Securities law "exemptions". A license to steal?

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Re: Securities law "exemptions". Permission to steal?

Postby admin » Sat Nov 19, 2016 12:00 am


Executive Summary

In a previous report, “Advisor Title Trickery” [ 1 ] we found that securities regulators routinely ignore securities law to allow over one hundred thousand investment salespersons, (dealing representatives) to misrepresent their registration and to deceive the public. This simple deception is estimated to cost Canadians billions of dollars each year.

In this report we find that regulators also will ‘exempt’ the law, hundreds of times every year, which can let investment dealers and issuers prey upon the public, without warning, notice, or evidence of protection of the public interest.

Imagine being able to obtain a “FREE DO NOT GO TO JAIL" card, whereby the illegal is made into the legal, with client's investment money as the payoff to the investment issuer or dealer. In a related topic, another post will soon show that the TOP Twelve Securities Regulators in Canada, shared in total two year compensation of nearly $16 million dollars.

To be precise, that is $15.? million, documented, in 2015 and 2016 to the top twelve) Report coming soon with the details.

Skeptics feel as if provincial securities commissions are running a business within a business, namely profiting at the expense of doing harm to the public, with the sale of permission slips to violate securities laws, and potentially violate Canadians financially.

Imagine if 10% or more of those ‘exemptions’, allowed investment dealers to sell defective, flawed, or in some way inappropriate investments to the public. Sounds impossible in a developed country such as Canada? It probably would be, if not for $16 million dollars...please keep reading if you wish to preserve or protect your retirement investments.

I recall one exemption which was granted to a bank, late one Friday evening, when the bank’s underwriting department was having difficulty selling a new investment issue. It was not being well received in the marketplace. Yet the bank’s underwriting people would look bad if the bank were stuck with a bunch of junk, or unsold product on the shelf. What did they do?

They applied for an exemption to the law intended to prevent banks from dumping the bad product into bank customer’s mutual funds. Viola! Problem solved with the swipe of a pen, from a friendly regulator. Bank mutual fund investors are not informed and none the wiser for having personally purchased the bank’s mistakes.

There are many exemptions like that, where banks utilize their customer’s mutual funds (managed by the bank) to “bail out” some of the investment mistakes of the bank. Regulators sign these exemptions, again without showing meeting the test required, which is to demonstrate how the granting of executive relief would not be prejudicial to the public interest.

In another case a mutual fund dealer boasted on it’s share selling prospectus that they could earn “nine to sixteen times” more money if they switched their clients out of quality, independent mutual fund investments, into their own “house brand” funds, with higher commissions, higher annual fees, and zero track record.

They applied and received an exemption to do this, and a second exemption, backdated, for the provinces where they did this to clients before asking for permission to skirt the law. Yes, they skirted the law first, took advantage of the clients, then applied for exemptive relief from that law a year or two later.
The exemption was granted by our government regulators, and backdated to make the illegal, legal.

Do Not Go To Jail, Collect $200 Million Dollars

Every year, hundreds of exemptions to rules or to public laws (Securities Acts) are handed out by securities commissions in Canada.
It is the financial equivalent of a “do not go to jail” pass for those with questionable or illegal investment products which they need to sell.

There is no allowance (or process) for public-input, the exemptions are handled between the application, and lawyers and commissioners at the securities commission.

This is how $32 billion of improperly-rated sub prime mortgage paper [ 2 ] was dumped into Canadian’s "full service" investment accounts prior to their collapse in 2008. Gotta love those “full service” ‘advisors’...but that is the topic of SIPA report #2, found here: LINK???

Exemptions are handled in almost perfect secrecy from public knowledge. Even if you as a member of the public put your life savings into an ‘exempted’ investment.

Some evidence suggests that securities regulators public-protection mandate has morphed into a systemic business within a business, helping investment industry players to harvest the public.

Did I already mention the $16 million dollars shared by just twelve ‘government’ regulatory employees?

