Securities law "exemptions". A license to steal?

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Re: Securities law "exemptions". A license to steal?

Postby admin » Wed Jun 23, 2021 4:09 pm

On Wed, Jun 23, 2021 at 6:04 PM Joseph Killoran <> wrote:

Screen Shot 2021-06-23 at 5.08.50 PM.png

CFRs won’t disrupt DSC sales ahead of ban

Regulators are granting relief from certain CFR requirements to allow DSC sales until a ban takes effect

By: James Langton June 23, 2021 15:05
suspicious client
Aleksandr Davydov/123RF
The Canadian Securities Administrators (CSA) will allow firms and reps to continue selling deferred sales charge (DSC) mutual funds right up until the ban on DSC funds takes effect by providing relief from forthcoming requirements to put clients’ interests first.

In a notice published Wednesday, the CSA said it will be providing the industry with relief from the portions of the upcoming client-focused reforms (CFRs) that might interfere with the industry’s ability to sell DSC mutual funds in the months leading up to the DSC ban, which takes effect June 1, 2022.

The conflict-of-interest provisions of the CFRs take effect June 30, and the rest of the reforms, including the requirement to put clients’ interests first, come into force on Dec. 31.

The fact that provisions of the CFRs are taking effect before the DSC ban created a tricky situation, as it may be difficult to argue that a rep is putting clients’ interests first when selling a product that the regulators have decided to ban outright because of long-standing investor protection concerns.

The regulators’ solution is to provide relief from certain provisions of the CFRs to enable the industry to keep selling DSC funds until the ban kicks in.

“In order to address any issues raised by the overlapping periods between the implementation of the enhanced conflicts of interest and ‘client first’ suitability requirements of the CFRs and the implementation of the DSC ban, the CSA jurisdictions have decided to grant relief from these enhanced standards in respect of sales of DSC products during the DSC transition period,” the CSA said in a notice.

The other aspects of the CFRs will continue to apply during that period.

“Firms that continue to offer DSC products to their clients during the DSC transition period will have to consider the disclosure needed in respect of DSC products to meet their relationship disclosure information obligations under the CFRs,” the notice said.
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Re: Securities law "exemptions". A license to steal?

Postby admin » Fri Jun 04, 2021 10:01 am

Sunday, September 9, 2018
Effective and Fair OM Exemption complaint investigations
Thanks to Canadian FundWatch for this informative and valuable article from Sept 9, 2018. They can be reached at

Screen Shot 2021-06-04 at 11.00.02 AM.png

Effective and Fair OM Exemption complaint investigations

Based on discussions with unsophisticated retail clients that have been adversely impacted by the regulatory exemptions regarding exempt securities a nasty picture arises. Most do not appreciate the rules of engagement, the unique risks of this market and especially the lack of liquidity. Any distribution of securities in Canada must either be qualified by a prospectus or be exempt from the prospectus requirement.

The Offering Memorandum (OM) exemption allows issuers to raise funds from investors who are either not sufficiently wealthy or not in a sufficiently close relationship with the issuer to qualify for certain other exemptions. It is found in section 2.9 of National Instrument 45-106 Prospectus Exemptions. Certain conditions of the OM exemption apply across all provinces and territories, while certain other conditions vary depending on the jurisdiction in which securities are distributed. The common conditions include a requirement that the OM contain financial statements of the issuer, and that investors acknowledge in writing that the investment is risky. The variable conditions include, in certain provinces and territories, an annual investment limit of $10,000 (all figures in CA$) per investor unless the investor satisfies certain criteria, including having a specified level of income or assets. Complaint investigators must become familiar with the varying provincial rules and how they are interpreted by regulators.

OM investors are required to complete and sign a form highlighting the key risks associated with investing in securities acquired under the OM Exemption. Individual investors are also be required to complete two schedules to the offering memorandum which ask investors to confirm their status (as an eligible investor, non-eligible investor, accredited investor or an investor who would qualify to purchase securities under the family, friends and business associates exemption) and that the investor is within the investment limits, where applicable. The OM exemption is loaded with bear traps for unsophisticated retail investors.

Marketing materials used by issuers in distributions under the OM Exemption must be incorporated by reference into the offering memorandum and filed with the securities regulatory authority. As a result, the marketing materials are subject to the same liability for a misrepresentation as the disclosure provided in the offering memorandum itself. Misleading OM marketing materials have been a source of angst for retail investors but should come into play when investigating complaints.

The companies and Exempt Market Dealers (EMD) that sell exempt securities want to see investors do well. But companies are also interested in maximizing the amount of capital they can raise and dealers want to boost their commissions – so there are conflicts-of-interest and incentives for both groups to encourage investors to buy exempt securities.

Problems/ complaints often arise because EMD Reps have not informed themselves as thoroughly as they should have about the investor's ’ situation ( KYC), the features and risks of the exempt investments they have recommended (KYP) and how those two Assessments should be applied to the client’s situation. For instance , someone with low to medium risk tolerance and capacity , low financial literacy and a large mortgage or credit card balance shouldn't be sold securities under the OM exemption even if they technically are eligible and are willing to sign the risk disclosure document. It is vitally important also for complaint investigators to recognize that (a) disclosure is NOT the same as transparency and (b) the well known downsides and limitations of disclosure.

In May 2017, the Alberta Securities Commission (ASC) concluded in a report that while many exempt market dealers adhered to the KYC, KYP and suitability rules, numerous others had significant compliance deficiencies in the collection and documentation of KYC information, inadequate Know your Product analysis , marketing materials that contained unsubstantiated or exaggerated claims and inadequate identification and response to conflicts-of-interest. Furthermore, a large number of instances were uncovered where brokers' clients possessed unsuitable investments such as: low-risk investors holding high-risk securities; income investors holding growth securities; short-term investors holding long-term securities; and investors with portfolios over-concentrated in exempt securities. ... 33-705.pdf

Unsuitable investments are bad enough but we have found that OM client complainants are also treated poorly. Attempts are made to blame the investor by citing he/she signed all the forms on risk and understood other complex matters related to investing in exempt securities. Complaint investigators need to go beyond the signed documents given the known vulnerabilities of retail investors.

In the EMD sector, OBSI closed 18 cases in 2017 with just one complaint (5 %) being upheld. This contrasts sharply with compensation recommendations for investment complaints generally- OBSI upheld 39% of investment complaints in 2017 (and 23% of banking complaints).

Our concern is that complaint investigators are not using proper complaint assessment principles to deal fairly with unique OM exemption complainants and complaints.

We suggest the following Checklist be adopted by OM complaint investigators to ensure complainants are treated fairly.
EMD complaint investigation checklist

· Basic Principle : KYP, Suitability determination is the sole responsibility of the Exempt Market Dealer – suitability and eligibility are NOT the same thing. Eligibility should be validated before suitability assessment
· Has the dealer exhibited due diligence in evaluating the exempt security?
· Is there objective evidence that eligibility was verified? Income tax returns/ payroll stubs should be checked if client appears uncertain on responses
· Are marketing materials misleading or different than the OM materials?
· Did the Dealer rely solely on self- certification of eligibility? Many retail investors do not understand the relevant terminology or have low financial literacy
· Employment stability checked as appropriate by Dealer?
· Was product risk adequately disclosed in terms the investor can understand?
· Was time horizon properly defined? Liquidity , redemption fees
· Has the lack of liquidity of exempt securities been considered in suitability determination re KYC?
· Is the client a vulnerable investor? Low financial literacy, senior, poor literacy, weak numeracy , language issues
· Does client have experience with OM exemption?
· Are client life objectives documented? IPS ? financial plan?
· Is Dealer NAAF/ KYC form adequate given the nature of the risks? Debt obligations, cash income needs, number of dependents , age , tax rate
· How was the client’s financial knowledge determined? If determined to be Low or Fair, extra Dealer controls are required especially as regards eligibility information provided and understanding of risks
· Was risk tolerance determined by a Dealer approved test and process? Is objective evidence available?
· Did the Dealer depend solely on client self -assessment of risk?
· Was client risk capacity determined? e.g. a retiree , an investor with a large mortgage /young family, unemployed
· Did the Dealer rely solely on client completed risk acknowledgement form?
· Was “informed consent” obtained?
· Are Rep Notes available for review?
· Has the Dealer documented the suitability assessment?
· What is Rep background? Registration, disciplinary history , designations, qualifications
· Any there any regulatory/ legal actions against Dealer, Issuer or product?
· Is marketing and sales literature misleading? Deceptive?
· Was Suitability assessed per transaction or on portfolio basis? Should be on individual security and on portfolio ( concentration of assets) basis.

We believe that complaint investigators should use such a checklist in order to ensure a fair assessment of an OM complaint. We appreciate however that every case will be fact-specific considering all of the evidence.


Whose responsibility is suitability? | Investment Executive ... itability/

Jeffrey MacIntosh, "Enforcement Issues Associated with Prospectus Exemptions in Canada," August, 2017. “…By comparison, equity financing in the public market averaged approximately $16.5-billion a year in each of 2010 and 2011 – comprising $3-billion in initial public offerings, $1.5-billion in private-venture funding and $12-billion in secondary offerings (based on Prof. Jog's estimates).Indeed, the exempt market "dwarfs the public market," says Prof. MacIntosh. Given the enormous size of the exempt-securities market, the amount of harm inflicted on investors could be considerable if extensive non-compliance exists, he adds…” ... _Final.pdf

Complaint Handbook: MBC Law author H. Geller ... G+2018.pdf

Guidelines for obtaining meaningful consent - Office of the Privacy Commissioner of Canada
The Office of the Privacy Commissioner will begin to apply these guidelines on January 1, 2019. The release of these guidelines is part of the Office’s work to improve the current consent model under the Personal Information Protection and Electronic Documents Act (PIPEDA). For further details, please refer to the consultation on consent under the PIPEDA. ... mc_201805/. There are many issues re informed consent in the investment business especially given the asymmetry in knowledge and the clever (cunning) writing of consent agreements by industry participants.

Ending abusive clauses in consumer contracts Report 2011 ... lauses.pdf
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Re: Securities law "exemptions". A license to steal?

Postby admin » Sun Jun 23, 2019 1:33 pm


Kinder Morgan applied for its all jurisdictions Exemptive Securities Relief on May 29, 2018, on the exact same day the GOC announced its purchase of the Trans Mountain Pipeline from Kinder Morgan ... kinder.htm

Kinder Morgan Canada Limited - Ontario Securities Commission
Mar. 29, 2018 · National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption granted relief from requirement in NI 44-101 to incorporate by reference into a short form ... ... kinder.htm
Web results

Liberals to buy Trans Mountain pipeline for $4.5B to ensure expansion is built
goc buys tmp from
May 29, 2018 · The Liberal government will buy the Trans Mountain pipeline and related infrastructure for $4.5 billion, and could spend billions more to build the controversial expansion. Finance Minister Bill Morneau announced details of the agreement reached with Kinder Morgan at a news ...

