The U.S. is Now Canada's Securities Regulator

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Sophisticated Sabotage: The Intellectual Games Used to Subvert Responsible Regulation

by Thomas O. McGarity, Sidney Shapiro, and David Bollier
In the 1960s and early 1970s, when a series of environmental, workplace, and consumer disasters came to public attention, there was little question that Congress and the American people regarded them as outrageous tragedies. The public was shocked to learn that Lake Erie and several other bodies of water were considered ecologically "dead." In workplaces, dangerous chemicals were making thousands of people sterile. Chronic noise was rendering workers deaf. Poorly designed factory equipment was severing fingers and limbs. General Motors was castigated by U.S. senators for spending only $1 million of its $1.7 billion in 1964 profits for external automobile accident research — even as millions of Americans were being injured and killed by dangerous automotive designs and manufacturing defects.
Since the 1970s, regulation has succeeded in mitigating many of the previous types of hazards. Aggregate emissions of six principal pollutants regulated under the Clean Air Act (CAA) have been cut by 48 percent even as economic activity has increased 164 percent.[1] Between 1982 and 2002, there was a 93 percent reduction in lead emissions, which can cause brain damage and mental retardation in children.[2] The level of ozone-depleting chemicals in the lower atmosphere has declined by between 14 and 22 percent over the last 20 years,[3] a trend that will help protect humans and plant life from harmful radiation. Scientific evidence also indicates that the rate of ozone depletion in the upper atmosphere is slowing.[4]
Regulation under the Clean Water Act prevents the release of 700 billion pounds of water pollutants each year, including toxic pollutants known to cause or to contribute to cancer, liver and kidney damage, and problems in mental and motor development in children.[5]5 In 2001, deaths from motor vehicle crashes hit a new historical low of 1.52 persons killed per 10milionvehiclemilestraveled.[6]InAmerica’sworkplaces,too,fewerpeoplewere injured or killed on the job.[7]
This remarkable progress does not mean that the challenge of protecting people and the environment from preventable harms is nearly finished. The U.S. Environmental Protection Agency (EPA) estimates that 146 million people live in areas that are not in compliance with health-based CAA standards and are therefore exposed to harmful levels of air pollution.[8] Thousands of power plants and large industrial facilities still emit high levels of sulfur dioxides, which can cause permanent lung damage, and high levels of mercury, which can cause brain and kidney damage and birth defects.[9] In New Jersey alone, air pollution from trucks and automobiles is related each year to the premature deaths of 2,300 to 4,500 residents, 7,800 to 15,000 respiratory and heart-related hospital admissions, 170,000 asthma attacks in kids and 600,000 missed school days because of pollution-related illnesses.[10] The increasing effects of global warming threaten cataclysmic climate changes for millions of persons.[11] Although 31 countries have banned asbestos on the ground that there is no safe level of exposure, the United States imports about 30 million pounds of asbestos each
year.[12] One result is that mechanics who install replacement brakes are routinely exposed to asbestos in their jobs and have received no protection from the Occupational Safety and Health Administration (OSHA).[13] EPA estimates that 40 percent of our streams, 45 percent of our lakes, and one-half of our estuaries are not clean enough or healthy enough to support fishing, swimming, water supply, and protection of fish and wildlife.[14] The National Highway Traffic Safety Administration (NHTSA) reports that over 42,000 people died in vehicle traffic accidents in 2001 and another 3 million were injured.[15] The U.S. Department of Labor reports that nearly 6,000 workers lost their lives in workplace accidents in 2001,[16] and there were 5.2 million work-related injuries and illnesses.[17]
Despite these and many other significant risks, the Bush Administration is actively involved in dozens of initiatives to reduce existing protection of people and the environment. It has proposed to exempt indefinitely power plants and other large facilities that currently do not have to comply with the CAA,[18] a move that will cause an estimated 20,000 premature deaths, 400,000 asthma attacks, and 12, 000 cases of chronic bronchitis.[19] President George W. Bush has repudiated the 1997 Kyoto Protocol, an agreement between the United States and other industrialized nations to address the causes of global warming, and the Administration has not yet proposed any plan for addressing this issue.[20] The NHTSA rejected a regulation developed under the Clinton Administration that would have required car manufacturers to install monitors that would notify drivers if their tires were dangerously lowinfavorofasystemthatwould,bytheagency’sowndata,preventonly about one-half as many deaths and injuries. [21] EPA adopted a watered-down version of a regulation proposed in the Clinton Administration to reduce the extent to which our streams and rivers are polluted by the 220 billion gallons of liquefied manure produced each year by large factory farms.[22] The U.S. Department of Energy withdrew efficiency standards established by the Clinton Administration for air conditioners and heat pumps with the intention of proposing weaker regulations.[23] After Congress rejected a Clinton Administration proposal to regulate ergonomic injuries among workers even though such injuries result in 70 million physician office visits each year and result in between $45 and $54 million dollars annually in compensation costs, lost wages, and lost productivity,[24] OSHA announced that it will rely on the voluntary compliance by employers.[25]
Most of the actions cited here were taken by agencies at the behest of the Office of Management and Budget (OMB), the executive branch overseer of the regulatory process. OMB has also pressured EPA to exempt firms that emit hazardous air pollutants from compliance with the CAA[26]; weaken rules that would prevent runoff from construction sites that contaminates our water supplies; weaken water pollution rules for power plants that would protect trillions of fish; and reduce the pollution caused by snowmobile emissions.[27]
In addition to weakening existing regulatory standards, the Bush Administration lags far behind previous administrations in proposing and issuing new regulatory protections. The government keeps track of the number of "significant regulations" — generally the most importantregulationsadoptedbythegovernment.InPresidentWiliamJ.Clinton’sfirsttwo years, EPA finalized 23newrules;inthefirstyearsofthefirstPresidentBush’s Administration,EPAfinalized14newrules.InthecurentPresidentBush’sfirsttwoyears, EPA completed only two significant regulations.[28] The Department of Health and Human Services did notfinishasinglesignificantregulationinthecurentBushAdministration’s
first two years. The U.S. Department of the Interior produced only two significant regulations. OSHA managed to get out one regulation, but it involved deregulation.[29]
The government has also been delinquent in enforcing the regulations that are currently on the books. Under the Bush Administration, EPA has devoted less staff to inspection and enforcement than at any time since the Agency was established.[30] Not surprisingly, EPA is catching and punishing fewer polluters than the two previous administrations.[31] Since January 2001, the average number of violation notices issued each month by EPA has dropped 58 percent over the average number issued by the Clinton Administration.[32]
Despitethesetrends,thepresident’s203budgetsoughttoeliminatethepositionsofover 200 enforcement personnel.[33] OSHA typically inspects fewer than 1 percent of all workplaces annually, but the Bush Administration has conducted even fewer inspections thantheClintonAdministration.[34]Thepresident’s203budgetproposedtocutOSHAby $9 million, thereby eliminating 64 full-time enforcement positions.[35]
Most of these actions have gone unnoticed by the news media and the general public. While these egregious, preventable harms are no less threatening than the ones that first sparked public outrage and government reform in the 1970s, public perception has shifted dramatically. We now see these harms in different terms.
Over the past generation, regulated industries have succeeded in inventing and popularizing a new, revisionist language about regulation. This language is ostensibly about improving the quality of regulatory decisionmaking. In truth, its chief goal is to discredit and stymie federal regulation while defending the economic interests and power of corporate investors and management. The language deliberately shifts the political terms of debate away from the morally charged terrain of human tragedy and corporate blame, substituting in its stead an impersonal, "objective" lexicon of economic and statistical analysis.
Novelist Milan Kundera once warned that "the struggle of man against power is the struggle of memory against forgetting." Which facts and interpretations shall we choose to remember — and which shall we forget, substituting in their place a more congenial, sanitized story? This is the unstated, but absolutely critical question of health, safety, and environmental regulation today. Shall we remember the terrible diseases, injuries, and fatalities that unsupervised businesses tend to inflict on workers, consumers, the public, and nature? Or shall we instead see such tragedies through the lens of economic abstractions and learn to forget some harsh truths?
The new lexicon that regulated industries have cultivated is all about forgetting. It essentially says that the hazards facing consumers, workers, and the environment are not really so bad. Government regulation long ago solved the important health, safety, and environmental problems. The real problem now is government regulation itself. Regulation, we are told, poses a fundamental threat to our "freedom to choose." It represents a left-wing attack on the "free market" by a "new class" of journalists, academics, and public interest advocates based on "junk science."
Regulationwasoriginalythestoryofexpandingpeople’sfredoms,ofcourse.Byhelpingto prevent life-threatening illnesses and hazards, Americans could enjoy freedom from cancer-
causing consumer products, defective tires, unsafe factory equipment, pesticide-tainted drinking water, among many other unnecessary hazards.
In the hands of the regulated industries and the stable of academics they fund, however, the story of regulation has been twisted into a story about a relentless and irrational economic attack on efficiency. Regulation is portrayed as a subversive, prosperity-destroying crusade against the free market and as a paternalistic intrusion on our personal freedoms.
In this new discourse, questions of responsibility for harm strangely disappear. The demonstrated concerns of the public are dismissed as misguided. The legislative policies endorsed by Congress fade into the background. According to the new language, such concerns are subjective, anecdotal, and fuzzy-minded. Who can measure a social value? Surely something as consequential as regulation, goes the new story, should not be based on the pathetically misinformed opinions of the American people or the self-serving political agendas of bureaucrats. If it is to be responsible, regulation ought to be wholly "rational" and "objective." It ought to be based on hard statistics and economic analyses. This means that recognized experts in risk assessment and cost-benefit analysis — not mere citizens, legislators, or bureaucrats — should determine whether and how to regulate.
The shift in the predominant language used for understanding regulation represents a remarkable political coup. It represents the triumph of a bland, numbers- driven vocabulary that is well-suited for concealing the rogue effects of unfettered markets.
The rise of this framework is no accident, of course. It is a case of sophisticated sabotage. Over the past generation, dozens of major corporations and right-wing foundations have spent millions of dollars to develop a respectable oeuvre of antiregulatory research. The engine of this "sponsored scholarship" is a well-funded apparatus of Washington think tanks, university centers, endowed professorships, and research projects. Prominent Washington players include the Heritage Foundation, the American Enterprise Institute, the Cato Institute, and the Competitive Enterprise Institute, but there are university centers such as the Harvard Center for Risk Effectiveness and the Center for the Study of American Business at Washington University in St. Louis.
While the literature turned out by the think tanks and centers purports to be disinterested, the conclusions are seldom disappointing to its financial backers: automakers, steel companies, pharmaceutical companies, chemical companies, and activist-minded conservative foundations.[36] Notwithstanding its academic trappings, the literature produced by these various entities has little to do with improving health, safety, and environmental protections for Americans.
The point of Sophisticated Sabotage is to reveal the profound intellectual deficiencies of this literature. It is to expose and explain the disingenuous assumptions, suspicious numbers and fallacious inferences of quantitative risk assessment, cost-benefit analysis, and other analytic tools. This book seeks to showcase the many problematic intellectual concepts that regulated industries and their intellectual allies have invented and refined. In order to argue against regulation, many analysts, for example, rely on such dubious techniques as "revealed preferences" (What would you pay to be safe from a given hazard?) and "quality-adjusted
life-years" saved, or QALY (What dollar sum shall we put on an improved quality of life at any given stage of that life?).
While some of these tools, properly employed, have an appropriate place in regulation, most of them have serious conceptual flaws or rely upon very slippery empirical data. Analytic models that may be theoretically sound turn out to be impossible to implement properly. No matter. Cynical politicians and recalcitrant industries find it immensely valuable to use the questionable numbers prepared by shoddy analytic models to rally political opposition to regulation.
Sophisticated sabotage is the only appropriate term for these complicated academic methodologies because at bottom, they are intellectual games supported by opponents of government regulation to stymie responsible regulation. These foundations and corporations seek to rewrite the actual history of the laissez-faire market and smother its output of human tragedy with bland, benign abstractions. The new language is an attempt to redefine the meaning of regulation so that the chief concern is no longer the moral grievances and physical harm of victims, but the economic priorities of industry. As Prof. Jay Michaelson writes in one excerpt below, the economistic framework reverses the burden of proof; it "coerces individuals to give up their right to live because another private actor wishes to make a profit."
The end-goal of sophisticated sabotage is to make the new language for discussing regulation so utterly pervasive, uncontestable, and "normal" that its terms become the primary reference points of debate. Alternative ways of coming to regulatory judgments become nearly impossible to imagine. Making "sound science" and laissez-faire economics the normative discourse for regulation has the intended effect of inducing a sort of social amnesia. Ensnared in economic categories, we forget about the injustices and tragedies that animated regulation in the first place. What matters now, in the regulatory Newspeak, is how industry is being hurt.
Monkey-Wrenching the Regulatory Process
The anatomy of forgetting is complex. It is not easy to change the "attention frame" for understanding regulation. Serious hazards and catastrophes cannot simply be swept under the rug. The presence of mad cows, dead bodies, and diseased people must somehow be explained. Corporate involvement in such tragedies must be justified — or it will be indicted. Over the past generation, regulated industries and right-wing foundations have developed some shrewd and highly effective strategies: don the guise of "sound science" and insist that hard numbers be the basis for any new regulation. Speak as if the real issue in regulatory disputes is economics, not the public health. Depict advocates of regulation as irrational sensationalists who traffic in "junk science." Denigrate the knowledge and participation of the public, and celebrate the expertise of economists and credentialed academics.
Responsible regulation necessarily requires a lot of technical expertise and analysis. This provides a crucial opening for the sophisticated saboteur intent on intellectual mischief. For example, by generating a large amount of quantitative data and analysis — material that is impenetrable to the layperson and too boring for the mainstream press to investigate — the sophisticated saboteur can "monkey- wrench" the regulatory process by requiring gratuitous
mandatory studies. The predictable result: new procedures, research, and court challenges that delay government action for years, saving the relevant industry millions of dollars.
The saboteur has a larger ambition, however: to commandeer regulatory debate and change the normative metrics for decisionmaking. This is especially strategic. Rather than having to fight one regulatory proposal after another, industry can secure a more enduring polemical advantage (and favorable political outcomes) by changing the accepted categories for carrying on regulatory discussion. That is exactly what has happened over the past generation.
Sophisticated Sabotage probes the mendacious mindset of this fairly obscure but highly influential antiregulatory literature. It seeks to identify and deconstruct the many flawed analytic models that business interests have developed and forced regulatory agencies to use. It shows how these models privilege the economic freedoms of industry while de- legitimizing regulatory policies based upon moral equity, social policy, and non-economic criteria. By relentless promotion of this new discourse, the statutory intent of Congress has been marginalized and new, business-friendly decisionmaking norms have been installed in its place. The political objectives of the new norms are ingeniously camouflaged by the trappings of scholarly objectivity. The literature purports to be "beyond politics" and controversy, its interpretations wholly neutral. Political partisans find this immensely useful because they can then wave the "objective scholarship" of their intellectual confederates in front of the press and the public.
What neither the press, the public, nor even many members of Congress may realize is that there is, in fact, a robust scholarly literature that vigorously challenges the sponsored scholarship of regulated industries. This book draws upon the large body of dissenting literature to explain the intellectual deceptions and political motivations of the many antiregulatory sub-disciplines. While the complexities of cost-benefit analysis, quantitative risk assessment, and other analytic tools can be technical and arcane, they can be decisive in determining regulatory outcomes. It is therefore important to understand precisely how these tools are conceptually flawed or misused in practice. It is important to understand how these intellectual models are not innocent concepts, but serve as political weapons.
Varieties of Intellectual Error and Deception
Since the 1970s, a veritable menagerie of economistic and quantitative tools has been introduced to the regulatory process. Most serve to delay or derail government action. This book presents a comprehensive survey of these methodologies and evaluation of their usefulness and rigor.
Chapter 1 sketches the origins of the modern environmental, workplace and consumer protection statutes of the late 1960s and 1970s, and it explains how regulated industries soon began to mobilize a series of fierce regulatory "reform" crusades. At bottom, regulated industries resented government mandates that forced them to shoulder more of the costs of their "economic externalities" — dangerous products, toxic chemicals, environmental pollution, and so on. They regarded such government "interference" with the "free market"
as economically irrational and costly, and they began to agitate for a new layer of regulatory procedures that would cripple swift and effective government action.
Cost-benefit analysis was the first of many new analytic tools introduced to make economic criteria the trump card in the regulatory process. Its embrace by regulators, and especially by OMB, represented a fundamental reorientation of the purpose of regulation. A system meant to address public health risks, environmental threats, and moral inequities was reconceptualized as an economic enterprise that was presumptively harmful to the economy. Instead of sanctioning rapid action to prevent human harm, new procedural barriers were erected to make regulation meet near-impossible standards of quantitative analysis.
A companion project of intellectual revisionism — insisting upon "sound science" in the face of regulatory uncertainty — is chronicled in Chapter 2. The goal of "sound science" seems unassailable. Who could object to it? A closer look shows that its proponents in the business community are frequently disingenuous; they have little interest in scientific rigor and complexity, but a great deal of interest in antiregulatory outcomes. How else to explain companies who zealously resist providing health and cost data to regulators while complaining that regulatory decisions are not based on rigorous and complete data? To these regulated industries, sound science really means "our science."