You will receive more notice if your neighbour planned to build a garage a foot closer to your property than rules allow, than if an investment dealer applies to sell outside-the-law or harmful investment products or advice to you.

Securities commissions earn millions of dollars in fees by providing exemptive relief to ‘jump’ the law.

What could be further from public protection, than allowing investment dealers to dump their dubious or defective investments upon the public,without an open public process?

Just imagine what it would be like if government meat inspectors accepted money to allow e-coli tainted meat to be sold to the public? It could be a criminal breach of the public trust if this were to occur intentionally.

Securities law or rule exemptions are granted up to 500 times in some years. In Canada. In near secrecy.

The thousands of quiet exemptions from the Securities Commission, occasionally contain evidence of securities commissions mis-using their legislated powers of discretion, to give investment dealers an unfair advantage over consumers. Investment consumers are not given informed when these 'do not go to jail' passes are issued.

Just imagine the public danger if someone were able to buy an “exemption from speed limits”, to allow them to do 240 kms per hour on the 401? Would that be in the public interest? Would it be profitable? Which objective should take priority, money to regulators, or the public protective interest?

Certainly public harm is not the case with every exemption, but enough to be one of the biggest socio-economic sinkholes discovered in Canada. Our next report, coming in February, 2017 will look into the actual size of this billion-dollar sinkhole to the Canadian economy. It is already a thousand times larger than the mere $16 million paid to twelve regulators...

If you have ever wondered how financial institutions can show billions of dollars in profits each quarter, you should become aware of exemptions to investment rules and laws.

In a professional system of regulation, these exemptions should be open to public view, or at minimum with written notice to every affected investor. Securities Commissions are, after all, not intended as private ‘service' organizations for industry, but consumer protection agents first.

Hidden exemptions to our laws risk allowing securities commissions to be possible ‘handmaidens' to the investment industry, rather than objective regulators of this industry.

Securities Commissions are burdened with an impossible to meet, ‘dual mandate”, of “fostering fair and efficient investment markets” and protecting investors from fraud and ensuring fair markets. As we know one cannot serve two masters and this report hopes to shine a light into why that wisdom applies to Securities Commissions.

Our Provincial Securities Commissions (and our Provincial Finance Minister’s etc) have for more than a dozen years, demonstrated no protocols, and provided no documented process, to show the public interest benefits (one of the required tests) of exemptions when asked. This begs the question of what they have to hide, as well as who they feel they work for.

There are over 300 employees at the Ontario Securities Commission alone, who earn more than $100,000 according to the Ontario Public sector salary disclosure for 2015. The top FOUR executives shared over $4 million in 2015 and $3.6 million in 2016. This is many times what the premier of Ontario makes and indicates something ‘unique’ is occurring in this ‘government’ regulator. Perhaps a clue to that ‘uniqueness’ is that all of these overly generous salaries are funded 100% by the industry that provincial securities commissions are supposed to police. [ 6 ]

The only disclosure provided on an Securities law exemption is this boilerplate bafflegab, found on most, if not all exemption orders. These exemptions have cheated millions of Canadian secret.

“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.”

Twenty six words that add virtually nothing professional to the process, and yet have an ability to pick billions of dollars from Canadian pockets. This much legislated power must be accompanied by an increased level of public responsibility.

With power, discretion, and negligible accountability, an impression could develop that securities commissions sometimes appear to be running 'a side business within a business’. One would think it impossible that they even allowed such gaping holes in procedure, for observers to think such a thing. Of course, observers will also never believe that 12 regulators could share $16 million in compensation.

I have spoken or corresponded with Alberta (and other) Finance Ministers (in Saskatchewan the Securities Commission is overseen by the Attorney General) as far back as Shirley McClellan. Shirley was about nine or ten Finance Ministers ago, in my province. One loses track after a while. I have gotten virtually the same response from each of them regardless of which government is represented.

Even our current Alberta NDP has failed to protect the public, and chosen instead to keep this from public knowledge, over public protection


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

Valiant Pharmaceuticals? Not having to follow laws on financial statement disclosure in 2012. What could possibly go wrong?

