Civil or Criminal Actions against companies or regulators

[Guest]

it looks like the audit of the ASC has allowed a potential class action to be considered by all those people who made complaints to this agency, only to have them not handled properly. At the very least, each file could then be opened as the rightfully should, and examined by qualified experts this time. I myself know of several people whose complaint to the ASC was mishandled.

[Guest]

A new world of class actions is dawning
Expect more litigation against Canadian public companies

Garth M. Girvan
Financial Post


Wednesday, October 19, 2005



CREDIT: Jeff Kowalsky, AF:, Getty Images
The Ambassador Bridge that connects Detroit and Windsor. U.S. firms are already eyeing Canada, looking to co-operate in cross-border class-action lawsuits.

We are on the cusp of the most significant change in securities law of this generation, and Corporate Canada had better be prepared because at the precise moment Canadians are ringing in the new year, companies, their officers and directors, experts and others will become liable to compensate investors for misrepresentations in disclosure documents and even oral statements.

The potent combination of new remedies and the increasing acceptance of class actions in Canada sets the stage for confrontation, pitting the management and boards of public companies against shareholders whose securities drop in value when companies release bad news into the marketplace.

Will the new regime result in more litigation against public companies in Canada? Bet on it.

All the signs are there. Aggrieved Canadian investors, frustrated with the inability to effectively pursue miscreant Canadian companies on their own turf have begun turning to U.S. courts for redress.

Ontario Teachers' Pension Plan, for example, is co-lead plaintiff in a major class action against Nortel Networks Inc. in the United States. It's not difficult to see why some Canadian shareholders turned their eyes south.

The shortcomings of the state of the law were never more apparent than in the Bre-X litigation in the late 1990s. Attempts to bring class actions in Canada against company insiders, investment banks and an engineering firm were dismissed, because of the inability to establish common reliance on the disclosure made by the company, its bankers and other consultants.

The United States, of course, has had a statutory regime in place for many years. SEC Rule 10b-5 has spawned significant litigation, and many supporters of the new Canadian rules would say that the deterrence effect has raised awareness of the need for public companies to get their disclosure right -- with the result that disclosure standards in the United States are higher than those in Canada.

The U.S. system also has its dark side - strike suits brought by entrepreneurial lawyers on behalf of nominal clients whenever a stock price falls on the announcement of unfavourable events. Such suits are alleged to have but one objective: to force companies to settle quickly for an amount that provides a significant return to the plaintiffs' lawyers, and an insignificant amount to the shareholders who lost their money.

On Jan. 1, Canada moves a little closer to the U.S. system, and investors will be able to pursue their remedies more easily at home. But opening the door to securities class actions invites a perhaps unwelcome actor: U.S. plaintiff firms. They are already eyeing this country looking to co-operate in cross-border class action lawsuits involving interlisted companies, and maybe even play a role in domestic securities class actions in Canada.

Lief, Cabraser, Heiman & Bernstein, an active plaintiff firm in the U.S., has established an association with Rochon Genova in Toronto for these purposes.

Should Corporate Canada be worried? Well, the Ontario government, which has spent some time gestating the new regime, says not unduly. It thinks its new rules will allow public companies to escape the strike-suit phenomenon in Canada.

People point to several safeguards not present in the United States. First, any action brought under the new regime is subject to leave of the court. A plaintiff must satisfy a judge that the action is brought in good faith and has a "reasonable possibility" of success at trial.

Second, Ontario will apply its "loser pay" principle to these actions. So the entrepreneurial plaintiff's lawyer will face an initial hurdle of getting leave of the court to start the action, and then will face the prospect that if the case is not settled and is ultimately unsuccessful at trial, there will be a significant cost penalty.

Ontario also points to arguably the most significant difference between the Canadian and U.S. regimes in this area, the fact that liability in Canada will be capped unless the misrepresentation is made knowingly. That may prove cold comfort. Canadian plaintiffs' lawyers are creative, and many people believe they'll routinely allege in their pleadings that misrepresentations were made knowingly in order to avoid the caps, and increase the settlement value.

At the end of the day, only time will tell whether the new initiatives are successful in achieving their stated purpose of improving the standard of public company disclosure in Canada while avoiding the descent into the undesirable muck of the U.S. strike suit environment.

But just as governments are being prodded to plan for the impending flu pandemic, directors and officers of public companies should prepare to put themselves in the best position to avoid or defend against the inevitable claims that will arise under the new regime.