The first problem with "sound science" is the unstated assumption that regulatory agencies are not already conducting rigorous research and analysis. In fact, government agencies generally sponsor and solicit some of the best scientific research available. Leaving aside the question of agency performance, the "sound science" crusade assumes that science can determine what levels of protection are "safe." This is simply not true. Scientific knowledge about certain risks — say, the etiology of cancer — is often quite rudimentary and speculative. Furthermore, it is often impossible to amass enough reliable scientific data to make conclusive judgments. Uncertainty is an inescapable part of regulatory policymaking. More fundamentally, science is theoretically unequipped to answer questions of a moral and social nature, such as: "How safe do we want our society to be?" or "Which segments of our citizenry shall be protected from man-made harms?"
The Quantification Quagmire
The intellectual deceptions of sophisticated saboteurs begin with the uncritical quantification of all costs and benefits, however intangible or elusive. This process is examined in Chapter 3. To perform a cost-benefit analysis — or any other economic analyses — a regulator is required to express all prospective costs and benefits in numbers or dollar terms. By so doing, a rigorous balancing of costs and benefits can be made and sound regulatory choices adopted. That, at least, is the theory.
It sounds simple. But embedded in any quantification and monetization technique — especially as applied to intangibles like the number of cancers caused by exposure to toxic chemicals,thevalueofaperson’slifeorthevalueofaspecies’survival— are profound uncertainties and value judgments. The process of translating moral, social, or ecological values into dollar sums does not mean that value judgments disappear; it simply means that they are misrepresented by numbers and go unacknowledged and undiscussed.
This is precisely the point, say critics. Since the methodologies for cost-benefit analysis (and other models) are highly technical, flexible, and inscrutable, it becomes easy to construct a model that can justify virtually anything. The political or social value judgments that are used in the calculations disappear from view.
EPA, in 2003, estimated that the life of a person over 70 is worth $2.3 million while a youngerperson’slifewasworth$3.7milion.Themathforthesecalculations,basedonthe earning power and expected longevity of Americans, may be impeccable. But why make such diferentialestimatesofthevalueofaperson’slifeinthefirstplace?Environmentalists argued that the resulting numbers were being used to justify not issuing stronger clean air regulations. After all, the "benefits" of preventing premature death, at $2.3 million per life, simply were not "worth it" when compared to the higher costs that more stringent clean air regulation would impose on industry. The Clinton Administration had once calculated the monetary benefits of the proposed CAA at $77 billion; now, through mathematical legerdemain, the Bush Administration was estimating that the same benefits amounted to a mere $8 billion.[37] Such is the false certitude of "hard numbers."
Once the principle of quantification is accepted, however, the door opens wide to all sorts of mathematical mischief and analytic tricks. The point of these games is to use numbers to convey a false sense of accuracy, which in turn helps paper over enormous uncertainties and justify regulatory inaction.
Chapter 4 examines how this scenario plays out with two widely used methodologies — comparative risk assessment and cost-effectiveness analysis — both of which rely upon "hard numbers" to set regulatory priorities. The rationale for these methodologies is to help regulatory agencies use their limited resources in more efficient, effective ways. In theory, this goal — like "sound science" — seems unassailable.
But how are the calculations actually carried out? And do they take account of the proper factors in assessing risk? In practice, comparative risk assessment and cost-effectiveness analysis stack so many assumptions and rickety data sets on top of each other, like some towering house of cards, that the end results are more useful for ideological purposes than for informed decisionmaking. Fixated on distilling complexity down to numbers, risk comparisons assume that reliable scientific knowledge can be obtained and quantified. Conscientious scientists, by contrast, often prefer to make only provisional guesses hedged with qualifications. Should the carcinogenic risks of a chemical be judged by the appearance of tumors in test animals, alterations in cells, or detectible effects on genetic material? The ultimate risk calculations — and regulatory decisions — often pivot upon such highly debatable judgments.
As Chapter 4 explains, risk assessments not only debase the scientific complexities, they do not even purport to represent inequities that one set of people might suffer (poor people living near toxic waste dumps) at the hands of another party (a chemical company). Risk assessment metrics simply do not recognize social injustices. Nor is the intensity of risk adequately represented. By aggregating the risks facing different populations, for example, risk assessments may declare the risks to two populations identical — even though one risk (a toxic waste site) may devastate entire families and neighborhoods while the "identical" other risk (tainted water used by an entire region) is dispersed among millions of people.
Cost-effectiveness analysis makes analogous slights-of-hand. It attempts to put diverse sorts of risks into a single statistical table so that regulatory agencies can set priorities in more a cost-effective way. If Regulation A is estimated to save one life for $5 million, for example, while Regulation B is estimated to save one life for $1 million, Regulation B is obviously a "better buy" for the agency to focus on. But such "efficiency" calculations falsely assume that if an agency forgoes the "expensive" regulation, the "cheaper" regulation will necessarily be adopted.
The calculation also has the convenient effect of exonerating parties responsible for harming people and the environment. Should a corporation responsible for a nasty hazard be allowed to avoid correcting it, and profit from so doing, simply because there is another hazard out in the world that is theoretically cheaper to ameliorate? This sort of gross injustice is inevitable when economic efficiency becomes the test for whether or not to regulate.
The Eclipse of Moral Judgments by Economics
The proliferation of economic models that enshrine efficiency as the touchstone for action corrupts the very purpose of health, safety, and environmental regulation. The sophisticated saboteurs have not only insisted that federal regulatory agencies set their priorities by applying economic efficiency criteria (using comparative risk assessments and cost- effectiveness studies), they want federal regulatory policy in its entirety to be constrained by efficiency standards. The idea is that regulatory policies should maximize "social welfare" — as measured economically, of course. A regulatory policy is "efficient" if those who gain from it (the "winners") could fully compensate those who lose out from it (the "losers"). The greater the differential, the greater the efficiency.
Thus, if coal miners whose lungs are damaged by coal dust say they would be willing to pay
$5 million to have regulatory health protections (their "revealed preference"), but the coal industrycouldgain$10milioninprofitsbyavoidingsuchrequirements,oursociety’soveral wealth would be increased by $5 million by not adopting regulatory protections. This would
be "efficient" under the "Kaldor-Hicks" test, named for the two economists who proposed it in 1939.
The morally bankrupt nature of this test becomes clear when one understands that Kaldor- Hickseficiencydoesn’trequirethewinnerstoactualycompensatethelosers.Thetest purports only to measure overall gains in societal wealth, and it is not affected by the distribution of wealth. The actual value of prevention and other social equity concerns are also ignored. Hence under Kaldor-Hicks, a polluter or careless drugmaker is entitled to inflict harm on other persons so long as the costs of reducing that harm are greater than the benefits of reducing the harm. Such perversities are the height of "rationality" in the minds of many analysts and regulated industries (though it is revealing that they rarely apply the same efficiency criteria to the public policies governing street criminals or national security).
What these intellectual games reveal is a commitment to dubious economic models over the fate of actual people. In fact, the efficiency models sanction the idea of "statistical deaths," in which it becomes socially acceptable to inflict hazards on people so long as their identities
remain unknown. The awful human and ecological consequences of failing to regulate are thereby sanitized.
The misuse of economics reaches still further levels of absurdity and intellectual dishonesty when it comes to valuing the benefits of regulation. As we see in Chapter 6, once regulators decide that economic factors will govern decisionmaking, they commit themselves to a highly problematic enterprise — assigning monetary values to ecosystems, the quality of life, andpeople’slivesandhealth.
Once again, the process depends upon a variety of jerry-rigged methodologies based on conjecture, malleable data, and contestable value judgments. How shall we value regional biodiversity, wilderness areas, or unique geological features? Since none of these resources are traded on markets — they generally cannot be "consumed" or replaced — there is no "natural" price for them. Undeterred, economists estimate their value based on restoration and replacement costs and "behavioral use" valuations (the implicit premium that a resource commands because people use it for, say, recreation).
One of the most contorted attempts to squeeze non-economic values into an economic straightjacket is the analytic model known as "contingent valuation." This is an attempt to assign surrogate prices to such intangibles as aesthetic and philosophical appreciation of a resource. People are asked how much the Grand Canyon is worth to them in dollar terms, for example. A related tool is the "willingness-to-pay" standard: How much is a worker willing to pay to avoid a given hazard?
The average of the answers becomes the fanciful "value" of risk avoidance. That workers are not likely to secure such payments from their employer through higher wages is irrelevant. Nor does the model consider that economically vulnerable workers are more likely to accept lower "prices" for endangering their health than affluent people with a higher sense of entitlement and ability to pay. Instead of treating all Americans by an equal standard, the willingness- to-pay standard sanctions and exploits social inequality.
The Triumph of Theory over Reality
The bogus methodologies seem to grow like kudzu. Why regulate the risks of carcinogenic chemicals, the analyst blithely muses, when it is so much cheaper to curb the more serious risks of smoking and junk foods? Of course, the analyst then shows no interest in the empirical realities; the money that a chemical company might save by avoiding regulation, for example, is not going to be spent instead on anti-smoking and nutrition education. The company will simply pocket the money, and no preventive action will occur.
This example illustrates a recurrent tactic of the sophisticated saboteur: assert theoretically plausible propositions and develop a logical chain of thought — but then avoid exploring how real life may actually defy the theoretical model. Typically, empirical data are unavailable or deficient. Or the importance of moral judgments, social policies and aesthetic concerns is grossly distorted as they are converted into economic sums. The black art of converting intangible values into monetary sums provides just the opportunity needed for the saboteurs to interject their own subjective biases, quietly and without public scrutiny. The result: "Authoritative" hard numbers.
To acknowledge this practice — to admit that "soft" values are inevitably a part of the "neutral" models that generate "hard" numbers — is to force a point that many analysts and most regulated industries prefer to avoid: whose values shall prevail? Champions of cost- benefit analysis insist that their economic modeling is entirely objective and fair-minded. They refuse to admit that economic valuation is itself a contestable tool for determining the worth of human life and many aspects of nature. This reaches surreal dimensions when economists presume to calculate the costs of global warming — and the benefits of preventing it — in monetary terms.
The mandarin presumptions of cost-benefit modeling that began with early cost-benefit analyses of dams and similar public works projects have greatly metastasized since the 1970s. As we explore in Chapter 7, federal agencies, at the insistence of regulated industries, are required to estimate the industry compliance costs for proposed standards — and the overall costs of federal regulation in general. As with cost-benefit analysis, a seemingly rational, straightforward process is riddled with questionable methodologies.
For starters, companies have strong incentives to exaggerate the expected costs of compliance. What better way to combat a proposed regulation? But the U.S. General Accounting Office (GAO) in 1996 sugestedthatcompaniesliteralydon’tknowwhatthey are talking about. The GAO found that corporate cost estimates did not accurately correlate actual compliance costs with specific regulations, for example. They also conflated normal business expenses with compliance costs, thereby failing to identify the actual incremental costs of regulatory compliance.
Corporate estimates of compliance costs are often inflated, as well, because they typically do not take into account how regulation often enhances acompany’seconomicperformance.In two excerpts in Chapter 7, economists Michael Porter and Nicholas Ashford argue that regulatory standards often stimulate new production efficiencies and superior technologies. EPA’sautomobileemisioncontrolstandards, for example, helped prod the development of cleaner, more fuel-efficient engines, which proved to be an enormous competitive boon. The phase-outofchlorofluorocarbons,whicherodetheearth’sozonelayer,helpedprod chemical companies to pioneer new markets for benign substitutes.
If regulatory decisionmaking based upon flawed estimates of costs and benefits represents the victory of the sophisticated saboteurs, as Chapters 1-7 document, what then are the alternatives? Fortunately, there are a number of approaches that would improve health, safety, and environmental regulation that do not suffer from the defects of narrow cost- benefit-based regulatory decisionmaking. Refusing to assume that the only legitimate role for government is to fix broken markets, many progressive observers of the current regulatory gridlock are identifying and rediscovering alternative decisionmaking frameworks.
The "precautionary approach" to regulation begins with the assumption that "it is better to be safe than sorry," gives credence to reasonable "worst-case" analyses, and adopts a preference for protection in evaluating regulatory alternatives. Many pragmatic observers urge regulators to focus on the source of risk-producing activities and demand that those responsible for those sources do the "best that they can" to protect potential victims. The focus is on identifying and installing pollution reduction and safety-enhancing technologies,
rather than on divining just the right level of protection. Although neither of these approaches may be the most "economically efficient" route to protection, it has a much better chance of reducing risks in the real world than burdensome and time-consuming quantitative risk assessments and cost-benefit analyses. Indeed, sometimes the most effective (and, ironically, even the most efficient) way to get from a risky situation to a much safer one is by completely banning risk-producing activities or other "radical technology-forcing" techniques.
For those decisionmakers who want to examine as many aspects of a problem and its potential solutions as possible, "multiple alternative-multiple attribute" analysis is a far preferable alternative to reductionist cost-benefit analysis. Less quantitative approaches, like "open-ended balancing," also provide pragmatic vehicles for examining the pros and cons of alternative regulatory interventions without descending into the quagmire of quantitative cost-benefit analysis.
Concerns for fairness, a concept that is wholly foreign to cost-benefit analysis, motivate many observers to insist that regulatory decisionmakers devote more attention to the distributional impacts of their choices and provide greater protections for otherwise unempowered workers and poor and minority communities.
Similar fairness concerns suggest caution in devolving regulatory decisionmaking authority from the federal government to states and local entities. Although many states and local governments are well-placed to understand and do something about health and environmental risks, their citizens can become victims of a pernicious "race-to-the-bottom" as local economic interests threaten to re-locate if state and local governments are insistent on providing regulatory protections. The solution is a process of "differential oversight" under which states that consistently provide a threshold level of protection are given greater flexibility to administer federal programs.
In addition to its inherent fairness, proponents of the "polluter-pays" principle stress that making employers "internalize" the costs that their activities impose on their workers, their neighbors, and the environment provides a constant incentive to come up with more efficient and more effective ways to ameliorate health and environmental harms.
Finally, many modern cutting-edge scholars are reminding us of the ancient wisdom that we did not inherit the earth from our fathers; we are borrowing it from our children. We do not have an inexhaustible supply of resources available to use as we please; we are the stewards of a very large spaceship that must be maintained for future generations. A new form of economic analysis, called "ecological economics" is rapidly becoming available to guide decisionmakers. This new kind of analysis begins with a firm realization of the reality of resource limits and attempts to inculcate an understanding of the meaning "too much" in today’sconsumers.Thisgreaterregardforthefuture,forexample,wouldjustifyapplyinga negative discount rate to the benefits of regulations that recognizes the enhanced value of today’sregulationstotomorow’scitizens.
The noble mission of health, safety, and environmental regulation has been under siege for many years. It is no secret that the process is far from perfect.
Nothing is ever tidy for an enterprise at the cusp of scientific knowledge, the epicenter of political controversy and the frontier of evolving social norms. Yet regulation remains our bestvehicleforprotectingAmericans’fredomfromharm.Noothervenueexistsforthe open consideration of scientific knowledge and the forging of social consensus for preventing hazards in legally enforceable ways.
While critics of regulation who legitimately seek to improve government regulation often raise valid points about the deficiencies of the regulatory process, the practitioners of sophisticated sabotage are pursuing another agenda altogether.
They have little interest in improving regulation; they seek to paralyze it. Their analytic models do not attempt to make regulatory decisions more informed and intelligent; they seek to exploit the uncertainties that will always exist in order to force interminable analysis and secure indefinite delay. Theirs is a singularly callous spirit of inquiry. It is seen in a relentless, narrow focus on economic costs and efficiencies; a lack of interest in moral responsibility and social inequity; and a zeal for airtight theories and logical reasoning but indifference toward aching human tragedy.
The only way to recover the animating spirit of regulation — the imperative to prevent harm, save the environment and restrain those responsible for inflicting damage — is to debunk the cynical intellectual games that regulated industries play. A cocoon of abstract discourse has grown up around so many regulatory issues that one can easily forget that "statistical deaths" happen to real people.
We must begin to challenge the pernicious analytic models and economic theories that are choking responsible regulation, and begin to invent new ways to appreciate the actual value
of regulation. Sophisticated sabotage must give way to a fresh vocabulary that recognizes the humanistic, qualitative purposes of regulation. Any new analytic models or terms of art are likely to be challenged (as regulation already is), but a new discourse of this sort would have thevirtueofbeingempirical,atentivetoAmericans’moralandsocialvalues,andmindfulof actual scientific complexities. That can only be an improvement over the deceitful tyranny of shiny numbers that has paralyzed regulation for too long.
Introduction Endnotes
[1] U.S. Environmental Protection Agency (EPA), 2002 Trends Report: Air Quality Continues to Improve, at
[2]U.S. EPA, Trends in Lead Levels and Emissions, at [3] U.S. EPA, Trends in Ozone Levels, Related Emissions, at
[4]U.S. EPA, Trends in Stratospheric Ozone Depletion, at

