Financial crime more than every other crime combined?

[admin]

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
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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
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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


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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

[admin]

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.

[admin]

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%).

[admin]

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.

[admin]

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)

[admin]

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.