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Scotia Cleaning Up Its Image?

Postby urquhart » Tue Jun 28, 2005 10:05 am

Traders' quick exit sets Bay Street abuzz
What did Scotia know about probe when it hired duo?

Barry Critchley
Financial Post

June 28, 2005

Intrigue and drama -- especially when it comes to personnel changes -- run deep on Bay Street.

Those two elements have been working overtime in the wake of the sudden departure of Glen Grossmith and Zoltan Horcsok, two recently hired equity traders at Scotia Capital. The two joined that firm in the middle of April.

They had been together at UBS Securities. But this year they were both sent home pending an investigation into some unspecified trading matters. When the firm completed its investigation, both were shown the door and denied their bonuses. Many regarded the penalty they paid as a hefty price.

Many argued they were victims of a no-mood-to-cut-anybody-any-slack climate at UBS. The reason: A few months earlier the firm paid a hefty fine for effectively double-printing tickets. Accordingly, it wanted to prove to someone -- particularly at the regulatory level -- that it could act tough even for a supposed mild infraction. (Details of the penalties, if any, that may be levied on UBS and/or the two traders have not been determined.)

Now comes word the two have departed the employment of Scotia Capital. While Scotia declined to comment on the specifics of the two departures, one question remains: What did the firm know about the regulatory investigation when it hired the two?
Posts: 125
Joined: Tue Jun 14, 2005 3:43 pm
Location: Mississauga

Scotiabank is willing to block a police investigation

Postby Guest » Wed Jun 22, 2005 5:50 pm

Scotiabank stand risky, expert says

Barbara Shecter and Theresa Tedesco

Thursday, February 03, 2005

The raid on Bank of Nova Scotia by the RCMP this week in its investigation of Scotiabank client Royal Group Technologies Ltd. could hurt the reputation of the financial services company that had recently appeared incapable of taking a misstep, industry observers said yesterday.

Tuesday morning's raid by 25 federal police armed with a search warrant that could see them set up shop in the bank until the end of March came after Scotiabank claimed some documents were legally privileged. The bank also sought cost-sharing and some control over the timing of turning over files.

Elliot Schreiber, a professor and consultant in the area of reputation management, said Scotiabank appears to have ignored a wide swath of its stakeholders by not negotiating with the RCMP to provide the police with what they needed for their fraud investigation.

Taking a stand that implies Scotiabank is willing to block a police investigation in order to protect client information means the bank has tied its reputation to that of the client.

"That's a very dangerous thing to do," said Mr. Schreiber, adding that other customers might link Scotiabank to the allegations of wrongdoing by Royal Group and its former top executives even though Scotiabank is not implicated in any of the fraud and insider dealing alleged to have taken place at Royal Group.

Mr. Schreiber, who teaches at the Conference Board of Canada and McMaster University's Directors College, said he is surprised that Scotiabank officials did not sit down to negotiate what information would be made public and how, rather than heading for the courts.

The publicity of the raid is likely to hurt the bank's reputation with customers, shareholders and other regulators, he said.

Scotia handed over thousands of documents related to Royal Group Technologies that were requested by the RCMP.

But the bank took a request for further information in October to court to resolve issues of timing and costs.

"It's like a cop pulls you over and you start yelling at him -- it's probably not going to help the relationship," said Mr. Schreiber.

"I think Scotia will suffer reputationally as a result of this."

The Office of the Superintendent of Financial Institutions, Canada's top banking regulator, is preparing new guidelines to govern how banks manage risks to their reputation.

Other Canadian banks have recently stumbled through widespread computer network problems, the defection of large shareholders, and under-performing divisions.

Scotiabank, on the other hand, had a recent stint as Canada's biggest bank by market capitalization, topped international performance charts for shareholder returns, and has prospered with its unique international expansion strategy.

A senior official at another large bank, who spoke on condition that his name not be used, said he could not see the upside to standing up to a regulator.

"Scotiabank must be rethinking its strategy," he said.

"When we get asked for documents by regulators, we say, 'yes sir, when do you want them?' and leave the complaining among ourselves."

A source close to Scotiabank acknowledged that Tuesday's surprise raid shortly after the RCMP withdrew the court-challenged production order requesting documents sent a strong message through the bank and industry.

"They sure got us in line and at the same time scared everyone else just in case anyone else thought about whining if they get asked for documents."

While there is no evidence that any of Royal Group Technologies' bankers besides Scotiabank has been contacted by the RCMP in the investigation, sources say the probe will likely lead to information requests from Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce.

"The industry has a lot of sympathy for Scotiabank," said the senior bank executive. "But would any of us have done what they did? Most of us wouldn't want the aggravation."

Scotia Bank "Has Not Co-operated With the RCMP"

Postby Guest » Wed Jun 22, 2005 5:42 pm


Sheriffs of Bay Street raid bank head office

With a report from Sinclair Stewart

Wednesday, Feb 2, 2005

TORONTO -- The Mounties ushered in a new era of U.S.-style crackdowns on white-collar crime by staging a highly visible raid yesterday morning on one of the country's big banks.

About a dozen squad cars and unmarked vehicles, including an enormous white van emblazoned with the RCMP coat of arms, lined the street in front of Bank of Nova Scotia's head office in Toronto's financial district.