[5] U.S. EPA, A Strategy for National Clean Water Industrial Regulations, Effluent Guidelines, Pretreatment Standards, and New Source Performance Standards 9 (Draft, Nov. 5, 2002), available at
[6] National Highway Traffic Safety Administration, Traffic Safety Facts 2001: Overview, at ... erview.pdf.
[7]Thomas O. McGarity & Sidney A. Shapiro, Workers at Risk: The Failed Promise of the Occupational Safety and Health Administration (1992).
[8]U.S. EPA, Six Principal Pollutants, at sixpoll.html.
[9]See David Hawkins, Natural Resources Defense Council, Inc. (NRDC),Testimony on S. 485, Clean Skies Act of 2003, Presented before the U.S. Senate Committee on Environment and Public Works, Subcommittee on Clean Air, Climate Change, and Nuclear Safety (Apr. 8, 2003), available at
[10]Terrence Dopp, Report: Garden State Failing in Air Pollution Standards, Bridgeton News, Dec. 9, 2003, available at ... base/news- 6/107097630719710.xml.
[11]See NRDC, Voluntary Greenhouse Gas Reduction Programs Are Not Enough, at
[12]Andrew Schneider, Panel Urges U.S. to Ban Asbestos Imports, St. Louis Post Dispatch, May 4, 2003, at A1.
[13] Andrew Schneider, EPA Warning on Asbestos Is Under Attack, St. Louis Post Dispatch, Oct. 26, 2003, at A1.
[14]U.S. EPA, Water Quality Conditions in the United States: A Profile From the 2000 National Water Quality Inventory (2002), available at
[15]See supra note 6.
[16]Bureau of Labor Statistics, Census of Fatal Occupational Injuries (2002),available at
[17]Bureau of Labor Statistics, Workplace Injuries and Illnesses in 2001 (2002), available at
[18] U.S. EPA, Prevention of Significant Deterioration (PSD) and Non-Attainment New Source Review (NSR): Equipment Replacement Provision of the Routine Maintenance, Repair and Replacement Exclusion, 68 Fed. Reg. 61247 (2003).
[19] Statement of Angela Ledford, Director, Clear Air Task Force, The Air onToday’sBush Administration Changes to New Source Review (Aug. 27, 2003), available at ... cfccc6cfc6 c9c6c5cecfcfcfc5cececdcac8c8c6cecbcdc5cf.
[20]Andrew C. Revkin & Jennifer Lee, Administration Attacked for Leaving Climate Policy to the States, N.Y. Times, Dec. 11, 2003, at A22 (national edition).
[21]See Public Citizen v. Minetta, 340 F.3d 39 (2d Cir. 2003).