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Sent from my iPad

see also Common Ground article titled: Canadian corruption by exemptive relief
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Re: Securities law "exemptions". A license to steal?

Postby admin » Sat Jun 22, 2019 6:59 am

Giving WALTON INTERNATIONAL GROUP INC. AND WALTON CAPITAL INC. the legal ability to purchase a government sanctioned “exemption” from the law BEFORE they sell investment products in an illegal manner, is a bit like letting a criminal be able a buy a "Deferred Prosecution Agreement”....before they commit their crime.

Here is a peek behind the curtains, at how some staff at the Ontario Securities Commission can profit by playing a role in a “confidence game”. A game where the public is given reassurances of safety and protection, while letting private financial parties pick the public's pockets.

FACT: The Ontario Securities Commission has the power of the Ontario Legislature and claims to use that power to protect the Ontario Public.

As a regulatory body, the OSC administers and enforces compliance with the provisions of the Securities Act (Ontario) and the Commodity Futures Act (Ontario). Specifically, we work to protect investors, foster fair and efficient markets, and contribute to the stability of the financial system by making and monitoring compliance with rules governing the securities industry in Ontario.


FACT: Out the side door of the OSC, some staff quietly provide “exemptions” to Ontario law (Ontario Securities Act) which have the ability to do great harm to the public interest, while unjustly enriching the private financial interests who pay the funding for the OSC.

The relevant portions in quotes are found in the image below and at the link at the OSC.
“...exempting, for a specified period of time, the employees of the Applicants (the Dealing Representatives) who are, or will be, registered under the Act as dealing representatives, from the proficiency requirements applicable to dealing representatives of exempt market dealers.."

Screen Shot 2019-06-22 at 7.58.50 AM.png

click on image to enlarge it, and then click “back” to go back to original size

SOURCE: ... ap_man.htm

FACT: The OSC almost never provides any public notice to investors, nor any public warning of these products which have been given a pass to skirt the law, EVEN failing to give notice to members of the public who unknowingly may risk their life savings in these products.

SOURCE: This (Exemptions) forum topic, along with the documentary film BREACH OF TRUST contains examples and a letter from a John Stephenson (name from memory, apologies if incorrect) ) at the OSC who states in writing that there is “no provision in the act” to notify the public.

Screen Shot 2019-06-22 at 8.05.35 AM.png


FACT: The OSC routinely alters, edits, redacts and removes incriminating information which has a tendency to expose their beneath-the-surface role in the financial confidence game. For this reason, a copy of the exemption granted to allow Walton products to be sold to an unsuspecting public is also found here on Google Drive: ... f6LroPl-wS

FACT: In addition to not providing a public notice nor public warning to any investor who might purchase investments which do not meet Provincial Securities laws, the Ontario Securities Commission usually fails to document or show a process which they followed to ensure that the public interest would not be harmed by providing this exemption to the law. The following quote is generally found in each and every written OSC “decision”

FACT: Newspapers who are highly compensated by revenue (advertising) dollars provided by financial corporations and other private financial interests will generally be reluctant to bite the hand that feeds their lifeblood, and so will not generally write about or cover news stories that expose this confidence game...rather they profit from playing a secondary role in the confidence game by not exposing it. This causes public awareness to remain at or near zero of these breaches of public trust, by a government empowered body.

Investors MUST realize that no one is going to jump into the water and save them from financial sharks who prey upon the public. The reason for this is that all the lifeguards on the beach are secretly being paid by the sharks...

SOURCE: "The OSC is a self-funded Crown corporation, accountable to the Ontario Minister of Finance. The OSC operates under the direction of the Commission.” ... _index.htm

All one has to do is trace the source of OSC funding to see that the lifeguards are being the sharks.

In another topic on this forum there is a section titled, "The perfect professional organized crime”. It contains letters of complaint on matters such as this (falsified advisors and exemptions to the law for private financial interests) in several Provinces in Canada. Alberta, Ontario, Manitoba, BC and Nova Scotia Legislative bodies have been contacted and most have not all. In the three decade study of “confidence games” within the financial industry, this is standard industry practice, even for those who purport to be government empowered protective agencies.

Read the complaint letters here: June 19, 2019

Submission to the Alberta Public Interest Commission: viewtopic.php?f=1&t=199#p4085

Submission to the Office of the Ombudsman of Ontario: viewtopic.php?f=1&t=199&p=4089#p4089
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Re: Securities law "exemptions". A license to steal?

Postby admin » Thu Jun 06, 2019 2:01 pm

Advocate Comment:
FAIR Canada’s funding and origins call into question its own motives and conflicts of interest, but I will overlook their “last man to complain...after all the harm has been accomplished” in order to provide these further details into the Bombardier insider trading rules exemption.

Screen Shot 2019-05-25 at 10.21.37 PM.png

CSA exemption for Insider Trading and Reporting of Trading undermines insider trading rules and confidence in Canadian markets.

"Fool me once, shame on you. Fool me twice, shame on me.”

The President and CEO of Bombardier, sold 52% of the shares he put into a 24-month automatic share disposition plan (ASDP) during the first 2 months of trading. If the trades had been evenly spaced over time, closer to 8% of the shares should have sold during that same period. Considering that he sold his shares at an average price of $4.55, when Bombardier's share price traded as low as $1.67, after negative material non-public information was publicly disclosed, there is an appearance of prejudice to the balance of the shareholders as a result of the insider trading. Further it is not apparent what was "automatic" about the Bombardier automatic share disposition plan. We believe that the case of Bombardier has shed a harsh light on the ASDP exemptions regime adopted by the members of the Canadian Securities Administrators (CSA).

Bombardier "voluntarily" suspended the ASDP, which started trading on September 17, 2018, less than two months after it started. The insider trading was not reported until March 2019. Why did the board not require immediate insider reporting of the trading? Why instead choose to delay insider reporting until March 2019 and even then, the reporting disclosed minimal information?

Autorité des marchés financiers ("AMF") has stated that it conducted a review of these transactions and Bombardier Inc. voluntarily suspended all sales of securities under the ASDP at the beginning of the review. The AMF also announced that no "offence or failure under securities legislation by participating senior executives or Bombardier Inc. during the implementation of the ASDP" was identified. Why did the AMF not commence a formal investigation? Why did the AMF not require immediate and full insider trading reporting?

CSA Exemption Orders for ASDPs

In Canada, insider trading is illegal when insiders (or other persons or corporations having privileged access to information about a reporting issuer) acquire or dispose of a security knowing material non-public information about the reporting issuer ("insider information"). Illegal insider trading does not require the insiders to use insider information, or to exercise discretion at the time of trading. Trading while in possession of insider information is sufficient to trigger liability.To ensure transparency and foster investor confidence in the fairness and integrity of the securities markets and also to enable securities regulators to detect and deter illegal insider trading, all insider trades must be reported within 5 calendar days.

Several exemptive relief orders, granted by various provincial securities regulators, have exempted reporting insiders from filing insider trading reports for trades made pursuant to so-called automatic share disposition plans. These exemptive relief orders are granted on a case-by-case basis, taking into account the specific risks of each request and assuming good faith of the reporting insiders.

There have been instances of fraud in connection with automatic trading plans. Reporting issuers and insiders have created so-called automatic trading plans as a scheme to trade based on insider information without being subject to the prescriptions of the insider trading laws. For instance, by implementing plans while in possession of insider information, or by terminating and restructuring plans when aware of insider information, insiders are able to lock-in trade profits or avoid losses.


FAIR Canada recommends that the Bombardier exemptive relief order should be revoked, the insiders should be required to report the details of the trades made pursuant to the ASDP that would ordinarily be reported in insider trading reports, and a formal investigation should be conducted by regulators into the trades by Bombardier insiders.

Advocate Comment:
Now this is more like what we have some to expect of FAIR ask that the barn door on this one exemption be closed after all the harm is done and the horses are out...without asking for a complete public investigation into financial entities who can purchase exemption from our public protection laws.

FAIR Canada also recommends that securities regulators revoke all existing ASDP exemptions and require new applications to be made if the parties wish to continue with an exemption. Any new exemptions should require the application of consistent objective criteria and controls on any automatic trading plan, such as (i) timely reporting of insider trades, (ii) using a fixed automatic trading formula or algorithm and (iii) imposing waiting and cooling off periods applicable to the implementation, amendment, suspension or termination of such plans.
Correspondence with CSA

See our letter of May 6, 2019 to Mr. Louis Morisett, Chair of the CSA and the reply from Mr. Morisett of May 8, 2019. See also our letter of May 10, 2019 and Mr. Morisett's reply of May 29, 2019.

About FAIR Canada:

FAIR Canada is an independent national charitable organization. As a voice for Canadian investors and financial consumers, FAIR Canada provides information and education to the public, governments and regulators about investors' and financial consumers rights and protections in Canada's capital markets.

Visit for more information.

Follow FAIR Canada on:

Twitter @FAIRcanada
Facebook /faircanada
LinkedIn /faircanada

For Further Information Contact:

Ermanno Pascutto
Executive Director, FAIR Canada
(T) 647-256-6693 |

Douglas Walker
Senior Policy Counsel, FAIR Canada
(T) 647-256-6691 |

Advocate comment.
Fair Canada is yet another industry funded entity, dressed up to appear as if it is a public protective body. It is yet another layer in the quadruple-redundant protection of industry interests, even if they have to paint black horses white to fake things a bit. I could be wrong, but history is not.
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Re: Securities law "exemptions". A license to steal?

Postby admin » Fri May 31, 2019 2:05 pm

“I never met a regulatory exemption I didn’t like”-
St. James Street executive

Key Bombardier executives reap tens of millions from cashing in share units, options -
The Globe and Mail

The public trading disclosures do not reveal the dates when the transactions took place, because securities regulators granted Bombardier an exemption to standard reporting requirements, allowing the company to disclose all transactions under the automatic securities-disposition program just once annually. All the trading activity was filed publicly using a Dec. 31 transaction date as a result.

AMF enabled these transactions which set up a system where executive compensation bears no relationship with performance. Shareholders paid the price.
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Re: Securities law "exemptions". A license to steal?

Postby admin » Tue May 28, 2019 8:50 am

1. “You have to understand, white collar crime is legal in Canada,”

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2. You then have to understand that private financial interests can purchase an “exemption” to make illegal financial acts…legal.