Shortly after 9 o'clock, in the thick of the morning rush hour, 25 police officers descended on the bank armed with a search warrant.

This is by no means the first time police have searched a corporate office. But the sheer prominence of yesterday's raid is unprecedented and the largest ever staged by the Mounties' new white-collar crime unit. The get-tough attitude comes as Canadian law-enforcement officials are facing criticism for being too easy on corporate crime.

The raid by the RCMP's Integrated Market Enforcement Team (IMET) follows months of tension between police and Scotiabank.

Police have been seeking documents from the bank in connection with a yearlong fraud investigation into a company called Royal Group Technologies Ltd., which is based in Woodbridge, Ont.

The bank itself is not under investigation. But a police source said IMET "upped the ante" and raided Scotiabank's offices because the bank has not co-operated with the RCMP. He said he did not want officials at the bank, or anyone else for that matter, to think they could just get the Mounties to "fold up their tent" and go away.

"I don't think it's lost on anybody that a byproduct of Scotiabank not being co-operative with us is, we aren't going to be intimidated," the source said. "It wasn't lost on anybody the impact this could have on Bay Street."

Traffic ground to a halt as the RCMP parked its van, dubbed the mobile command centre, outside the bank's main entrance, and had a public relations officer from Ottawa on hand to field questions from throngs of reporters, television cameras and curious onlookers.

An RCMP spokesman said the van could be there for up to two months as police gather thousands of documents. The search warrant is good for 60 days.

Scotiabank became swept up in the probe because it is the main banker to both Royal Group and its controlling shareholder, Vic De Zen. The RCMP is investigating allegations of fraud and other wrongdoing by Mr. De Zen and two other former top executives at the company. All three deny any wrongdoing and none of the allegations have been proven.

The RCMP is seeking banking records dating back to 1996. Tension between the RCMP and the bank centred on a new police investigative tool known as a production order. Those orders, signed by a judge, are designed to help police gather information from entities that are not under investigation but that have relevant documents.

A key feature of the orders is that the entities themselves gather the information and present it to police. RCMP served two production orders on Scotiabank last October. The bank complied with the first order. But when the second one arrived seeking more records, it went to court in an attempt to get the RCMP to cover some of the cost of gathering the material.

The bank said it spent $200,000 complying with the first order alone.

The action by the bank infuriated the police, who also allege in the search warrant that the bank "removed" some documents and data that the police were scheduled to pick up in early December as part of the production order.

This was the first time IMET had used a production order. Instead of fighting the bank in court over costs, the RCMP withdrew the second production order and shot back yesterday with the warrant. Search warrants are a more powerful legal tool that allows the police to go into someone's premises and gather documents.

The bank is "going to see our van there for the next two months, or however long it takes, until we finally get all the documents and everything we have requested from Scotiabank," the police source said. "I think it's a horrible, horrible [public relations] nightmare for the bank."

Scotiabank spokesman Frank Switzer stressed that the bank wants to co-operate fully with police. He added that not all of the missing documents the RCMP wants were removed by the bank.

Royal Group is one of two high-profile cases that IMET has tackled since it was launched in November, 2003. The other is that of Nortel Networks Corp.

The federal government created IMET to crack down on corporate and securities offences. It is headed by Superintendent John Sliter, who has been a Mountie for 25-years. Supt. Sliter, 47, has spent most of his career investigating stock frauds. He made headlines in 1994 with a report, done for a master's thesis, criticizing the force's track record on securities fraud.

Yesterday, he played down the raid and the public spectacle surrounding it. "It's simply a matter of we're using one of the tools that's available to us in our arsenal."

Postby Guest » Wed Jun 22, 2005 5:02 pm

jason cowan in edmonton is on the phone to the United States every day with his complaints about the ASC. He just might be on to something.

HIs opinion is that talking about wrongding in Canada is like talking to the criminals. There seems to be no one who cares in this laid back country to do the job correctly.

WIth Ralph Klein recently visiting the states to promote alberta, Jason is getting an ear at senators offices and newsmedia offices about the "wild west" unregulated environment up here. It is a sensitive topic and the americans worry about that kind of thing to the point where they do something about it.

I support him in his efforts, and will stand behind him as an investment expert who can attest that we are in an "unregulated, buyer beware" environment here in Alberta.

Scotia Capital and Eatons

Postby Guest » Wed Jun 22, 2005 4:14 pm

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

David Wilson

Postby Guest » Wed Jun 22, 2005 4:01 pm

David Wilson did not not take any disciplinary action against senior retail management at Scotia McLeod for falsifying account records and investment performance information for the client(s) of Carolann Steinhoff

Read the story at:

Auditor General Audit of OSC

Postby urquhart » Wed Jun 22, 2005 5:08 am

J. Edward Detoro

June 8th 2005

364 Fern Ave
Richmond Hill, Ontario
Phone 905 770 4555
Fax 905 770 8834
"E" mail

Mr. James McCarter,
Office of The Auditor General of Ontario
Suite 1530, Box 105,
20 Dundas St. West,
Toronto, Ontario M5G 2C2

Dear Mr. McCarter

Recently I attended a Forum on May 31st/OS sponsored in part by SIPA, the Small Investors Protection Association regarding Securities Regulators and their lack of response in protecting the small investor. It seems widespread throughout the investing industry that the small investor is continually ignored when a problem arises with his/her investment that needs the help of a regulator. The fact the small investor is the fuel that makes the investing industry engine run is ignored. The OSC, OBSI and the IDA make a big issue out of bringing down a large corporation for one reason only, to impress the public that they are concerned. But the small investor (the Voter) who puts his money where his mouth is, is ignored. The advisor on the other hand puts the investors money where his mouth is and when it fails or does not live up to the promises made washes his hands of the issue. In the meantime, he/she collects a juicy commission which can go on and on as trailer fees even though the initial investment has diminished in value.