[22]U.S. EPA, National Pollutant Discharge Elimination System Permit Regulation and Effluent Limitation Guidelines and Standards for Concentrated Animal Feeding Operations, 68 Fed. Reg. 7176 (2003).
[23] U.S. Department of Energy, Energy Conservation Program for Consumer Products; Central Air Conditioners and Heat Pumps Energy Conservation Standards, 67 Fed. Reg.36368-01 (2002).
[24] National Academy of Sciences, Institute of Medicine, Musculoskeletal Disorders and the Workplace: Low Back and Upper Extremities 1 (2001).
[25] See U.S. OSHA National News Release, Ergonomics Guidelines Announced for the Nursing Home Industry (Mar. 13, 2003), available at ... ASES&p_id= 10129 (announcing voluntary guidelines).
[26]OMB Watch, Industry, OMB Press EPA to Offer Exemptions to Clean Air Act Standards (Mar. 19, 2003), available at
[27] OMB Watch, Administration Advances Few Health, Safety, and Environmental Protections (Jan. 15, 2003), available at ... #finalized.
[28]OMB Watch, Administration Advances Few Health and Safety Protections (Dec. 15, 2003), available at
[29] Id.
[30]Rena Steinzor, Testimony before the Subcommittee on Fisheries, Wildlife, and Water of the U.S. Senate regarding Implementation of the Clean Water Act (Sept. 16, 2003), available at ... 091603.pdf.
[31] Seth Borenstein, Fewer Polluters Punished Under Bush Administration, Records Show, Phila. Enquirer, Dec. 8, 2003, available at ... 446525.htm.
[32] Id.
[33] Steinzor, supra note 30.
[34]OMBWatch,IgnoringEnron’sLessons,BushRolbacksContinue(Nov.6,2002),available at ... /#limiting.
[35] Id.
[36] Sally Covington, How Conservative Philanthropies and Think Tanks Transform U.S. Policy, Covert Action Q., Winter 1998, at ____. The foundations include the Lynde and Harry Bradley Foundation, the Carthage Foundation, the Earhart Foundation, the Charles G. Koch, David H. Koch, and Claude R. Lambe charitable foundations, the Phillip M. McKenna Foundation, the JM Foundation, the John M. Olin Foundation, the Henry Salvatori Foundation, the Sarah Scaife Foundation, and the Smith Richardson Foundation.
[37]Katharine Q. Seelye & John Tierney, EPA Drops Age-Based Cost Studies, N.Y. Times, May 8, 2003, at A26.
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Re: The U.S. is Now Canada's Securities Regulator