3. Examples of exemptions provided by Canadian Securities Commissions (, certainly government empowered entities, supposedly public protective entities) to:

a) Valeant Pharmaceutical, exempted so it did not have to disclose financials for its many acquisitions ($80 Billion erased from public markets)
b) Bombarier, exempted so its executives could sell their shares without complying with insider trading laws ($80 million erased from public markets)
c) Non-rated sub-prime mortgage investments exempted so they could be sold to retail investors including Judge and RCMP pension (PPSP) ($32 Billion erased)
d) exemptions so Banks can dump poor selling share underwritings (IPO’s) into the mutual funds of their own bank mutual fund customers
e) …..continued at a rate of about 400 to 500 exemptions each year in Canada, without so much as a public warning, notice or any public input allowed.

Screen Shot 2019-04-11 at 9.17.55 PM.png

Click on image to enlarge, click on back to go back

The above image shows a search for “orders, rulings and decisions” (which includes “exemptive relief”) turns up over 300 such items for RBC. Little to none of which are provided to the public as information or warning even if the life savings of members of the public is involved.
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Re: Securities law "exemptions". A license to steal?

Postby admin » Sat Mar 30, 2019 8:38 pm

Screen Shot 2019-03-30 at 9.38.19 PM.png ... CtNFl6Aoeo


From an earlier article in the Globe came the following: ... isclosure/

Quebec regulator approved delay of Bombardier stock disclosure

November 16, 2018, at 7:19 PM ET ... isclosure/

Quebec regulator approved delay of Bombardier stock disclosure

November 16, 2018, at 7:19 PM ET

Bombardier has lost more than two-thirds of its market capitalization since its shares hit a five-year high of $5.43 in July.


Quebec’s Autorité des marchés financiers (AMF) approved an application in September from Bombardier Inc. executives to delay publicly reporting their insider trading transactions under a new automatic share sale program that has become the focus of a probe by the securities regulator.

Bombardier asked for the reporting exemption after announcing Aug. 15 it had created an automatic share disposition program, which would allow 12 senior executives to exercise options and sell shares through an arms-length broker who would make the trades.

Share sales under automatic disposition programs have to be reported within five days, similar to other insider trading reports. But the Bombardier application approved in September by the AMF allows the trading to be disclosed just once annually, up to three months after the end of a company’s fiscal year. Prior to that, investors have no way of knowing how many shares are sold at what price.

Companies seek an exemption from disclosing each trade because they argue the shares will be sold on an automatic schedule and no investment discretion will be applied. Many companies do not want to report a series of sales that leave the impression that top executives are making decisions to routinely sell their shares.

The Ontario Securities Commission has said it will consider allowing the disclosure exemptions if the insider can demonstrate the plan is automatic and does not allow for investment discretion.

Bombardier shares plunged 20 per cent to $1.67 on Friday in a massive sell-off as more than 72 million shares changed hands. The AMF announced after markets closed on Thursday that it is reviewing stock transactions made by Bombardier executives since the share sale program was unveiled in August, not long after the company’s share price hit a five-year high.

The program allowed executives to begin selling shares effective Sept. 17 through the arm’s-length broker. Executives were allowed to provide general instructions about what they wanted to do with their stock options and shares when the sales program was created, but could not dictate the exact timing of trades. Details about the parameters of those instructions -- such as how many shares were to be sold at what time -- are unclear.

The company announced plans on Nov. 8 for an additional 5,000 job cuts and two significant asset sales. It also updated guidance for free cash flow for 2018 that was about US$600-million worse than previously estimated. Bombardier said it will only be able to reach its target of breaking even on a cash-flow basis this year by including the proceeds from selling its Downsview property in Toronto.

The news rekindled investor anxiety over the company’s cash situation and sent its share price tumbling. Now, it has also raised concerns about the timing of executive share sales and whether Bombardier should have created an automatic share disposition program when it did.

Concordia University business professor Michel Magnan, who specializes in corporate governance issues, said executives may be shielded from accusations of trading with insider information by making their share sales automatic at predetermined time periods, but they can still face criticisms about the timing of their decision to set up the sales program in the first place.

“In the Bombardier case, the fact that insiders decided to set a program at a time when the stock was at a high and for a considerable number of shares does not inspire confidence, especially in the context in which it is being said that the turnaround is still under way,” Prof. Magnan said.

Because of the AMF reporting exemption, which was granted Sept. 14, there is no public disclosure of how much money executives may have earned from exercising options or selling shares in September or October before the negative news was reported. The 12 top executives put more than 35 million stock options and other securities into the plan.

Quebec’s securities regulator said Thursday that it has asked Bombardier to stop any further insider transactions.

Sylvain Théberge, spokesman for the AMF, confirmed Friday the regulator gave the reporting relief to Bombardier, but would not comment further on whether that application will be part of the investigation announced Thursday.

Bombardier spokesman Simon Letendre said Friday the company will disclose trading under the program “in due time,” saying the disclosure isn’t required until three months after the end of the year.

Mr. Letendre said the program was set up at a time when trading was permitted under Bombardier’s internal guidelines and under applicable securities law. Bombardier is co-operating with the AMF investigation, and Mr. Letendre said the program was reviewed by the AMF before it was established in August.

“We won’t comment further on the transactions since the AMF review is ongoing,” he said.

According to the AMF’s decision granting the reporting exemption, the 12 executives participating in the program – including chairman Pierre Beaudoin, chief executive Alain Bellemare and chief financial officer John Di Bert – each said they were not aware of any “undisclosed material fact or material change about Bombardier” at the time the trading program was created.

The AMF said each executive also provided assurances that they were entering into the program “in good faith and not as part of a plan or scheme to evade the insider trading prohibitions” in Canadian legislation.

An analysis by The Globe and Mail shows Mr. Bellemare put securities worth $21.9-million into the share sale plan, based on the closing price of Bombardier’s shares on Aug. 15 and the potential profit from stock options if they were exercised on that date.

Mr. Beaudoin contributed securities estimated to be worth $9.8-million on Aug. 15, while Mr. Di Bert contributed securities worth $14.7-million. Divisional presidents David Coleal and Fred Cromer had securities worth $14-million and $12.2-million, respectively.

Ted Dixon, who operates a service called Ink Research that tracks insider sales, says allowing the exemption from typical disclosure creates uncertainty for investors and lacks transparency, because sales can occur at different times and different prices and investors won’t know for quite some time. “These plans aren’t necessarily designed in uniform ways.”

Bombardier has lost more than two-thirds of its market capitalization since its shares hit a five-year high of $5.43 in July as investor anxiety grows generally for heavily indebted companies. Bombardier is working through delivery delays in its train unit and trying to get its new Global 7500 jet into service, both of which are affecting its cash position. The issues are short-term, the company has said.

“Over the past few months, many investors appear to be selling the stocks of companies with large debt levels and Bombardier is still working through its deleveraging process,” said Michael Willemse, an analyst at Taylor Asset Management in Toronto. “We think the sell-off [in Bombardier] is significantly overdone.”

Quebec shareholders rights group Médac called on the AMF to immediately revoke the authorization it gave for Bombardier’s automatic securities disposition plan and to order that all trades done through the plan so far be made public. “This whole affair is directly undermining investor confidence,” Médac spokesman Willie Gagnon said.

The CEO has played down the concerns, noting the company will end the year with US$3-billion in cash and that the turnaround plan is on track to meet its 2020 targets.

Bombardier had long-term debt of US$9.1-billion as of the end of September. Its next major maturity is scheduled for March, 2020, when an US$850-million bond comes due, according to Bloomberg data.
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Re: Securities law "exemptions". A license to steal?

Postby admin » Mon Feb 25, 2019 6:57 pm

NO ONE WILL EVER FIND OUT...(we will keep it very quiet)

Screen Shot 2018-11-22 at 5.56.26 PM.png

Is it really in the public interest to keep the name of the firm granted the exemption a secret? Does opaqueness aid in market efficiency?

Transparency seems to be elusive in the Canadian marketplace.

In fact, why is there a need for so many regulatory exemptions?

Unlike proposed rule changes, exemptions are not subject to public consultation and viewing.

In effect , many rules are somewhat fake because they have been deleted and therefore do not really exist. This deceives investors as to the true nature of the regulation provided.

(name removed)

Begin forwarded message:

From: Investor Inquiries <InvestorInquiries@IIROC.CA>
Date: February 25, 2019 at 9:21:48 AM EST
To: '(name removed)
Subject: RE: Question on this exemption

Mr. (name removed),

IIROC has not made public the name of the applicant in this particular instance.

Under IIROC policies, there are a number of options available regarding publication of an exemption result including:
• full disclosure
• redacted (with confidential information removed)
• summary format (with or without the dealer name), or
• as part of the annual exemption summary.

The decision as to what IIROC publishes for public consumption (including the name of the applicant) is done on a case-by-case basis.

(Quotations by investor advocate for emphasis)

The factors that are generally considered in completing this analysis include:
· Whether the matter is novel in nature;
· Whether other dealers are likely to consider applying for similar relief; and
· The submissions of the applicant and IIROC staff regarding confidentiality of the application.

In this case, the decision was made to provide a summary without the dealer name.


Harry Apostolatos
Sr. Complaints & Inquiries Specialist
Investment Industry Regulatory Organization of Canada
121 King St. W., Ste. 2000, Toronto, Ontario M5H 3T9
Toll free: 1-877-442-4322 | Fax: 416-364-0753
IIROC: Protecting Investors and Fostering Fair and Efficient Capital Markets across Canada.

Description: Description: IIROC_BI_2Col_C_noTag

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Le présent message s'adresse uniquement au(x) destinataire(s) envisagé(s) et peut renfermer des renseignements privilégiés et confidentiels. Si le lecteur de ce message n'est pas le destinataire envisagé, ou s'il n'est pas un employé ou un mandataire chargé de remettre ce message au destinataire envisagé, le lecteur est par les présentes mis en garde contre le fait que l'examen, la retransmission, le transfert sur support papier, la copie, la diffusion ou toute autre utilisation de ce message est formellement interdit et peut être illégal. Si cette communication vous a été transmise par erreur, veuillez nous en aviser immédiatement en y répondant, puis supprimez le message de votre ordinateur. Merci

-----Original Message-----
From: (name removed)
Sent: Wednesday, February 20, 2019 10:35 AM
To: Investor Inquiries <InvestorInquiries@IIROC.CA>
Subject: Question on this exemption


Can you tell us the name of the firm that was granted the exemption?
If not, can you explain why the name of the firm is being kept secret?