Had you been at the meeting I am certain you would have been disgusted with the panel and their response to speakers from the floor, some in tears, who had lost their life savings to some dishonest unprincipled advisor. You had to be there, it would bring you to tears but the thing that hurt the most were the disgusting responses from the panel, David Brown of the OSC and Michael Lauber from OBSI. "we suggest you hire a Lawyer" The investor looks to them for help and this is their response? These regulators must be terminated as it is quite apparent they are pandering to the Banks and Brokerage houses. The small investor places their trust in an advisor to place their funds, only to find later on they have been deceived by a commission driven devious advisor.

On top of this we now discover someone or group in the Ontario Government have secretly passed a bill that limits an investor to a two year period to register a complaint against an advisor or Brokerage firm. It has been reduced from 6 years to two years, why I ask you why? It takes sometime two years before you realize your investment is in the toilet as your advisor may be conning you to hang on and this gets them time to walk away. I make this demand as a Taxpayer that you or whoever is responsible release to me the name of or group in the Government service who thought up this unfair Scheme and why.

This is a multi Billion dollar a year industry who without the small investor, many would be unemployed or doing some lesser employment. It is time to fish or cut bait as the saying goes This Industry needs to be revamped and a complete overhaul of policy regulators and advisors. I request that a meeting be granted with you, myself and Stan Buell President of SIP A to hear our side of this contentious issue.

May I hear from you personally.

Yours truly

Posts: 125
Joined: Tue Jun 14, 2005 3:43 pm
Location: Mississauga

Postby Guest » Tue Jun 21, 2005 9:35 pm

view the town hall investor question site to see just how many hurt investors are out there

add your questions to the site, and demand answers from them

I will be asking them if they have indeed closed the investigation into assante without having received the information that the Sask Financial Services Commission suggested they look at.

Is there something being covered up by the regulators at assante? Why, if so?

Auditor General Audit of OSC

Postby urquhart » Tue Jun 21, 2005 1:38 pm

There is something amiss in David Brown's June 3, 2005 claim to the Toronto Star that it was the OSC who has sought an audit of its enforcement by the Auditor General of Ontario. Unless, David Brown has had a change in heart since he argued at the November 2004 OSC Facing the Issues Conference that an enforcement audit by the Auditor General of Ontario was unnecessary since the OSC had just been subject to such an audit recently. See my correspondence below to the OSC Commissioners, which confirmed that David Brown was disingenuous when he alleged the Auditor General of Ontario had already completed an audit of OSC enforcement.

From: Urquhart []
Sent: Wednesday, November 10, 2004 10:31 AM
To: ''; ''; ''; ''; ''; ''; ''; ''; ''; ''; ''; ''; ''
Cc: ''; ''; ''

Subject: Important Matters for Consideration of the OSC Board of Directors

To the Board of Directors of the Ontario Securities Commission:

David A Brown, Q.C.
Paul M. Moore, Q.C.
Susan Wolburgh Jenah
Paul K. Bates
Robert W. Davis
Harold P. Hands
M. Theresa McLeod
H. Lorne Morphy Q.C.
Robert L. Shirriff, Q.C.
Suresh Thakrar, FIBC
Wendell S. Wigle, Q.C.
David L. Knight

I am writing this correspondence to bring to the attention of the Ontario Securities Commission Board of Directors two important matters for their consideration:

(1) There Has Been No External Audit of the OSC Enforcement Operations’ Efficiency and Integrity Since 1994

At the Dialogue With the OSC 2004: Facing the Issues Conference, I asked David Brown, Chairman of the OSC Board of Directors, the question: Would the OSC be willing to be subject to an external audit of the OSC enforcement operations, so that the public would have confidence that the securities offences occurring in the province were receiving enforcement actions and were fairly selected? Mr. Brown responded that this was not necessary since the OSC was subject annually to a financial audit by the Provincial Auditor of Ontario and that this dealt with financial and other matters. Susan Wolburgh Jenah, OSC Vice Chairman had answered my question earlier in the day on whether the OSC enforcement operations had ever been subject to an external audit by the Attorney General’s office or any other Ontario government appointed official. Her answer was that she had no knowledge of such an audit, which Michael Watson, Head of OSC Enforcement, did not refute from his position on the same panel. Due to the apparent contradiction in David Brown’s answer and Susan Wolburgh Jenah’s answer to my questions on any external audit of the OSC’s enforcement operations, Michael Watson announced in the Enforcement break-out panel that there had been a thorough external audit of the OSC enforcement operations ten years ago by the Solicitor General’s office.

