling a new investment issue, it was not being well received in the marketplace. Yet the bank’s underwriting people could not “look bad” internally and let the bank be stuck with a bunch of junk product on the shelf. What did they do, they applied for an exemption to the laws which prevented them from dumping the bad product into their bank customer’s mutual fund holdings, and Viola!. Problem solved with the swipe of a pen, from a friendly regulator.
There are so many like that. Or the mutual fund and life insurance dealer that learned (and bragged) on it’s share selling prospectus that they could earn “nine to sixteen times” more money if they switched their trusting clients out of high quality and independent mutual fund investments, and into their own “house brand” created funds, with higher commissions, higher annual fees, and zero track record. They applied and received an exemption for just this, and another exemption backdated, for all the provinces that they did this in without asking to skirt the law……they skirted the law first, took advantage of the clients, THEN applied for for exemption a year or two later….I am not making this up.
There are exemptions on the books granted (in Alberta) to Goldman Sachs, JP Morgan, HSBC, every Canadian Bank and investment dealer, etc.
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Here is an
exemption to the Oleary Funds seeking to obtain relief from restrictions on only being able to lend out 50% of the underlying assets of their investors mutual funds…..or something to that effect. Read it yourself and see if you can spot how regulators, lawyers and financiers apply to bend the rules. Rules designed to protect investors.
[url]http://www.osc.gov.on.ca/en/SecuritiesLaw_ord_20120309_219_oleary-fund.htm
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Nearly all of the exemptions on record, carry this statement as their only justification/explanation for removing the lawful protections of the Securities Act:
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
some actual exemption examples with links so you can read for yourself what happens behind closed doors at Securities Regulators offices.
Exemptive relief granted from the mutual fund self-dealing restrictions in the Securities Act (Ontario)…..
http://www.osc.gov.on.ca/en/SecuritiesLaw_ord_20121129_216_invesco.htm=========
RBC GLOBAL ASSET MANAGEMENT INC
Exemptions granted from the mutual fund conflict of interest investment restrictions and management reporting requirements and self-dealing prohibition.
http://www.osc.gov.on.ca/en/SecuritiesLaw_ord_20121129_212_rbc-global.htm==================
“Exemption from the requirement to include the financial statement disclosure” [url]
http://www.osc.gov.on.ca/en/SecuritiesL ... aleant.htm[/url]
Valiant Pharmaceuticals? What could go wrong? (About $400 Billion may evaporate...equal to the entire market cap of any of Canada’s top companies) This alone would rival up to eight years of all the crime measured in the land...
“Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.”
the test set out in the Legislation??
something about it …..must not be “detrimental to investors or the public interest”…..but no commission I have seen has ever demonstrated a protocol or procedure to determine this, nor have I seen any documentation in ANY exemption decision to support such a protocol. I have asked for such documented protocol and been refused 100% of requests.
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relief for dealer-managed mutual funds to invest in distributions of debt securities for which dealer-manager acts as underwriter during distribution period or 60 day period following distribution
When banks get stuck with a bad underwriting, and they cannot sell it to the public, they CAN dump them into customers-owned mutual funds…..funds which are managed and run by the banks…….A bad but usually hidden example of self-dealing by banks, while doing harm to bank mutual fund investors. All they need to do is to apply to their securities commission for exemption to the laws.
http://www.osc.gov.on.ca/en/SecuritiesLaw_ord20100813_2110_cibc.htm———-
An exemption to Assante to give commission rebates to clients who are “advised” out of their independent third party funds, and instead sold the Assante house-brand funds.
ASSANTE CORPORATION
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority…..an application from Assante Corporation (the “Filer”)…..that the prohibitions on certain rebates contained in section 7.1 of NI 81-105 shall not apply to rebates paid by representatives to clients who are switching from third party products to mutual funds managed by, or by an affiliate of, the Filer;
http://www.osc.gov.on.ca/en/SecuritiesLaw_ord_20040220_211_assante.htmCommission rebating to encourage switch of client independent mutual funds to Assante’s “house brand” to earn Assante Nine to Fifteen times greater earnings as stated in their 1999 Prospectus……self dealing with clients trust?
AND WHEREAS, on April 15, 1999, the Original Jurisdictions granted an exemption to the Filer from section 7.1 under section 9.1 of NI 81-105 (the "Prior Exemption”);
In a Category All It’s Own, Exempt Market “Securities”What are they? Exempt Market Securities are often investment issues which are smaller in size, and may not be able to afford the $1 million dollar cost of drawing up a legal prospectus.