Thank you,

(name removed)

Rules Notice Exemption
Dealer Member Rules
Mark Stechishin
AssociateGeneral Counsel, General Counsel’s Office 416-943-5878
Pleasedistributeinternallyto: Institutional Legal and Compliance Operations
Senior Management Retail
19-0025 February 19, 2019
Exemption from section A.1(c) of IIROC Dealer Member Rule 3200
1. Authority to grant exemption
Dealer Member Rule 17.15 permits the IIROC Board of Directors to exempt a firm from any provision of the Dealer Member Rules where it is satisfied that to do so would not be prejudicial to the interests of other firms, their clients or the public. In granting an exemption, the Board may impose such terms and conditions as are considered necessary.
2. Exemption granted
At its meeting on January 30, 2019, the Board granted relief to a firm from section A.1(c) of IIROC Dealer Member Rule 3200 (“Rule 3200”).
Rule 3200 requires dealers operating an order-execution-only service as a separate division, to have separate Registered Representatives and Investment Representatives. The relief allows Registered Representatives in the firm’s full service division to also promote and market the services offered by its order-execution-only division, provided the firm discloses these (non-registrable) activities to IIROC for each individual on item 10 of Form 4 of National Instrument 33-109 Registration Information Requirements.
3. Rationale
The Board considered the rationale for Rule 3200, which is to address client confusion, and was satisfied that the firm would put in place appropriate disclosure, policies, procedures and controls to address this issue.
The Board determined that this exemption is not prejudicial to the interests of firms, their clients or the public.

OSC registration rules sec 25 adviser.png
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Re: Securities law "exemptions". A license to steal?

Postby admin » Thu Jan 31, 2019 3:01 pm

510 Exemptions granted by the OSC in 2017 and 410 in 2018 according to OSC staff

(Information as to number of public notices issued, or legislative required tests and documented procedures regarding protection of the public interest when granting exemptions, will be sought, and previously asked questions in this regard have not provided answers. In addition it will be asked how many exemption applications were received and rejected/accepted, numbers for each of these three categories)

Date: January 25, 2019 at 4:36:08 PM EST
To: ken
Subject: Re: File #20190121-25937 - Request for information

Dear Ken,

Thank you for your follow-up email about the number of exemptions granted by the OSC.

The chart below shows information for the previous two fiscal years, shown by OSC branch. The chart shows exemptions granted, with the exception of the Corporate Finance branch information which was for all applications. In the chart below, IFSP is the Investment Funds and Structured Products branch, and CRR is the Compliance and Registrant Regulation branch. More detailed information about each of these branches is available on the OSC website.

I understand your comment about the work required by OSC staff to review applications for exemptive relief, but this is a normal part of our regulatory role. The rules governing the OSC’s activities are designed to help fulfil our statutory purposes. However, the rules themselves also typically provide that exemptive relief may be requested, and, so, contemplate that the rules may not be practicable in all situations.

Just for some additional background on the process, as a general rule, applications for exemptive relief are expected to be made in writing and to set out the facts in the matter, the reasons for the application, and all relevant considerations and circumstances, as well as provide any supporting documents. Applications are reviewed on a case by case basis and the determination depends on the facts. The process often involves detailed follow-up discussions with applicants, and exemptive relief, if eventually granted, may be different from the original request and may include terms and conditions to address specific concerns, including appropriate investor protection. The Act and the rules are made with the statutory purposes in mind, as are decisions about potential exemptive relief.


David DoRego
Lead Inquiries Officer
Ontario Securities Commission

The information in this e-mail should be taken as a guide. The content is not intended to provide investment, financial accounting, legal, tax or other professional advice and should not be relied upon or regarded as a substitute for such advice. We recommend that you seek advice from a qualified professional adviser before acting on the information or content appearing in this e-mail or any information or content on a web site to which a link has been provided.

From: ken
Subject: Re: File #20190121-25937 - Request for information
Date: January 23, 2019 11:56 AM

Yes Please send 2017 and 2018 information
As investor advocates we are interested in how much industry participants can deviate from written laws via exemptions.
This creates a burden and extra workload for OSC staff


Sent from my iPad

On Jan 23, 2019, at 11:32 AM, <> wrote:


Dear Ken

Thank you for your inquiry to the Ontario Securities Commission (OSC) about the volume of regulatory exemptions granted by the OSC in 2017 and 2018.

Staff prepared statistics for fiscal years 2017 and 2018, which would be current to March 31, 2018. If you think that information would be helpful to you, please let me know. If you wanted more current information, it would take longer to prepare.

It might also be helpful if you could let me know why you need the information, and if you have a particular concern that I can address.

In addition, some information about exemptions is available on the OSC website ( <> ), including copies of exemptive relief decisions. If you wanted to review these decisions on our website, open the tab for “Securities Law & instruments”, then open the sub-heading for “Orders, Rulings & Decisions.”

I look forward to hearing back from you.


David DoRego
Lead Inquiries Officer
Ontario Securities Commission <>

The information in this e-mail should be taken as a guide. The content is not intended to provide investment, financial accounting, legal, tax or other professional advice and should not be relied upon or regarded as a substitute for such advice. We recommend that you seek advice from a qualified professional adviser before acting on the information or content appearing in this e-mail or any information or content on a web site to which a link has been provided.

Screen Shot 2019-01-31 at 3.00.57 PM.png

click on image to enlarge

510 Exemptions granted by the OSC in 2017 and 410 in 2018

according to OSC staff

From: ken
To: <>
Subject: Request for information
Date: January 18, 2019 12:44 PM

Can you please tell me what the number of regulatory exemptions granted in 2017 and in 2018 by the OSC?

Thank you

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Re: Securities law "exemptions". A license to steal?

Postby admin » Fri Oct 19, 2018 8:50 pm

Today I received an alert about a study of "Performance of Commercial Bank-Affiliated Funds” that was quite interesting.

It looked at Bank-Affiliated mutual fund performance in countries worldwide and found that on average, the performance of Bank-Affiliated funds is 0.92% (92 basis points) less than the average performance of the other funds in the country.

The study can be found here Performance of Commercial Bank-Affiliated Funds

Supporting info for the study including a list of countries studied is found here:

I posted it in this forum topic about EXEMPTIONS to securities law because it resonated with me as a second possible reason why bank-affiliated perform worse. First of course is that banks may in fact overcharge their customers and that is a distinct possibility.

Second and worth mention, however is that here in Canada, I have seen many cases where banks who own investment dealers and underwriting divisions for new investment offerings sometimes use their bank-affiliated mutual funds as a “dumping ground” for their underwriting mistakes. For example, if a Canadian bank-owned investment dealer comes up with a priorly timed, unpopular, or poorly selling investment new issue, and they do not of course wish to be themselves stuck with it...they can apply to the provincial securities commission for “exemptive relief” (exemption from the law).

The law they will gain exemption from is the law which prohibits banks from selling its own new investment underwriting into its bank-affiliated mutual funds and it is intended to prevent the bank from misusing or taking advantage of markets by virtue of their relationship with both fund management and underwriting.

The law requires a waiting period (30-90 days, I do not recall specifically) before a bank-affiliated fund could purchase portions of a new investment that was underwritten by the bank.....BUT, and here is the magic, if the issue is “sinking”, they merely apply and pay a small fee to the regulator (the same one who they pay $400,000 to $700,000 salaries to....) and POOF! They receive instant permission to dump as much of the unsold or poorly selling new issue to get the problem off of the bank’s balance sheets, and onto the bank’s mutual fund holder accounts. Problem solved...for the bank.

I believe I have run across most every bank in Canada who have utilized this trick, and it underscores the tremendous value of letting banks fund the securities regulator salaries. Paying a securities regulator sufficient to make them a millionaire in a few years, is the perfect way to adding billions in profitable tricks to the banks bottom lines. (although it is @FinancialMurder of society...)

You may find examples in this forum topic of many such bank exemptions and I hope ti might help protect readers from being a victim of this one of the banks many self-dealing tricks.
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Re: Securities law "exemptions". A license to steal?

Postby admin » Sun Sep 02, 2018 2:05 pm

At risk of this being a repeat posting, it deserves to be doubled-up.

As I write, today (2018) to Alberta Finance Minister Joe Ceci, ninth or tenth in a long line of Alberta Finance Ministers, who have all chosen to “shoot, shut up and shovel”, rather than to protect the public....regardless of political color or flavor....I am reminded that this article by the Globe and Mail well sums up the damage done by “shill” regulators, hired and paid 100% by the financial industry to pretend to protect the public, whilst truly serving another master, namely the industry that picks and pays them. Here is the article about regulators who sell their souls, their signatures and exemptions to the law, so that financial predators can quietly rape and pillage the public by as much money as the cost of each and every other crime (measured crime) in the land. This story relates to just ONE financial crime, which cost Canada $32 Billion, several suicides quietly spoken of, and windfall gains to the financial industry of billions....all with payment of just a few hundreds of purchase the entire regulatory systems of Canada

Larry Elford, Author of “ABOUT YOUR FINANCIAL MURDER...” (non fiction)


Screen Shot 2018-09-02 at 3.02.18 PM.png ... /?page=all
From Monday's Globe and Mail
Published Monday, Aug. 11, 2008 12:00AM EDT

In the two years before the asset-backed commercial paper market collapsed, the investment was undergoing a transformation, morphing not only into a much riskier product but one that would start to look less out of place on the shelf among a broker's range of products on offer to ordinary clients.

Regulators failed to notice the change in structure and seemed completely unaware that the asset class had even found a new market with retail investors.

Susan Wolburgh Jenah, who heads the Investment Industry Regulatory Organization of Canada (IIROC), said she and her staff had no idea last year that any individuals even held ABCP. To their minds, it was still a sophisticated product with large institutional buyers as target customers. It took disaster to strike before they knew what was really happening.

"Back in August, I had no clue," Ms. Wolburgh Jenah says. "I didn't know there were retail investors, or how many retail investors. Nobody here knew, either ...
It took us a long time to start getting answers to those questions."

Yet IIROC, the regulator for the brokerage industry, now joins the Ontario Securities Commission and its other provincial counterparts in trying to find their own conclusions to how it happened. They are soon expected to reveal a proposal to curtail the sale of ABCP to retail investors.

At the same time, a federal Parliamentary committee has launched hearings, talking to federal banking regulators and provincial securities regulators as well as numerous angry investors to understand what went wrong with ABCP and what should be done to prevent it from recurring in the future.

In the process, the saga's history will be written and lessons offered on how it can be avoided in the future.
What's clear from an investigation by The Globe and Mail, however, is that the regulators must share the blame and, in fact, may have inadvertently made matters worse.