The CEO of Valeant's secret pharmacy has been charged with 'engaging in a multimillion-dollar fraud and kickback scheme’ Nov 17, 2016 ... on-2016-11

Get permission to skirt the law in Canada, and only the US Southern District of New York could find the means to hold them to account. In Canada this is simply considered free money to the financial industry.


-An exemption to Assante (mutual fund and insurance dealer) to offer commission rebates to clients who are “advised” out of their independent third party funds, and sold the Assante house-brand funds. ... ssante.htm


-Another group of exemptions resulted in $32 Billion lost to Canadian investors, as compared to all the crime measured in Canada, which is in the range of $50 Billion per year.

(See the Movie THE BIG SHORT [ 3 ] if you would like to know where Canadians $32 Billion went)

Ontario Securities Commission Vice President Susan Wolberg Jenah stated after seeing the effects of her signature on some exemptions that caused $32 Billion to drain from Canadians, we “had no clue…”

"Back in August, I had no clue," Ms. Wolburgh Jenah says. "I didn't know there were retail investors, or how many retail investors.
Globe and Mail, August 11, 2008 [ 4 ] ... 153/?ord=1


“Exemption from the requirement to include the financial statement disclosure” ... aleant.htm July 3, 2012


From another exemption verbage:
“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”

English translation:
When banks get stuck with a bad share issue or underwriting, and they cannot sell it to the public, they often apply for this exemption, which
allows them to ‘dump the junk’ into customers-owned mutual funds, bypassing the legal protocols to prevent just such a thing from happening
…..these mutual funds are managed and run by the banks…….A bad but usually hidden example of self-dealing by banks, while doing harm to bank mutual fund investors. They need exemption from our laws to do this. ... 0_cibc.htm


Here is another exemption which allows securities salespersons to act as discretionary portfolio managers, without having to be legally registered as an “Adviser”.

Investors may end up being deceived as to who they are dealing with. Portfolio management involves giving full discretionary authority to a professional, usually one with a legal fiduciary duty to the client. If this discretion were granted to individuals who may only be acting as ‘sales agents’ for the investment dealer, customers could be misinformed and poorly served.

“The requirement contained in the Legislation to be registered as an adviser (the "RegistrationRequirement) does not apply to certain portfolio managers (the "Advisers") who provide portfolio management services for the benefit of National Bank's clients (the "clients")participating in wrap account programs created by NationalBank, including its Ambassador Portfolio Service (collectively,the “Programs”);" ... albank.htm

See footnote [ 1 ] “Advisor Title Trickery” for further on the topic.


Here is an exemption for Oleary Funds, to obtain relief from restrictions from only being able to lend out 50% of the underlying assets of their investors mutual funds, or something to that effect.
Read it yourself and see if you can spot how regulators, lawyers and financiers bend the rules. ... y-fund.htm


Here is an
exemption to RBC GLOBAL ASSET MANAGEMENT INC from the mutual fund conflict of interest investment restrictions, and management reporting requirements and self-dealing prohibition. ... global.htm


With the magic of exemptions to laws and industry rules, investment dealers can turn the illegal, into the legal. Simply make a payment to the regulators. No one will ever know…

Every Canadian should be demanding a review and revamp of Securities Commissions ‘dual master/dual mandate’.

sole-investor protection agencies should be established to protect Canadians. Securities Commissions now seem to represent the interests of industry more than necessary…or safe, to society.

Here were some conclusions reached by an Ontario Legislature Agency review of the Ontario Securities Commission, [ 5 ] after the 2008 collapse exempted sub-prime mortgage investments. The image below is captured from page 8 of the Ontario Government report.

Screen%20shot%202011-09-03%20at%209.14.40%20AM.jpg (56.25 KiB) Viewed 15446 times

click to enlarge image, click again to zoom in

The report fails to mention the part played by Securities Commissions by providing the exemptions needed to sell this tainted product to smaller investors.