They often involve condominium projects, golf courses, and other developments of all kinds, but of much smaller scale than typical Investment Dealer offerings. As a result, they apply to eliminate the cost of the prospectus, and market them through specific types of dealers who seem to specialize in these products.
Without impugning the products, I find them often sold to investors for whom they are unsuitable, and marketed in a manner designed to lure less sophisticated investors, who are starved for investment yield and investment solutions, and will jump at nearly any shiny brochure with a hotel ballroom sales pitch. There may of course be legitimate exempt market products out there, I just have not been witness to them.
In my community I can point to a church-related organization which raised over $500 million during the boom years, failed to complete a single project out of about two dozen, and instead gave investors 100% losses. I can point to considerable numbers of such schemes in Alberta alone.
Sadly, because they have been approved for sale by Securities Commissions, most marketers and investors can too easily assume a level of scrutiny and legitimacy to this market, and I do not find this a safe assumption to make overall.
They have been aggressively marketed to less sophisticated investors,
At a conference in Toronto hosted by the Association of Canadian Compliance Professionals, David Di Paolo, partner at Borden Ladner Gervais LLP, said regulators are monitoring exempt market transactions much more closely as the scope of the market grows. He estimates that in 2010, $83.9 billion was raised in the exempt market.
Exempt market securities in Alberta lose $2 billion. Most lose 100%, TOTAL loss.
Between 20,000 and 30,000 Albertans have suffered TOTAL loss of their investments, and in some cases their life savings as a result of products sold under the approval of the Alberta Securities Commission, but with “exemption” from the prospectus requirements of our Securities Act? (exempt market products) This (exempt market products) is another entire realm of abusing securities laws to abuse Albertan’s.
http://www.albertainvestorsprotection.comOther Canadian Provinces all have their own Exempt Market stories to tell.
Investors lost $8.8 million after being referred to firm that subsequently want bankrupt
http://www.investmentexecutive.com/-/fund-rep-banned-fined-over-exempt-market-losses?utm_source=newsletter&utm_medium=nl&utm_content=investmentexecutive&utm_campaign=INT-EN-All-afternoonConcrete Equities
Platinum Equities
etc., etc etc
Click on image to enlarge and zoom in.
FINALLY, WE ARRIVE AT THE HEART OF THE MATTERSo….which does more harm to Canadians and to society, investment products “sold” to investors by commission salespeople posing (falsely) as “advisors”….or any number of typical criminal offences against society?
It is fairly easy to search for the costs of criminal offences in Canada, but this report on investment industry practices, may be a beginning towards tabulating the cost of the hidden systemic financial harms to society.
COST OF ALL “MEASURED” CRIMES IN CANADAJustice Canada’s previous study was in 2008, and it put the social and economic costs of Criminal offences in Canada at $31.4 Billion per year.
http://www.justice.gc.ca/eng/rp-pr/csj- ... rr10_5.pdfAnother source of information is from this Fraser Institute report, 2014
The Cost of Crime in Canada: 2014 ReportWhile in 1998 Canada spent over $42.4 billion on crime—$15.5 billion on what we think of as the direct cost of crime and the remainder on the less easily measured consequences for the victims—today’s estimates reveal that Canadians spend over $85 billion being victimized by, catching, and punishing crime. Victims’ losses through criminal acts committed against them amount to over $47 billion, more than half of the total. The current cost of crime is over 5% of our national product and this is an underestimate.
https://www.fraserinstitute.org/researc ... 014-reportAnd according to Stats Canada, the number of property crime violations in 2015 was 1,154,315 offences.
By way of comparison, our industry-insider estimates in this report come up with costs of systemic and/or intentional harm done to Canadians by a self-regulating investment industry (not counting banking industry offences) is seen to be in the neighbourhood of $65 Billion per year, on average, plus a steady stream of one-off, imaginative “flavour of the month” investments which appear more designed to prey upon Canadians…than to be of service to them. One offs listed herein amount to over $76 Billion.
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Notes for an address by The Honourable
Peter MacKay, PC, MP Minister of Justice and Attorney General of CanadaEconomic Club of Canada
Westin Hotel
Ottawa, Ontario
February 6, 2015
Although it's extremely difficult to accurately put a price on crime, a recent report from the Fraser Institute, titled The Cost of Crime in Canada, has made a valiant attempt. Not surprisingly, it concluded that crime is an incredibly expensive drain on society.