"My impression is that all of these different agencies are treating this like a hot potato, trying to pass it to the next agency and saying that they themselves are blameless," says John McCallum, the senior Liberal on the finance committee in Ottawa.

"With hindsight, there are probably many things that could or should have been done to avoid this crisis."

Opening the door

Regulators can be accused of more than benign neglect in this story: They helped to open the door for ABCP to become a retail product, thanks to a quiet rule change in late 2005. That's when six provinces, including Ontario, removed a long-standing threshold limiting the ABCP market to investors who could afford at least $50,000 of paper - a standard that was intended to keep relatively unsophisticated investors out of the sector. All of a sudden, small investors were able to buy commercial paper created by so-called "third-party companies" like Coventree Inc., which specialized in the ABCP market and ultimately was destroyed by its collapse.

By last August, industry sources say, many of the least-sophisticated buyers caught in the ABCP crisis had holdings below the former $50,000 minimum investment limit.

James Turner, vice-chairman of the OSC, said the change was made because regulators felt the $50,000 threshold was so low that it was not a meaningful restriction for many investors anyway. The OSC felt the new requirement to have a high credit rating would be a better protection and with so many ABCP trusts receiving high ratings by DBRS Ltd., the flood gates were opened.

"That was a much more appropriate exemption than just [requiring]units of $50,000," Mr. Turner said. The rationale for the change was never publicly discussed in 2005. The rule change was part of a move by provincial securities regulators to have uniform rules across the country.
But to do so, Ontario and five other provinces lowered their standard to match the other provinces that never had a minimum investment level.
The threshold was also lifted in Alberta, Manitoba, Quebec, Nova Scotia and Prince Edward Island.

In essence, the regulators decided to treat commercial paper issued by special purpose trusts as if it were similar to more-traditional commercial paper notes issued by blue chip, publicly traded Canadian companies
. Investors were supposed to rely on the rating of an unregulated agency. But what no one appeared to focus on at the time was that DBRS was the only agency that rated these notes. Both Moody's Investors Service Inc. and Standard & Poor's Corp. refused to rate them.

"I know it sounds like all the regulators are ducking responsibility," Mr. Turner said. "But in terms of what would have prevented this from happening, it was a whole bunch of different factors. If the subprime problem in the U.S. had never happened, then we probably wouldn't be here."

Indeed, the ABCP problem was not entirely foreseeable. But there was a pattern that should have merited closer monitoring.

The OSC was aware by 1999, for example, that there was a rampant trend emerging for simple debt instruments to evolve into far more risky derivative-backed products. In a report that year, a high-level task force set up by the commission recommended that investors be given more information about products that were backed by derivatives.

"The types of debt instruments sold by these issuers have evolved over the years and ... certain risk and other disclosure is required for investor protection," the report recommended.

ABCP was exempted from the recommendations because it was not seen as a similar derivative-backed product in that era. But within a few years, it too had evolved from plain vanilla commercial paper sold by creditworthy companies into the same sort of complex derivative instrument the committee was trying to address in its report.

As it turned out, much of the non-bank paper that froze up during the credit crisis last summer was the most complex and derivative-based product that existed.

Ms. Wolburgh Jenah, who was previously a vice-chairwoman at the OSC and worked on the derivatives task force, says in hindsight the task force demonstrated that many exemptions in securities law need to be regularly re-examined as markets and products change from their original conception.

She said when ABCP was created as an "exempt" product, no one was thinking it would be backed by complicated derivatives such as credit default swaps.
Regulators, she says, have to watch how products "morph" along the way.

"Did anybody think about these products when they created that exemption? Are you kidding? These didn't exist back then." Following a flurry of opposition, some of it coming from the Canadian Bankers Association which argued the OSC did not have jurisdiction to regulate bank debt products, the task force's recommendations on debt-like derivatives were not implemented.

Never again

On Bay Street, there is already speculation that new independent ABCP originators similar to Coventree will emerge fairly soon to fill a gaping hole left in the market.

While big banks are still selling their own brands of ABCP, which never froze up like the independent paper, the demand for new versions of Coventree comes because there are many small lenders who need a place to sell assets such as loans. With independent creators like Coventree gone, there is no way to do that.

The more complicated ABCP - the paper backed by derivatives - is less likely to return any time soon. In whatever form ABCP returns, the question now is: What will be different next time? There's no doubt market discipline will play a key role in the future. Investors have been burned and will demand improvements: clearer disclosure, better-quality assets, clearer guarantees from banks pledging to support the paper, and better credit ratings.

But for retail investors in particular, a critical part of the solution will also lie in the work of regulators which are now considering new rules to restrict the retail market.

The Canadian Securities Administrators (CSA), an umbrella group representing all the provincial securities commissions, is weighing new restrictions for retail investors buying ABCP, in essence narrowing the wide-open market that was created with the 2005 rule change.

Mr. Turner says one possible solution would be imposing the so-called "accredited investor" rule for ABCP. That would mean ABCP could only be sold to individual investors if they meet criteria (such as having up to $5-million in total assets) designed to limit a product's sale to those people with a greater level of financial sophistication.

Despite the work under way to tighten up the sale of ABCP, however, the OSC is making no admissions that it was a mistake to have removed the $50,000 threshold in 2005.

When asked whether the decision was wrong in hindsight, OSC vice-chairman Larry Ritchie repeatedly stressed that it was the role of the brokerage firms to determine whether ABCP was suitable for each client.

"The more complicated a product, the more there is an obligation for the people selling and recommending it to fully understand what it is," he said.

The final response to the ABCP crisis, however, may prove the most frustrating for some investors. While IIROC has launched some investigations of how ABCP was sold to retail investors, no individual or firm has so far faced any disciplinary action for improperly selling ABCP to people for whom it was an unsuitable investment.

And it is unclear whether anything will emerge. Ms. Wolburgh Jenah warns it may be difficult to pursue cases once retail investors are repaid their funds.

"One of the practical issues we have is that, historically, when people get their money back, sometimes they lose interest in pursuing the complaint. You want to go to a hearing and have a witness say, 'This is what the broker told me or this is what happened to me.' It's hard when you don't have that."



Canadian Securities Administrators will soon propose new rules requiring more disclosure of details about ABCP products for investors, and is mulling an accredited investor rule that would make their purchase impossible for many investors. As well, the committee is also planning to seek new powers giving securities commissions the ability to regulate credit rating agencies.

IIROC has conducted its own "compliance sweep" to consider whether new rules or standards are needed for ABCP sales. A key issue to be addressed is the product review process that goes on within brokerage firms to assess whether new or evolving investments such as ABCP are being adequately reviewed before being sold to retail clients.Brokerages such as Canaccord say the industry itself will have to be diligent to rely on more than ratings before selling a product to retail investors. "If you can't get the level of disclosure that you may need," says Canaccord CEO Mark Maybank, "you may not be able to sell that product."

Purdy Crawford, chairman of the Pan-Canadian Investors Committee for the Third-Party ABCP, says he would like to see more co-operation between the Office of the Superintendent of Financial Institutions and IIROC, which could combine their expertise in reviewing financial products, and such areas as capital and liquidity requirements. "These meetings probably need to happen at a more senior level." ... /?page=all


Screen Shot 2018-09-02 at 3.04.32 PM.png
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Re: Securities law "exemptions". A license to steal?

Postby admin » Mon Feb 20, 2017 7:00 pm

Pssst…Wanna buy a pass to avoid the law?

Screen Shot 2017-02-20 at 7.04.45 PM.png

Summary in one page

If the rare occasion arises when police are called upon to break the law, they are required to go in front of a judge to explain the circumstances, and obtain temporary permission to do so. It may be granted only if it is deemed necessary to protect the public interest.

Imagine if a citizen like yourself, or your neighbour, could surreptitiously apply to be exempt from our laws. What if you could apply for an exemption from speeding laws on the road you take to work each day, giving you, and only you, permission to drive at speeds in excess of 200 kms per hour?

Now imagine a financial regulatory system where 14,000 times in the past decade or so, investment industry players quietly applied for permission so that the products they sell, the advice they give to your family could be like them driving the freeway at 200 kms per hour. It would be dangerous to you and the public, and beneficial only to them.

Now, imagine that the persons who possess this ‘discretionary’ power to exempt our financial laws, are persons whom are paid 100% by the financial industry.

Finally, imagine that these investment regulatory ‘judges’ if you will permit the comparison, are usually paid hundreds of thousands of dollars in this position, (some over $700,000).

Here is where you think “impossible, I live in a safe country.” Beware of the brain’s tendency to trick you with cognitive dissonance, because this story is based on public documents and those dealings are sometimes being done to your life savings.

fair, honest good faith rule.jpeg

click on image to enlarge and zoom in

One of the hidden risks to investing is the risk of buying an investment which does not carry the protection of law. Most investors do not know this, but many investments are sold to consumers under special ‘exemption’ to Canadian rules or laws.

“This does not meet the criteria of protecting Canadian investors.”

For example, investors with O'LEARY FUND MANAGEMENT fund were likely not informed that this company had obtained exemption from the Securities Act requirements on borrowed or lent out securities. ... y-fund.htm

Most investors assume that if they own shares in a fund, and that fund owns shares in various companies, that the fund would actually hold/own what it says it owns. However in this exemption application it is unclear whether O’Leary funds intend to lend out securities they are supposed to own, or whether they intend to supply it’s fund holders with securities they are ‘borrowing’.

Other aspects of the exemption allow to permit “the collateral delivered to each Fund in connection with a securities lending transaction to not be held….” etc.

Most investors are not aware, for example that 14,000 ‘exemptions’ to rules or laws, have been granted to securities industry players since 2000. The authors of this report are not aware of fair and honest notice to the public of these. This may raise questions about whom the Securities Commissions are paid by, and to whom do they feel they owe loyalty to’, investment industry players, or the public?

Prior to 2006, one popular investment scheme was sub-prime (lower quality, higher risk) mortgages, which were bundled and sold as a package of highly rated, or in some cases, bank ‘backed’ investments. The problem was that they did not have high ratings as promised, or even the backing of some banks on some cases. Many of those investments could not legally be sold to Canadians without an ‘exemption’ from a securities commission.

Billions of dollars were lost to thousands of Canadians ($32 Billion) of dollars. Some never to be repaid. My own local government has just recovered some 80% of the millions of tax dollars they lost to this scheme, after a delay of nearly a decade. The cost to investors was far more than in money, but also in lost trust, hope, and in some cases suicide.

There were zero prosecutions for these ‘products’ sold to investors and zero systemic interest in asking Securities Commissions why they grant exemptions to investment laws.