$32 billion in harm to Canadians, from just one or two dozen exemptions. What could the total financial harm be in 14,000 exemptions?
This unanswered question is the real reason that no government authority will touch this topic.

It takes millions of street criminals to do $50 Billion worth in criminal harm in Canada. (at $5000 per average property crime) A handful of bankers, lawyers and regulators working in concert, can almost accomplish this much financial harm before 10:00 am on a ‘good day’.....sarcasm alert

One of our upcoming investment industry reports will look into the financial cost to society, of systemic self-dealing and regulatory lapses. It will further explore the concept of comparing the cost of ‘crime in the suites’ verses ‘crime in the streets’.

When the agencies who granted the ABCP (sub prime mortgage paper) exemptions did their…um…investigations, they handed out the very folks who pay their salaries. The fines levied appeared large to the media, but to add some perspective, the financial penalties amounted to less than one-half of a penny, for each dollar lost to Canadians.
[ 7 ]

That is a pretty tempting return for investment dealers, even if it is as harmful to the country as the cost of 70% of the total crime committed in Canada in a year. Imagine seeing what could be the greatest financial drain to an entire economy, and learning that it is done virtually in secret. And without criminal prosecution or even a raised prosecutorial eyebrow.

This secrecy allows the harm to be repeated, year after year, until our Securities Regulators are no longer so well incentivized to serve 'one master' over the other.

Background of the Securities Regulators
It is useful to have a general knowledge of our securities system in Canada. 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.

Unlike any other major federation, Canada does not have a securities regulatory authority at the federal government level.
The securities regulator, administers the province’s securities act and correspondingly, promulgates its own set of rules and regulations. Each securities regulator also relies on the work of two national self-regulatory organizations, the Investment Industry Regulatory Organization of Canada referred to as IIROC and the Mutual Fund Dealers Association or MFDA, for most aspects of regulation of the organizations' member firms and their employees.

Accountability for securities regulation extends from the securities regulator to the Minister responsible for securities regulation and, ultimately, the legislature, in each province.
The largest of the provincial regulators is the Ontario Securities Commission (OSC). Other significant provincial regulators are the British Columbia Securities Commission (BCSC), the Alberta Securities Commission (ASC) and the Autorite des marches financiers for Quebec.

The provincial and territorial regulators work together to coordinate and harmonize regulation of the capital markets through the Canadian Securities Administrators (CSA). The CSA is primarily responsible for developing a harmonized approach to securities regulation across the country.
Not all investment products though are covered by provincial regulation. Banks and insurance companies are regulated federally.

In Canada we have something referred to as the “passport system”. Under the passport system, a market participant can obtain a decision from its principal regulator, in its own province or territory and, through a simple filing, have the same decision deemed to be issued under the legislation of all other participating jurisdictions. This passport in essence streamlines and gives access to undertake capital market activity across Canada. The passport system covers such things as prospectus filings, registration of securities firms and individuals, and certain types of discretionary exemptions.

If a company feels it is unable to comply with a requirement in securities legislation, it can pay a fee and apply for ‘discretionary relief’ or an ‘exemption’ from rules or laws.

According to the regulators “exemption” means any discretionary exemption to which Part 4 of MI 11-102 applies; “exemptive relief” means any approval, decision, declaration, designation, determination, exemption, extension, order, ruling, permission, recognition, revocation, waiver or other relief sought under securities legislation or securities directions; ... dation.pdf

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 the existing rules should require the utmost careful scrutiny. “The principal regulator must be satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.” ... dation.pdf

It should go without saying, that the burden should be on the company or individual to demonstrate “good cause” that a waiver to any rule or regulation should be granted. One would expect exemptive relief to the rules to be quite rare, and quite prudently documented to demonstrate proper consideration towards the protection of the public interest.

The core of our regulators multifaceted mission is after all to protect investors, maintain fair, orderly, and efficient markets, and to facilitate capital formation. Having said all of that, efficient markets and capital formation should never be at the price of protecting investors. The various provincial commissions assure us that 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.