Being the fact-based research professional that I am, last week I called John McDowell, a Director of the Provincial Auditor of Ontario and auditor responsible for the Ontario Securities Commission annual financial audit. Mr. McDowell advised me that his office prepares the annual financial audit, which gives the opinion that the OSC financial statements were fairly presented in accordance with GAAP. This annual audit does not provide any audit or opinion on the efficiency and integrity of the OSC enforcement operations. Furthermore, the Office of the Provincial Auditor of Ontario has never completed a Special Value for Money Audit, which it is empowered to do for any Ontario government program, such as OHIP or social benefit programs. So, my conclusion is that David Brown has been disingenuous when he implied to the Conference audience that the Provincial Auditor of Ontario has completed an external audit of the OSC enforcement operations, when he knew full well the context of my question. The Office of the Provincial Auditor of Ontario telephone number is 416-327-2381. Their website is ... _frame.htm.

David Brown has been making public statements that the current OSC Commissioners only work 39 hearing days per year, and therefore there will be inadequate benefits to investors relative to the incremental costs of a new separate adjudicative tribunal. There was an all party consensus at the Ontario Standing Committee of Finance and Economic Affairs recommending the creation of a separate adjudication tribunal in Ontario, if no progress is made on the national securities commission within twelve months. This recommendation has also received the support in the Ontario Legislature of the Ontario Minister of the Management Board of Cabinet, Gerry Phillips, the Ontario Conservative Finance Critic, James Flaherty, and the Ontario NDP Finance Critic, Michael Prue. The implication of David Brown’s statement on only 39 hearing days per commissioner is that the OSC enforcement staff will be unable to bring more enforcement actions than the 1998 to 2003 average of 34 per year it brought to Commission hearings. So, there is either no more securities offences amongst the 777 average annual complaints to the OSC to be acted upon by the OSC, or there are inadequate enforcement resources to process the securities offences in the files of the OSC Enforcement Division. (The IDA gets another 1123 average annual complaints and completes an average 42 disciplinary actions annually during 1998 to 2003.). The context of my question was that if David Brown, or any others, were to attempt to squash the recommendation for a separate adjudication tribunal due to inadequate workload, then David Brown should be prepared to agree to an external audit of his enforcement operations to demonstrate to the Ontario public that there are only about 34 securities offences worthy of sanctions amongst its 777 complaints and the IDA’s 1123 complaints annually and that there is no need for additional enforcement resources to process the securities offences the OSC and the IDA have been unable to address. The additional rationale for David Brown being asked to complete an external audit of the enforcement operations would be to satisfy the alleged wrongdoers, the investor victims, and the Ontario public generally, that the selection of investigations and sanction actions is fair and free of backroom lobbying by any parties; conflicts of interest due to personal relationships or enforcement staff seeking favour for future employment prospects; or, simply the OSC staff attempting to manage the reputation of the financial industry and the capital markets. It would be apparent to public observers that there would be no resistance to an external audit of the OSC enforcement operations, given that one has not been done for ten years and if the OSC Board of Directors was confident in the efficiency and integrity of its enforcement operations.

(2) OSC Staff Is Unable to Get Osborne Report Up on Its Website That Is Readily Accessible, Quickly Downloadable and Electronically Transportable By E-Mail

The OSC’s inability to produce an acceptable electronic Osborne Report on the OSC report is difficult to comprehend as reasonable. Firstly, Honourable Coulter Osborne advised me by telephone on Friday, October 21, 2004 that the office of Bryan Finlay, Weirs Fould LLP, agreed to forward the original Microsoft Word Document of the Osborne Report on a computer disk to the OSC Communications Division in the next day or two after our telephone conversation. Please inform me whether or not this was received from the office of Bryan Finlay.

Secondly, in the event that Bryan Finlay’s office no longer possesses the original Microsoft Word Document file or has been remiss in sending it to you, it is difficult to comprehend why the OSC would not have any resources for the proofreading exercise that would be required to verify the attached 379 KB file supplied by Robert Kyle against the paper copies that the OSC has. By my estimation, as a former Managing Director of Equities Research publishing hundreds of similar documents per year, the proofreading would not be exhausting, as the time involved would be about 210 minutes, calculated on 105 pages at two minutes per page. The estimated cost of the proofreading would be about $175 assuming the proofreading was contracted out at $50 per hour. I figure that, you as an OSC legal counsel preparing correspondence on the matter, took at least one and one half hours to understand the technicalities of the Osborne Report file on the OSC website now and to prepare the long e-mail you have written. So, the OSC cost to provide a “no answer” must already be at least $225, just for your time alone. Furthermore, it is a disheartening revelation, when so many securities offences are unable to be processed, that an OSC lawyer is assigned to computer files rather than to enforcement operations.