Postby admin » Wed Sep 28, 2011 3:08 pm

Despite this same sale of known "crap" happening in Canada, it was done here with the support and with "exemptive relief" of the securities commissions, making them complicit. Needless to say they were (1) the very last people in Canada to get involved in investigating anything wrong, (2) allowed a mafia-type cleanup man to step in instead and bargain for civil immunity for all those investment firms involved, (3) finally got involved and dispensed fines of less than half a penny for every dollar scammed and (4) kept the fines (payable to the securities commissions) for themselves. Yes, kept every penny of the half a penny per dollar scammed.

Pretty good work if you can stand corruption for a living.
Media Story
RBC settles SEC ‘misconduct’ allegations
Globe and Mail Update
Published Tuesday, Sep. 27, 2011 12:38PM EDT
Last updated Tuesday, Sep. 27, 2011 2:29PM EDT
51 comments ... clecontent

Royal Bank of Canada (RY-T47.53-0.55-1.14%) has agreed to pay more than $30-million (U.S.) to settle allegations of misconduct, after the bank’s capital markets division was accused of selling unsuitably risky derivatives to school districts in Wisconsin, leading to significant losses.

The U.S. Securities and Exchange Commission said Tuesday that it charged RBC Capital Markets for misconduct and inadequate disclosure of the risks associated with investments sold to five school boards in the state.

The regulator said the division of Canada’s largest bank marketed $200-million of credit-linked notes to a series of trusts set up by the school districts. The notes were tied to the performance of synthetic collateralized debt obligations, known as CDOs, which are considered a risky form of investment.

However, the SEC alleges the five school districts were not properly told of the potential risks of CDOs before they contributed $37.3-million to the investments. Most of the rest of the school districts’ $200-million investment, which was meant to finance retiree benefits, was paid for with borrowed money.

“RBC failed Securities 101 when it sold complex derivatives that were unsuitable to five school districts without fully informing them of the risks,” Robert Khuzami, director of the SEC’s Division of Enforcement said in a press release.

In particular, the SEC alleges that RBC knew the investments weren’t appropriate for the school boards. “The sales took place despite significant concerns within RBC Capital about the suitability of the product from municipalities like the school districts,” the SEC said.

The settlement and charges were announced at the same time. As part of the settlement, RBC will pay $30.4-million that will be distributed in varying amounts to the five districts. RBC consented to the settlement without “admitting or denying” the SEC’s findings.

The settlement comes after the SEC charged Stifel, Nicolaus & Co., a St. Louis-based brokerage firm, with fraudulent misconduct in connection with the same investments. Stifel had put out a request for proposals to offer the derivatives, which the brokerage then marketed to its clients, such as municipalities.

Though the request for proposals stated that the CDOs would be offered to the school districts, a spokeswoman for RBC said the bank did not know that Stifel was marketing the investments as safer than they were.

“We didn’t know that Stifel was misrepresenting the product’s risk to its clients. The Wisconsin school districts were not our client,” said RBC spokeswoman Katherine Gay. “We wouldn’t have participated in the transaction if we had full knowledge of Stifel’s communication with its client about the product.”

RBC said it asked Stifel for written confirmation that the investments were suitable for its clients, which it received. However, the SEC disagrees that that document lets the bank off the hook.

The sales took place despite significant concerns within RBC Capital about the suitability of the product for municipalities like school districts.

It is one of several high-profile cases the SEC has taken on in the wake of the financial crisis over the marketing of complex derivatives to investors –investments that ultimately collapsed.

In its order against RBC issued Tuesday, the SEC says the bank violated the U.S. Securities Act by “negligently selling” the CDOs, despite the bank’s concerns – revealed in internal e-mails – that the risky derivatives were unsuitable for the school districts. RBC’s marketing materials also “failed to explain adequately the risks associated with CDO Investments,” the SEC said.

The SEC says RBC knew from the beginning that in selling the derivatives to the school districts it would be difficult to ensure that the clients –-who had never before invested in such products, which are normally purchased by sophisticated players like hedge funds – understood the risks.

In May 2006, the SEC’s complaint reads, RBC flagged the issue as a “critical hurdle,” saying that additional due diligence would be required “to establish that the investor understands the structured and principal-at-risk nature of the product.”

RBC internal e-mails raised “red flags” about Stifel’s sales pitch to the school boards. A senior member of the bank’s municipal finance group reviewed Stifel’s materials and deemed them “less than fully explanatory,” said the “quantitative analysis appears to be a bit flawed, and added that the investment “doesn’t appear to present as significant a benefit as is being suggested.”

Indeed, in the school districts’ lawsuit against Stifel and RBC, the plaintiffs say a Stifel salesman portrayed the investments as safe and assured them that only in the event of “15 Enrons” would their investment be lost.

The memo concluded that while the plan would make money for RBC, the bank would not consider selling the derivatives to its existing municipal clients. The memo stated that the product “clearly is not a concept we want our bankers as a general group pitching to their clients out there.”

The SEC says that some RBC employees argued that RBC should distance itself from the school boards, to avoid being blamed for selling them unsuitable investments. One said contact between the bank and the school districts would be a “bad fact” that could hinder the bank’s attempts to avoid responsibility, the SEC said.

In addition to the $30.4-million, the school districts have also seen their debt relieved after Stifel agreed to buy back $162.5-million in notes from the Dublin-based DEPFA bank – which lent the school districts the money for their investment.

Meanwhile, talks continued between RBC, Stifel and the school boards to settle the outstanding lawsuits over the deals. The school boards launched a lawsuit alleging fraud against RBC and Stifel for misleading the school districts about the safety of the investments. Stifel has also alleged in court documents that RBC hid the investments risks and its profits on the deals, allegations that bank denies.

C.J. Krawczyk, a lawyer for the school districts, said their lawsuit against RBC and Stifel stands, but praised the SEC’s action against RBC.

“The SEC’s action confirms what we have alleged: The duties to assess investor suitability and to provide adequate risk disclosures are sacrosanct. They cannot be contracted around or pushed off on to an unsophisticated investor, as RBC and Stifel attempted to do here,” Mr. Krawczyk said in an e-mail.

“In 2006 [when the deals were made], many lines of responsibility were blurred or erased altogether, but the SEC has redrawn these lines – and redrawn them brightly.”
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Re: The U.S. is Now Canada's Securities Regulator

Postby admin » Mon Jun 29, 2009 9:14 pm

zero, or near zero convictions in Canada
zero compensation to victims in Canada
negligible enforcement in Canada

compared to other civilized countries, we are third world.
see below:
Liz Moyer Last updated on Monday, Jun. 29, 2009 04:27PM EDT

Bernard Madoff got sent away for 150 years for his massive $65-billion (U.S.) swindle in a dramatic sentencing hearing in New York federal court Monday morning.
Dressed in a dark suit, Mr. Madoff, 71, addressed his victims telling the court he would “live with this pain, this torment, for the rest of my life.”
In pictures: The longest white-collar sentences
Judge Denny Chin threw the book at him anyway, but surprisingly it's not the longest white-collar sentence handed down in recent years. Mr. Madoff confessed to running a $65-billion Ponzi scheme that spanned decades and affected thousands of investors. The sentence handed down by Judge Chin was the maximum allowable. The Bureau of Prisons will now determine which prison will be Mr. Madoff's new home.
His sentence is still only the fourth-longest handed down in recent years to a white-collar defendant, according to an analysis by Forbes.
In any case, Mr. Madoff will almost certainly die in prison. So will Sholam Weiss, currently serving the longest federal sentence for a white-collar crime. In 2000 a Florida judge sent him away for 845 years for the $450-million collapse of National Heritage Life Insurance. Mr. Weiss was convicted and sentenced after he fled the U.S. for Austria. Later apprehended and returned, he's currently housed in a federal prison outside Scranton, Pa. The Bureau of Prisons lists his release date as Nov. 23, 2754.
More recently, a federal judge in Colorado slapped a 330-year sentence on Norman Schmidt, 73, convicted of running an investment scheme through which he siphoned money to buy NASCAR race cars, a race track and other racing-related properties. He will be released Sept. 12, 2291.
Such long sentences are rare for white-collar defendants, who usually go to prison for things like fraud, money laundering and other non-violent financial crimes. They are more typical for violent offenders like Theodore Kaczynski, the Unabomber, who will sit in a supermax prison in Colorado until he dies, and Jeffrey Dahmer, the cannibal who got 957 years for killing 17 people. He was killed in prison by a fellow inmate.
“It's the violent people we need to warehouse,” says Alan Ellis, a lawyer and sentencing consultant. Still, an era of scandals related to corporate accounting fraud and investment swindles has created a new fervour for example-setting. “More and more judges are citing economic danger,” Mr. Ellis says.
For many white-collar criminals in middle or retirement age, the terms are essentially life sentences, since federal prisoners have to serve at least 85 per cent of their time. Bernard Ebbers, 67, convicted in 2005 for the accounting fraud that brought down WorldCom, is sitting in a federal prison in Louisiana with a release date of July 4, 2028, when he would be 85 years old.
Jeffrey Skilling, 55, of Enron fame, is in a Colorado prison serving 24 years for accounting-related fraud, though he might get out earlier if a re-sentencing hearing scheduled for July goes his way. His co-defendant, former Enron chief executive officer Ken Lay, died before he could be sentenced.
Mr. Madoff wasn't shown much leniency even though he did confess. Many of his former customers say they lost their life savings in the scheme, others lost tens, if not hundreds, of millions of dollars. The economic damage reaches from New York society to Palm Beach, Fla., and to Europe. Of $65-billion that vanished, just over $1-billion has been recovered so far. Ironically, jail may be the safest place for Mr. Madoff these days.
In pictures: The longest white-collar sentences
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Postby admin » Tue Sep 04, 2007 8:32 am

Has it come to this? The U.S. SEC and U.S. Federal and State Attorney General are Canada's only reliable securities crime investigators and prosectutors.