An Ontario Securities Commission Vice President stated after seeing the effects of her signature on some exemptions that drained billions from Canadians, we “had no clue…”

"Back in August, I had no clue," "I didn't know there were retail investors, or how many retail investors.”

These very same regulators (who granted the exemptions) then fined the perpetrators one-half of one penny, for every dollar lost to Canadians. This while not bothering to mention the regulator’s role in allowing these investments to be sold via their exemptions. Curious.

Screen%20shot%202011-09-03%20at%209.14.40%20AM.jpg (56.25 KiB) Viewed 14344 times

click on image to enlarge and zoom in

One must ask how they do this without bothering to inform investors, whose money is being lured by the marketers of these products? Its strikes the authors of this report as not complying with Securities Act requirements of “fair, honest and good faith dealings” with investors.

The process appears to be so far from transparent as to be rendered invisible to the Canadian investing public.

After sub-prime mortgage investment schemes collapsed in 2008, there was an Ontario Legislature standing committee, that looked into the inner workings of the Ontario Securities Commission. However the committee failed specifically to report on the area of greatest importance. The Commission earns fees in the millions by granting (selling) semi-secret exemption to our laws. Could regulators be thought of as running a ‘business within a business’, raising money through passes to skirt financial laws?

It seems disingenuous for the Commission to claim public protection, without also telling investors who buy investments which may be “factory seconds”.

Several exemptions are found on the record which allow banks or investment dealers to skip around the dividing ‘wall’ between bank mutual fund investors, and the bank’s underwriting (sale of new investments) departments.

The risk to clients when this wall is removed can be that the bank gets to keep all the benefits of a top selling share issue, while it could, if it wanted, dump the poor selling issues directly to their own mutual funds.

This allows bank mutual fund customers to be used as the ‘solution’ by unknowingly taking the poor-selling product off the bank’s hands.

There are enough examples of this type of exemption to ask Securities Commissions to provide the protocol for insuring that exemptions do not harm the public interest. Unfortunately, the closest one gets to an answer from any Provincial Securities Commission is this statement:

“Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.”

From industry insiders comes the tale of one offering of shares in an Ontario company, where the bank was in such a tight situation with the poorly selling issue, that it applied to the commission, after hours on a Friday evening, and was able to get the ‘go ahead’ to allow the bank to skirt that law. With that kind of rapid-fire service, they were able to place those shares inside the holdings of bank managed mutual funds, solving the bank’s problem (with bank fund investors money) before business opened up on Monday.

Here is one bank exemption “Relief for dealer-managed mutual funds to invest in distributions of debt securities for which dealer-manager acts as underwriter during distribution period or 60 day period following distribution”

Of course, not every of the 14,000 or more exemptions on Canadian regulators books do harm to investors, but it would be fair to say that there are not many investment Corporations who apply to bypass laws unless there is something in it for them.

Hundreds and hundreds of exemptive relief applications studied, appeared to have a beneficial effect to issuers only, if some involve mere paperwork or reporting matters. Buried within those dull ‘paperwork matters’ are clever exemptive relief applications which cost Canadian investors as much as the cost of running some provinces. Each year.

Valeant Pharmaceuticals was an up and coming, can-do-no-wrong kind of operation in 2012 when they applied to the Ontario commission for “Exemption from the requirement to include the financial statement disclosure”. What could possibly go wrong when you have a can-do-no-wrong company?

Here is a link to the exemption from the legal requirement to include in a business acquisition report, the financial statements.... ... aleant.htm

Fast forward to November 2016 to find this headline:

“The CEO of Valeant's secret pharmacy has been charged with engaging in a multimillion-dollar fraud and kickback scheme”
Nov 17, 2016

Screen Shot 2016-11-18 at 1.03.38 PM.png

This report will be continued with appendixes, sources, links at the post immediately following......please scroll down for more
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Re: Securities law "exemptions". A license to steal?

Postby admin » Mon Feb 20, 2017 6:56 pm

Continued from previous posting on exemptions topic.....

“The CEO of Valeant's secret pharmacy has been charged with engaging in a multimillion-dollar fraud and kickback scheme”
Nov 17, 2016

Screen Shot 2016-11-18 at 1.03.38 PM.png

July 2015
Valeant Pharmaceuticals International Inc., the drugmaker on an acquisition streak, surpassed Royal Bank of Canada as the country’s largest company by market value.
Valeant surged to $326.96 per share for a market value of $111.6-billion ($85.6-billion U.S.) at 12:11 p.m. on the Toronto Stock Exchange. That eclipsed Royal Bank’s $108.2-billion value, according to data compiled by Bloomberg. Toronto- based Royal Bank is Canada’s largest lender by assets.

Under $5 billion currently, a decline of over $100 billion. Valeant shares dropped from $335.00 to $17.00, dissolving about $100 billion in stock market capitalization for investors.

By way of comparison, the cost of financial harm done by each and every crime in the country of Canada is approximately $50 billion each year. Imagine if one well organized white collar trick could drain Canada of as much or more than every other criminal act in the land. The numbers suggest this is entirely.

Another exemption was this one whereby National Bank Financial received permission for it’s sales reps (also known by the registration category of “dealing representatives”) to be exempt from having to hold the higher professional license of “Adviser”, which typically brings with it a much higher (fiduciary) duty of care. ... albank.htm

Typically, when Securities Commissions grant these exemptions, there is little or no follow process in place to determine if any imposed conditions have been met, or if abusive actions are not fostered as a consequence (intended or unintended) of the exemptions.

Rather than reproduce another 14,000 exemptions allowed by our government-legislated regulators, and by self-regulators, it is hoped that the principles of allowing exemption to our laws, in near-secrecy from the public, might be enough to make the public awareness point of this report. There are serious and legitimate concerns about the financial protections of the public. Our Provincial governments appear to be decades behind the times, in awareness of what is happening within these legislated entities.

Search ‘exemptions’ or ‘exemptive relief’ at any Provincial Securities Commission if you wish to enter a strange, largely hidden world of back-room deals which cost the country incalculable financial harm…while bringing investment dealers untold billions.

FOLLOWING PAGES ARE BACKSTORY, SOURCES, APPENDIX’S which form the backup data for the exemptions report immediately prior to this post:

Exemptions to Investment Industry Rules and Laws.....continued

Canadian regulators are funded 100% by the investment industry, while they are charged with policing that investment industry.

Once regulations are established, if a company finds it advantageous to not comply with a requirement in the securities legislation, it can pay a fee and apply for discretionary relief or an exemption from the rules. This could be compared to a clothing manufacturer needing to sell something called ‘factory seconds’.

Who do they pay this fee to? Yes, to their Securities Commission!

Each of our securities commission’s has a mandate to safeguard the public interest and protect investors. Rules provide the framework, the standards of operation and protection. Therefore each decision to waive aside any existing rule should require the utmost scrutiny. The burden of proof should be on the company or individual to demonstrate “good cause” that a waiver to any existing rule or regulation should ever be granted. One would expect exemptive relief to the rules to be quite rare.
We have been unable to determine the exact criteria, procedures, protocol or public interest reasons for how these exemption determinations are made.

We took it upon ourselves to look into exemptions to the existing rules and visited the websites of three of our major commissions: the Ontario Securities Commission, British Columbia Securities Commission, and the Alberta Securities Commission.
We also looked at the two national self regulatory organizations the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealer Association (MFDA). Here are the numbers we discovered.

There have been 6,563 exemptions granted since 1999 to the present by the ASC (see Appendix D)
There were 5,554 exemption orders granted by the BCSC. (see Appendix E)
We found 500 documents on OSC website for exemptions. (see Appendix F)
In just the past five years alone 2,060 exemptions were granted from IIROC requirements (See Appendix G) 7 exemptions having been granted by the MFDA since 2006. (Appendix H)
Fourteen thousand six hundred and eighty four (14,684) exemptions have been granted by just three of our ten provincial regulators and our two self regulatory organizations!

The value of this report is thus not to be sought in the level of academic research, but solely upon the level of ability to have non-self-interested discourse, and to ask difficult questions which others may not be able to ask.

It is important for us to mention we are not totally confident on the numbers we have obtained from the various regulators websites. Information about exemptions is continually being made more complicated to research, more difficult to understand, and more concealed over time. We do not know whether that is by intent or by accident, but it takes increased work to find the answers in this area of exemptions, for each few years that pass.

We encourage you to ask your MLA or other government legislator, why it is not possible to get these simple questions answered by the securities commissions, as these are simple consumer protection issues.

How many exemptions to rules or laws were allowed in any specific year?
Where is the documentation that proves that these exemptions met the “in the public interest, or not contrary to the public interest” test, as it is worded in each Securities Act/Rules?
Why are exemptions concealed from view of the most important persons in Canada, namely the investors who might be buying an exempted investment?
Why can an investor not simply search for “every exemption granted to XYZ ”?

At the present time there is no allowance for public-input into the exemption process. Exemptions are handled between the applicant, and lawyers and commissioners at the securities commission.

In an open, transparent system of regulation, these exemptions would be open to public view, or at minimum provide written notice to every investor infected, er, affected. Securities Commissions are, after all, not intended as private ‘service' organizations for industry, but consumer protection agents first.
The only disclosure provided on an Securities law exemption order is this;

“Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.”
This legal bafflegab speaks more clearly than almost any concerns we can voice.

Concerns Regarding Exemptions From an Investor Perspective

First off the number of exemptions granted are concerning in and of themselves. This legislated power needs to be accompanied by an increased level of public responsibility, accountability and transparency.

From an investor point of view, exemption orders do raise a number of concerns and issues such as:

• they are not exposed to public critique as are new regulations. In fact, they are part of a system that generally, but not always, erodes the original regulatory intent in an non-transparent manner

• they are rapidly approved while requests for improved investor protections are subjected to a ‘paid by the decade’ securities approval process

• it is difficult for even the most well-informed investors to be aware of exemptions. The regulatory document management system makes it difficult to readily identify all the amendments and exemptions to regulations

• investors almost never expend time and energy to seek out the exemptions, most will never know they exist.

• Exemptive ‘relief’ is only available to industry players; individual investors and consumer protection associations must wait patiently for regulations to change

Our Securities system throughout Canada has two distinct mandates. The interests of the industry can infringe upon needed investor protection. Salaries paid to our Securities Commission come directly from the industry and can be substantial. The industry can buy a waiver to the existing rules for a relatively small fee paid to our regulators and it happens more often than one would think. The exemption process is not transparent to the public and can happen fairly quickly, whereas well needed investor protection reforms can take decades to occur, if at all.