We have been unable to determine the exact criteria, procedures, protocol or public interest reasons for how these determinations are made.
We took it upon ourselves to look into the assumption that exemptions to the existing rules are rare and visited the websites of the Ontario Securities Commission, British Columbia Securities Commission, and the Alberta Securities Commission. We also looked at the two national self regulatory organizations IIROC and the MFDA. Here are the numbers we discovered.

The Numbers

WARNING!! This (following) information is continually being made more complicated to find, more difficult to understand, and more concealed over time. This almost seems to be done intentionally by some of the 13 Securities Commissions in Canada. I do not know whether that is by intent or by accident, but I do know that it takes increased work to find answers in this area of exemptions, for each few years that pass. It may be an indicator that there is, indeed, something to hide. Ask your MLA why it is not possible to get these simple questions answered by the securities commissions:

1. How many exemptions to rules or laws were allowed in any specific year?

2. Where is the documentation that proves that these exemptions met the “in the public interest, or not contrary to the public interst” test as it is worded in each Securities Act/Rules.

3. Why are exemptions concealed from view of the most important persons in Canada, namely the investors who might be buying an exempted investment?

4. Why can an investor not simply search for “every exemption granted to XYZ Bank”, for example, so that they may stand a “chance”, at least to learn what legal or illegal things their money may be used for?

I will paste this warning again, at the end of this section, so readers know when they may be digesting partially obscured, info from Securities Commissions. Again, please ask your MLA why we pay taxes to provide such investor-invasive, government ’services'.

Checking the web sites at the Ontario, BC, and Alberta Securities Commissions used to provide a clear and distinct list (and count) of exemption orders, or decisions for exemptive relief. For example, just a few years ago, a simple search of any of these regulator sites for the word “exemption” turned up nearly 5000 results on the Alberta Securities Commission site.
Today, each of these three major Securities Commissions have obfuscated their web sites to make it much more difficult for the public to obtain clear figures on the number of exemptions they grant each year.
Researchers who are familiar with the operation style of securities commissions are not surprised to see this when commissions remove or hide important information like this from the public. If readers would like to confirm for themselves how difficult it is to get simple numbers from these major regulators, I believe it will only confirm that the regulators may be seeking to hide the information which supports their actions that are helming the industry to self deal, over the protective interests of the public.
Suffice it to say that if a person is intent of discovering the numbers, a time intensive search through the site turns up hundreds of exemption decisions each year. We found hundreds of documents on this OSC website for exemptions, and decisions for exemptive relief for 2015 only. ... _index.htm

The link to the Alberta site is found here, and it should be noted that this site has been adjusted to make obtaining clear searches dedicated to “exemptions” or “Exemptive Relief” are now almost impossible to do as simply and easily as just a few years ago. This topic is just something the regulators do not wish known to the public. ... rders.aspx

The BC Securities Commission site to search for exemptions is found here

The Manitoba Securities Commission was checked to see if every regulator has increased to difficulty level of searching for “decisions”, “Exemptions” or “Exemptive Relief”. I was pleased to find they were slightly behind their counterparts, and their site gave substantial factual details. ... ments.html
Manitoba’s site can be searched and approximately 200 “orders and exemptions” can be found in any given year. Researchers still have to sort through which are “orders” and which are “exemptions” so the difficulty level is high, but not quite as obstructive as other provinces.

There have been 6,500 exemptions granted to issuers since 1999 to the present and 55 exemptions granted to registrants by the ASC from 2008-09-12 to 2016-08-22.
There were 2,824 Exemption granted prior to the year 2002 found on the BCSC website as well as an additional 2,730 Exemption Orders granted since 2001 (as of 2016-11-02 12:00:00 AM) for a total of 5,554 exemption orders granted by the BCSC.
In the past five years alone 2,060 exemptions were granted from IIROC requirements. IIROC is the Investment Industry Regulatory Organization of Canada and is the delegated self-regulatory body for the industry, as opposed to the legislative empowers body of each Provincial Securities Commissions. 7 exemptions having been granted by the MFDA since 2006

Fourteen thousand six hundred and seventy six (14,676) exemptions have been granted by just three of our ten provincial regulators and self regulatory organizations!