Diane Urquhart
Independent Consulting Analyst
Mississauga, Ontario

SEC puts Fraleigh witnesses in spotlight
Monday, September 3, 2007 at 10:42 PM EDT
A long-running investigation by the U.S. Securities and Exchange Commission into alleged insider trading in shares of Placer Dome Inc.
has moved to Canada, where the SEC is seeking court approval to compel interviews with an array of witnesses – including prominent
lawyer Joseph Groia.
The SEC has accused Toronto investor John Fraleigh of illegal insider trading after he earned more than $5-million (U.S.) by buying call
options of Placer Dome in the week prior to the announcement of a takeover bid for the company by Barrick Gold Corp. on Oct. 31,
In a recent filing in U.S. District Court in New York, the SEC said it is seeking the right to question 15 witnesses in three foreign
jurisdictions. Most of the witnesses are in Canada, but some are in Britain and the Isle of Man.
The SEC does not have the right to order testimony from residents of other countries, so it must seek court orders in each jurisdiction
requiring the witnesses to appear.
The list includes a former Barrick employee and six members of Mr. Fraleigh's family – including his wife and parents. The commission is
also seeking records from three Canadian phone and Internet companies.
Mr. Fraleigh's lawyer, Alistair Crawley, said Friday that his client had no comment on the SEC's interview requests.
Mr. Fraleigh has previously called the SEC's allegations “unfounded and unsupportable” and has argued he invested in Placer Dome
based on his own independent research. Some of the names on the SEC's interview list were supplied by Mr. Fraleigh, who said the
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Postby admin » Sun Jun 10, 2007 1:45 pm

Financial Post letters to Editor, or commentary

June 9, 2007

From: Larry Elford for the documentary BREACH OF TRUST
Lethbridge, Alberta

Re: Sat, June 9, 2007 Post article by Wall Street Journal staff Li Yuan

This article compelled me to write and point out to Canadians yet another example of how they remain unprotected against white collar crime or fraud in Canada. Canadians are being led down the garden path on securities crimes or frauds, and transparency into this is lacking.

The above-mentioned article indicates that one more “made in Canada” scandal is being overlooked by the thirteen provincial and territorial securities commissions, and being taken seriously by US authorities. When one delves deeply they are likely to conclude, as BREACH OF TRUST does, that there is simply “no rule enforcement procedure on subtle and systemic financial fraud in Canada.”

Without the USA, it appears we would have no securities regulatory enforcement.

Our own Ontario Securities Commission is said in the article to “not want to penalize the company for the conduct of former executives”. It does not say whether the former executives have been held to account personally by the OSC. Here are the reasons I am going to assume that they have been left to walk away from Nortel (to use but one Canadian example) with over $100 million.

1. The Chair of the OSC is a veteran of decades on the investment industry, hired from industry, and perhaps he cannot yet understand just how to deal with the new conflicts presented with now being in a position of protecting the industry and the public.

2. From professional web forum

“Barry Critchley of the National Post has written two columns on Stephenson's Rental Income Fund, where Scotia Capital lead an IPO sold to seniors and other retail investors for $10.00 on July 28, 2005 and where the same firm provided credit and a fairness opinion on a take-over offer of $6.875 in May 2007. One unit holder quoted in the National Post says: "There's something wrong here. It stinks. They are giving us the gears. How can they justify telling the retail investors to buy it at $10 in 2005 now they are telling them to sell it for less than $7."

This is yet another case where the Canadian bank-owned investment banks sold an income trust to seniors on the basis of a deceptive cash yield in the marketing materials, knowing at the time that the security was overvalued and disregarding their duty of care to advise suitable investments for their retail clients. The distribution of $1.10 per unit has been in place since the IPO, which was marketed on the basis of an 11% yield. At the time of the IPO, the 12-month trailing income per unit as of March 31, 2005 was negative ($0.11). My estimate of the income per fully diluted unit for the year ending December 31, 2006, excluding tax recoveries, amortization of intangibles and extraordinary items, is $0.32. Stephenson's Rental Income Fund's income statement and reported income per unit of a loss of ($28.32) for 2006 is incomprehensible to even the expert investor, let alone seniors and unsophisticated retail investors, who were sold this security by the bank-owned financial advisors. KPMG is the auditor.”

Investor Advocate comments on this post:

I have to agree with one of Canada's top forensic accountants on this subject (Dr. Al Rosen) who suggests that too many income trusts are marketed like ponzi schemes to dupe an unsuspecting public. To see the amount of misdirection used in marketing these things, combined with the huge investment banking fees and underwriting fees, makes one think that in addition to the ponzi scheme, the banks have another scheme going. A revolving door in which they loan money to these outfits, take out the equity in fees and commissions, sell the company off to shareholders based on an unsustainable yield, wait for the business to collapse and then repeat the procedure. All at the expense of an unsuspecting public, and to the profit of the banking and underwriting industry.

Add the fact that David Wilson, Canada's top securities policeman at the OSC is a veteran of the industry, and the very company that spawned many of these issues, and it is no wonder Canada is leading the race for first place in hidden financial scandals. One only wonders for how long the industry can continue to hide bodies such as this in closets, before the smell starts to alert the public.

Seniors groups across Canada have asked for criminal charges to be laid in the misdirection and misleading breach of trust in how some of these income trusts have been marketed to an unsuspecting public. See Jonathon Chevreau article Charge trusts with fraud, groups urge
Letters ask police to investigate deceptive yields
Friday, April 27, 2007
Again, no action by the OSC

3. RCMP IMET commercial crime investigators have put in writing that they will “only investigate cases referred to them by securities commissions”. If the securities commissions are suffering from regulatory “capture” by industry, where does that leave us? Passing the buck #1.

The securities commissions have lengthy track record of delegating (or abrogating) responsibility to “self regulating” bodies that may or may not have statutory authority. (Commissions will not say clearly) Passing the buck #2.

So we have the government, crown agency, with responsibility for the Securities Acts of our provinces, giving away policing of these securities laws to self-regulatory agencies. Agencies, who are not government bodies, have no statutory authority for the Securities Acts, have been found in court cases to “not owe a duty of care” to the public, and are registered in Ottawa as lobby groups for industry. (I am speaking of IDA, Investment Dealers Association, MFDA, Mutual Fund Dealers Association, and all others who act for their own and purport to be acting for the public. Passing the buck to the least effective participant.

Thus we end up with a trillion dollar industry, rife with conflicts of interest, being self-policed. The honor system. Trust us. Imagine how many ways this can and does go wrong.

Now imagine how many ways the wrong is covered up by this same system.

If an individual is wronged in Canada, they must usually go up against a billion dollar corporation, which demonstrates tactics of “delay, denial, distraction, etc.” See Lizotte v RBC or recent Quebec case involving CIBC.

This usually takes ten years out of a person’s life in Canada. It smacks of psychological warfare or bullying by the corporate body and not the kind of behavior that they profess in flowery codes of conduct.

Then, if anyone can come through this second type of corporate abuse with an ounce of sanity left, they may be offered a “courthouse steps” settlement to make the case go away. This settlement will involve a lowball offer to the abused investor, and will also include a confidentiality agreement to ensure it (the abuse) does not become public.

Thus wrongs, frauds, or elder abuses are kept out of the public eye by some of our top corporate bodies. They are also kept out of the eye of criminal investigators since the system will work effectively to keep it a secret. Here is how the regulatory system works to assist this cover-up:

1. The corporation will not inform the self-regulatory agency. The self-regulatory agency will politely not ask. (remember, they owe no duty of care to the public, according to the courts) Failure #1.

2. The self-regulatory agency (which represents industry) will not inform the provincial securities commissions of the crime, fraud, or abuse. The Securities Commission will not ask, to avoid opening a can of worms that will reflect poorly on their oversight abilities. Failure # 2.

3. The provincial securities commissions will not inform the RCMP commercial crime agency of the crime, fraud or abuse. The RCMP will not ask. Failures #3 & #4.

4. The game of silence goes back up the economic food chain, to cover and protect the wrongs of the industry, leaving Canadians with the impression that they are safe, sound and protected against financial crime in Canada.

Nothing could be further from the truth. Canada’s thirteen provincial and territorial securities Commissions are found by this writer to be more like every bad southern county sheriff, in every “Smokey and the Bandit” movie, than professional, public serving organizations. It is time for them to be replaced with a federal agency, with a consumer protection mandate, and with less incestuous relations with industry.