Current reform proposals do not address the core, institutional weakness with the governance of financial regulation: There is no mechanism through which the public, and its elected representatives, can obtain an informed, expert, and independent assessment of financial regulation. Therefore, the public cannot induce regulatory institutions to act on their behalf. It does not get any more basic than this: How can the public and its elected representatives induce regulatory authorities to behave in the best interests of the public when the regulatory authorities have a monopoly on both the information and expertise necessary for assessing their own performance?

How are Security Rules and Laws Managed in Canada?
Unlike any other major federation, Canada does not have a securities regulatory authority at the federal government level, nor any publicly funded sole-investor, consumer protection agent.
Canadian securities are managed through laws and agencies established by Canada's 10 provincial and 3 territorial governments. Each province and territory has a securities commission or equivalent authority and its own piece of provincial or territorial legislation.

There are many issues facing investors in today’s marketplace. In our attempt to raise public awareness, SIPA has produced a number of reports outlining investor protection concerns in Canada, including this recent one on Advisor Title Trickery

We believe there may be only two possible solutions: either industry and regulatory culture must change which appears improbable, OR Government must step in and provide an Investor Protection Agency separate from industry, separate from those with dual master, dual mandates, and with real power and intent to protect Canadian Consumer Investors, not Canadian Investment Payers, er, Players.

“The absence of an informed, expertly staffed, and independent institution that evaluates financial regulation from the public’s perspective is a critical defect in the governance of financial regulation…”

What You Can Do

Every Canadian should request a review and revamp of Securities Commissions ‘dual master/dual mandate’ role.
Sole-investor protection agencies need to be established to protect ordinary Canadians.
Securities Commissions appear to represent the interests of industry far more than necessary or safe, to our society.
Contact your Member of Parliament and Member of the Legislative Assembly and let them know you are concerned about the lack of independent (ie, not-industry funded, not-dual mandated, regulators) consumer protection of Canadian investors.

Appendix A
 Alberta Securities Commission

Below you will find: 56 exemption orders from 9/12/2008 to 11/17/2016
• orders granting exemptions to particular applicants from specified requirements of securities laws; and
• orders granting approval or recognition to various types of exchanges or self-regulatory organizations. ... rders.aspx

Exemption Orders Relating to Issuers
The ASC may, in appropriate circumstances, grant discretionary exemptions from specific requirements of Alberta securities laws. See MI 11-102, NP 11-203 and ASC Policy 12-601.
The following table includes decisions issued pursuant to MI 11-102 for issuers for whom the ASC is the Principal Regulator only. Exemption Orders issued under MI 11-102 for other issuers can be found on the CanLII website.

112 at the time of this reporters research in 2016
6,507 exemptions granted to issuers since 1999 to the present ... rders.aspx

Appendix B
British Columbia Securities Commission

There were 2,824 Exemption granted prior to the year 2002.
There have been an additional 2,736 Exemption Orders granted since 2001 as of 2016-11-21 12:00:00 AM
Total = 5,560 exemption orders granted from the BCSC

The Exemption Orders in this section are from 2002 -present.

• The Exemption Orders in this section are prior to the year 2002 ... fore_2002/

• To obtain more information, please visit
• BCSC eServices Exemptions & Orders

Appendix C
Ontario Securities Commission
Results for: exemptions granted
Found 500 documents
Source: ... viewpage=1

Appendix D
Investment Industry Regulatory Organization

“Each year IIROC’s Board of Directors, IIROC staff and IIROC District Councils consider and, in appropriate cases, grant exemptions from specific Dealer Member or Universal Market Integrity Rules (UMIR). The criteria for granting exemptive relief are specific and rigorously applied in order to ensure that investors are protected and the integrity of the capital markets is maintained.”

634 exemptions granted in 2015 from IIROC requirements
616 exemptions granted in 2014
487 exemptions granted in 2013
257 exemptions granted in 2012
66 exemptions granted in 2011

Total=2,060 exemptions granted in the past five years from IIROC requirements

Sources: ... e-2900.pdf ... e-2900.pdf ... ce9_en.pdf ... 274_en.pdf ... 53c_en.pdf
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Re: Securities law "exemptions". A license to steal?

Postby admin » Fri Nov 25, 2016 4:36 pm

Exemption Order Relief-good or bad for investors?

Exemption order- what is it?

An exemption order is basically a decision of a provincial securities Regulatory Commission that says that a specific part of the Securities Act, regulations or rules relating to the trading of securities in that province does not apply under certain conditions. (or that the part can be amended under specified conditions) Often this relief allows a mutual fund company to avoid compliance with some sections of the official requirements or to modify the original requirements with the blessing of the applicable provincial securities regulator(s). For mutual fund investors the main documents of interest are NI81-101 Mutual fund prospectus requirements, NI81-102 Mutual funds and NI81-105 Mutual Fund sales practices.
Relief -The easing of a burden; protection given by law; release from obligation or duty; lightening of something distressing

In this document we examine whether the relief offered by regulatory exemptions is in fact in the best interests of mutual fund investors. Or is it neutral?

A little background

Before a National Instrument becomes part of securities regulation it goes through a long complex process of public commentary. Typically, Ninety nine percent of the commentary comes from industry participants, law firms and industry lobby groups. . The comments from the industry typically attempt to clarify, narrow, water down, eliminate or delay implementation if they perceive the new regs are not in their best interests. Investor protection is not a word you’ll see often in these submissions although that doesn’t stop industry participants from suggesting that the requested changes will be good for investors. Despite this, some investor protection aspects survive the onslaught. .
After a series of compromises, tradeoffs and deliberations, the Reg is issued. That’s when the real fun begins.

Exemptions may be appropriate to address new products, to clarify points (If what an applicant proposes to do does not EXACTLY conform to the letter of the law -not the intent, the letter- an applicant is often better off applying for exemptive relief) or other aspects not anticipated or present when the regulation was drafted. Some exemptions are private matters but many open the door to exemption requests from all competitors of the fund factory given the original relief. After a period of time the accumulated exemptions can be used in an update of the regulation. Exenption decisions are posted on regulatory web sites.

It costs about $1500 to file an exemption request with the OSC plus legal expenses to craft the document .Any of Canada’s 13 regulators can grant an exemption and in most cases under the Mutual Reliance Relief System (MRRS) the other provincial regulators will recognize it. We don’t have stats to show what percent of requests are turned down, if any, but we’re sure clear about is what those exemptions approved did to the original intent of the Reg. Exemptions can be filed by an individual firm or a group of firms. In any event, once granted to any firm, other firms can request similar treatment which is exactly what happened with the non-delivery of mutual fund Annual reports. Basically, the exemption became an industry-wide practice.

Why are these exemptions important to investors?

From an investor point of view, exemption orders raise the following issues:

they are not exposed to public critique as are new regulations. In fact, they are part of a system that generally, but not always, erodes the original regulatory intent in an non-transparent manner
they are expeditiously approved while requests for improved investor protections are subjected to the glacially slow securities approval process
it is difficult for even informed investors to be aware of the exemption. The regulatory document configuration management system makes it difficult to readily identify all the amendments and exemptions to regulations
investors must expend time and energy to seek out the exemptions, a task not made easy by hard to navigate regulatory websites.
the relief is only available to market participants; individual investors and consumer protection associations must wait patiently for regulations to change
they generally allow a cutback on unitholder services without a corresponding reduction in fees.
The cost of the additional monitoring, staff, systems and reporting is directly or indirectly borne by fund investors as are the applicable legal expenses for exemption applications
unless mutual fund investors continuously monitor the OSC/SEDAR web sites or subscribe to Carswell, investors are left with the mistaken impression that regulations are in place to protect them from conflicts of interest. Should some Canadian banks merge, the conflicts will be larger and more frequent unless accompanied by a requirement for the banks to divest themselves of either their brokerage arms or mutual fund businesses.
If it is discovered that the exemption terms were breached, it is not clear what penalties would be imposed or how investors would be made whole in the event of a loss

Some examples

The good old days of hidden commissions and flying to Hawaii for a “seminar” at a fund company’s (i.e.. unitholders) expense created a public uprising in the 90’s. The media, investors, and regulators just got so sick of the horror stories that the fund industry responded by introducing a Sales Code (now a regulation NI81-105 Mutual Fund Sales Practices), designed to ban the worst of the excesses. Yet, during the spring of 1999 the CSA/OSC allowed Assante Canada, contrary to NI81-105, to rebate client early redemption penalties if they switched to a proprietary Assante fund. Many observers regarded this redemption and conversion [from third party mutual funds] of their clients’ portfolios as self-serving and not in the best interests of investors. What the exemption did do is simplify and legitimize fund churning and enhance the management fees that Assante would collect .Yes, there were some constraints attached but the exemptive relief was regarded as an unprecedented victory for the industry. Today, Assante is being investigated by the OSC for its sales practices in the nineties.

Another important exemption order issued in July 2002 relaxed the terms under which funds can participate in related party IPOs of debt securities. You don’t need to be a genius to figure out the possible angles here. Let's take a look at an example. Say CIBC World Markets is floating a new issue of a bond or preferred share. Under NI 81- 102 section 4.1 (I) CIBC mutual funds would have to wait 60 days before being able to invest; with the waiver in place investors might be hurt in several ways:

the availability of a ready market for an IPO may cause a decision to price the IPO higher than would otherwise the case or to fill a demand gap in an under- subscribed IPO

it encourages further erosion of the mythical “ethical walls” between mutual funds and their brokerage affiliates; these are the same walls that supposedly existed between analysts and investment bankers

Mutual funds may end up buying unsuitable or non-optimum investments merely to placate superiors and/or receive rewards for such actions

The mutual funds can be used to artificially prop up a weak IPO to prevent it from tanking too shortly after distribution

The effectiveness of independent “ monitors” is a real question mark. It’s hard to see how in practice a monitor would be able to effectively question or ban a portfolio managers’ potentially conflicted purchase decision

Sometimes waiting 60 days allows the market to establish a more rational price of the security; buying early may prove to be expensive

“Hot” IPOs can be used to turbo- boost short-term fund returns to increase fund sales; retail investors traditionally chase well-publicized returns.

if it turns out the IPO was based on material misrepresentations it's highly unlikely the affiliated fund would participate in litigation or class actions to recover losses from the related dealer on behalf of unitholders

An Exemption granted in Dec. 2002, just before Christmas, now permits fund companies to only send you Annual reports if you expressly request them. This is regarded as anti –investor as it permits a fund Company not to mandatorily mail you a copy of the most fundamental of disclosure documents. There may or may not be a reduced MER, but if 10-year trends are an indication, most cost savings, one of the cited reasons for the request, will accrue to the fund Company. Financial statement disclosure is an integral part of the material information relating to a mutual fund. Measures that decrease the likelihood of timely delivery of such information to unitholders undermine the core regulatory strategy of requiring mutual funds to make mandatory and timely disclosure of material information on a continuing basis so that investors are kept fully informed at all times. For disclosure to be effective, it is not enough just to prepare the information. It has to be comprehensible , relevant and to be actually delivered to fund investors in a form they can use before it can be considered to be disclosed to them. Investor advocates howled upon belatedly hearing of the exemption but to no avail.