The report estimates that crime cost Canadians more than $85 billion in fiscal year 2009-2010. That's roughly five percent of GDP. Some recent estimates go as high as $100 billion per year. That's all-in justice costs and impact on lost productivity.
http://news.gc.ca/web/article-en.do?nid=965699========================
It is hoped that these numbers can be used as a base for more thorough academic study into the social and economic cost of systemic, self regulated investment industry harms to Canadian society. Readers who wish to send me corrections or additions to this topic will find them welcomed and added where they may fit. In this way a report such as this may grow and change over time, becoming more accurate, and more useful to society.
The number of systemic financial offences in Canada is not calculated, but is assumed to be in the thousands, made up of hundreds of different investment product types. These investments are then spread among millions of investment consumers. Each product type has a regulatory or self regulatory body monitoring it (mutual funds, insurance products, stocks and bond sales etc)
The total harm is estimated at $139 billion from the varieties of systemically harmful products followed herein.
2 mil street crimes in Canada 2015 did harm of $40 billion in round numbers, while a number of a few thousand “Suite Crimes” can do harm to Canada of $139 billion.
In the case of Hollinger, where Conrad Black was convicted of doing some $500 million in economic harm, and was one of two persons convicted, his position allowed him to do a similar amount of crime than could be done by 50,000 street level offences. One man able to do the crime of 50,000 people, and yet in Canada, we can count the prosecutions of this type of thing on one hand……and someprosecutions (Livent, Garth Drabinsky, $ 500 million, take time measured not in months, but in decades, here in Canada.
Sadly, his (Conrad Black’s) conviction did not even take place in Canada, but it was the U.S. system of justice which convicted him. Canada simply appears to be most interested in NOT prosecuting it’s highest status financial mobsters. It seems to be the Canadian way.
One could go a step further and imagine that a single systemic financial infraction can do as much economic and or social harm to Canada as the total harm done by one million ordinary crimes. $35 was billion taken from Canadians, in just one type of crime, with sub-prime mortgage investments 2008.
Now let us look at how much money is spent on catching ordinary criminals verses the systemic financial folks.
ordinary crime systemic financial crime/mega criminals
police $14 Billion 30 million RCMP IMET
courts $1 Billion unknown est. single digit millions?
jails and corrections $5 Billion unknown est. single digit millions?
Court and jail costs for mega criminals needs more work, as the small number of court cases and jail time in Canada reflects a reluctance to even bother pursuing mega criminals in Canada. Conrad Black had to be pursued in a Chicago courtroom for example. No prosecutors could bother in Canada. I am willing to update this report at anytime that better information becomes available.
When we look at the dollars spent on the systemic investment crimes, verses those spent on “ordinary” criminal offences, it seems apparent that 466 times as many resources are spent on catching crime in the streets, while only 2/1000ths of the funds are dedicated to crime in the suites….
”Two, one-thousands, as much spent to pursue organized financial mega crimes, as opposed to spending on “ordinary” crime in Canada.”
And that may explain why fines of less than one-half of a penny, for every dollar taken in Canada’s largest financial ripoff were levied…..
the regulators were in on granting the permission slips (exemptions to our laws) to allow the ripoffs….
It is almost like Canada’s systems are designed and incentivized more to NOT catch our most harmful criminals.
And yet a gang of well dressed criminals in a boardroom, can do the same social and economic harm as the harm done by one thousand or more criminals in the streets.
What if our “trusted” bankers, investment dealers, and offshore tax specialists, are doing ten, one hundred or one thousand times, greater harm than do the Hells Angels or Mafia?
An economic study by P Puri, University of Toronto, 19)?? stated that Canada suffers from having the strongest financial institutions in the world, alongside the weakest regulators in the world…perhaps there is a design for this imbalance?
Perhaps it is the Canadian disadvantage…the largest drain on our entire economic health, and the greatest financial harvest in the country.
It also must be noted, for students wishing to study systemic financial crime, that OBSI, the official banking ombudsman office has as recently as a few years ago been FORBIDDEN to investigate or pursue systemic financial issues. Forbidden to look. What could go wrong with an industry so powerful that it gives orders to the regulators as to what they can and cannot look into.
Protocol for Handling Systemic Issues Ombudsman for Banking Services and Investment (OBSI) and OBSI Joint Regulators Committee (JRC)
https://www.obsi.ca/en/download/fm/528This protocol gives full discretion BACK to the regulators (who are paid by industry) on whether or not to pursue issues of a systemic nature against their members….)
