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GET YOUR MONEY BACK! Misconduct and malpractice. Investment industry "best and worst practices". Information to improve public protection. Expert witness services for industry and investors. Forensic investment analysis. • View topic - Financial crime more than every other crime combined?

Financial crime more than every other crime combined?

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Re: Some examples of crimes against the public

Postby admin » Fri Sep 04, 2009 1:23 pm

Picture 26.png
Picture 27.png
Next we go to Prof John Coffee, Columbia University. He was hired by the Federal Finance dept to study the costs to Canada of our fractured provincial and territorial securities regulation system.

He came up with $10 billion each year due to having 13 regulators in a territory the same economic size as Texas.

Total economic damage so far = Nortel ($366 bil )
plus $25 bil each year from mutual fund costs
plus $800 million from this one firm's specific abuse of clients.
plus $10 billion for having 13 regulators doing pretty much nothing to protect
I am going to round that out to nearly $35 billion each and every year. (plus the Nortel hit)

At $35 billion, we are getting close the the cost number that Justice Canada puts as the dollar cost of each and every other crime in Canada. This means to me that clever, cunning financial folks are milking the country and doing more damage to us than the cost of every other crime you can think of. Or at least they are within 10% of the cost of every other crime, and I have only listed three or four in this topic so far.

Lets keep going shall we?
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Re: Some examples of crimes against the public

Postby admin » Fri Sep 04, 2009 1:13 pm

Picture 4.png
A mutual fund company learned in 1999 that they could earn between 12 and 26 times more money from putting clients into house brand (proprietary) mutual funds, rather than sellimg them a more competitive, independently proven mutual fund. The reason was that they could collect and keep all the annnual management fees (the 2 to 3%) that are charged to the fund each year to operate.

So they decided that this was in their best interests (not sure what they felt about the clients best interests), and against all industry guidelines to protect from this kind of self serving transactions, they went to it. They applied for and received legal exemption from 13 provincial and territorial securities commissions (who are now strangely silent on the matter) for permission to "kickback" commissions to clients to induce them to covert independent funds to their own house brand.

To juice up the returns higher, they bumped up management fees on these in house mutuals to over 3%, and nearly 4% in cases, making them among the most expensive investment products that the sales force could find. To help sales of this product, they even bumped up the compensation to the sales force to a 6% up front commission from the DSC sales option, making them the most expensive commissions in Canada at the time.

Management was accused of aggressive attempts to convert up to 80% and 90% of client assets to these products, despite lousy performance out of them. The benefits to salespeople, managers and owners of the firm were too great to care what was best for clients.

The firm puffed up its revenues in this manner and was sold for $800 million to a larger firm, eager to cash in on this cash cow.

Damages to clients in this case
$800 million that was earned on the backs of client abuse, and flagrant abuse of client first rules and principles.

Total so far = Nortel ($366 bil )
plus $25 bil each year from mutual fund costs
plus $800 million from this one firm's specific abuse of clients.
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Re: Some examples of crimes against the public

Postby admin » Fri Sep 04, 2009 1:03 pm

A second one, was the double dipping, mutual fund churning, highest fee sales tricks, deferred sales charge sales tricks, advisor account (fee account) abuses and the myriad of ways to gain the most money from a client which I witnessed while a retail representative in the industry for 20 years.

Keith Ambaschteer of University Of Toronto says that the highest fees in the world are costing Canadians $25 billion each year, and I am not sure he is including many of the tricks of the trade I am referring to above. But none-the-less, we Canadians are being gouged by $25 bil plus, due to our small oligopoly bank system, and a very weak and incestuous regulatory regime. Read Prof P Puri University of Toronto, report on a very strong financial system combined with a weak regulatory regime.

Keith A article at https://docs.google.com/fileview?id=0Bz ... OTkw&hl=en

These abuses are against all codes of ethics which state that the client interest must come first. They are against all rules and regulations that purport to require similar. As we are self regulated, we can ignore any rules we wish and make as much money as we desire. That, unfortunately is how financial regulations in Canada are treated today.

Add $25 bil to the amount of yearly damages to Canadians.
Total so far = Nortel ($366 bil ) plus $25 bil each year.
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Some examples of crimes against the public

Postby admin » Fri Sep 04, 2009 12:53 pm

Where to even start with this one?

