Financial crime more than every other crime combined?

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Want to be a corporate criminal? Move to Canada


The Globe and Mail

The real message sent to white-collar crooks like
Garth Drabinsky is that, even if you get convicted,
things won't be so bad

Margaret Wente
Wednesday, Aug. 05, 2009 09:11PM EDT
Madam Justice Mary Lou Benotto wants to send a message to white-collar crooks like Garth Drabinsky: Our justice system will deal with you severely. As she sentenced the former impresario to seven years in prison Wednesday, she argued that a crime like his is serious, because it “fosters cynicism [and] erodes public confidence in the financial markets.” Sternly, she noted, “Those in business must know that this must be the response.”

In fact, those in business must know Canada is a fine place to fleece the innocent and cook the books. Not for us the crusading prosecutors, the quick indictments, the speedy trials, and the lifetime jail sentences so popular in the United States.

Here, you can be pretty sure the law will take years to catch up to you (if it ever does). In the event you are found guilty, the penalty won't be so bad.

Thanks to our generous parole provisions, Mr. Drabinsky could get out of jail after 14 months or so. Not that he's going to the slammer any time soon. Not until his lawyer exhausts the appeals. “In the U.S., he probably would have been tried eight or nine years ago,” says forensic accountant Al Rosen, who thinks Canada's systematic failure to prosecute corporate fraud is a bad joke. “And he probably would've got 20 to 40 years.”

Today, after a decade of hefty legal bills, Mr. Drabinsky is so broke he has been reduced to begging money off distant acquaintances in exchange for discounts at his Yorkville art gallery. On the other hand, 10 years of freedom (and counting) may well be worth it. Journalists who began covering the Livent debacle early in their careers have grey hair now. Perhaps that explains the sense of anticlimax in the courtroom yesterday.

Compared to the obscure manipulations of Conrad Black (part of whose conviction may well be overturned by the U.S. Supreme Court), the fraud scheme carried out by Mr. Drabinsky and his partner, Myron Gottlieb, was plain vanilla. It involved an old-fashioned kickback scheme and a years-long effort to dupe the shareholders by making Livent's financial picture look far brighter than it was. The most surreal moment of the trial came when lawyer Eddie Greenspan (who also acted for Lord Black) proposed that instead of doing jail time, his client could embark on an inspirational speaking tour with the goal of urging young people to pursue their dreams in the performing arts. Had he made a similar proposal for Lord Black, he'd have been laughed right out of Chicago.

“ In the U.S., he probably would have been tried eight or nine years ago”

Lord Black, unlike Mr. Drabinsky, will have to serve almost all of his 61/2-year sentence. Mr. Drabinsky could well get out of jail first. Surely, Lord Black (who stood by his old friend when times got tough) must be tempted to contemplate the unfairness of it all. After all, if Canada and not the United States had gone after him, chances are he'd still be a free man.

These days, as newly exposed Ponzi schemes spring up like ragweed, Prime Minister Stephen Harper is vowing a crackdown on white-collar crime. “These crimes have real victims,” he declared last week, “and we should have a justice system that responds accordingly.” But don't expect anything to happen soon. Unfortunately, the body entrusted with laying charges in cases such as Livent is still the RCMP, far better known for tasering the innocent than nailing the fraudsters.

“I've turned over files to the RCMP and nothing happens,” laments Al Rosen, the forensic accountant. “We just don't have people who are trained in what to look for. We have bad securities acts. We have bad sentencing guidelines. We've had some bad court decisions. We're 80 years behind the U.S. If you're a crook, this is the best place to be.”

Back in court, the judge had more tough words. “Members of the business community must be put on notice that honesty is the currency in which they trade,” she said. “If they stray, the punishment will be certain and severe.” Stirring words indeed. If only the system worked that way.

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Canadian White Collar Crime Penalties

Livent’s Garth Dabrinsky got 7 years prison sentence and Myron Gottlieb got 6 years prison sentence for accounting fraud during 1993 to 1997. Prosecuted in September 2009.
Vincent Lacroix pleaded guilty of bilking 9,200 investors of $115 million over a five-year period in the now-defunct Norbourg Asset Management. Vincent Lacroix on October 9, 2009 received the country’s longest sentence ever for a white-collar crime - a prison sentence of 13 years. But the 42-year-old failed financier could be a free man by December 2011 under the federal Accelerated Parole Review, which makes prisoners eligible for day parole after serving one-sixth of their sentence if their crimes weren’t violent.
On December 19, 2008, Brian McCarthy, C.E.O. of Betacom Corporation Inc., was sentenced to a conditional sentence of two years, less a day. In 2002 and 2003 the Mississauga-based company, which developed products to help the visually-impaired, overstated its revenue in successive quarters by between $700,000 to $2.3 million. Authorities found that the company booked false sales of $1.1 million and did not disclose a $300,000 loan. Douglas McIntyre, a chartered accountant pled guilty to three counts of fraud over $5,000 on May 30, 2007. McIntyre was sentenced to a conditional sentence of 18 months. Philip Spensieri, a chartered accountant pled guilty to one count of fraud over $5,000 on August 20, 2007. Spensieri was sentenced to a conditional sentence of 2 years less a day, and ordered to perform 240 hours of community service, followed by one year probation.

In May 2007, charges of theft and money laundering were laid against Steve McRae, a 39-year-old former HSBC Canada employee who allegedly stole $370,000 worth of stock certificates from unclaimed client accounts at its Toronto brokerage. Stole securities between July 1998 and March 2000. Arrested in January 2006.

Crown attorney Donna Gillespie told the court that the veteran financial planner Crackower — a past president of the Jewish charity, Toronto Freedom Lodge, and a bagpipe player at B'nai Brith conventions — artfully manipulated and plotted "the financial, emotional and physical destruction" of his clients, including many elderly women, from 1989 to 2003. He worked for Worldsource Financial Management Inc. Madam Justice Petra Newton sentenced the 63-year-old swindler of seniors to a 5 year term behind bars and ordered him to pay $3.4 million in restitution to 43 former clients and their families. Decision made in July 2006.

Michael Mitton was charged on September 26, 2006 under the Criminal Code with offences of fraud, conspiracy to commit fraud, laundering the proceeds of crime, possession of proceeds of crime, and extortion for acts related to Pender International Inc. On March 22, 2007, Michael Mitton was convicted of numerous charges under the Criminal Code and sentenced to a term of imprisonment of 7 years.

Kevin Steele, a Vancouver broker has been sentenced by a provincial court judge to 6 years in prison for defrauding 229 investors of $10.3 million. - most of them from these B.C. communities but also from the U.S. and other regions of the world. In May 2006, Vancouver resident Kevin Steele was charged in a commodities trading scam. This case did not represent any sort of investigative or prosecutorial challenge. It was originally investigated by the U.S. Commodity Futures Trading Commission, and Steele made it clear from the outset that he would cooperate with the RCMP investigation. He pleaded guilty.


Alan and Elliot Benlolo swindled 77 investors out of almost $3 million in an elaborate stock swindle that stole millions of dollars from victims in Canada, the United States, Australia and more than a dozen other countries around the world. The Ontario Superior Court judge sentenced each brother to 42 months in prison for the stock-swap fraud and to three years for their latest phony telephone invoice venture. They will serve the two sentences concurrently and be eligible for parole after 14 months. Alan Benlolo, Simon Benlolo, and Elliot Benlolo were charged for violating the false or misleading representations provisions of the Competition Act (Section 52) for operating a Yellow Pages type scam in 2000. After being found guilty by a jury on April 23, 2004, Madam Justice Molloy of the Ontario Superior Court sentenced Alan and Elliot Benlolo on October 1, 2004, to 3 years in federal penitentiary and a $400,000 fine each for their involvement in the scam. Simon Benlolo received a nine-month conditional jail sentence (including three months house arrest) and a $100,000 fine. Another individual who was involved in the scam, Victor Serfaty received a 18-month conditional jail sentence (including six months house arrest), 100 hours of community service and a $15,000 fine, though he did not appeal his sentence or fine.



Prior to March 1999, persons invested in Nelbar Financial Corporation "corporate
investment certificates" or in private companies through Nelbar or Essex Capital
Management Ltd. The executives charged were Nelson Allen and Robin Moriarty involving $11 million from 136 investors. On or about March 1, 2000, Allen and Moriarty were each charged with 30 counts of fraud over $5,000, defrauding the public, and falsifying books and records contrary to the Criminal Code of Canada. On February 21, 2003, Allen pleaded guilty to three counts of defrauding members of the public of more than $5,000. The plea was the result of a plea bargain in which the Crown agreed to consolidate the charges against Allen and withdraw the charges against Moriarty. On March 31, 2003, Mr. Allen was sentenced to a 4 years penitentiary term for fraud by the Ontario Superior Court.