This image shows systemic powers of OBSI being removed, (examples of anything “Systemic” being crossed off of OBSI’s mandate) in 2013
https://www.obsi.ca/download/fm/149 page 3
Furthermore, when some banks (RBC TD etc) were unhappy with the penalties or decisions of this particular regulator, they either refused to pay the penalty, or simply walked-away from this ombudsman, and hired their very own legal entities to “arbitrate” complaints against them. This is another sign of hidden systemic cracks, that, like and underground oil well frack, can cause earthquakes of unimaginable magnitude, harming the financial foundations of every citizen in Canada.
from page 8
https://www.obsi.ca/download/fm/149(OBSI was effectively “neutered” by the industry they were responsible to police, telling all who care to listen, “who is in charge, the watchers, or the mega financial criminals”? It is the criminals.)
Regulators, police and prosecutors in Canada seem “throttled back” or restrained from investigating anything large, systemic or meaningful….and instead focus on the minor or crimes and minutia only.
This provides a “facade” of what appears to be protective financial industry regulation, while actually allowing the largest and most harmful effects of financial crime, to drain the economy of Canada, and diminish the economic security of every Canadian.
Thus, the unique violence of unregulated financial crime. Hidden. Unprotected. Unprosecuted. A tremendously rewarding, low risk career for any financial “professional”. This is due to our most “trusted” institutions being well above the reach of our mechanisms of justice.
SOLUTIONSProvinces who wish to protect the public from unfair dealing, should establish Investor Protection Agencies, with government staffing, government funding, and police-like powers, including a mandate to involve the criminal code, which is now often ignored in favour of “self” regulation. These agencies could direct their energies to sole protection of consumers, rather than the “dual-master/dual-mandate” style of regulation that is failing us.
An Investor Protection body should not contain committees or boards who are filled with industry spokespersons, but should be over-weighted towards persons who can demonstrate and uphold a strong public interest protective mandate. Any board protecting the financial health of a nation, or its citizens must be designed to be robust enough to resist the pull of billion dollar corporations.
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Final thoughts:
From the book "DARK AGE AHEAD", by Jane Jacobs"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, 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."
==================links, sources, stats below============2015 Number of Crime Violations 2,111,021http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/legal50a-eng.htmThe Cost of Crime in Canada: 2014 ReportWhile in 1998 Canada spent over $42.4 billion on crime—$15.5 billion on what we think of as the direct cost of crime and the remainder on the less easily measured consequences for the victims—today’s estimates reveal that Canadians spend over $85 billion being victimized by, catching, and punishing crime. Victims’ losses through criminal acts committed against them amount to over $47 billion, more than half of the total. The current cost of crime is over 5% of our national product and this is an underestimate.
https://www.fraserinstitute.org/research/cost-crime-canada-2014-reportIn 2008, the total (tangible) social and economic costs of Criminal Code offences in Canada were approximately $31.4 billion. 1.
Costs of Crime in Canada, 2008http://www.justice.gc.ca/eng/rp-pr/csj-sjc/crime/rr10_5/rr10_5.pdfJustice spending
Total police expenditures 2008 $11,448,937,000
http://www.justice.gc.ca/eng/rp-pr/csj- ... rr10_5.pdf ====
The costs pertaining to the Canadian criminal justice system in 2008 amounted to about $15.0 billion for policing, court, prosecution, legal aid, correctional services and mental health review boards.2
http://www.justice.gc.ca/eng/rp-pr/csj-sjc/crime/rr10_5/rr10_5.pdfTotal Criminal Court Costs $672,392,760
http://www.justice.gc.ca/eng/rp-pr/csj-sjc/crime/rr10_5/rr10_5.pdfTotal Court Costs to Prosecute systemic Crimes over $100 million by White Collar Criminals======ZERO??? (there are no stats, and no cases known to myself of prosecuting financial crimes above about nine figures ($100 million) in Canada It is an area that appears to be above our laws and justice system capabilities
Total Correction Costs $4,836,224,546
Total Correction Costs for white collar criminals?
How many bankers and investment bankers do you know of who go to jail?
http://www.justice.gc.ca/eng/rp-pr/csj- ... rr10_5.pdfTotal Value of Pain and Suffering $65,100,168,642 2008
Total Value of Pain and Suffering White collar systemic Crime =Not measured?
http://www.justice.gc.ca/eng/rp-pr/csj-sjc/crime/rr10_5/rr10_5.pdfYear-end operating expenditures for police services in Canada in 2014/2015 totalled $13.9 billion in current dollars.
http://www.statcan.gc.ca/pub/85-002-x/2016001/article/14323-eng.htm(Nearly 500 times more spent on ordinary crime than on our larger problem, systemic financial crime?)