I guess Nortel will do for a beginning. It was a $366 billion dollar company in market cap, and is now virtually worthless. Senior execs took huge bonus's out, as much as $120 million in just one persons case, and these bonus's were based on false sales and revenue figures.

The company is now broke because of this, and I am wondering how much financial damage to our economy is represented by that $366 bil. Can you even imagine the damage to people in our country?
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Re: Financial crime more than every other crime combined

Postby admin » Thu Aug 06, 2009 8:42 pm

Measuring Madoff
By Scott Burns
Media accounts immediately labeled the disappearance of $50 billion, masterminded by Bernard Madoff, as "the largest fraud in history." It is a greater wealth loss than having a household name company -- such as Walt Disney, Anheuser-Busch or Boeing -- vanish without a trace.

The loss is mind-boggling. But the figure does nothing to convey the damage this man has done.

One way to measure the extent of the damage is to compare the $50 billion to measures of loss in the FBI's Uniform Crime Reports. In 2007 there were 9.8 million crimes against property in the United States. This included about 2.2 million burglaries, 6.6 million larceny-thefts and 1.1 million car thefts.

I think you'll agree that 9.8 million crimes represent a veritable army of miscreants. In spite of that, our total losses to property crimes in 2007 were a mere $17.6 billion. To be sure, it didn't feel "mere" if you suffered a burglary. The average loss was $1,991. Nor was it "mere" if you were one of the 6.6 million people who suffered a larceny-theft. In those, the average loss was $886.

But when you add all the losses in 9.8 million common property crimes, it's just a fraction of the estimated $50 billion loss attributed to Bernard Madoff.

Perhaps 2007 was an "off" year for theft?

Well, there was a slight decline in the number of crimes, but not in the amount lost. In 2006 the report shows nearly 10 million crimes against property and losses of another $17.6 billion. Similarly, the 2005 report shows nearly 10.2 million crimes against property and a total loss of $16.5 billion.

Add the three years and you get $51.7 billion. Using that value, Bernard Madoff has caused losses equal to all the losses caused by all the conventional thieves in America for nearly three full years.

We get a different perspective by reading the annual report of the Securities and Exchange Commission. That's the federal agency charged with protecting investors. In the listing of "enforcement milestones," the 2008 report proudly notes that it had "obtained orders in SEC judicial and administrative proceedings requiring securities violators to disgorge illegal profits of approximately $774 million and to pay penalties of approximately $256 million."

In other words, the total recovery of the entire agency, in a full year, was about 2 percent of what Bernard Madoff -- the guy they didn't notice -- made disappear.

This leaves us with two really big questions.

First: What can be done to keep America from becoming a Coffee Can Economy?

I'm serious. Right now all we know is that nothing is trustworthy. Not our political leaders. Not our business leaders. Not the government or private institutions that are supposed to provide oversight and evaluation.

Can anyone, from any of these institutions, give us any reason not to keep what savings we have buried in a coffee can rather than entrusted to the institutions that have destroyed the most fundamental element of commerce -- trust?

The answer is a flat "No."

Second: In the matter of Bernard Madoff, how can the punishment possibly be fit to the crime?

To me, this begs for a punishment that is both cruel and unusual.

Does life without parole in a gentleman's federal prison cut it? I don't think so. Does life without parole in a facility devoted to violent petty criminals sound better? Yes, but the improvement is slight.

In medieval times a man who committed murder or treason could be declared an outlaw. This literally meant he was outside the law, no longer protected by the laws of his society. His property was forfeit. No one was allowed to provide him with food, shelter or aid. And anyone who found him could kill him.

When you look at the damage done, this wouldn't be a cruel or unusual punishment. It fits the crime. It's what we need for white collar financial criminals.
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Re: Financial crime more than every other crime combined

Postby admin » Thu Aug 06, 2009 8:41 pm

Property crime makes up slightly more than three-quarters of all crime in the United States.

Overall, in about 84% of all burglaries, the offender gained entry into the victims residence or other building on the property.

In about 79% of all motor vehicle thefts, the vehicle was stolen.