R. v. Grundy, [2001] A.J. No. 1670 (Alta. CA.), 2002 ABCA 4
The offender, a broker, conducted unauthorized discretionary trading that resulted in shortfalls of $217,000. Over about a 1 year period he misappropriated cash and securities to cover the losses. He also forged client signatures and letters of instruction to perpetrate the fraud and generated forged computer printouts to conceal his misappropriations. His brokerage suffered a total loss of about $217,000. The first-time offender was 37. He had a grade 12 education, but had taken night courses to qualify as a registered representative in the securities industry. The trial judge found that at the time of the offences he was under considerable financial strain and marital strife. He was separated by the time of sentencing and providing child support for his two children. After he was dismissed by the brokerage, he found employment as a senior sales director with another company. The trial judge agreed that general deterrence and denunciation were the paramount principles of sentencing. The court held that these principles were satisfied by a conditional sentence of 2 years less a day which required the offender to observe a curfew from 8 p.m. to 7 a.m., take counselling, and perform 240 hours of community service in addition to making restitution of $218,000. The Court of Appeal held that the trial judge had under-emphasized the gravity of the offence and the offender's moral blameworthiness. The Court also noted that the sentence failed to meet the requirement for general deterrence because it lacked any deterrent or punitive qualities. The Court indicated that it would have imposed a
significant period of incarceration, but imposed a conditional sentence of 2 years less a day in view of the sentence already served. The Court also imposed a term of 24 hours a day house arrest except for medical emergencies, treatment or to perform the community service.

R. v. Wheeler, [2001] N.J. No. 240 (S.C-T.D.) 4~ years - defrauded hundreds of people of $3 million through phony investments. The first-time offender pled guilty to defrauding hundreds of people of approximately $3 million. The offender had run a phony investment scheme promising fabulous rates of return. The offender confessed to the crime. The offender was middle-aged and had three children. The offender had operated a gas station his whole life. The offender had lost his gas station and been petitioned into bankruptcy. The court had earlier decided not to order restitution for several reasons including the fact the amounts could not be clearly determined for all of the victims. The court decided that general deterrence required a sentence of 4 years imprisonment. The court indicated that it was imposing an additional 6 months because a restitution order was not feasible.

Ontario v. Bjellebo, [2000] O.J. No. 478 (Gen. Div.); [2003] 0.1. No. 3946 (CA.); application for leave to appeal dismissed, [2003] S.C.CA. No. 541
10 years - defrauded government of $118 million and investors of $22 million
Elinar Bellfield set up a yacht chartering business called Overseas Credit and Guaranty
Corporation (OCGC) in 1984 to sell units in limited partnerships to investors. He was later assisted in the operation of the company by Mr. Minchella. The incentive to Investors was the promise of substantial early tax losses that would create a positive cash flow. The Crown proved that numerous misrepresentations constituted a fraud on the public who were at risk of losing tax revenues from the individual investors. The Crown further proved that the misrepresentations also constituted a fraud on the investors whose tax loss claims were ultimately disallowed by Revenue Canada. Investors claimed $118 billion in losses to Revenue Canada and paid $22 million in interest payments to OCGC between 1984 and 1989. Finally, the Crown proved that the offenders uttered forged documents to further their misrepresentations to both the government and the investors.

The first-time offenders were convicted of two counts of fraud and two counts of uttering forged documents after a nine- month jury trial. Bellfield, the mastermind behind the
scheme was sentenced by the trial judge to 10 years imprisonment and a fine of
$1,000,000. Minchella was sentenced to 7 years imprisonment. In dismissing the offenders' appeals as to sentence, the Court of Appeal held at paragraph 13 that:
While at the high end, the sentences imposed by the trial judge fell within the acceptable range. This was a highly sophisticated and massive fraud involving $118,000,000 against the public purse and $22,000,000 against more than 600 individuals. It was perpetrated over a lengthy period of time, and involved thousands of documents, off-shore companies and accounts.

Golden Rule C.E.O. Glen Harvey on September 18, 2000 Harper was sentenced by Mr. Justice Sheppard to a period of one year imprisonment for each offence to be served concurrently and to a total fine of $3,951,672. On January 7, 2002 Harper's appeal from conviction was dismissed by Mr. Justice Frank Roberts of the Superior Court of Justice (Toronto Region). Harper's appeal from sentence was allowed: the term of imprisonment was reduced to six months on each count concurrent; the fine was reduced to $2 million. A cross-appeal as to sentence brought by the Commission was dismissed.


R v. Lawrence [1996] B.C.J. No. 3027 (C..0 IN the companion cse to Wilder, three offenders were found guilty by a jury of defrauding the government of $171/2 million. The fraud arose out of phony scientific research projects and was financed by the sale of tax credits under the short lived Scientific Research Tax Credit (SRTC) plan. The fraud was elaborate and involved the creation of a research infrastructure, attraction of investment money from thirty parties, creation of escrow accounts, and the use of inflated and bogus invoices, promissory notes and false statements to secure release of the funds held in escrow.

The investors received certificates that research was in fact being done. Mr. Lawrence was a lawyer who issued phony letters of comfort to the investors knowing the certificates were false. All offenders had exemplary, unblemished backgrounds. The trial judge held that the need for denunciation and general deterrence required substantial sentences. Mr. Lawrence and one other offender were sentenced to 7 years imprisonment and ordered to pay $1 million restitution. The other offender was sentenced to 6 years and also ordered to pay $1 million restitution. The Court of Appeal upheld the sentence noting at paragraph 22 that:

The fraud saw profits of 17 million dollars. It consisted of an elaborate plan which was put into effect over many months. It involved many players, an elaborate paper trail, and significant cunning and deceit.

Michael Holoday in 1994 received a jail sentence of 7 years for defrauding his clients of $20 million while at Midland Walwyn and First Marathon during the late 1980’s and early 1990’s.


Cases Where Charges Laid:

Nortel top three executives have been charged for alleged accounting fraud during 2002 and 2003.

Royal Group Technologies’ five executives are facing criminal charges relating to $27 million of improper land sales and $2 million improper sale of company warrants with proceeds paid to themselves. These crimes are alleged to have occurred between 1998 and 2003.

Philips Services’ executive Waxman faces criminal charges for misappropriation of estimated $20 million of copper inventories that were laid in December 2004. According to an RCMP press release, Waxman is alleged to have facilitated eight questionable transactions between January 1996 and December 1997. The spokesman claimed the money was transferred from Philip control and redirected to "shell companies" and dummy corporations under Waxman's control. During the time of the transactions, Waxman was president of Philip's Metals Recovery Group and corporate director for Philip Services.

Ian Thow of Berkshire Securities for alleged theft $10 to $37 million occurring before 1998 when he resigned from Berkshire. Berkshire fined $500,000 by MFDA.

Portus was a two-year nightmare for advisors and 26,000 investors. When it was ordered to stop selling what were marketed as principal-protected notes whose upside would depend on a portfolio of hedge funds, Portus had collected $790 million in client money. That was in February 2005. Only slowly did it come to light that clients hadn't bought individual principal-protected notes but that, instead, investor money was commingled to purchase notes collectively, with maturity dates extended to 2011.More than that, Portus deducted $109 million off the top to pay its own expenses, leaving only $529 million invested. Things got murkier when co-founder Boaz Manor left Canada for Israel Portus receiver KPMG found that $50 million in U.S. client money had never been invested. The receiver recovered some of it, but $17 million is still unaccounted for. Now, Portus principal Michael Mendelson has pleaded guilty to fraud, in part for using investor money to finance Portus's operations.

Bronson and Sorenson ponzi fraud charges in 2009 for alleged crimes committed between1999 to 2007.

Lost Prosecutions

Bre-X ‘s Felderhoff acquittal in August 2007 for fraud alleged to have been committed in 1997.

The International Monetary Fund Report, "Canada Financial Sector Assessment", dated Feb. 13, 2008 cited our securities enforcement as in real need of improvement. In that regard, former RBC DS investment banker Andrew Rankin negotiated a surprise reduced settlement agreement with the Ontario Securities Commission to resolve his outstanding legal matters on tipping. The OSC had lost on appeal and decided to cut their losses. There are those who do not cite Alan Rankin’s settlement leniency as a regulatory problem. Some critics argue that the OSC botched this case and it was patently unfair that Alan Rankin should go to jail, while his buddy Daniel Duic did not and Duic gets to keep most of his ill-gotten gains. In their opinion, Alan Rankin should have been the co-operating witness against Duic.

Atlas Cold Storage executives withdrawn fraud charges by OSC in , after stating that a "key witness" in the case had come forward with new information that reduced the chance the regulator could get a conviction. Atlas executives had been accused of overstating earnings and booking expenditures as capital assets.

No Cases

Norshield

Non Bank ABCP

Income Trusts - Spinrite, Granby Industries, FMF Capital, etc.