Author’s note: The ability to research and monitor Securities Commissions granting of exemptions to securities law is at least an order of magnitude more difficult than it was just a few years ago. The only explanation I can imagine is that Commissions simply do not wish Canadians to know that they earn millions of dollars, by helping investment dealers and issuers harvest Canadians out of billions.


In order to gain some historical perspective, the following two websites have monitored and reported on “exemptions” for a dozen years now, and some of the postings over this time period shine a light into the secretive world of regulatory exemptions, or as one US Senator calls them “loopholes in the law”.

At this web site are 42 posts about exemptions granted to avoid our laws viewtopic.php?f=1&t=143

and this site as well viewtopic.php?f=1&t=177&start=30#p2249


[ 1 ] page one
“Advisor Title Trickery” report ... 202016.pdf

[ 2 ] page one

$32 billion of improperly-rated sub prime mortgage paper ... nglish.pdf

[ 3 ] page 4

Movie THE BIG SHORT revealing where some of Canadians $32 Billion went

[ 4 ] page 4

I had no clue," Ms. Wolburgh Jenah says. "I didn't know there were retail investors, or how many retail investors. Globe and Mail, August 11, 2008 [ 4 ] ... 153/?ord=1

[ 5 ] page 8

Ontario Legislature Agency review of the Ontario Securities Commission ... nglish.pdf

[ 6 ] page 2

Public sector salary disclosure 2015 ... -employees

[ 7 ] page 9

penalties amounted to less than one-half of a penny, for each dollar lost ... e-1.864830

Further Info:

"...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....."

At the web link below are 42 posts about exemptions granted over the last decade and a half.

At this related post, “ABCP's of stealing $32 Billion. Case study 2 for inquiry” are 139 posts covering the largest heist in Canadian history, the lifting of $32 Billion from the pockets of Canadians.
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Re: Securities law "exemptions". A license to steal?

Postby admin » Mon Mar 16, 2015 12:39 pm

Securities regulators granted more than 600 requests for exemptions from various rules last year, most of them providing relief to registered reps from passing certain educational requirements.
IIROC reports that its registration staff recommended refusal in 13 cases where proficiency exemptions were sought
"The release of our annual exemption report highlights IIROC's ongoing commitment to transparency to our stakeholders,"
said Paul Riccardi, IIROC's senior vice president, member regulation.

(If only ‪#‎IIROC‬ and the other investment regulatory puppet regimes would be transparent with the public that the "stakeholders" that they represent are the industry that sponsors and pays them…..NOT the public they pretend to protect:)