Annual Spending on Catching the Perps
Integrated Market Enforcement Teams
The Integrated Market Enforcement Teams (IMETs) are special RCMP-led units that detect, investigate and deter capital markets fraud. They promote compliance with the law in the corporate community and assure investors that Canada's markets are safe and secure. The IMET Initiative is a partnership with Justice Canada's Federal Prosecution Service, provincial and municipal forces and securities commissions and market regulators.
https://www.publicsafety.gc.ca/cnt/cntr ... t-eng.aspxWhite-collar crime task force 'doomed to failure' unless separated into ...
news.nationalpost.com/.../white-collar-crime-task-force-doomed-to-failur...
Nov 29, 2015 - During the first five years of IMET's existence, it received $30 million annually, the largest chunk going to the RCMP. Beginning in 2008, funding …
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(teaming with sec commissions, who are paid 100% by industry players, taints the criminal investigative process when the regulators involved themselves (granting exemptions to our laws) in actions that precipitated or helped in the removal of $35 billion from Canada.
http://news.nationalpost.com/news/canad ... ed-mountie RCMP IMET in range of $30 million
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A guarantee that systemic investment crimes will not be investigated……
RCMP securities unit moving into OSC offices - The Globe and Mailhttp://www.theglobeandmail.com › Report on Business › Industry News › Law
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Mar 2, 2015 - The RCMP's low-profile securities investigation unit is moving into the ... The RCMP said the Toronto IMET team laid no charges in 2012, but …
http://www.theglobeandmail.com/report-on-business/industry-news/the-law-page/rcmp-securities-unit-moving-into-osc-offices/article23247433/========
David Baines: Is the RCMP Integrated Market Enforcement team a ...http://www.vancouversun.com/news/David+ ... story.htmlFeb 5, 2013 - Is the federal government finally pulling the plug on the RCMP Integrated Market Enforcement Team? There.
[url]http://www.vancouversun.com/news/David+Baines+RCMP+Integrated+Market+Enforcement+team+dead+duck/7922979/story.html
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Nortel case caused RCMP to question their ability to solve crimes ...o.canada.com/.../rcmp-raised-concerns-about-ability-to-crack-down-on-whi...
May 1, 2013 - Formed in 2003, the RCMP's IMET program comprised teams of “highly specialized” investigators in Vancouver, Calgary, Toronto and Montreal …
“This decision may raise questions as to whether the Canadian justice system as a whole is equipped to deal with complex fraud cases of this nature and magnitude.”
http://o.canada.com/news/national/rcmp-raised-concerns-about-ability-to-crack-down-on-white-colllar-crime-after-nortel-aquittals-letter-shows=====
Spending on white collar crime enforcement, financial crimes, stock or bond market fraudsters, ponzi schemes etc, is literally in the “thousandth's, fractionally compared to what is spent on all other crimes combined, despite financial crimes being equal to or greater than all other crimes combined. (According to experts financial crime is greater than all other crimes combined, in fact FBI studies in the United States puts it vastly larger than ordinary crimes.)
http://www.alternet.org/story/54093/twenty_things_you_should_know_about_corporate_crimeTwenty Things You Should Know About Corporate Crime
end: headline start: teaser
Did you know that corporate crime inflicts far more damage on society than all street crime combined? This and 19 more amazing facts
(article about some of the tricks of the trade in American crime, and here in Canada, we are 40 years away from even talking about it)
We conclude that investment harms to Canadians, by investment industry professionals, equals or exceeds the financial cost of each and every crime in the land.
From the 1940 book “Where are the Customers Yachts?”
https://www.amazon.com/exec/obidos/ASIN ... pictu09-20============
addendum Jan, 2017
We appreciate that the industry has a substantial financial interest in keeping trailer fees in Canada, with over $5 billion per year charged to Canadian investors. My co-authors and I have no financial stake one way or the other. We simply report what the data indicate. Blame the data. Please don’t shoot the messenger."
Douglas Cumming, J.D., Ph.D., CFA, is Professor and Ontario Research Chair, York University Schulich School of Business
http://www.moneysense.ca/save/investing/blowing-smoke-on-trailer-fees/