Professional hedge fund trading of mutual funds to take advantage of international price differences in different time zones

Unnecessary foreign exchange transactions in RRSP and RRIF

YBM Magnex

Prepared By:

Diane A. Urquhart
Independent Financial Analyst

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(1) Nortel execs approve more raises
Thursday, November 26, 2009

CBC National News

http://ismymoneysafe.org/video/CBCNatio ... 262009.wmv

CBC Power and Politics
http://ismymoneysafe.org/video/CBCPower ... 262009.wmv

Nortel Retention Review September 22, 2009 Document from CBC Website

http://ismymoneysafe.org/pdf/Nortel-ret ... 222009.pdf

CBC News Story and Comments
http://www.cbc.ca/money/story/2009/11/2 ... ument.html

(2) Court of Appeal of Ontario Decision Denies Minimum Severance Otherwise Payable under Provincial Employment Standard Acts
November 26, 2009

http://ismymoneysafe.org/pdf/ECOPY9MAIL ... 104054.PDF

The reasons for the severance appeal denial are the same reasons why the Federal Government must act to amend the Bankruptcy and Insolvency Act to give preferred status to pension and long term disability plan deficits and unpaid severance. It is clear from this November 26, 2009 decision that the Ontario courts have determined that the Federal Government has the intent for its Federal bankruptcy laws to cause a reduction in pension and long term disability income and to give the right to not pay severance to corporations that file for bankruptcy protection or bankruptcy. These Federal Government intended reductions in pension, long term disability and severance income are said to specifically apply in CCAA restructurings to enable corporations to be ongoing concerns. However, Nortel is liquidating and so the theory of compromise to enable ongoing concern makes no sense, especially where the purpose of strategic bankruptcies is to hoist costs onto the Canadian taxpayers by causing the greater use of social security programs and reduced income taxes from former employees and pensioners whose employment benefits are being severely cut.

(3) Induced Bankruptcies Cost Canadian Taxpayers Billions of Dollars
Federal Government Not Stopping the Abuses
November 19, 2009

http://ismymoneysafe.org/pdf/InducedBan ... 192009.pdf

(4) The House of Commons Standing Committee of Finance should hold a hearing on the role of credit default swaps in inducing bankruptcies and on how bankruptcies cause greater use of social security programs and lost income tax revenues from long term disabled and severed employees and pensioners, whose employment benefits are being severely cut. Bankruptcy laws and process should not condone effective thefts from bankruptcy estates and secret deals negotiated by the major creditors and the executives for their own benefit that are to the detriment of Canadian long term disabled and severed employees and pensioners.
Sent By:

Diane A. Urquhart
Independent Financial Analyst
Mississauga, Ontario

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Canada, a fraud nation


Shaun Best, Reuters

Earl Jones. Investors say the man swindled them of millions of dollars.

Karen Mazurkewich, Financial Post
Wednesday, November 25, 2009

Karen Marie Fernets is a serial embezzler who bilked thousands of dollars from several employers in Saskatchewan, Alberta and the Yukon. Last month, Fernets was sentenced for theft and fraud charges dating back to 2005. Compared with other recent economic crimes, her tactics were unsophisticated -- she made a series of cheques payable to her own bank account.

This has been the year of white-collar scandals and schemes in Canada, ranging from disgraced Montreal financial advisor Earl Jones, charged with having spent at least $12-million of his clients' money, to Ponzi schemes run by Toronto fund manager Weizhen Tang, who allegedly ran a $60-million fraud, and the duo from Alberta -- Milowe Allen Brost and accomplice Gary Allen Sorenson -- who have been charged with embezelling roughly $100-million from unwitting investors.

Now a recent report by PricewaterhouseCoopers suggests Canadian companies make great targets for fraud. In their latest global economic crime survey, Canada was the fourth most fraudulent nation in the world -- behind Russia, South Africa and Kenya.

Global economic crime survey 2009: Economic crime in a downturn
In its survey of more than 3,000 companies in 54 countries, 56% of Canadian companies reported economic crimes over the past year. That's a 10% increase since 2003, the highest level in six years.

So does Canada have more thieves in our midst, or are we just better at ferreting out perpetrators?

The study suggests there is a bit of both. Tipoffs from internal or external sources are higher in Canada than in other countries, as is our ability to detect fraud through electronic means. Automated systems used to detect inconsistencies or suspicious transactions accounted for more than 10% of frauds detected by companies in Canada. Thanks to rats and routers, more crimes are being reported in Canada then elsewhere.

By contrast, the PwC report argues that the overall decrease since 2003 in reported crimes elsewhere in the world does not necessarily speak to their better anti-crime fighting abilities, but rather to an "overall breakdown in antifraud regime controls which would usually assist in the detection of economic crime."

"In Canada and around the world, respondents to the survey have indicated that the extreme conditions of the past year have contributed to an increase in both the motivation and the opportunity to commit fraud," said Pierre Taillefer of PwC in Montreal, one of the authors of the report.

"Certainly, when the liquidity of the market dried up, the Ponzi schemes got found out," said James Grout, partner at the Toronto-based Thornton Grout Finnigan.

The most common type of fraud encountered in Canada is asset misappropriation, although accounting fraud and money laundering are also prevalent. Canada has a better track record when it comes to other types of economic crime. Whereas 27% of global respondents reported they were victims of bribery and corruption, only 7% of Canadian respondents experienced such crimes. While intellectual property infringement made up 15% of global complaints, only 7% of Canadian firms claimed such incidents.

"We're not as bad as many [developing] countries, but if you look around the OECD, the really developed economies with strong democratic governments, I think we are pretty high on the list for having a high incidence of commercial fraud," said Mr. Grout.

He said the reason for that is the lack of deterrents. "We don't put anyone in jail," he said.

---------

56% Canadian companies that reported being victims of economic crime.

10% Increase from 2003 to now in companies reporting faud.

24% Companies that estimated their fraud-related loss at more than US$500,000.

83% Companies that cited asset misappropriation as the most prevalent type of fraud.

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Induced Bankruptcies Cost Canadian Taxpayers Billions of Dollars
Federal Government Not Stopping the Abuses
DATE: November 19, 2009

http://ismymoneysafe.org/pdf/InducedBan ... 192009.pdf

Key Conclusion of This New Research Report

The credit default swap (CDS) invention of 1997 and the trend of private equity funds making leveraged acquisitions of large public corporations over the past decade are causing a proliferation of bankruptcies today in both the U.S. and Canada. The damages to the Canadian taxpayers and the economy from these induced corporate bankruptcies will be in the billions of dollars.

Canadian Federal bankruptcy laws are allowing corporations to walk away from their employee benefit obligations and to download onto Canadian taxpayers the additional costs for public social security programs and lost income taxes from the former employees whose employee benefits are being severely cut.

For example, I estimate that the Nortel liquidation will cost Federal and Provincial Governments at least $355 million in additional social security program expenditures and reduced income tax revenues, even though Nortel will have an estimated $6 billion plus of cash in its global bankruptcy estate. The Canadian economy will experience the multiplier impact of an estimated $1,593 million of after-tax income and health care benefits lost by Nortel's close to 25,000 affected Canadian pensioners, survivor pensioners, active and deferred beneficiaries of pension plans, long term disabled and terminated employees.

The impacts are based on the present value of lost Nortel-provided annual income and health benefits, which have the following impacts on government: lost income taxes from all four Nortel former employee groups; additional Age Allowance and Medical Expense Tax Credits for pensioners, increased use of the Guaranteed Income Supplement and the Medical Expense Tax Credit for survivor pensioners, new use of Provincial means tested drug assistance programs for the long term disabled, and additional Federal Employment Insurance and Medical Expenses Tax Credit for the severed employees.

The recommended Bankruptcy and Insolvency Act (BIA) Amendment is to give preferred status for employee benefit claims over unsecured creditors. This is the best short-term and long-term solution to prevent corporations from walking away from their pension and long term disability plan deficits and unpaid severance, when there is money in the bankruptcy estate. This BIA Amendment ensures that Canadian taxpayers' interests are protected from the increased social security program costs and lost tax base that induced bankruptcies cause.

Key New Information in This Research Report

(1) Added estimates on the impact of Nortel's liquidation on the Survivor Pensioners and the Severed Employees.

(2) Added health benefit losses to the total loss of Nortel employee benefits and determined that the % loss in Nortel employee health and income benefits range from -35% to -55% in the best case of the estimated cash settlement ratio being $0.45 per $1.00 creditor claim; and, from -40% to -85% in the worst and likely case of the estimated cash settlement ratio being $0.15 per $1.00 creditor claim. The worse case assumes that the U.S. and U.K. government and U.S. junk bond creditors have improved their relative position by their hoarding of cash outside of Canada and by collecting their non-arms' length Debtor-in-Possession prior charge and other inter-company loans made to the Canada Estate.

(3) Added analysis on the % impact on the combined Nortel health and income benefits and the government social security programs as noted in Figure 2. The % loss on total income and health benefits from both Nortel and Government is in the range of -20% to -55% in the best case and -20% to 60% in the worst and likely case.