From research for documentary film on investment industry

Larry Elford, (former CFP, CIM, FCSI, Associate Portfolio Manager, retired),Lethbridge Alberta

Footnotes from Richard Finlay Center for corporate governance
“With 90 OSC employees making more than the chairman of the SEC, it’s time to look at the Ontario securities regulator’s performance and accountability
Its chair and just one of its vice-chairs together make more than all five members of the U.S. Securities and Exchange Commission combined, including SEC chairman Christopher Cox”

See also for Canada’s top research site on known failures in Canada’s financial regulatory and police system.
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Postby admin » Sun Jun 10, 2007 1:44 pm

SEC to hit Nortel with fine of up to US$100M for accounting fraud: report
Published: Friday, June 8, 2007 | 1:53 PM ET
Canadian Press: COLIN PERKEL

TORONTO (CP) - Nortel Networks Corp. (TSX:NT) should consider itself lucky if U.S. regulators fine it only US$100 million for accounting fraud, as a recent news report suggests, says an analyst who has covered the telecom equipment vendor's rise and fall over the years.

Citing several sources, Bloomberg News reported Friday that commissioners at the U.S. Securities and Exchange Commission had approved the fine limit last month. There was no immediate confirmation from Nortel, while the regulatory agency refused comment.

"We talk about cases that have been filed in court and there's been no filing with regard to fines," said John Heine, SEC spokesman said from Washington, D.C.

The SEC has been investigating Nortel's accounting since 2004. The company later admitted to inflating revenue by US$3.4 billion.

Paul Sagawa, an analyst with Sanford C. Bernstein in New York, said Nortel should consider itself lucky if it has to pay a fine of $100 million.

"If anything, I'd say they should be happy it's not more than $100 million," said Sagawa, who was one of the few critics of Nortel during the heady days when it was the star of the Toronto stock market and a leading global technology company.

"The extent to which the numbers were allegedly misstated and the length of time over which it remained misstated was pretty egregious."

The company has already agreed to pay more than $2 billion to settle class-action suits brought against it on behalf of investors - from large pension funds to individuals - who bought Nortel stock while its financial statements were in error.

Investors appeared unfazed Friday by the threat of a US$100-million fine to the SEC.

In early afternoon trading on the Toronto Stock Exchange, Nortel shares were up $1.17 at $27.70.

Sagawa said investor faith in the company was a bit puzzling and appears based on the belief the company's cost-cutting and restructuring can help it regain its previous earnings power.

Alternatively, he said, some might believe some "big private capital organization will swoop down" and take over Nortel, once the country's high-tech darling.

Both options were unlikely, he said.

In March, the SEC filed civil fraud charges against four former Nortel executives, including ex-CEO Frank Dunn, alleging investors were cheated out of billions of dollars.

That case is pending.

Two weeks ago, Nortel agreed to pay $1 million to Ontario regulators to cover their investigative costs.

That settlement covered allegations by the Ontario Securities Commission that Nortel's financial statements between 2000 and 2003 violated Canadian and American accounting principles.

The agreement was separate from allegations filed by the OSC in March alleging violations of Ontario securities law and "conduct contrary to the public interest."

The claim named Dunn, former chief financial officer Douglas Beatty and former controller Michael Gollogly.

Nortel has been struggling to recover from years of accounting problems that started after the telecom equipment industry was slammed by a recession that began in late 2000.

"The problem is while they were wrangled up in all of these scandal-related distractions, they really had no freedom to go out and act as the rest of the industry was consolidating around them," said Sagawa.

"It's a different world today than it was five years ago, and my concern is that Nortel lacks the resources as an independent company to really stay leading edge."
© The Canadian Press, 2007
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Postby admin » Mon Dec 04, 2006 10:23 pm

Canada gets an F in enforcing securities regs

By David Clarke

December 4, 2006
OTTAWA - Are Canada's securities laws being enforced properly?

To the presumed delight of crooks - but probably not cops - a Canadian legislator, regulators and at least one American professor agree that they are not.

In Canada, it is a "fact that laws and securities regulations are not being enforced," John Coffee, a professor at Columbia University Law School in New York, said in an interview with the Toronto-based Financial Post published Nov. 20. "It is fair to say that, by any standard, the system is not working."

The professor pointed to enforcement, stating that: "The problem in Canada is not so much that cases are being tossed out by courts that don't understand them, but rather no cases are being developed to the point that they can be taken to trial."

Mr. Coffee, a former member of the legal advisory boards of the New York Stock Exchange and the Nasdaq Stock Market Inc. of New York, was one of the 12 members of the Task Force to Modernize Securities Legislation in Canada, which released a 3,000-page report Oct. 6.

The Senate Committee on Banking, Trade and Commerce will hold hearings early next year to examine the nation's enforcement record.

"[I am] very unhappy with enforcement," Sen. Jerahmiel S. Grafstein, the committee's chairman, told the Post, adding that he had "sensed that, for a long time, there hasn't been vigorous prosecution."

Then the senator went on to do some Mountie bashing.

No folllow-up

The Post quoted Mr. Grafstein as saying that "for example, Market Regulation Services, the watchdog that oversees trading activity on Canada's major stock exchanges, told the task force it had referred 99 cases of possible securities violations to the [Royal Canadian Mounted Police's] Integrated Market Enforcement Teams in the past couple of years."

To this day, the senators were told, no regulator had received any feedback on the status of the referrals.

"We found that to be a shocking revelation," Mr. Grafstein said. "The entire [Senate] committee was taken aback that almost 100 alleged violations have been reported, and we don't know what, at this stage, if anything has been done about them."

Problem is, "we have received no complaints from RS over the [past] four years," said RCMP Superintendent John Sliter, director of the Ottawa-based IMET program. "That was a mistake that the Post has yet to rectify."

"I have no idea where they got that," said Maureen Jensen, vice president of market regulation at Toronto-based Market Regulation Services Inc. "RS did not say that. It is not true."

As for where he got that, "Senator Grafstein said he has 'no comment,'" Mary de Toro, the senator's executive assistant, wrote in an e-mail.

What did happen was the task force released a background paper stating that the IMET program is investigating eight cases and is "full."

Nevertheless, even the Mounties' top cop admits that there are some problems with enforcement.

Canada suffers from "process constipation," RCMP Commissioner Giuliano Zaccardelli said at a November conference of the Toronto-based Ontario Securities Commission.

He said that the RCMP needs more resources, despite a $105 million (U.S.) commitment over five years when the IMET program was created in 2003. IMET's resources have been "absorbed like a sponge," Mr. Zaccardelli said.

'Biggest challenge'

Indeed the Mounties have not yet announced any conclusions in two high-profile investigations -involving Nortel Networks Corp. of Brampton, Ontario, and Royal Group Technologies Ltd. of Woodbridge, Ontario.

"Effective enforcement is our biggest challenge," said David Wilson, chairman of the OSC. "At any given moment, someone somewhere "is hatching a scam - or misusing privileged information - to rip off innocent investors and rob them of their savings."

The drumbeat for improved enforcement goes on.

The Council of Ministers of Securities Regulation met in Edmonton, Alberta, Nov. 22-23 to approve the next phase of the passport system, which allows one province to recognize the rulings of another's securities regulator.

Ministers also received a report on enforcement issues.

"In particular," according to a statement, "they welcomed the opportunity to work with justice ministers in the creation of a working group of securities regulators, police, prosecutors and policymakers on the issue of addressing capital market fraud."
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National Post - Teachers Diverisfied Aug. 19, 2006

Postby urquhart » Tue Aug 22, 2006 3:20 pm

Teachers' diversified
Claude Lamoureux
National Post
Saturday, August 19, 2006
Re: Canada's Securities Law Is Too Lax, Aug. 12, Diane Francis
We do not limit our Ontario Teachers' Pension Plan investments to stocks listed in the United States. With more than $96-billion in assets under management, we cannot and would not limit our opportunities to one market. Not only do we invest in many Canadian corporations solely listed in Canada, we have a well-diversified and active public equity portfolio that is, in fact, global.

Purchasing U.S.-listed or inter-listed stock allows us to sue in the U.S. should we feel the company is not acting in shareholders' best interests. However, we would not be acting in our members' best interests were we to limit investments to U.S. exchanges.

Claude Lamoureux, chief executive officer, Ontario Teachers' Pension Plan, Toronto.

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Claude Lamoureux Retracts Parts of Story

Postby urquhart » Tue Aug 22, 2006 3:17 pm

Claude Lamoureux retract parts of his story "Canada's securities law is too lax" by Diane Francis. I suspect he did say all the things that Diane Francis said he did. Note that he did not say he was misquoted.

In any case, the OTPP owns primarily interlisted securities, with any exceptions not a known public fact. OTPP publishes only its major investments, as shown in the attached OTPP Major Investments 12312005.pdf. The TSX interlisted list of 215 Canadian public companies is very comprehensive, as noted in the attached TSX Interlisted Equities.pdf. The OTPP may theoretically invest in any Canadian public equity, but its minimum thresholds would preclude just about every Canadian equity that is not interlisted.

The OTPP Strategic Investment in Public Equities report says:

" We take ownership positions ranging from 5% to 30% in mid- to large-cap companies (market capitalization ranging from $1 billion to $10 billion). While we target investments from $150 million to $750 million, we can consider larger or smaller investments as opportunities arise. We are committed to providing quick decisions on financing opportunities, often within one week. "

The average market capitalization of non-interlisted TSX companies is only $227 million and of TSX Venture Exchange companies is only $21 million. So, OTPP would find these to be small cap not meeting their minimum market capitalization threshold of $1 billion to $3 billion. The smallest public company OTPP generally considers is $500 million = $150 million minimum investment / 30% maximum ownership %.