Boards and managements should implement disclosure policies and procedures to ensure that material information is identified and released on a timely basis. The provision of forward-looking information should be reassessed. In fact, some companies are giving serious consideration to getting out of the earnings-guidance business altogether. CEOs and CFOs should prepare to more carefully script oral presentations and tread more cautiously, if at all, into free-flowing discussions with investors and analysts.

Addressing the shortcomings in Canadian law was necessary and is to be applauded. At the same time, the old adage applies -- be careful what you wish for.

Garth M. Girvan is a senior corporate partner in McCarthy Tetrault's Toronto office.

© National Post 2005

[Guest]

I believe yesterday's Supreme Court ruling re: tobacco has clear and severe
implications for money management, too. My last three columns in the
National Post (in May and June) illustrate this point.

My view is that Disclosure and Transparency are set to become major
considerations (as opposed to mere buzzwords) for financial services going
forward. I also believe these matters will soon be highly politicized,
given that the Gomery Commission's reports will be coming out later in the
fourth quarter and in early 2006 and will deal with similar subject mater.
The reports will likely focus on disclosure, transparency and the protection
of the "little guy" against corporate agendas. As a result, I personally
believe that tranparency, disclosure of risks and the consumers' right to
know are likely to be major subplots in the forthcoming federal election
campaign. The only thing that hasn't happened yet is that the media still
hasn't made the "integrity linkage" required to pull everything together.

Finally, and perhaps most important, I believe there will soon be a huge
amount of media coverage about regulatory acquiesence regarding certain
previous business practices within the industry- again, with clear
implications for the consumers' right to know and the undisclosed existence
of ulterior motives. Again, when these stories come to light, will linkages
be made? I believe the answer ought to be a resounding "YES"!

John J. De Goey
MPA, CIM, FCSI, TEP, CFP
Senior Financial Advisor

[admin]

BC supreme court allows government to sue tobacco companies for damages to the public interest.

Will investment abuses towards the public be another area where similar actions take place?

[admin]

From Wed, Sept, 28, 2005 Globe and Mail article titled, "Ontario ruling clears path for police-misconduct suits".

This article suggests that residents of Ontario can sue agencies for misconduct when substandard performance of important (police) duties. The ruling may have impact on various government agencies that have regulatory rules to follow, and have been accused of ignoring them in the name of convenience or other reasons.

Names that come to mind include the ASC, OSC, IDA, the Competition Bureau and I am sure others will come up over time. Any agency that has a mandate of protection of the public interest and following the rule of law, may be accused of regulatory failure if it is found that they did not follow their own process, or if they followed them arbitrarily and selectively.

[admin]

http://www.the10b-5daily.com/archives/000478.html




Canada Braces For Securities Class Actions
Continuing The 10b-5 Daily's international theme, the Toronto Globe and Mail has a feature article on recent amendments to the Ontario Securities Act that are expected to generate "a wave of shareholder class action lawsuits." Until now, Canadian investors who purchase shares in the secondary market have been limited to common law fraud claims, which require a showing of individual reliance. The recent amendments will create a presumption of reliance (i.e., the fraud-on-the-market theory) and will allow investors to "sue for two types of misconduct: a misrepresentation made in disclosure documents or public oral statements; and a failure to make timely disclosure of a material change."

The article notes that some commentators are concerned the amendments will create an incentive to bring U.S.-style strike suits, but there will be certain safeguards in the new laws that do not exist here. Notably, a company's liability will "be limited to either 5 percent of its market capitalization or $1 million, whichever is greater." There will also be penalty limits for individuals.

Quote of note: "The legislation also is notable for the broad scope of potential defendants it will expose to liability. Not only does it pertain to the company and its directors and officers, but also to investment fund managers, spokespersons, experts (such as accountants, lawyers, financial analysts, engineers and geologists) and so-called influential persons (such as stock promoters or a majority shareholders with a significant influence on the company)."