(4) Determined that Nortel's long term disabled employees have the severest damages amongst the four employee groups because: their future disability income has been deeply underfunded in a self-insured plan, Nortel has stopped making new cash contributions into the Health & Welfare Trust (H & WT) to pay for the current LTD income and so the capital in the H & WT is being depleted by current long term disability income being paid during the restructuring period; the long term disabled employees have heavy health care costs estimated at $12,000 annually whose reimbursement will be cut off at the time of Nortel's liquidation; the long term disabled are being threatened to lose their health benefits sooner if they attempted to shut down the H & WT to get their capital out now before it is depleted during the remainder of the restructuring period; the CPP Disability Income is a low $13,272 annually and the long term disabled cannot go back to work.


Figure 2

For additional information, please contact:

Diane A. Urquhart
Independent Financial Analyst
Mississauga, Ontario
Tel: (905) 822-7618
Cell: (416) 505-4832
E-mail: urquhart@rogers.com

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Tuesday, November 10, 2009

Presented by National Post

Insider trading called rampant in Canada
The 14-Year Scam

Pav Jordan and Jennifer Kwan, Reuters

It took 14 years and a U.S. tip-off to bring the perpetrators of Canada's biggest insider-trading scheme to justice, raising questions about Canada's ability to crack down on white collar crime.

The case centres on a scam that netted some $10-million for law school buddies Stan Grmovsek and Gil Cornblum in 46 insider trades in Canada and the United States.

Cornblum, long prone to depression, committed suicide last month. Grmovsek has pleaded guilty to three counts of insider trading and was told by a judge on Friday that he could face 39 months in prison and millions of dollars in fines and restitution.

For many, the case exposes Canada as a playground for insider trading and revives painful memories of the 1997 Bre-X scandal, when the Calgary gold miner went from a penny stock to a $6-billion company on the strength of drill results that were found to be salted with gold.

In 2007, eight years after the Ontario Securities Commission brought charges, the lone key figure charged in that scandal, John Felderhof, was found not guilty of insider trading and misleading investors.

"It's generally accepted that there is insider trading in advance of the majority of takeover bids in this country and that the situation in Canada is worse than a number of other markets," said Ermanno Pascutto, executive director of Fair Canada, a group advocating for investor rights.

The statement of fact for Grmovsek's guilty plea indicates his illicit activities may be just the tip of the iceberg in Canadian insider trading.

The 40-page court document outlining the case against Grmovsek is peppered with references to broader insider activity, some of it so rampant the pair feared being caught in a net meant to snare others.

For example, Grmovsek cites Ciena Corp.'s takeover by Tellabs Inc. in 1998 as a deal that triggered a wave of insider trading -- other than the trading conducted by him and Cornblum. He said the Canadian duo sometimes sold their shares before a deal was announced because unusual trading activity beforehand suggested they were not the only ones acting on inside information and they were nervous about an investigation.

Kevin Harrison, a lawyer who leads the Toronto branch of a police intelligence unit created in 2003, said his unit had helped prevent white-collar crime. But he acknowledged it could be more agile and solve additional cases more quickly, provided it got more power, such as the ability to compel third parties to testify, as available to authorities in other jurisdictions like the United States.

A 2007 report commissioned by the Royal Canadian Mounted Police said Canada's model was less effective than its U.S. and British counterparts, in part because of the lack of compulsion over third parties.

Another stumbling block is the fact that Canadian securities are regulated on a provincial rather than a federal level.

Less strenuous requirements for prompt disclosure of information that could affect a company's stock price in Canada compared with some other countries may also allow insider trading to flourish.

"Insider information is very widespread -- huge opportunities for many people to trade on insider information because of the lax timely disclosure requirements," said Mr. Pascutto, who is also a former executive director of the OSC.

Grmovsek's lawyer, Joseph Groia, also a former securities regulator, challenged views that Canada lags the United States, where 20 people have been charged in the past three weeks in an insider trading scandal involving hedge fund managers and top Silicon Valley executives.

"At times our marketplace is called the Wild West of the G8 capital markets; this case shows this is simply not true," he said. "Canadian regulators get a bum rap and are unfairly compared to their U.S. counterparts."

Still, Grmovsek and Cornblum were only caught after a tip by the U.S. Financial Industry Regulatory Authority, which noticed their unusual trading in relation to two takeovers involving U.S.-listed companies. And the court documents show that when the two were law students there were insider-trading role models.

Grmovsek said he first discovered the opportunity when a fellow intern bought a flashy new car and said he got the money for it from trading stock based on confidential information. He become convinced other students were doing the same and decided that illicit trading on inside tips was a crime that pays, and there would be little chance of getting caught. It made him a lot of money over many years before he finally overstretched.

[admin]

TheUnbiasedPortfolio.blogspot.com/



Mike Macdonald
Saturday, October 10, 2009

HST & Fund Folks

HOW CAN YOU TELL WHEN A MUTUAL FUND SPOKESPERSON IS LYING.....?

It is of course the oldest joke in the book when it comes to politicians (their lips are moving), however you can make a case for the fact that the fund industry is a much bigger source of disinformation than the local politician!

As for how blatant the lie can be....well we only need to look to recent events to see how little the industry respects the intelligence of the average investor. Failure to disclose all relevant information allows the industry to “stand up for the average investor” publicly while continuing to shaft the public by carrying on just like the folks the industry attempts to vilify!

THE LIE:

How about this from a recent Globe & mail article....

” At the heart of the fund industry's lobbying effort is one of the simplest concepts in personal finance: the magic of compound interest. Take the example of a 45-year-old investor who puts $20,000 into a mutual fund in an RRSP. This hypothetical fund comes with very high fees (2.75 per cent) but nevertheless churns out some excellent gains; by the time the investor is 85, he has a nifty nest egg of about $835,500.

Here's the punch line: If not for the provincial government imposing its dastardly HST, that number would be $70,000 higher. “We would hope that the government would not want to take 350 per cent of your initial investment if they truly understood the consequence of this tax,” writes Patrick Farmer, chief executive officer of EdgePoint Wealth Management and the author of this example.”

So why is this less than complete disclosure….well part of dishonesty is telling only a sliver of the truth. You know the old saw about when I point my finger at you, 3 fingers point back at me! Well, the industry complaint is that the government can only get away with this because the fee is hidden from consumers. The point being if consumers saw this egregious fee they would surely storm Parliament and have the Harmonized tax reversed.

In fact, I absolutely agree with the Fund Folks on that point. And truth be known, the Fund Folks (FFs) know this because they have been charging the most ridiculous fund fees on the planet using exactly that same deceptive approach. All fund fees are hidden in the investment returns where an investor cannot see them….EVER! What the uninformed investor does NOT know WILL hurt the investor, but not the FF’s (nor the politicians of course).

So to summarize, when the government hides a fee of say 12% HST on the MER fee charged to a fund it is equivalent to theft from an unsuspecting investor…. but when a fund company hides a fee approximately 8.5 times larger from the same investor it is good business practice.

THE TRUTH:

The truth is that the industry has used considerable pressure on the government to gain an exemption from disclosing its GST charges. Check other receipts and you will see the GST number and amount for virtually every purchase you make! Why not the mutual fund MER’s that you currently pay GST on?

Well the FFs realize that the average investor may well discover that a $100.00 GST receipt means the fund fees were $2,000.00 last year. At this point the investor becomes “informed”, the advisor likely becomes “fired” and the FFs become “unemployed”! In fact, it only takes about $80,000.00 invested in mutual funds to generate those types of fees! A $100,000 fund portfolio at 2.5% MER generates $2,500.00 in MER, which taxed at the current 5% GST would be $125.00….etc, etc.

So back to another old parable….. The guy crapping on you (politician) is not always your worst enemy, and the guy helping to wash the manure off (the Fund Folks) is not always your friend. The only certainty is that it is always the investor who comes out smelling bad!

Raising a stink on HST…….sois mike!

[admin]

* Media News ** Add another name to list of scandals

by PETER HADEKEL, Freelance, October 8, 2009

Norshield, Norbourg, Earl Jones: the list of financial scandals in Quebec is a growing one.

You can add another to that list, following the release this week in Quebec Superior Court of a trustee's report on the activities of Montreal financier John Dracontaidis. It's a sadly familiar tale.
About 90 investors handed over $7 million to an unlicensed investment adviser who promised them fat interest payments of up to 12 per cent. Much of the money was lost in questionable business deals involving friends and family, with little or no record-keeping. About $1.4 million in cash has been seized.
Quebec regulators stepped in during the summer and shut down Dracontaidis, who operated through affiliated companies, including 9095-0049 Quebec Inc., Axia Consultant Inc., ICC Capital Management and IND Capital Management.

Trustee Nicolas Boily of Raymond Chabot Inc. was appointed in August to take over the insolvent companies, account for the missing funds and try to recover what's left for investors. His report is yet another illustration of how easy it can be in Quebec to raise money based on unrealistic promises, then play fast and loose with the rules.