Thirdly, I am thinking of the need for the OSC to achieve the widest possible distribution of the Osborne Report, since its recommendation to create a separate adjudication tribunal has been endorsed by all the parties on the Ontario Standing Committee of Finance and Economic Affairs, the Ontario Minister of the Management Board of Cabinet, Gerry Phillips, the Ontario Conservative Party Finance Critic, Jim Flaherty, and the Ontario NDP Party Finance Critic, Michael Prue. While there has been some media coverage on the recommendations of the Osborne Report, the Ontario public may wish to better understand what a separate adjudication tribunal would entail and why it would cause them to have greater confidence in the integrity of Ontario’s capital markets. A significant proportion of the Ontario public is now accustomed to finding information on the internet. This is now a preferred way to receive government reports, since properly structured electronic reports are convenient to access, easy to store and easy to transport to family, friends, professional advisors and business contacts. Electronic government reports on the internet save the OSC substantial costs, as well. I estimate the cost of producing and mailing one paper Osborne Report would be about $5.00, $2.00 dollars for the printing and $3.00 for the mail. So, at the $175 cost for the proofreading of the attached Robert Kyle electronic file, the OSC break-even relative to your decided option of offering paper copies of the Osborne Report is 35 people in Ontario.

This request for the OSC to get the Osborne Report up on the OSC website in a form that is readily accessible, quickly downloadable and electronically transportable by e-mail is clearly the best option. Surely, for the nominal effort and the $175 proofreading cost involved, the OSC would want to be expanding the breadth of public knowledge on the contents and recommendation of the Osborne Report. Restoring public confidence in the integrity of the markets is urgent given the public polls showing serious concerns about the OSC’s effectiveness in enforcement and the $4.3 billion net redemptions of Canadian equity mutual funds since June 2002.

Yours sincerely,

Diane Urquhart

Telephone: 905-822-7618
Posts: 125
Joined: Tue Jun 14, 2005 3:43 pm
Location: Mississauga

Auditor General Audit of OSC

Postby urquhart » Tue Jun 21, 2005 1:29 pm


Jun. 3, 2005. 01:00 AM

Inquiry for audit came from OSC
OSC might face audit

I was dismayed to read this story about a potential value for money audit of the Ontario Securities Commission. The tone of the article misrepresents the facts and the article shows a surprising lack of balance.

In fact, the original inquiry about the Ontario Auditor General doing this audit came from us. It was our initiative.

Our external auditor is the provincial Auditor General, therefore it is understandable we would have this discussion. He is able to do such audits under new legislation that gives him new powers, but it is his decision. We can't commission one.

The fact that we initiated the inquiry several weeks ago is entirely lost in your article. This suggests that we are, for some unspecified reason, the target of the Auditor General's attention. The truth is that in the course of discussing our annual audit plan, we asked if the Auditor General could now conduct such an audit for us.

We discuss our audit plan every year with the Auditor General to ensure that resources are deployed efficiently. We know fully the benefits that can flow from such an audit and would welcome one.

The article does not display the fair reporting we would expect from a leading newspaper.

David Brown, Chair, Ontario Securities Commission, Toronto
Posts: 125
Joined: Tue Jun 14, 2005 3:43 pm
Location: Mississauga

Auditor General Audit of OSC

Postby urquhart » Tue Jun 21, 2005 1:27 pm


Jun. 2, 2005. 01:00 AM

OSC might face audit
Value-for-money probe considered
Auditor general considers action


Ontario's auditor general is considering a so-called value-for-money audit of the Ontario Securities Commission, a probe that could shed light on the securities regulator's controversial record of pursuing and penalizing stock market cheats.

Auditor General Jim McCarter said in an interview he was weighing whether to conduct a value-for-money probe of the OSC, a tool new to the auditor general designed to determine whether money has been spent with "economy and efficiency."

"We're definitely considering an audit," McCarter said. He cautioned, however, that "it's not like we're ready to break open their doors and go in."

Bay Street observers said the OSC would be a natural place for McCarter to test the expanded powers of his office. Canada's largest stock market regulator has been a target of criticism in recent years for its handling of insider trading cases, accounting frauds and other corporate misdeeds.

"They've earned the reputation of being lax and slow," said William Mackenzie, an executive with Institutional Shareholder Services Canada Corp., a company that recommends to investors how to vote their proxies.

The auditor general has had the ability to conduct value-for-money audits of universities and hospitals and Crown corporations, including Hydro One, Ontario Power Generation, since April 1 after Ontario Liberals passed a bill in November that opened a rash of public-sector groups to the expanded probes.

McCarter said if he decides to proceed with a probe of the OSC, it might take as long as three or four months to complete. With roughly 75 accounting specialists on staff who handle forensic audits, the auditor general already conducts yearly audits of the OSC's financial statements.

David Brown, chair of the OSC, said publicly this week that he would "welcome" an audit and comply with any requests made by the auditor general. He made the remarks Tuesday evening at an Investor Town Hall meeting in Toronto, which drew about 500 people.

In 2003, a Wilfrid Laurier University study found "large-scale evidence of insider trading and reporting violations" in Canada, and said that Canada had just 15 insider-trading convictions from 1980 to 2002, compared with hundreds of similar prosecutions in the United States. In some instances in Canada, the penalty imposed by the OSC and other provincial stock market regulators has been lower than the ill-gotten gains.

Bank of Canada governor David Dodge last year fuelled the debate engulfing the OSC when he suggested that Canada's stock market had a "Wild West" reputation overseas "in terms of the degree to which rules and regulations are enforced."

Even though Brown pledged to beef up the OSC's enforcement unit, complaints to the auditor general from individual investors continue to dog the securities regulator over its handling of several high-profile investigations.