Posted by Lyle Roberts at December 28, 2004 05:52 PM | TrackBack

[Guest]

Ontario Improves Investor Protection
Legislation Proclaimed Implementing Civil Liability For Secondary Market
Disclosure

QUEEN'S PARK, ON, Aug. 2 /CNW/ - The McGuinty government is strengthening
protection for people who invest in the stock market.
Beginning December 31, 2005, secondary market investors will have a
statutory right to sue public companies that operate in Ontario's capital
markets for misleading disclosure and failure to make timely disclosure.
"Implementing civil liability for secondary market investors - where over
90 per cent of shares are bought and sold - is the right thing to do," said
Gerry Phillips, Minister of Government Services and Minister responsible for
securities regulation. "I'm proud that Ontario is the first Canadian
jurisdiction to move forward on this."
In the primary market - where shares are made available to the public,
for example, as part of an initial public offering (IPO) - investors buy
shares based on information contained in a formal disclosure document, such as
a prospectus. Under the Ontario Securities Act, primary market investors
already have a statutory right to sue if this information is false or
misleading.
"Public companies will have even stronger incentives to disclose accurate
and complete information, and investors will have broader remedies to hold
them accountable if that information is false, misleading or untimely," said
Tom Allen, former chair of the Toronto Stock Exchange Committee on Corporate
Disclosure. "This is a landmark in ensuring confidence in Ontario's capital
markets. That's a good thing for investors and it's a good thing for public
companies too."
"The people of Ontario have a vested interest in improved investor
protection," said Phillips. "Just about every person in Ontario has a stake in
our capital markets through the Canada Pension Plan, RRSPs, other pension
plans or personal investments. Those investors want - and deserve - to be
protected."
Implementing civil liability is one of the recommendations from the
Ontario legislature's all-party Standing Committee on Finance and Economic
Affairs (SCFEA), which tabled its report on the Five Year Review of the
Securities Act in the legislature October 18, 2004.
"We are ensuring Ontario benefits from a modern securities regulatory
system, with strong investor confidence and protection," Phillips said.
"Maintaining investor confidence in the integrity of our capital markets is
vital for Ontario's competitiveness and a strong economy."


Backgrounder
-------------------------------------------------------------------------

CIVIL LIABILITY FOR SECONDARY MARKET DISCLOSURE

Civil liability for secondary market disclosure means that more investors
will be able to hold companies legally responsible for the accuracy and
completeness of information they provide. As well, companies' responsibilities
would extend to more of the information on which investors rely, for example,
the financial statements and press releases that companies make public on an
ongoing basis. Although the Securities Act currently makes it an offence for
companies to provide inaccurate disclosure in required documents, the new
provisions give investors broader rights to bring civil actions for damages
suffered from relying on inaccurate information.
Amendments were recently made to Regulation 1015 of the Securities Act to
create definitions that are necessary for calculating damages under the new
legislative provisions and also specify acquisitions and dispositions of
securities that will be subject to the new secondary market civil liability
provisions. Finalizing these changes has allowed the government to proclaim
broader rights for secondary market investors to sue for misleading
disclosure, the failure to make timely disclosure ("civil liability"), as well
as specific prohibitions of misrepresentations, fraud and market manipulation.
The legislative provisions and the regulation amendments that relate to
civil liability for secondary market disclosure will take effect on
December 31, 2005.
The government has also made a number of housekeeping changes to update
the regulation to reflect previous changes to the Securities Act and to
Ontario Securities Commission (OSC) rules and policies. These changes will
take effect on filing of the regulation.

Definitions

Civil Liability for Secondary Market Disclosure: A statutory right to sue
public companies and other key parties (officers, directors and experts) when
there is false or misleading information (or when required information is not
disclosed) in materials that public companies disclose to investors on an
ongoing basis. These materials include the company's annual and quarterly
financial statements and the press releases that are issued by the company.

Primary market: Where investors buy shares that are being sold to the
public based on information contained in a formal disclosure document, for
example as part of an initial public offering (IPO).

- In the primary market investors generally buy shares from public
companies.
- Primary market investors rely on the information in formal disclosure
documents such as a 'prospectus' in making their investment decisions.
- These investors have a statutory right to sue for false or misleading
information included in a prospectus or similar offering document, or
if that document omits important information that was required.

Secondary market: Everyday trading by investors in the shares of a public
company - trading that is not part of a sale of shares to the public described
in a formal disclosure document such as a prospectus.

- In the secondary market investors generally buy shares from other
investors.
- Example: after a company's IPO, investors buy and sell the company's
shares by placing orders with their brokers. Typically, the purchases
and sales among investors are processed through stock exchanges.
- Over 90 per cent of all equity trading in Canada occurs in the
secondary market.
- In making investment decisions, secondary market investors rely on
information that public companies disclose on an ongoing basis
(e.g. financial statements and press releases).
- These investors now also have a statutory right to sue for false or
misleading information companies disclose on an ongoing basis.
- The government has now added specific prohibitions of
misrepresentation, fraud and market manipulation.