RBC Mutual Funds was able to bypass a unitholder vote regarding a change of auditor.
The change was made without the knowledge or concurrence of investors via a March 25,2004 OSC Exemption to established regulations. An undated letter distributed April 22 from Brenda Vince, President, RBC Asset Management was the first indication investors had that a change had occurred. The 2003 financial statements of the fund are signed by PwC LLP. There is no credible rationale provided as to why investors were shut out .In fact, Deloitte&Touche is the sole auditor of the bank and the mutual funds complex, an unhealthy situation. The bank claims that significant costs were saved by requesting an exemption rather than mailing out a voting circular to all unitholders. Apparently no request for bids were sent out to other possible contenders which might have lowered costs for the fund. The status quo with a separate fund auditor would actually have been preferable and cheaper for unitholders. It seems that both regulators, banks and fund factories need to be reminded as to exactly whose money it is.

Yet another exemption allows conventional mutual funds to sell securities short, a practice banned since the 1929 market crash. Despite critical commentary from investor advocates, SIPA and others, the CSA/OSC now permit the use of shorting by mutual funds. This Regulatory Exemption order is the culprit in bringing the once relatively stable mutual fund into hedge fund territory. So much for investor protection. Regulators have required funds that short-sell stocks to adopt certain protective measures, including a 10-per-cent asset hedging limit, a cash cover equal to 150 per cent of the value of the security sold short and a requirement to purchase the shorted security if it exceeds 108 per cent of the short price.

However, in a well-reasoned piece that appeared in the August, 2004 THE FUNDLETTER Selling mutual fund investors short, author David West, a CFA, argues convincingly against the practice. He argues that the 150% figure basically introduces leveraging into a fund. Shorting, he warns can sometimes result in losses far greater than 8% due to short –squeezing, a takeover bid or the winning of a major contract. West argues that shorting is fundamentally at cross-purposes with the traditional use of mutual funds to provide a diversified portfolio of quality companies to reduce issuer-specific risk. He thus feels that risk is being increased and small retail mutual fund investors may not comprehend the risk implications. West reminds us that short sellers must make up any dividends paid by shorted stocks and that the lender may recall the stock at a time inconvenient to the fund. However, one thing the new approach does is give Dynamic, National Bank and CI Funds a marketing tool to combat hedge funds who are stealing market share/AUM. AIM Funds Management Inc. appears to be the most outspoken short-selling critic - VP Dwayne Dreger notes that the firm's value-driven investment style "is all about buying good businesses and not about shorting bad ones".

We won’t even talk about manager competency in picking losers (ironically, if history is any guide, maybe they will be better at this than picking winners!), regulatory oversight and fund governance to track and monitor all this. We also ignore the fact that mutual funds can’t distribute losses, they can only carry them forward to offset against potential future gains. Additionally, some hedge fund market analysts think this idea may generally lead to conflicts- of -interest when the same manager manages a hedge fund and a mutual fund.

Still another exemption allows mutual funds to purchase shares in their parent company (or hold debt of affiliates) leading to potential conflicts of interest considering the generally ineffective track record of monitors. For instance a bank- owned fund would not have been allowed to buy shares in its parent thus supposedly putting the fund at a competitive disadvantage with independent fund companies who do not have this conflict-of interest. This related party prohibition was originally deemed necessary for investor protection but, with the passage of time and industry consolidation, has been watered down. The January 2004 OSC decision for example lets Winnipeg-based Investors Group invest client mutual fund assets in the stocks and debt instruments of Great-West Life Assurance Co., Power Financial Corp., Power Corp. of Canada, Canada Life Financial Corp., Canada Life Assurance Co. and Canada Life Capital Trust subject to the establishment of an Investment Review Committee. Truly a family affair.

It’s true that most relief decisions have some constraints imposed but investor advocates and investors view them with cynicism .To start with there is little regulatory meaningful follow-up to check that the limitations imposed are actually complied with. To critics, words like “best efforts’ are not measurable or enforceable. Informed investors have come to consider the limitations as just good optics to give the illusion of strong regulation. For instance, the exemption regarding related- party debt securities IPO’s requires written policies, detailed records to be maintained and a host of other costly administrative chores paid for by investors, but in the end the judgment of the fund manager is the sole basis for the suitability of the investment. When Scotia Mutual Funds were granted the right to cease mandatory mailings of Annual financial statements the provisos required that the Manager shall file on Sedar, under the annual financial statements category, information regarding the number and percentage of requests for annual financial statements made by the return of the request forms and to record the number and a summary of complaints received from Direct Securityholders about not receiving the annual financial statements and shall file on Sedar .So what ? argue advocates –the results are predictable- unsophisticated retail fund investors put on a negative option basis will not request the financial statements or their advisers will suggest they do not need them. That’s exactly what happened. So instead of working to make Annual reports more readable and useful, regulators decided to minimize their distribution.
The related -party exemption also attracted significant investor advocate attention. As an example of how this one works, an Independent Review Committee (IRC) at market timer CI Funds, which received permission to invest in securities of Sun Life Financial (SLF) in 2003, reviews at least every three months the decisions made on behalf of each fund to purchase, sell or continue to hold securities of Sun Life. SLF owns 34 % of CI. It also determines whether such decisions were, and continue to be, in the best interests of the fund. This decision also has a significant impact on capital markets in general. The IRC is to advise regulators if it decides any investment does not meet its criteria. SIPA and others have forcefully argued that the criteria to determine the best interests of the fund are virtually impossible to deal with since in the end it pits the IRC against the judgment call of a professional fund manager. In any event, advocates claim that the toothless IRC is merely a figurehead mirage to provide at least some legitimacy to the investor abusing decision. To date not a single case of a conflict-of interest has been reported by any fund company IRC-investor advocates view this statistic as evidence that the process is useless but allows regulators to feel good that they imposed the necessary control tools. [In Oct. 2004, controversial fundco Assante also received regulatory approval to own, trade and vote shares of SLF, as it is now part of the CI organization.]

On June 6, 2006 the Ontario Securities Commission granted exemptive relief to CIBC Asset Management Inc., CIBC Global Asset Management Inc. and RBC Asset Management Inc. to enable them to act as advisor to their funds in respect of units of the controversial Teranet Income Fund, during its initial public offering. This MRRS decision explicitly permits the CIBC and Royal Bank mutual funds to purchase Teranet Income Fund IPO units without requiring any public disclosure of this for 97 days after the end of the IPO distribution.Teranet’s offering was underwritten by a syndicate that included RBC Dominion Securities, CIBC World Markets Inc, both related parties and TD Securities. In effect, conflicts-of interest were blessed by the regulators duty bound to protect investors. ... casset.jsp

To no one’s great surprise, the unloved units [ TSX:TF.un ] opened below the IPO price and unitholders were left holding the bag. An estimated $400 million of the IPO proceeds worked its way to the Ontario Govt. following completion of the IPO. It appears that even the OSC was conflicted on this one. The OSC did not force the public disclosure of the Teranet Management Long Term Incentive Plan and the Ontario Participation and Ownership Restriction Agreement. It also did not intervene to correct the inaccurate and potentially misleading estimated cash distributions and expected yield of 7.5% used for the valuation. A potential lawsuit facing Teranet was deemed to be immaterial. By the way, RBC also provided a revolving credit facility which could be used to fund distributions .

Do conflicts-of interest really materialize among Canada’s elite financial institutions? In September 1999 Royal Bank of Canada came under criticism for the active role two of its mutual funds played in Onex Corp.'s hostile takeover bid for Air Canada, which Onex wanted to merge with Canadian Airlines International Ltd. It emerged in court documents filed that Royal Bank's trust division, acting on behalf of the two mutual funds, joined Onex in filing an application under the Canada Business Corporations Act requesting that Air Canada advance a shareholder vote on Onex's hostile bid to Nov. 8 from the Jan. 7 date the airline had set. Royal Bank has long been a major lender to financially troubled Canadian, while two of its mutual funds together own about 2.5 million shares of Air Canada -- about 2 per cent of the outstanding -- which fought the Onex bid. The perception this raised in some quarters is that the interests of unitholders in the bank's Royal Balanced Fund and Royal Canadian Equity Fund were playing second fiddle to those the parent bank has as a major creditor of Canadian.
The bottom line
Exemption decisions are yet another example of how securities regulation is tilted in favour of what the financial services industry wants, or is prepared, to accept. Seemingly little regard is given to the needs of investors, fairness or transparency — despite the fact that everything is claimed to be done “in the public interest.” All of this against a backdrop of a weak mutual fund governance processes, loose regulatory enforcement of regulations, U.S. and Canadian fund scandals, prospectuses that obscure rather than illuminate and wishy-washy annual reports that don’t really discuss the operations of the fund or how it made (or lost) money during the reporting period.

The biggest fear now for those interested in investor protection is that the latest CSA/OSC missive, NI 81-107 Mutual Fund Governance , will eliminate all the historical protective prohibitions, and replace them with a powerless IRC. This premeditated attack on investors was so egregious that for the first time individual investors, investor advocates, academics, consumer groups, CARP, the media, fund analysts and even a few industry participants combined forces to counterbalance the awesome half billion dollar fund industry lobbying machine. Ironically, if passed in its existing form, there will be a lot fewer exemption requests since virtually nothing will be prohibited and nearly everything will be handled by the so-called powerless IRC’s.

Worse still, one contributor to this piece, who wishes to remain anonymous, observed “ There are so many clandestinely obtained exemptions out there that NI81-107 is the de facto law. An investor relying on regulations for protection is like standing on Jell-O upon a foundation of quicksand ” Another cynic pointed out that none of this matters. She said “Who cares about exemptions when there is lax enforcement of any rule and investor restitution is almost impossible to obtain. Read John Reynolds the Naked Investor for the bitter truth about investor protection in Canada”

If the mutual fund market timing scandals taught us one lesson it’s that enhanced , not reduced , fund governance is mandatory. We await the next move from politicians and regulators.

Ken Kivenko P.Eng.
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