.... more of the article online in The Gazette http://www.montrealgazette.com/news/ano ... story.html

[admin]

Kenmar Associates
Investor Education and Protection
FMF, Nortel, Atlas Freezer, YBM, Hollinger Bre-X, market timing scandal etc. 1

SPECIAL REPORT-INVESTOR PROTECTION IN CANADA-9 months, 2009
While equity markets improved , progress on investor protection stalled. Chairpersons of
provincial securities regulators publicized their wonderful contributions to regulation, but
real actual progress was not achieved . Ottawa took the first steps toward a national
regulator . Billions of dollars were lost to unsuitable investments, excessive fees and
leveraging, misleading marketing, Ponzi schemes and crooked advisers and brokers.
While the rest of the world is tackling fundamental issues ,our regulators toy with minor
adjustments to regulations. Here’s a small sampling of the rat traps retail investors had to
endure in the first 9 months of 2009.
2009 trend not reassuring for investor protection
Early in 2009, Manulife Securities Investment Services Inc. was fined $200,000 and costs
of $50,000 for its lack of disclose related to its relationship with Portus Alternative Asset
Management Inc., the Mutual Fund Dealers Association of Canada has announced. The
fines are related to allegations that Manulife had a referral arrangement with Portus
Alternative Asset Management Inc. between 2003 and 2005, and failed to disclose to its
clients a component of the compensation that it received under this arrangement. Portus
went bankrupt in 2005 as a result of “misappropriation of investors’ funds,” and its co-
founders have been charged with fraud. Investors have suffered tremendous emotional
distress.
The availability of MFDA IPC investor protection fund coverage - up to $1 million for
each of a client’s aggregated general and separate accounts depends on the form in which
the securities are held. IPC coverage provides protection only to assets held in nominee
or dealer name rather than client name- roughly 80% of client mutual funds assets at most
fund dealers are actually held in client name, so they are not insured by IPC. (this
restriction is not publicly disclosed to customers at point of mutual fund sale)
The Canadian Securities Administrators (CSA) announced that they are seeking
comment on proposed amendments to the CSA’s corporate governance and audit
committee regimes using a principles-based approach rather than the current rules-based
regime. We believe this is untimely and adds significant risks for retail investors. It will
be very difficult to ensure similar interpretation of compliance with principles and rules
in a multi-jurisdictional system like Canada. Most responder comments were neutral or
negative.

Canadian investors haven't been unscathed by the US$50-billion collapse of the Bernard
Madoff hedge fund empire, potentially the world's largest ever fraud case. Mackenzie
Financial will be affected. Tremont is one of the managers of the Mackenzie Alternative
Strategies Fund. Monteith Illingworth, a Tremont company spokesperson, confirmed that
"there was exposure in that fund." The fund lost 59 % in 2008.

Kenmar Associates
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Two labour-sponsored funds -- Ven-Growth I and VenGrowth II--moved to a policy of
annual distributions and ceasing weekly redemptions in order to preserve shareholder
value. From now on, investors will receive a return through an annual distribution of the
proceeds from the disposition of portfolio companies, rather than through weekly
redemptions. "This measure will prevent any mid-term liquidity challenges, help achieve
optimal exit values for maturing portfolio companies once market conditions improve
and ensure that proceeds generated from those exits are returned to all shareholders," it
said at the time. At the end of December, VenGrowth I (formed in 1995) had $45-million
in assets while VenGrowth II (formed in 2000) was home to $255-million in assets.
About three-quarters of the investments in both funds were in private companies. The two
funds have 2% management fees.
The OSC alleged Weizhen Tang was the "operating mind" of a scheme that had promised
to pay investors weekly profits of 1% through investments in stocks, options, futures and
mutual funds through stock markets in the United States, China and Hong Kong. Among
the allegations contained in documents filed by the OSC to obtain a freeze on Tang's
Oversea Chinese Fund LP, the commission said that "on the evidence presently available
it would appear that almost all of the funds have been dissipated. Tang told the OSC the
fund had lost $15 million in 2007 but did not disclose this to investors. In an affidavit
filed with the Ontario Superior Court of Justice in Toronto, Jeffrey Thomson, senior OSC
investigator, says Mr. Tang admitted to regulators that he lost US$15-million last year,
which he did not report to investors
A hearing panel of the Mutual Fund Dealers Association terminated the membership of
Farm Mutual Financial Services Inc. and has fined the company more than $2.5 million
for the sale of certain securities to unaccredited and inappropriate investors. Farm Mutual
was a non-attendee. The MFDA found that between June 2003 and April 2007, the firm
approved and allowed the sale of debentures issued by FactorCorp Financial Inc. to
approximately 680 clients without having conducted reasonable due diligence on the
product and without having made reasonable inquiries to determine whether the product
was suitable for sale to its clients. In May 2007, FactorCorp suspended redemptions, and
two months later, the Ontario Securities Commission issued a temporary Cease Trade
Order against the company. At the time, roughly $49 million of Farm Mutual clients’
debentures remained outstanding and unredeemed. In March 2008, FactorCorp went into
bankruptcy. The MFDA also found that Farm Mutual failed to develop guidelines or
investor profiles to identify clients for whom the debentures might have been a suitable
investment. Unfortunately, other than writing up reports nothing meaningful was done
about it so investors now must try to recover via a class action lawsuit.

In a study of funds in 16 countries, conducted by Chicago-based Morningstar Inc.,
Canada received a C for taxation and an A for transparency (in both the prospectus and
reports segment) But the report hammered the Canadian mutual fund industry on fees and
expenses, giving it the only F in this category."Canadian investors do not pay much
attention to fees," reads the Morningstar Global Fund Investor Experience. "Canadian
investors are comfortable with the fees because they don't know how low these fees
should actually be.” Canada's failing grade in fees is the lowest grade received in any of
Kenmar Associates
Investor Education and Protection
FMF, Nortel, Atlas Freezer, YBM, Hollinger Bre-X, market timing scandal etc. 3
the surveyed areas. Canada has notoriously high management expense ratios." The report
lays much of the blame for this at the feet of advisors, saying that funds with higher
trailer commissions are pushed harder."Assets tend to flow into average- or higher-fee
funds because Canadian investors use financial advisors to help them make decisions,"
the report says. "Advisors direct client assets to funds that pay better trailers. And since
the trailer is included in the MER, the result is that assets flow into higher-fee funds.
Controversial new POS disclosure proposals from the CSA have been critiqued as wholly
inadequate by investor advocates.
A hearing panel of the Investment Industry Regulatory Organization of Canada imposed
penalties on Dustin Rene Lamontagne for forging client signatures. The violations
occurred when he was a registered representative with the Edmonton branch of CIBC
Investor Services Inc. At a disciplinary hearing held in Calgary, the panel found that in
August 2006 Lamontagne forged 13 client signatures to his client investment plans and
financial advice disclosure documents. The panel also found that on Oct. 23, 2006,
Lamontagne misled CIBC by providing false information in respect of client signature
irregularities, all involving his client investment plans and financial advice disclosure
documents. Adulteration of documents including KYC’s happens too often without
serious consequences.
Former OBSI Chief David Agnew had this to say upon his departure "I think we said at
the time that it's [ RBC Banking resignation from OBSI] a threat to the integrity of the
system. I mean, everything that we're trying to do is to make sure that consumers have a
single-window access to the complaints system ... and so I don't think that was helpful at
all." Consider these other comments he made:

“While we’ve made progress, complaint-handling in financial services has a long way to
go.” ... “Instead of a proper response to the client, the firm has fired off a template letter
dismissing the complaint, and has done none of the proper groundwork of responding to
a client.” (OBSI Newsletter, April 7, 2009)

“I think we’ve got a lot of work to do on the culture of complaint handling and dispute
resolution in financial services.” (Globe & Mail ,May 14,009)

The controversial Sentry Select Diversified fund restructuring proposal put forth by the
firm was approved by Unitholders . We believe this is due to retail investor financial
literacy shortcomings, complacency or blind trust in the manager and the lack of any
meaningful OSC intervention to protect investors. This case puts the integrity of the
proxy voting system in disrepute and the OSC in an inexplicable situation. Ask for our
SPECIAL REPORT The Curious Case of the Sentry Select Diversified Income Fund
Restructure by contacting kenkiv@sympatico.ca
Earl Jones ,the unlicensed investment manager, now known as the mini-Madoff of
Montreal, was accused of running a Ponzi scheme that may have cost about 150 investors
in Canada and the U.S. up to $50 million. On July 29, 2009 about 100 people attended a
rally in front of the court that released Jones on $30,000 bail. Hoisting placards that read
Kenmar Associates
Investor Education and Protection
FMF, Nortel, Atlas Freezer, YBM, Hollinger Bre-X, market timing scandal etc. 4
“100 victims, 100 years,” they called for U.S.-style jail terms while demanding that
Quebec drop its opposition to the creation of a national securities regulator to replace
Canada’s controversial patchwork system of 13 regional authorities. Protest organizers
couldn’t accept that an unlicensed investment adviser - who allegedly bilked the elderly
and disabled, along with relatives and lifelong friends - managed to openly conduct and
advertise his services in Canada for decades. They can’t believe a man accused of
stealing millions was trusted to remain free while awaiting trial. And they can’t
understand the lack of co-ordination that exists between securities regulators and
Canada’s three levels of police. The allegations against Jones have not been proven in
court. But concerns over how authorities have handled the affair so far speak to a deeper
problem.