Cases that have raised the hackles of investors and other stakeholders include:

Conrad Black's attempt to privatize Toronto holding company Hollinger Inc. Even though the company remains embroiled in controversy and is the subject of a high-profile court-ordered inspection, in-house OSC staff initially approved Black's attempts to take the company private before an OSC independent tribunal overruled the staff's recommendation.

The recent "market timing" scandal. After reaching settlement agreements with five mutual fund companies, the OSC decided against pursuing a case against as many as 15 others. The OSC said evidence of market timing was uncovered, but the funds had identified it early on and stopped it. Market timing, or rapid in-and-out trading of shares, isn't illegal but hurts mutual funds by raising costs and cuts returns for long-term investors.

The OSC's pursuit of Daniel Duic, who has testified against former RBC Dominion Securities investment banker Andrew Rankin in an insider trading case. Duic last year agreed to return $1.9 million in a settlement with the OSC, but has told regulators he made about $7 million from improper trading.

In the Bre-X case, the OSC charged former Bre-X chief geologist John Felderhof with insider trading nearly five years ago. After extended delays, including a failed bid by OSC prosecutors to have the presiding judge removed, the trial resumed last fall.

To be sure, several Bay Street officials said it's unfair to compare the OSC's prosecutorial record with the powerful U.S. Securities and Exchange Commission.

For starters, the OSC has a budget of $55 million and spends about $10 million a year on enforcement, according to Wilfrid Laurier's study. The SEC, by contrast, has a budget of $913 million (U.S.) this year and spends roughly $265 million of that on enforcement, the university study found.

"You're basically talking about a regulator in Ontario investigating national securities cases with a provincial budget," said Len Racioppo, president of Montreal money manager Jarislowsky Fraser Ltd.

While a federally mandated "wise persons committee" recommended Canada adopt a national securities regulator, which would streamline securities fraud prosecutions, the prospect has met with resistance from regulators in B.C. and Quebec and seems unlikely to proceed.
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Auditor General Audit of OSC

Postby urquhart » Tue Jun 21, 2005 1:25 pm

Hugh and I passed out about 150 of the following letters at the May 31, 2005 OSC Townhall Meeting. I faxed 10 of these signed letters the next day, upon the request of the signatories and on a private and confidential basis. We do not know how many of the other 140 recipients of the letter sent it in to the Auditor General of Ontario after the OSC Townhall Meeting. I encourage anyone reading the letters in this post to cut and paste this form letter or write your own letter to the Auditor General of Ontario requesting that he audit OSC enforcement.

Honourable Gerry Phillips
Chair, Ontario Management Board of Cabinet
Ontario Legislature
12th Floor, Ferguson Block, 77 Wellesley St. West
Toronto, ON, M7A 1N3
Telephone: 416-327-2333
FAX: 416-327-3790

Mr. James McCarter
Office of the Auditor General of Ontario,
Suite 1530, Box 105
20 Dundas Street West
Toronto, ON, M5G 2C2
Telephone: 416-327-2381
FAX: 416-327-9862


Dear Honourable Minister Gerry Phillips, Ontario Management Board of Cabinet, and James McCarter, Auditor General of Ontario:

Concern has escalated into fear that securities regulators do NOT protect small investors from fraud and unethical practices by company officials and investment professionals.

The Ontario Securities Commission must be held accountable to the investing public for the thoroughness and integrity of securities enforcement. I request that the Auditor General of Ontario conduct an audit of OSC enforcement and of the OSC’s oversight of the IDA enforcement. The Auditor General of Ontario should retain independent forensic investigation expertise for the OSC enforcement audit.

Also, I request that the Ontario Legislature accelerate restructuring of the OSC to separate its policing and adjudicative functions, so that both the wrongdoers and aggrieved investors may be satisfied that there is effective due process and justice.

Yours sincerely,

Sign Here

Print Name



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Location: Mississauga

Auditor General Audit of OSC

Postby urquhart » Tue Jun 21, 2005 1:18 pm

April 2, 2004

Mr. Gerry Phillips, Chair, Management Board of Cabinet,
Queen's Park, Management Board Secretariat,
77 Wellesley St W, 12th Floor, Ferguson Block,
Toronto Ontario, M7A 1N3
Telephone: 416-327-2333

R.S.O. 1990, c.S.5, as amended [the "OSA"]

Dear Sir, the Honourable Chairman Gerry Phillips:

I am writing to you in your new capacity as the Ontario Legislature Minister responsible for the Ontario Securities Commission. My wife, Darlene and I recently made an application to the Ontario Securities Commission as part of a group of shareowners of a B.C.-based public company, Technovision Systems Inc., that violated the Ontario Securities Act. One of the co-applicants was Diane Urquhart, a former director and a large shareowner of this public company. Diane is also considered to be a “whistle-blowing director” by both the media and general public. We admire her upstanding character, business integrity and her relentless efforts to provide evidence to the TSX Venture Exchange, BCSC and the OSC on unauthorized management compensation, stock trading manipulation and continuous disclosure misrepresentation. The evidence also indicated that the illegal issuer bids were paid to Ontario insiders who had insider information and who did not file insider trading reports on the sale of their control block shares. As a result, the TSX Venture Exchange remedied the unauthorized management compensation and the BCSC sanctioned the stock trading manipulation and continuous disclosure misrepresentation.