Prospectus: A formal document that offers to sell securities to investors
and includes information that investors need to make an informed decision
about whether or not to buy those securities.

- Among other information, the prospectus includes the company's
financial information and a description of its business, history,
officers, operations, plans (including the use of the money being
raised by the share sale) and the risks related to its financial
projections.
- Typically, a prospectus must be filed with securities regulators and
given to prospective buyers of the offering.

Disponible en français

www.mgs.gov.on.ca



For further information: Contact: Ciaran Ganley, Minister's Office,
(416) 212-3547; Scott Blodgett, Ministry of Finance, (416) 325-0324

[Guest]

the national post states that in the US last year $6.2 billion dollars were awarded to class action shareholders

Nortel is a $3 bil class action in Canada

Crocus fund is $100 mil

The dreaded A company might be next

The banks are on the list as large corporate abusers of ethics

Who else?

[admin]

Posted: 21 Jun 2005 01:19 pm Post subject:

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

Im in. Except I have no damages nor reason to be in, except for having worked in the industry for twenty years, and been well beaten and bruised for not "looking the other way, shutting up over abuse, and simply making more money"

I have evidence to support some of the allegations made in the above post, and wish there were twenty like-minded folks who would trigger this and have the courage to follow it through. win, lose or draw, it would gain attention to the situtaion

[admin]

Posted: 21 Jun 2005 12:55 pm Post subject: $500billion+ class action

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The gross negligence and damages caused by investment houses, their corporate clients and lawyers representing them not to mention government institutions that exempt them is worse than Asbestos and Tobacco combined. If you think about it, Nortel, Bre-X and Enron are only a spit in the bucket and between them alone they cost investors hundreds of billions of dollars in market value. I estimate the true cost to investors in the trillions of dollars. That is why I'd like to see a multi-billion dollar class action lawsuit against those institutions and thousands of individuals who wronged us. The goal would be to change the balance of power in favour of investors. Damages won could be given back to investors and used to fund a stronger protection agency.

[Guest]

Scotia Capital Markets underwrote $175 million of T. Eaton Company, which was distributed primarily to retail clients within one year before the company became insolvent. Read this public letter from Thomas Caldwell, President of Caldwell Securities to the Ontario Securities Commission:


April 23, 2004

John Stevenson, Secretary Ontario Securities Commission
20 Queen Street West 19th Floor
Toronto, ON M5H 3S8

Proposed NI 81-107

Over the years securities regulators have tolerated and encouraged massive concentration within the Canadian Securities industry, with approximately eighty percent of the securities business now controlled by the five major banks. It is apparent these entities are trying to serve too many masters. Conflicts are the natural by-product of this situation. We continue to make more rules, which drive up compliance costs for independent organizations and thus reinforce the consolidation trend. The mutual fund industry is a clear case in point.

We have also forgotten or disregarded history in the creation of the current industry structure. In the U.S., the Glass-Steagall Act, which separated commercial and investment banking functions, was put in place to deal with the abuse of banks using their equity placement (or investment management) capabilities to underpin problem loans with equity issues. Clearly, we cannot expect memories to extend back to the Act’s enactment in 1933 but we should be able to depend upon regulators’ having recall extending to 5 or 10 years.

For example, the T. Eaton Company issued its only IPO in 150 years only to be declared insolvent one year later. Whatever losses its bankers suffered were reduced by the size of the $175 million underwriting. It is ironic to note that financial projections used by the bank-controlled underwriter at the time of the financing were declared to be incorrect within three months of the deal’s closing. Part of the bankruptcy agreement included the provision that the underwriter could not be sued.

Laidlaw Inc., one of Canada’s most widely held companies, was declared insolvent when a bank initiated and advised acquisition (Safety-Kleen) declared its bookkeeping to be fictitious. Many of the shares held were owned through bank-controlled mutual funds. The banks aggressively sought recoupment of their loans to Laidlaw and not one spoke up on behalf of the direct or indirect common shareholders, many of whom held shares through their mutual funds.

Clearly, in a crunch, the banks’ priorities were on the side of getting their loans back at all costs. Canadian bankruptcy laws, unlike those in the U.S., clearly favor creditors in restructuring rather than also allowing equity holders some means of partial recoupment. This fact, when coupled with removing conflict of interest provisions, reinforces this form of common shareholder abuse. The intent and results in these two relatively recent issues appear to be lost in the Canadian Securities Administrator’s submission. That is no surprise. For 40 years in the Canadian Securities industry, I have watched our major banks always get what they sought from the securities regulators. This, despite conflicts, trading abuses, the destruction of agency stock trading, aggressive tied selling (yes, it still exists) and the negative economic impact for small to mid-sized firms trying to raise capital.