JovFunds Management Inc. [ JOV:TSX] suspended redemptions in its Deans Knight
Income and Growth Fund [ DKI.un:TSX] for up to 120 days (the "Suspension Period")
to get more time to sell debt securities to pay for potential annual payout requests. The
$28-million closed-end fund is run by Vancouver-based Deans Knight Capital
Management Ltd Return since inception = -7.15% pa .
In 2008 we stumbled on the news that the Investor Advisory Committee was kaput. It
was announced with great fanfare but has died with a whimper. The OSC’s Investor
Advisory Committee was supposed to be a listening post for retail investor concerns. It
ended its 2-year turbulent life at the end of 2007. One of its members publicly criticized it
suggesting it was nothing more than PR and extracted its Unpublished Report via Access
to Information. The results are not pretty which is why the OSC may have blocked its
release. A new consultation regime was implemented - the Joint Standing Committee on
Retail Investor Issues –of course there are no actual retail investors on the committee.
Rumours are that recent scandals may motivate the Commission to re-establish its
connection with retail investors.
This reconnection doesn’t apparently include an Investor Town Hall. The last one , held
in 2005 ,was tumultuous to say the least. There has not been a similar event since.
The CSA’s proposed Fund Facts disclosure document is geared to a Grade 6 reader.
Under the proposed framework, delivery of the Fund Facts before or at the point- of- sale
is required for all initial purchases of mutual funds that are recommended by an adviser.
Risk is measured using a scale which appears to be based only on volatility (stnd
deviation) - essentially it’s meaningless. Prospectuses will now only be delivered on
request. Of course, no performance benchmark is required to be provided. We expect a
major issue to develop regarding whether or not a fund purchase was driven by a
salesperson or the investor. Overall, the latest proposal isn’t acceptable to investor
advocates. IFIC still wants to challenge delivery requirements and talk about it so more-
it’s been a decade in incubation.


Kenmar Associates
Investor Education and Protection
FMF, Nortel, Atlas Freezer, YBM, Hollinger Bre-X, market timing scandal etc. 5

A review of MFDA cases reveals unsuitable investments , misappropriation of funds and
fund churning are alive and well. In Canada, commission-paid stockbrokers and mutual
fund sellers do not have a legal duty to put a client's needs ahead of their own. Don’t
assume your “advisor” is just facing a conflict- of -interest. He/she may also be
unqualified to design portfolios and manage risk and taxes. Mutual fund salespersons can
be registered with very little formal education and training.
A recent survey of Chartered Financial Analysts revealed concerns about advisor
conflicts-of-interest and competency. The CFA is recognized as a sign of professional
excellence in the global investment community. Charterholders must pass three rigorous
examinations and complete several years of qualifying work experience. Survey
respondents showed little change in their views about the ethics of market participants
from last year to this year. CFAs want a single national regulator and better enforcement
mechanisms for wrongdoers. That's the opinion voiced most fervently. They do not want
individual investors to suffer unnecessary losses due to unsuitable advice. Here's what
they said about weaknesses in Canada's securities regulatory system:
"Does not provide enough scrutiny that investors are receiving fair advice and service from
investment advisers/ brokers."
Investment industry groups "try to pretend that licensed salespeople are highly trained, when
in fact the vast majority have little investment knowledge."
"Focus on the end consumer and the requirements that they need to make informed decisions
– that is, transparency with respect to fees and commissions."
"There needs to be an office that can investigate real complaints/concerns raised by
investors."
Canada may have excessive MER’s but our funds don’t have excessive performance. The
Standard & Poor's Mutual Fund Performance Persistence Scorecard periodically provides
semi-annual results on the persistence of top performing funds in the current market.
These reports show performances of actively- managed mutual funds within their
capitalization peer groups and monitor the consistency of their performance results.
For the first half of 2009, only 34.5% of Canadian Equity active funds were able to
outperform the S&P/TSX Composite Index. Over longer periods, S&P continue to
observe indices outperforming the majority of domestic funds. In three-year and five-year
periods, only 16.7% and 7.6%, respectively, of actively managed Canadian Equity funds
have outperformed the S&P/TSX Composite Index.

The year 2009 will be the year any vistages of OBSI’s independence evaporated. All of
its key proposals for improved Terms of Reference were kept on ice pending industry
SRO action thereby ignoring an independent assessor's 2007 recommendations and
persistent pleas from retail investor for changes. Perhaps things will improve under the
new Chief Ombudsman , Doug Melville.

Kenmar Associates
Investor Education and Protection
FMF, Nortel, Atlas Freezer, YBM, Hollinger Bre-X, market timing scandal etc. 6
In August, FAIR Canada called on the MFDA to review its by-laws to include at least
two representatives with expertise in retail investor issues and perspectives on its Board
of Directors. At this point in time, neither the MFDA or the IIROC have retail investor
representation on their Boards.

SIPA, the Small investor Protection Association ,continues to press for more effective
complaint handling processes. Little progress has been made in implementing any
improvements thusfar in 2009. The process is so deficient that many abused investors
report greater stress and frustration in dealing with the resolution of their complaint than
the complaint itself. SIPA has also been duelling with the OSC calling for public release
of their findings of a money market sweep assessing the impact of distressed credit
markets on the funds. Canadians have over $65 billion invested but the OSC refuses to
release detailed findings.
A group of aggrieved retail investors seeking redress from securities regulators in the
wake of the collapse of the $32-billion non-bank ABCP market has accounts with some
of the country's largest bank-owned investment dealers and two independent brokerages.
Of the three dozen investors, representing families and individuals who were stranded
with investments worth more than $1-million each when the ABCP market seized in
August 2007, at least one has an account with Canadian Imperial Bank of Commerce,
four with National Bank Financial and most of the remaining are with Canaccord Capital
Inc. and Credential Securities Inc. Securities regulators in Ontario, Quebec and British
Columbia, as well as the Investment Industry Regulatory Agency of Canada (IIROC), are
currently in discussions with the banks and the brokerages that sold third-party ABCP
investment products in the weeks shortly before the market collapsed. The watchdogs are
said to be seeking record settlements worth as much as $400-million on behalf of the
distressed investors. Meanwhile , it’s been 2 years of pain and suffering for these hapless
folks.
As we neared the end of Q3 , Alberta RCMP arrested one man and are looking for
another after the pair allegedly set up a Ponzi scheme that raised more than $100 million
from unsuspecting investors. Police say Milowe Allen Brost, 55, of Chestermere and
Gary Allen Sorenson, 66, of Calgary gathered investments from people throughout
Canada, the United States and internationally between 1999 and 2008. Brost has since
been arrested, although Sorenson remains at large and is believed to be out of the
country.It is unclear what has happened to the investments. Police say the scheme was
based on the investment commodity of gold. The suspects allegedly created Syndicated
Gold Depository S.A., which was suppose to loan money to a Merendon Mining Corp.
Ltd. with a high rate of return. Investors were lured into investing due to the promises of
high returns and tax advantages. Regulators and law enforcement watched for years as
the pair worked their magic on Main Street.
While the impact of deficient investor protection is financially enormous, the collateral
damage is often more devastating. Besides losing their life’s savings, victims of financial
assault are affected in many ways:

Kenmar Associates
Investor Education and Protection
FMF, Nortel, Atlas Freezer, YBM, Hollinger Bre-X, market timing scandal etc. 7
 Adversely impacts their health and accelerated their ageing
 Eliminates their capacity to trust other people
 Destroys their sense of self- respect and their dignity
 Creates a sense of hopelessness -an abyss of shame and self-doubt
 Paves the road for many of them to near destitution.
 Causes terrible stress within families
 Causes them to have to get part-time jobs to help make up for the losses, despite
their ill-health
 Makes it impossible to ever buy any gifts for their grandchildren –living with a
broken heart
 Destroys any hope of leaving a legacy to family members

In other cases we’ve also heard of marital breakdown, severe emotional distress, nervous
breakdowns, heart attacks, drug over-dose and even suicide.

We thank all the contributors to this Report and regret we could only a tiny fraction of the
debacles , scams , deceptions , fiascos and injustices submitted. Eight pages is enough to
bring anyone to tears.

All in all, the first 9 months of 2009 were horrible for investor protection, continuing, if
not accelerating, the five-year trend. Virtually every entity charged with protecting
investors capitulated under financial services influence or due to their own
inertia/incompetence. The end result could well be the decimation of the middle class in
Canada. Let’s hope the balance of the year starts to reverse the trend before it’s too late.