In spite of the solid evidence and public dissension, we are dismayed that OSC Commissioners Robert Shirriff and Wendell Wigle have recently permanently stayed our application. We are also appalled that the OSC, without basis, has defined us as the silent partners of Diane Urquhart. As owner/operator of 1273889 Ontario Limited, Mr. Asquith and I are both technical professionals with minimal legal and investment background. We had no knowledge of any illegal insider trading at Technovision Systems Inc. or any previous litigation of Diane Urquhart against the company. In fact, we never met Diane Urquhart before May of 2003. It was not until the telephone call that we received from Diane Urquhart last May, stating the illegal occurrence of insider transactions and offered to present the case to the OSC, we then became part of the shareholder group’s OSC application on May 16, 2003. Had we been given the same offer and an information circular with the same material information that the insiders had at the time of their sale as required by Law, we would not have incurred a personal loss of $116,485 (from 55 cents down to 7 cents per share). We are merely the silent victims of Technovision Systems Inc. caused by securities transgression and insider trading activities. Perhaps if we were silent partners of the Technovision special offering, we would be sitting on the OSC side throughout the legal proceedings and be protected under the existing OSC system. As you should agree that even if we had knowledge of any illegal transactions at the time, we would be humbled by the complexity of the OSC legal system. We are the classic victims of illegal insider trading in Ontario and victims of the legal system. We are real people who should be protected by law in an honest stock market in this great country. We feel that it is our obligation as law binding citizens to inform the general public that company directors might have little power or legal support to prevent illegal securities activities and the obscurity of our legal system might not provide justice and sufficient protection to the investing public. In our case, the system has failed and justice has not been served! We trust that the OSC, under your new direction and supervision, will enforce Ontario Securities Laws and develop an “user-friendly” legal system to protect individual investors and victims like us. The people have lost faith in the system and we are convinced that the OSC system is not designed to serve the public with lesser legal or financial resources. Mr. Phillips, we urge you to review the OSC legal proceeding and enforcement in order to better protect all honest and hard-working Ontario residents. Thus far, we have received better response and element of respect from the BCSC Office. We request that you Sir should consider releasing the stayed “insider trading report” for our future civil litigation and legal considerations. We, the public still believe that justice will be served.

Thank you for your kind attention.

Respectfully Yours,

Leo and Darlene Chan
Bruce and Cathy Asquith


Mr. David Brown,
Chairman of Ontario Securities Commission,
Ontario Securities Commission,
Suite 1900, 20 Queen Street West,
Toronto, Ontario, M5H 3S8
Telephone: 416-593-8203

Mr. Robert Shirriff,
Ontario Securities Commission Commissioner,
Ontario Securities Commission,
Suite 1900, 20 Queen Street West,
Toronto, Ontario, M5H 3S8

Mr. Wendell Wigle,
Ontario Securities Commission Commissioner,
Ontario Securities Commission,
Suite 1900, 20 Queen Street West,
Toronto, Ontario, M5H 3S8

Mr. Doug Hyndman
Chairman of British Columbia Securities Commission,
701 West Georgia Street,
P.O. Box 10142, Pacific Center,
Vancouver, British Columbia, V7Y 1L2
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Location: Mississauga

Auditor General Audit of OSC

Postby urquhart » Tue Jun 21, 2005 1:14 pm

Ralph Palumbo
Director Government Relations and Legislative Affairs
Cerified General Accountants of Ontario

June 20, 2005

Mr. James McCarter
Office of the Auditor General of Ontario
20 Dundas Street West
Suite 1530, Box 105
Toronto, Ontario
M5G 2C2

Dear Mr. McCarter,

Re: Request for the Auditor General of Ontario to conduct a Value for Money Audit of the Ontario Securities Commission’s Enforcement of the Ontario Securities Act

I am writing to support the request of many Ontarians for your office to conduct a Value for Money Audit of the Ontario Securities Commission’s (the “OSC”) enforcement of the Ontario Securities Act. In my view, lax and ineffectual enforcement of regulatory authority has been the hallmark of the OSC and only a thorough review of the Commission’s operations will provide the impetus for change necessary to return investor confidence in the capital markets.

It is clear that the promotion of accountability and integrity in the financial and securities markets is necessary for investors – both domestically and internationally – to have confidence in our markets. Yet we are faced almost daily with examples of circumstances in which the regulation of these markets were unfair and inadequate. So too are there examples of losses suffered by vulnerable third parties as a result of such regulation.

Many Canadians have expressed concern that the current regulatory regimes are not serving the public well. Consider for example the comments of David Dodge, the Governor of the Bank of Canada, who recently stated that Canadian securities regulators are not doing enough to combat instances of fraud and illegal insider trading. Mr. Dodge stated:

“A very common refrain we hear when we visit markets [abroad] is that somehow this is a kind of a little bit more of a Wild West up here in terms of the degree to which rules and regulations are enforced – and that perception doesn’t really help us when we go to try to raise money on foreign markets…Part of the problem is related to the lack of skills on the part of the police forces … and on the part of our prosecutors … and in the regulatory agencies themselves to effectively pursue through to completion cases, where rules have been breached…”

Ontarians have every reason to be concerned that the regulatory system is not doing its job well. For example, we know of no other country where accounting and audit standards are developed and maintained by one private accounting body and its members – the Canadian Institute of Chartered Accountants. More specifically, it is ludicrous and contrary to good public policy that the development and maintenance of accounting and audit standards in Canada are controlled by chartered accountants; those same standards are then, in the main, applied by chartered accountants in the performance of audits of publicly traded companies; and subsequently the work of these auditors are regulated by a non-legislatively based body - controlled by chartered accountants - known as the Canadian Public Accountability Board (“CPAB”).