Of the 13 million completed thefts of property in 2005, there were 4.1 million property thefts of less than $50, 4.7 million between $50 and $249, and 3.2 million of $250 or more.
source US dept of justice stats http://www.ojp.usdoj.gov/bjs/cvict_c.htm

trying to put conrad black (for example) into perspective

if he is guilty of $6 mil, then he has committed the equivalent of 6000 to 12000 property crimes (of average value) the united states?

one man doing the damage of 6000 to 12000 others. And yet they usually get sentenced more leniently.
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Re: Financial crime more than every other crime combined

Postby admin » Thu Aug 06, 2009 8:00 pm

CATEGORIES OF FINANCIAL ASSAULT IN CANADA


Systemic
1. CORPORATE- Accounting fraud, self dealing, executive kleptocracy, insider trading,
regulatory capture, toxic products approved, see no evil
2. CONFLICTED DEALERS/ADVISORS - misleading, misrepresentation, unsuitable investments, double dipping, self dealing, fraud, theft, overcharging, predatory practices, salesmen posing as trusted professionals
3. TOXIC PRODUCTS- highest fees possible, penalties, hidden compensation, hidden conflicts, caps, garbage packaged as quality

The above categories are all considered systemic. Built into the system by poor design. Intentional or otherwise, they serve to transfer more than $50 billion dollars each and every year from the hands of trusting Canadian consumers, into the hands of self serving financial interests.

Non-systemic
Non systemic categories of financial assault include brokers who out-and-out steal from clients, without even the pretense of "serving" the public.

1. Brokers who steal clients assets.
Estimated at ?? millions each year.

Hidden from public view

The third category of financial assault in Canada is an estimate of the dollar damages that are hidden by settlements with confidentiality agreements. Those damages where clients actually "catch" a financial firm assaulting them, suffer through five to ten years of denials by the firm, and then settle for pennies on the dollar, giving up their rights and their voice in exchange for a return of their own money.

Estimated at billions each year.

Un-compensated or un-punished

Last, but not least, is the amount of the above that goes without compensation, without accountability, without recourse. This is considered due to the ineffectiveness of Canadian financial regulators to do the job that they public wishes they would do.

The amount of financial crime in canada that does not have a recourse, a punishment, or where the perpetrator gets to keep the ill gotten gains is estimated at

99%?
Below is partial breakdown
------------------------------------------------------------

Corporate



Self-dealing –Hollinger /Conrad Black
Outright fraud –Bre-X
Defective disclosure/acct’g -Nortel
Front for Russian mafia- YBM Magnex
Misappropriation of fund assets-Crocus LSIF
Theft of fund assets -Norbourg
Mutual fund market timing -20 fund cos.
Theft of assets-Portus Alternative Mngt. Hedge fund
Fraudulent asset valuation –Strategic Value Corp.


Stock options on “faked” earnings

John Roth removes $120 mil from Nortel (US criminal investigation underway) (nothing in Canada)

CIBC on Global crossing
Global crossing bankrupt within one year of CIBC offering ??
CIBC execs get stock options of ?? Millions on deal
CIBC pays 2.4 bil in suit on enron deal
John Hunkin walks away from CIBC with $54 mil personally

Nortel bankruptcy after execs cook books and pay themselves on phoney bonus schemes $366 billion in market value lost as Nortel goes from the most valuable company in Canada to worthless.

$25 bil per year from mutual fund highest fees in world Keith Ambaschteer U of T

$10 bil “cost of fractured regulatory regime”, John Coffee, Columbia University
--------------------------------------------------------

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


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

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
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Re: Financial crime more than every other crime combined

Postby admin » Thu Aug 06, 2009 7:46 pm

a cool look at how the police are outgunned in matters of financial crime
Source: Police Administration Survey, Canadian Centre for Justice Statistics, Statistics Canada.
For more information, see Police Personnel and Expenditures in Canada - (catalogue 85F0019XPE)
Policing expenditures totalled $5.99 billion in 1997, up 2.3% from 1996. Even after
adjusting for inflation, policing expenditures increased 0.6%.


that is for ALL OF CANADA

compare this to Nortel, where certain executives cooked the books to pay themselves bonus's in excess of $120 million, then let the company fail in a $366 Billion evaporation of stock market value

wow! $366 bil in damages vs $6 bil in police spending.