Ken Kivenko October , 2009

[admin]

http://news.bbc.co.uk/2/hi/business/8249411.stm

this site gives a good presentation of the cost of these financial crimes to each and every citizen in the UK

they are talking only about the sub prime mortgage crisis and subsequent bank bailouts so keep in mind they speak of one crime only.

http://news.bbc.co.uk/2/hi/business/8249411.stm
Follow the money

Since the markets began to tumble in 2008, governments around the world have spent almost $11 trillion bailing out failing banks and trying to repair the financial system.
Find out how the money was spent and what it means for the taxpayers who have funded it. There are two animated slide shows: scroll down the page to see how the money was spent in the UK.
Crisis 'cost us $10,000 each'
As one of the world's major financial centres, the UK has been one of the hardest hit by the financial chaos.
What effect have the bailouts had on the public finances and how has it hit people's personal wealth?


then go to their next slide show and see

http://news.bbc.co.uk/2/hi/business/8241480.stm

How every household lost £31,000

Analysis
By Ian Pollock
Personal finance reporter, BBC News

[admin]

Twenty Things You Should Know About Corporate Crime
By Russell Mokhiber, AlterNet
Posted on June 16, 2007, Printed on September 7, 2009
http://www.alternet.org/story/54093/

The following is text from a speech delivered by Russell Mokhiber, editor of Corporate Crime Reporter to the Taming the Giant Corporation conference in Washington, D.C., June 9, 2007.

20. Corporate crime inflicts far more damage on society than all street crime combined.

Whether in bodies or injuries or dollars lost, corporate crime and violence wins by a landslide.

The FBI estimates, for example, that burglary and robbery -- street crimes -- costs the nation $3.8 billion a year.

The losses from a handful of major corporate frauds -- Tyco, Adelphia, Worldcom, Enron -- swamp the losses from all street robberies and burglaries combined.

Health care fraud alone costs Americans $100 billion to $400 billion a year.

The savings and loan fraud -- which former Attorney General Dick Thornburgh called "the biggest white collar swindle in history" -- cost us anywhere from $300 billion to $500 billion.

And then you have your lesser frauds: auto repair fraud, $40 billion a year, securities fraud, $15 billion a year -- and on down the list.

19. Corporate crime is often violent crime.

Recite this list of corporate frauds and people will immediately say to you: but you can’t compare street crime and corporate crime -- corporate crime is not violent crime.

Not true.

Corporate crime is often violent crime.

The FBI estimates that, 16,000 Americans are murdered every year.

Compare this to the 56,000 Americans who die every year on the job or from occupational diseases such as black lung and asbestosis and the tens of thousands of other Americans who fall victim to the silent violence of pollution, contaminated foods, hazardous consumer products, and hospital malpractice.

These deaths are often the result of criminal recklessness. Yet, they are rarely prosecuted as homicides or as criminal violations of federal laws.

18. Corporate criminals are the only criminal class in the United States that have the power to define the laws under which they live.

The mafia, no.

The gangstas, no.

The street thugs, no.

But the corporate criminal lobby, yes. They have marinated Washington -- from the White House to the Congress to K Street -- with their largesse. And out the other end come the laws they can live with. They still violate their own rules with impunity. But they make sure the laws are kept within reasonable bounds.

Exhibit A -- the automobile industry.

Over the past 30 years, the industry has worked its will on Congress to block legislation that would impose criminal sanctions on knowing and willful violations of the federal auto safety laws. Today, with very narrow exceptions, if an auto company is caught violating the law, only a civil fine is imposed.

17. Corporate crime is underprosecuted by a factor of say -- 100. And the flip side of that -- corporate crime prosecutors are underfunded by a factor of say -- 100.

Big companies that are criminally prosecuted represent only the tip of a very large iceberg of corporate wrongdoing.

For every company convicted of health care fraud, there are hundreds of others who get away with ripping off Medicare and Medicaid, or face only mild slap-on-the-wrist fines and civil penalties when caught.

For every company convicted of polluting the nation’s waterways, there are many others who are not prosecuted because their corporate defense lawyers are able to offer up a low-level employee to go to jail in exchange for a promise from prosecutors not to touch the company or high-level executives.

For every corporation convicted of bribery or of giving money directly to a public official in violation of federal law, there are thousands who give money legally through political action committees to candidates and political parties. They profit from a system that effectively has legalized bribery.

For every corporation convicted of selling illegal pesticides, there are hundreds more who are not prosecuted because their lobbyists have worked their way in Washington to ensure that dangerous pesticides remain legal.

For every corporation convicted of reckless homicide in the death of a worker, there are hundreds of others that don’t even get investigated for reckless homicide when a worker is killed on the job. Only a few district attorneys across the country have historically investigated workplace deaths as homicides.

White collar crime defense attorneys regularly admit that if more prosecutors had more resources, the number of corporate crime prosecutions would increase dramatically. A large number of serious corporate and white collar crime cases are now left on the table for lack of resources.

16. Beware of consumer groups or other public interest groups who make nice with corporations.

There are now probably more fake public interest groups than actual ones in America today. And many formerly legitimate public interest groups have been taken over or compromised by big corporations. Our favorite example is the National Consumer League. It’s the oldest consumer group in the country. It was created to eradicate child labor.

But in the last ten years or so, it has been taken over by large corporations. It now gets the majority of its budget from big corporations such as Pfizer, Bank of America, Pharmacia & Upjohn, Kaiser Permanente, Wyeth-Ayerst, and Verizon.

15. It used to be when a corporation committed a crime, they pled guilty to a crime.

So, for example, so many large corporations were pleading guilty to crimes in the 1990s, that in 2000, we put out a report titled The Top 100 Corporate Criminals of the 1990s. We went back through all of the Corporate Crime Reporters for that decade, pulled out all of the big corporations that had been convicted, ranked the corporate criminals by the amount of their criminal fines, and cut it off at 100.

So, you have your Fortune 500, your Forbes 400, and your Corporate Crime Reporter 100.

14. Now, corporate criminals don’t have to worry about pleading guilty to crimes.

Three new loopholes have developed over the past five years -- the deferred prosecution agreement, the non prosecution agreement, and pleading guilty a closet entity or a defunct entity that has nothing to lose.

13. Corporations love deferred prosecution agreements.

In the 1990s, if prosecutors had evidence of a crime, they would bring a criminal charge against the corporation and sometimes against the individual executives. And the company would end up pleading guilty.

Then, about three years ago, the Justice Department said -- hey, there is this thing called a deferred prosecution agreement.

We can bring a criminal charge against the company. And we will tell the company -- if you are a good company and do not violate the law for the next two years, we will drop the charges. No harm, no foul. This is called a deferred prosecution agreement.

And most major corporate crime prosecutions are brought this way now. The company pays a fine. The company is charged with a crime. But there is no conviction. And after two or three years, depending on the term of the agreement, the charges are dropped.

12. Corporations love non prosecution agreements even more.

One Friday evening last July, I was sitting my office in the National Press Building. And into my e-mail box came a press release from the Justice Department.

The press release announced that Boeing will pay a $50 million criminal penalty and $615 million in civil penalties to resolve federal claims relating to the company’s hiring of the former Air Force acquisitions chief Darleen A. Druyun, by its then CFO, Michael Sears -- and stealing sensitive procurement information.

So, the company pays a criminal penalty. And I figure, okay if they paid a criminal penalty, they must have pled guilty.

No, they did not plead guilty.

Okay, they must have been charged with a crime and had the prosecution deferred.

No, they were not charged with a crime and did not have the prosecution deferred.

About a week later, after pounding the Justice Department for an answer as to what happened to Boeing, they sent over something called a non prosecution agreement.

That is where the Justice Department says -- we’re going to fine you criminally, but hey, we don’t want to cost you any government business, so sign this agreement. It says we won’t prosecute you if you pay the fine and change your ways.

Corporate criminals love non prosecution agreements. No criminal charge. No criminal record. No guilty plea. Just pay the fine and leave.

11. In health fraud cases, find an empty closet or defunct entity to plead guilty.

The government has a mandatory exclusion rule for health care corporations that are convicted of ripping off Medicare.

Such an exclusion is the equivalent of the death penalty. If a major drug company can’t do business with Medicare, it loses a big chunk of its business. There have been many criminal prosecutions of major health care corporations for ripping off Medicare. And many of these companies have pled guilty. But not one major health care company has been excluded from Medicare.

Why not?

Because when you read in the newspaper that a major health care company pled guilty, it’s not the parent company that pleads guilty. The prosecutor will allow a unit of the corporation that has no assets -- or even a defunct entity -- to plead guilty. And therefore that unit will be excluded from Medicare -- which doesn’t bother the parent corporation, because the unit had no business with Medicare to begin with.

Earlier, Dr. Sidney Wolfe was here and talked about the criminal prosecution of Purdue Pharma, the Stamford, Connecticut-based maker of OxyContin.

Dr. Wolfe said that the company pled guilty to pushing OxyContin by making claims that it is less addictive and less subject to abuse than other pain medications and that it continued to do so despite warnings to the contrary from doctors, the media, and members of its own sales force.

Well, Purdue Pharma -- the company that makes and markets the drug -- didn’t plead guilty. A different company -- Purdue Frederick pled guilty. Purdue Pharma actually got a non-prosecution agreement. Purdue Frederick had nothing to lose, so it pled guilty.