CPAB is a privately incorporated company, financed and largely governed by the very auditors it purports to regulate using private contract law to direct compliance. While Canadian investors and regulatory authorities have demanded an auditing oversight body that is accountable, transparent and mandated by statute to protect the public interest, the response instead was CPAB. It is not accountable or transparent and is not empowered by statute. The Ontario Securities Commission played a major role in the creation of CPAB and its Chair has a seat on CPAB’s Council of Governors. I have attached a copy of my letter dated October 20, 2004 to the Hon. Ralph Goodale, Minister of Finance, which sets out our concerns with CPAB. I have also enclosed my correspondence with CPAB on the Nortel scandal.

The need for effective securities regulation and investor protection was highlighted by a decision of the Supreme Court of Canada in Hercules Managements Ltd. v. Ernst & Young [1997] 2 S.C.R. 165. The issue in that case was whether auditors were liable for financial losses suffered by creditors and investors who relied on financial statements allegedly prepared negligently. The court ultimately held that the only purpose for which the audit report could have been used so as to give rise to a duty of care on the part of auditors, was as a guide for the shareholders, as a group, in supervising or overseeing management. The court held that the audit report could not be used for the purpose of making and monitoring individual investments as that was not the purpose for which the report was prepared. Given the lack of remedies afforded by the courts for investor losses, it is all the more necessary for the OSC to provide strong, effective regulation of securities legislation so as to prevent those losses from occurring.

In his book entitled “The Economics of Innocent Fraud”, John Kenneth Galbraith summarized his view of the problems associated with capital market regulation:

“The corporate scandals and especially the associated publicity have led to discussion of appropriate regulation and some action – positive steps to ensure accounting honesty and some proposed remedies, as required, to counter management and lesser corporate fraud. Attention has been drawn to unduly compliant officials, including those on the essential Securities and Exchange Commission. One obvious result has been well-justified doubt as to the quality of much present regulatory effort. There is no question but that corporate influence extends to the regulators. It is less easy to defend corporate behaviour in the face of a negative public view. Needed is an independent, honest, professionally competent regulation – again, a difficult thing to achieve in a world of corporate dominance. This last must be recognized and countered. There is no alternative to effective supervision. Management behaviour can also be improved by thoughtful contemplation of the wholly real possibility of less than agreeable incarceration.”

More important, it must be seen that good corporate behaviour with effective regulation is greatly in the public interest. Managerial misappropriation is not. This must be understood not as oratory, not as threat, but as reality. No one should suppose that supervisory participation by directors and shareholders is sufficient. Remedy and safeguard must have the force of law.”

These comments are timely in Canada.

In a situation where prosecution of corporate scandals originate in the United States, not in Canada; where the development and maintenance of accounting and audit standards are in the hands of the very auditors who perform the overwhelming majority of audit work in Canada; where the Ontario Securities Commission has joined CPAB, a body that is practically and administratively controlled by the very auditor bodies that require closer regulation and who are responsible for the very problem that it is the regulator’s responsibility to remedy; and where the Hercules decision has decided that shareholders, investors, creditors and those that rely on financial statements to make investment decisions are not persons to whom auditors owe a direct legal duty of care, it is essential that the Ontario Securities Commission provide the public with the confidence it requires that the securities markets will be enforced in a thorough, effective, consistent and fair manner. Unfortunately, the only way to ensure that this will occur is for your office to immediately commence a Value for Money Audit of the Commission to determine the changes that are needed in order for it to meet its obligation to administer and enforce securities legislation in the Province of Ontario with a mandate to:
o Provide protection to investors from unfair, improper and fraudulent practices
o Foster fair and efficient capital markets and confidence in their integrity

In his book, Prof. Galbraith calls for a “well-designed and enforced remedy” to management and corporate scandal. Unfortunately, the enforcement of securities legislation by the Ontario Securities Commission has not met this standard – and it must in order for the public interest to be satisfied.

Yours truly,

Ralph Palumbo
Government Relations
and Legislative Affairs
cc. The Hon. Gerry Phillips, Chair, Management Board of Cabinet
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Location: Mississauga

Postby admin » Tue Jun 21, 2005 1:13 pm

thanks for the last post. I heard about Jason Cowan in Edmonton and he is a guy who is not going away. Says he has spoken to NY attorney general eliot spitzer today, one US senator, and a reporter about the conditions and frauds at and within the ASC. They seem very interested in the goings on in Canada as they tend to spill over the border and go south every once in a while.

He says the american authorities are appalled at the crimes that happen in Canada without time, money or care factor to pursue them.

Just as the americans were the ones who got the ball rolling on Conrad Black, Jason feels the americans will have some "huge surprises" for people like the alberta securites commission.

He has 1500 pages of evidence on everything from RBC to Northstar.

I wish him success on his battle. If he wins it will be a victory for all abused investors, and all investors in general.
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