It is like trying to catch crooks driving Lear Jets, by police who are driving a 1958 VW Beetle with 58 horsepower.
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Re: Financial crime more than every other crime combined

Postby admin » Thu Aug 06, 2009 7:42 pm

I have not done the math just yet, so bear with me on this imaginative topic:

Imagine calculating the number of crimes in Canada (stats Canada and Justice Canada), and dividing that number into the dollar value of those crimes (also easily available). I think it comes out to somewhere less than $5000 per crime for the million (s) crime numbers.

Then try and do something similar with financial crimes. Again, I have not yet put together a credible set of numbers, but I am willing to guess that we can come up with a number that suggests that thousands, or tens of thousands of cunning white collar fraudsters do more damage to our economy, than the more than million criminals convicted in Canada each and every year.

Again, I will patiently wait for Prof P Puri's upcoming study of the damage from white collar crime. U of T Rotman School of Business. It will be far better than my musings.

Source: Uniform Crime Reporting Survey, Canadian Centre for Justice Statistics, Statistics Canada, 1998.
For more information, see Juristat (catalogue no.85-002) Vol.19, No. 9, “Crime Statistics in Canada, 1998.”
• In 1998, there were approximately 1.38 million property crime incidents corresponding to
a rate of 4,541 per 100,000 population.
• Theft of $5,000 and under accounted for over half (52%) of all property crimes, while
break and enter represented one-quarter (25%). The remaining categories were motor
vehicle theft (12%), fraud (7%), possession of stolen goods (2%) and theft over $5,000
(2%).
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Re: Financial crime more than every other crime combined

Postby admin » Thu Aug 06, 2009 7:37 pm

Back of napkin look at cost to Canadians, with some source material shown for estimates.

Bad new issues, faulty income trusts, junk securities sold to the public = $20 billion each year (see detailed posting to follow)

Highest Mutual Fund costs in the world = $25 billion each year Keith Ambaschteer U of Toronto

Multiple don-nothing regulators = $10 billion each year Prof John Coffee, Columbia University

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)

Fee based account abuse (adding unnecessary fees to clients accounts) = $5 bil (estimate based on personal experience inside industry) (see FINRA web site in USA for better description and warnings of this abuse)

Churning for maximum commissions =$ 5 bil (estimate based on personal experience) Note that the FSA in Britain has now banned the use of commission as a form of compensation by those who call themselves financial advisors) They are setting the example by leading and we continue to "bleed" our clients to financial health here in Canada.

Totals = $67 bil

$67 bil from memory.......by a guy with an admitted bad memory. $35 Bil of this from credible and objective University studies. Compare this to the $40ish bil estimates by Justice Canada for all the "other" crimes in Canada combined.
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Re: Financial crime more than every other crime combined

Postby admin » Thu Aug 06, 2009 7:29 pm

Bad new issues, faulty income trusts, junk securities sold to the public = $20 billion each year

Highest Mutual Fund costs in the world = $25 billion each year

Multiple don-nothing regulators = $10 billion each year

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

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

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

Churning for maximum commissions =$ 5 bil

Totals = $67 bil

(for ease of readability, I will paste on a following post some of the source material for these numbers)
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Financial crime more than every other crime combined?

Postby admin » Wed Aug 05, 2009 11:41 am

Stock Factoid: In 2000 , Nortel was worth $366-billion on the Toronto Stock
Exchange, making it by far the country's most valuable company. It was a global
phenomenon. Nortel employed 95,000, ran R&D labs around the globe and promoted an
international brand that reminded everyone Canada was a high-tech powerhouse. In June,
2009 it was delisted from the TSX and will be sold off in pieces.


I will use this forum to compile a list of known damages due to financial fraud, financial abuse, etc BY so called trusted professionals, so that it can be compared to the dollar cost of each and every other crime in Canada combined.

Justice Canada web site puts the total dollar cost of crime in Canada at $40 billion each and every year. Lets start adding up the financial costs of bad professional behavior:

1. Nortel $366 billion lost while top executives stole as much as $120million (one guy's take) in phoney bonus schemes.
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