10. Corporate criminals don’t like to be put on probation.

Very rarely, a corporation convicted of a crime will be placed on probation. Many years ago, Consolidated Edison in New York was convicted of an environmental crime. A probation official was assigned. Employees would call him with wrongdoing. He would write reports for the judge. The company changed its ways. There was actual change within the corporation.

Corporations hate this. They hate being under the supervision of some public official, like a judge.

We need more corporate probation.

9. Corporate criminals don’t like to be charged with homicide.

Street murders occur every day in America. And they are prosecuted every day in America. Corporate homicides occur every day in America. But they are rarely prosecuted.

The last homicide prosecution brought against a major American corporation was in 1980, when a Republican Indiana prosecutor charged Ford Motor Co. with homicide for the deaths of three teenaged girls who died when their Ford Pinto caught on fire after being rear-ended in northern Indiana.

The prosecutor alleged that Ford knew that it was marketing a defective product, with a gas tank that crushed when rear ended, spilling fuel.

In the Indiana case, the girls were incinerated to death.

But Ford brought in a hot shot criminal defense lawyer who in turn hired the best friend of the judge as local counsel, and who, as a result, secured a not guilty verdict after persuading the judge to keep key evidence out of the jury room.

It’s time to crank up the corporate homicide prosecutions.

8. There are very few career prosecutors of corporate crime.

Patrick Fitzgerald is one that comes to mind. He’s the U.S. Attorney in Chicago. He put away Scooter Libby. And he’s now prosecuting the Canadian media baron Conrad Black.

7. Most corporate crime prosecutors see their jobs as a stepping stone to greater things.

Spitzer and Giuliani prosecuted corporate crime as a way to move up the political ladder. But most young prosecutors prosecute corporate crime to move into the lucrative corporate crime defense bar.

6. Most corporate criminals turn themselves into the authorities.

The vast majority of corporate criminal prosecutions are now driven by the corporations themselves. If they find something wrong, they know they can trust the prosecutor to do the right thing. They will be forced to pay a fine, maybe agree to make some internal changes.

But in this day and age, in all likelihood, they will not be forced to plead guilty.

So, better to be up front with the prosecutor and put the matter behind them. To save the hide of the corporation, they will cooperate with federal prosecutors against individual executives within the company. Individuals will be charged, the corporation will not.

5. The market doesn’t take most modern corporate criminal prosecutions seriously.

Almost universally, when a corporate crime case is settled, the stock of the company involved goes up.

Why? Because a cloud has been cleared and there is no serious consequence to the company. No structural changes in how the company does business. No monitor. No probation. Preserving corporate reputation is the name of the game.

4. The Justice Department needs to start publishing an annual Corporate Crime in the United States report.

Every year, the Justice Department puts out an annual report titled "Crime in the United States."

But by "Crime in the United States," the Justice Department means "street crime in the United States."

In the "Crime in the United States" annual report, you can read about burglary, robbery and theft.

There is little or nothing about price-fixing, corporate fraud, pollution, or public corruption.

A yearly Justice Department report on Corporate Crime in the United States is long overdue.

3. We must start asking -- which side are you on -- with the corporate criminals or against?

Most professionals in Washington work for, are paid by, or are under the control of the corporate crime lobby. Young lawyers come to town, fresh out of law school, 25 years old, and their starting salary is $160,000 a year. And they’re working for the corporate criminals.

Young lawyers graduating from the top law schools have all kinds of excuses for working for the corporate criminals -- huge debt, just going to stay a couple of years for the experience.

But the reality is, they are working for the corporate criminals.

What kind of respect should we give them? Especially since they have many options other than working for the corporate criminals.

Time to dust off that age-old question -- which side are you on? (For young lawyers out there considering other options, check out Alan Morrison’s new book, Beyond the Big Firm: Profiles of Lawyers Who Want Something More.)

2. We need a 911 number for the American people to dial to report corporate crime and violence.

If you want to report street crime and violence, call 911.

But what number do you call if you want to report corporate crime and violence?

We propose 611.

Call 611 to report corporate crime and violence.

We need a national number where people can pick up the phone and report the corporate criminals in our midst.

What triggered this thought?

We attended the press conference at the Justice Department the other day announcing the indictment of Congressman William Jefferson (D-Louisiana).

Jefferson was the first U.S. official charged with violating the Foreign Corrupt Practices Act.

Federal officials alleged that Jefferson was both on the giving and receiving ends of bribe payments.

On the receiving end, he took $100,000 in cash -- $90,000 of it was stuffed into his freezer in Washington, D.C.

The $90,000 was separated in $10,000 increments, wrapped in aluminum foil, and concealed inside various frozen food containers.

At the press conference announcing the indictment, after various federal officials made their case before the cameras, up to the mike came Joe Persichini, assistant director of the Washington field office of the FBI.

"To the American people, I ask you, take time," Persichini said. "Read this charging document line by line, scheme by scheme, count by count. This case is about greed, power and arrogance."

"Everyone is entitled to honest and ethical public service," Persichini continued. "We as leaders standing here today cannot do it alone. We need the public’s help. The amount of corruption is dependent on what the public with allow.

Again, the amount of corruption is dependent on what the public will allow."

“"f you have knowledge of, if you’ve been confronted with or you are participating, I ask that you contact your local FBI office or you call the Washington Field Office of the FBI at 202.278.2000. Thank you very much."

Shorten the number -- make it 611.

1. And the number one thing you should know about corporate crime?

Everyone is deserving of justice. So, question, debate, strategize, yes.

But if God-forbid you too are victimized by a corporate criminal, you too will demand justice.

We need a more beefed up, more effective justice system to deal with the corporate criminals in our midst.
Russell Mokhiber is the editor of Corporate Crime Reporter.

© 2009 Independent Media Institute. All rights reserved.
View this story online at: http://www.alternet.org/story/54093/

[admin]

 In summary.

Bad new issues, faulty income trusts, junk securities sold to the public
Nortel, Eatons, Global Crossing, Portus, Crocus, Hollinger
–Bre-X- YBM Magnex -Norbourg
Mutual fund market timing
Alternative Mngt. Hedge fund
–Strategic Value Corp, ABCP, HERCULES MANAGEMENT
VICTORIA MORTGAGE
CANADIAN COMMERCIAL BANK
NORTHLAND BANK
PRINCIPAL GROUP
STANDARD TRUST
TEACHERS INVESTMENT AND HOUSING CO-OPERATIVE
CASTOR HOLDINGS
BRAMALEA
CARTAWAY
GOLDEN RULE RESOURCES = $20 billion each year estimated

Highest Mutual Fund costs in the world = $25 billion each year (U of T study)

Multiple don-nothing regulators = $10 billion each year (Columbia University study)

Sales practices that maximize commissions to customers/rev to broker =1 bil each year est

Double dipping (fees on top of commissions or vice versa) =$1 bil est

Fee based account abuse (adding unnecessary fees to clients accounts) = $5 bil est

Churning for maximum commissions =$ 5 bil est

Totals = $67 bil est

Given that the Canada web site above (National Victims of Crime Week) has total crime in Canada each year as high as $70 bil, and the Justice Canada site counts it at about $40 billion, and Stats Canada counts another figure (closer to the $40 bil figure if I recall) it still can be shown possible that financial crime in Canada is roughly equal to each and every other crime in the country combined. And financial crimes are done without cost in Canada the largest percentage of the time.

[admin]

LIST OF CANADIAN INVESTOR LOSSES CAUSED BY MALFEASANCE AND LACK OF MARKET COMPETITION

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
source Diane Urquhart, independent consulting analyst

[admin]

TOXIC PRODUCTS

Mutual funds- excessive fees ( Canada has highest in the world)
Income Trusts –misrepresentation
PPN’s -excessive fees, opaque disclosure
LSIF’s- just don’t make money
Structured products – complex/expensive
Commercial Paper- non-bank ABCP

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..........

[admin]

CONFLICTED DEALERS/ADVISORS

Opaque disclosure / “educational” seminars
Excessive fees/undue leveraging
Deceptive marketing practices/financial porn
Incorrect Information
Misleading articulation of risks
Embedded commissions

Painting the tape. In what also is called "banging the close," portfolio managers run up the price of what they already own. ??

Double dipping (Commissions and IPO fees on top of commissions) ??

Abuse of fee based accounts 1 to 2% on every victim ??

Mutual Fund Market Timing $1,260 mil

Mutual fund Window dressing.....mutual fund practice of moving their funds into the top performing stocks at reporting time, so that their financial statements appear as if they were smart stock pickers.......when they made the moves “after the fact”. ??

FMF capital bankrupt within six months of BMO selling it ??

2% of all mutual funds sold in 2007 were into WRAP programs (large proportion of those being less suitable but more profitable house brand funds) est $1 bil per year
(source IFIC)

mutual funds sold at highest commission choice, contrary to duty of care owed to clients (source IFIC)
$1 bil per year on sales of $20 bil

Unauthorized Foreign Exchange Transactions in RRSP & RRIFs$2.5 bil

Canada exhibits illegal insider trading before 63% of its acquisition
announcements,
Insider Trading Surrounding Acquisitions $14.4 bil