$ Millions
Market Cap Interlisted 1,359,634.4
Number Interlisted 215

Market Cap TSX 1,766,486.1 77%
Number TSX 2,008 11%

Market Cap TSX Venture 47,200.0
Number TSX Venture 2,218

Market Cap TSX/TSX Venture 1,813,686.1 75%
Number TSX/TSX Venture 4,226 5%

Market Cap Per Company $ millions
Interlisted TSX 6,323.9
Non-interlisted TSX 226.9
Non-interlisted TSX Venture 21.3

Note there are 3 income trusts on the list of OTPP major investments. All three of these income trusts started as private equity investments by OTPP, which were exchanged for income trust units upon income trust conversions and the IPOs.

# mil. $ Mil.

Fording Canadian Coal Trust 25.7 1,073.9

Yellow Pages Income Fund 18.2 297.9

Osprey Media Income Fund 13.5 85.8

So, the OTPP has probably not bought business income trusts in the public market at their IPO prices, such as the ones on the list below of business income trusts with market capitalization above the OTPP's $1 billion minimum size. If OTPP has bought any business income trusts units at the IPO prices, these are not in the list of their major investments as of December 31, 2005. I have been saying that business income trusts are overpriced due to deceptive yields and the direct retail buyers being unsophisticated and the income mutual fund buyers being there to fill the unsophisticated retail mutual fund buyers' demand. OTPP has been very public about no Federal Government interference in the income trust market, while it was making hundreds of millions of dollars from income trust conversions/IPOs on its private equity investments in Yellow Pages, Fording Canadian Coal and Osprey Media. Perhaps, OTPP plans to buy business income trusts in the future, but I would like to see it buying at the same IPO prices as the seniors and other conservative investors, and not after these initial buyers have taken 33% plus investment losses. So far, seniors have not lost money on Yellow Pages or Fording Canadain, but Osprey Media is down 37%.

MARkET CAP August 8, 2006

YELLOW PAGES $ 7,441,035,000
FORDING CANADIAN $ 4,881,295,000
AEROPLAN $ 2,560,000,000
MULLEN GROUP $ 2,278,734,000
INTER PIPELINE $ 2,008,563,000
PEMBINA PIPE $ 1,997,628,000
CCS INCOME $ 1,937,578,000
GAZ METRO LP $ 1,895,406,000
ENERGY SAVINGS $ 1,825,553,000
ALTAGAS INCOME $ 1,580,767,000
FORT CHICAGO ENERGY $ 1,551,839,000
EPCORP POWER LP $ 1,521,297,000
TRINIDAD ENERG $ 1,508,026,000
BFI CANADA $ 1,488,944,000
TRANSFORCE INC $ 1,370,808,000
KEYERA FACILITIES $ 1,253,353,000
CML HEALTHCARE $ 1,184,922,000
NEWALTA $ 1,178,533,000
TIMBERWEST FOREST $ 1,123,405,000

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Postby urquhart » Mon Aug 14, 2006 7:35 am

National Post
Saturday, August 12, 2006
By Diane Francis
Canada's securities law is too lax
As a result, Teachers pension plan invests only in U.S.

The $96-billion Ontario Teachers'
Pension Plan invests only in stocks
that trade in the United States
because investor protection is
superior there, says CEO Claude
"When we buy stocks in the U.S., or
trade stocks in the U.S., we're
protected by U.S. laws. It's easier to
sue there to protect your investment,
laws are tougher and they are also
more owner-friendly," he said in a
telephone interview this week.
The Teachers pension plan, secondlargest
in Canada after the Caisse de
depot et placements du Quebec, has
been drawn into legal skirmishes
involving Nortel Networks (settled out
of court) and Biovail. Both cases were
based in the U.S. where laws and
courts are more helpful.
"No one ever goes to jail for these
crimes in Canada. It's only U.S.
regulators who take rigorous action,"
he said. "As a result, the best way in
Canada to steal money is to wear a
nice suit and do it in your office
instead of taking a gun and holding up a store."
He believes the biggest problem is the failure on the part of politicians to understand the
failings and need for reform.
For instance, Canada has too many competing jurisdictions with the provinces controlling
securities laws and the feds, criminal laws. I asked him about other issues such as the
fact the RCMP's white-collar crime section has been inadequately funded by Ottawa for a
decade and prosecutors in Canada are civil servants, often naive or very politicized.
"Something's got to be done because the public is being taken for a ride and it just goes
on and on," he said. "I'm not blaming the securities regulators in Canada. They even say
there are jurisdictional issues. There is also little recognition on the part of legislators as
to the importance of this. It's not like healthcare and there's a perception that this is a
victimless crime. It isn't. People are being stolen from."
Mr. Lamoureux hopes a task force currently working on these problems will come up
with helpful recommendations that will be adopted by politicians.
"It's the system that has to be looked at, as opposed to the people involved," he said.
"In the case of a large institution, we are protected because we can always try to sue.
But the individual investor is stuck."

A glaring example of Canada's inadequate investor protection involved the issue of
market timing and late trading among certain mutual funds and others, he said.
"Look at what happened in Canada about late trading," he said. "A few corporations paid
fines, but they stole money from members of the funds. It became difficult to know who
personally did it; the names were buried. And the fines were small."
Late trading and market timing was started in the U.S., but justice was more
"There were huge fines and in the U.S., people are still being prosecuted over it. They
will go to jail. Here, nobody was prosecuted," he said.
The biggest embarrassment was Bre-X, a $9-billion gold swindle. "Here's a case where
everybody knows there was a problem and nothing has happened," he said.
Another worrisome development is that even though the Vancouver Stock Exchange was
shut down, many of the same questionable promoters are selling shares to the public
through pink sheets or over-the-counter vehicles.
"There are more scandals in the small-cap stock sector because there are no big
institutions as investors and analysts don't cover them. They fly under the radar," he
said. "The people behind some of those scams just changed places, but they are still
operating within Canada."
Mr. Lamoureux is also a fan of Washington's Sarbanes Oxley laws, which have become
controversial in the U.S. because of the additional costs public companies incur to
"Section 404, requiring audit controls, went a bit overboard and should be modified, but
in general it's good protection," he said. "The fact that 15% of companies had to issue
restatements demonstrates there was a need to have better controls."
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The U.S. is Now Canada's Securities Regulator

Postby urquhart » Mon Aug 14, 2006 7:33 am

Claude Lamoureux, C.E.O. of the Ontario Teachers Pension Plan ("OTPP"), says in the following National Post article dated August 12, 2006 that the OTPP is not investing in Canadian equities, unless they are interlisted in the United States. His reasons for this are that OTPP can rely on the American securities regulation and civil liability justice systems, whereas Canada's securities laws are too lax. Note that this implies that the OTPP is not investing in Canadian income trusts, since these are not distributed in the U.S. and are not , with some exceptions, interlisted in the United States. Why should individual Canadians be investing in Canadian income trusts and public corporations that are purely domestic, while the $96 billion OTPP is unwilling to do so?

In this National Post article, Claude Lamoureux also speaks out about the sad plight of individual investors, whose investment money is being stolen, without meaningful investor protection and accessible mechanisms for getting their money back. He is quoted as follows:
"The $96-billion Ontario Teachers' Pension Plan invests only in stocks that trade in the United States because investor protection is superior there, says CEO Claude Lamoureux."

""Something's got to be done because the public is being taken for a ride and it just goes on and on," he said."

"There is also little recognition on the part of legislators as to the importance of this. It's not like healthcare and there's a perception that this is a victimless crime. It isn't. People are being stolen from.""

""It's the system that has to be looked at, as opposed to the people involved," he said. "In the case of a large institution, we are protected because we can always try to sue. But the individual investor is stuck.""

There have been numerous recent concerted efforts by individual investors and associations to convince our legislators that reform of Canada's accounting and securities regulation system is urgent. The associations representing individuals, include the Small Investors Protection Association, the United Senior Citizens of Ontario, the National Pensioners & Senior Citizens Federation, the Kairos Social Ecumenical Justice Initiative, the 50 Plus Association and the Consumer Council of Canada. Representatives of individual investors have: prepared substantial research on the facts of individual investor abuse; written thousands of letters and submissions; held public demonstrations; and participated vigourously in public consultations by the Federal Wise Persons Committee, the Ontario Standing Committee of Finance and Economic Affairs, the Standing Senate Committee on Banking, Trade and Commerce, and countless other government committees that have recommended new Canadian structures for white collar crime deterrence and remedies for the billions of dollars of investment losses caused by malfeasance.

The current Canadian accounting and securities self-regulators and regulators are collectively in a breach of trust to seniors and other individual investors for Canada's lax accounting standards and securities laws. Their backroom exemptive relief from current laws and their abysmal enforcement of what weak laws we have cannot go on!

Canada's economic prosperity and social well-being are at risk when institutional investors, like the OTPP, stop investing in Canadian securities that are not interlisted in the United States. Seniors and other individual investors cannot afford to be investing in domestic income trusts that have flawed accounting standards, financial reporting and cash yield valuations. These income trusts have even worse civil liability remedies in the courts than public corporations, which OTPP finds unacceptable as a $96 billion institution. Already there are $ 3 billion of business income trusts losses borne by seniors and other conservative investors and not one self-regulatory or regulatory action has been taken on the income trust fiasco to date. This week's class action on a major bank completing unauthorized foreign exchange transactions in all of its RRSPs and RRIFs suggests yet another robbery of retiree's capital is going on.

Our federal legislators need to implement a national securities commission accountable to the public, whose mandate is investor protection. Similarly, our federal legislators need to implement a national accounting standards board accountable to the public, whose mandate is investor protection.
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