One provision that should be specifically allowed in, however, is the ability of an investment manager to trade on a principal basis with an affiliate in the fixed income sector. All bond trading is conducted on a principal basis. It would be chaotic to reinvent this when one understands that all world-wide trades are conducted in this manner. In regards to equity trading, principal transactions are becoming the norm on an institutional basis. In this instance real costs are often hidden from investors and capital is used to buy business and further consolidate our industry.

Approximately 20 years ago, as banks took over investment firms, I asked the Ontario Securities Commission: “How powerful do you want the banks to be?” The question still stands.

Yours truly, Thomas S. Caldwell,
C.M. Chairman

Cc: The Right Honourable Prime Minister Paul Martin
Premier Dalton McGuinty
Honourable Greg Sorbara, Minister of Finance

[Guest]

does anyone have experience with Assante rumors of stock options and other incentive to advisors who switch third party funds to assante proprietary products?

According to OSC fair dealing model, Appendix F (i think) pages 10 or 11, this kind of "churning" increases compensation to the advisor and the firm by many many times over and above third party funds. If clients ever had to pay a DSC redemption charge, as RBC has allowed..........on top of this, then a good case can be made for double dipping by the advisor

class action lawyers should be eating this up. I would say one in five Canadians just might have suffered something like this. Ask around.

[admin]

thanks for the reply. I will post a note in the class action area of this forum on it. The underwriters of this (if they were also the bankers to Eatons) would have been aware and had a tremendous conflict of interest IF it is true that they floated a dead horse issue on the public just to bail out their own bad loans.

Cheers
the advocate

(from the "cover-ups, anyone" forum, discussion whether the underwriters of the EATONS share issue were the same people (or related) to the bankers to the Eatons corp, and whether the offering Eatons shares to an unsuspecting public just months prior to their bankruptcy would be considered self dealing worthy of class action)

[admin]

check out the cases of "unsuitable" investment advice on the NASD web site. (national Association of Securites Dealers in the US)

also check out mutual funds alerts, and investor alerts and warnings section

you will discover numerous cases and examples of mutual fund overcharging, and advisor misrepresenting him or herself as trusted advisor whilst taking advantage of the client as a commission salesperson might..........all of which are being exposed and disinfected in the United States.

None of which are even raising an eyebrow in Canada. Firms cannot touch them because they need the billion dollar problem to go away more than anything in the world.

Regulators cannot touch them because to do so would be like admitting that the regulator was asleep at the switch, or worse, an accesory to the crime.

Lawyers, or public inquiry is the only method I can now image that will have the resolve to unearth these items.

Lets shine the light of day on our investment industry, shall we?

[admin]

why does ASC fear audit? what are they hiding? Certainly not what they
say...........confidentiality of clients. This would be much to easy to
solve.
Appears to be hiding a failure to do the job..........from my perspective

Here's what could be happening in my scenario

1. assume that the ASC receives dozens, hundreds, perhaps thousands of
customer complaints each year, choose any number you wish until an audit
fills in the exact number.
2. Assume that some of these complaints pertain to bank owned (under IDA
membership) firms.
3. I predict that close to 100% of these complaints (about IDA members)
have been referred to the IDA itself.
(with or without legislative authority to do so) (with or without follow up
on the compalints)
4. I predict that the vast majority of those complaints that are about IDA
members, that are handed to the IDA to investigate......get dismissed or
deflected without fanfare by informing the client they have no case. An
audit would tell us this.
(referring abused clients to the IDA is like sending abused young boys
to complain to the north american M/B/L association)

I look forward to public audit or freedom of information requests that will
answer a few of the outstanding assumptions made in this scenario.

Imagine, if this scenario were in any way accurate, how many members of the
investing public, have been misled, misinformed, and left to fend for
themselves while the government funded agency responsible for protecting
them abandoned their role.

Every complainant if this were the case would be able to participate in a
class action against the ASC to recover losses and double and triple
commission charges in the billions.

Abused clients should file suit against the ASC, or alternately, investigate under the access to information act to obtain answers to some questions.

Such as how many complaints, IDA firm complaints, how were they handled? What authority powers the IDA to enforce the act, they feel they do not have such authority etc., etc.