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The vast majority of exemptions concerned proficiency requirements By James Langton | March 16, 2015 12:50
Companies cited in this article
Investment Industry Regulatory Organization of Canada Inc.
Former rep’s appeal dismissed by OSC
IIROC republishes proposed revisions to margin requirements
Securities regulators granted more than 600 requests for exemptions from various rules last year, most of them providing relief to registered reps from passing certain educational requirements.
The Investment Industry Regulatory Organization of Canada (IIROC) Monday published its latest report detailing the 616 exemptions that the regulator granted in 2014. Of these, 449 of the exemptions were granted from certain proficiency requirements. This total was up by 18% from the previous year, IIROC reports.
The proficiency exemptions included 322 requests from rewriting a particular requirement; 95 seeking an exemption from completing a proficiency requirement; 21 requests to accept alternative work experience and eight requests for an extension to complete a particular requirement.
IIROC's report says that 241 of the requests involved the Investment Management Techniques (IMT) and the Portfolio Management Techniques (PMT) courses, which largely involved registered reps seeking to add portfolio management services to their IIROC registrations; and, it says that in the vast majority of cases, the reps had already completed these courses outside the prescribed two-year validity period. Most of them also held other relevant designations and exceeded IIROC's minimum experience requirement to conduct discretionary portfolio management activities.
IIROC also received 51 applications for exemptions from writing the Canadian Securities Course (CSC); 34 relating to the Conduct and Practices Handbook Course (CPH); and, 26 involving the Partners, Directors and Senior Officers (PDO) course.
IIROC reports that its registration staff recommended refusal in 13 cases where proficiency exemptions were sought; and, in each case, the relevant District Council agreed with staff's recommendation. "In all of these cases, the individual applicants were not able to demonstrate that their education or experience was equivalent or relevant to the proficiency requirement for which the exemption was requested," it says.
While exemptions from proficiency requirements make up the bulk of exemption requests, the report notes that 120 exemptions were also sought from the trading rules. Of these, most of them, 84, involved requests for permission to act as principal or agent in off-marketplace trades.
Another, 40 exemptions from dealer rules were granted by IIROC's board, including 38 exemptions from the margin requirements for certain borrowing and lending arrangements. And, seven exemptions from dealer rules were granted by IIROC staff, which were not related to proficiency requirements — all of these involved bulk transfers of a large number of client accounts following mergers and acquisitions.
"The release of our annual exemption report highlights IIROC's ongoing commitment to transparency to our stakeholders," said Paul Riccardi, IIROC's senior vice president, member regulation. ... regulators
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Re: break the law and win. Apply for exemptive relief.

Postby admin » Fri Jun 01, 2012 6:47 pm

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Regulators increase monitoring of exempt market

Ontario Securities Commission reviewing KYC process for accredited investors By Megan Harman | May 07, 2012 16:40

As regulators contemplate changes to the rules governing the exempt market, registered representatives can expect to face greater regulatory scrutiny when distributing these products, particularly with respect to know your client (KYC) and suitability rules, industry experts said on Monday.
At a conference in Toronto hosted by the Association of Canadian Compliance Professionals, David Di Paolo, partner at Borden Ladner Gervais LLP, said regulators are monitoring exempt market transactions much more closely as the scope of the market grows. He estimates that in 2010, $83.9 billion was raised in the exempt market.

"Issuers are increasingly looking towards the exempt market as an avenue to raise capital," Di Paolo said. "And moreover, these exempt products are increasingly being sold through retail channels."

The growing volume of transactions is leading to more regulatory investigations involving the sale of exempt market products, and more civil claims by investors against their advisors and dealers involving the sale of these products. This has prompted regulators to take a closer look at the rules governing this segment of the securities business.

"The exempt markets, and the rules surrounding the exempt markets, are increasingly being scrutinized by the Canadian Securities Administrators," Di Paolo said.
In particular, the securities commissions are evaluating the two exemptions most commonly relied upon by investors: the accredited investor exemption, which is available to investors who have a certain amount of net income, financial assets or net assets; and the minimum amount exemption, which is available to investors who are purchasing at least $150,000 in the security of a single issuer.
Regulators are currently assessing these exemptions to determine whether stricter criteria may be necessary to ensure appropriate protection of exempt market investors.
"It's quite likely that the prospectus exemptions available will be narrowed," Di Paolo said.

In the meantime, regulators are also evaluating the extent to which dealers and advisors are complying with the existing exemptions.
"Regulatory enforcement of existing qualifications is going to heat up," Di Paolo said. In particular, he said the Ontario Securities Commission is closely monitoring the KYC process for accredited investors. It has found that some dealers aren't collecting adequate KYC information to reasonably determine whether clients are, in fact, accredited.
Even if clients say they qualify for the exemption, advisors and dealers must conduct due diligence to prove that clients do indeed qualify. "You have to be able to demonstrate that you've done adequate due diligence," Di Paolo said.
If regulators continue to find abuse of the exemptions – and the accredited investor exemption in particular – Di Paolo said they'll likely implement a requirement for accredited investors to be certified by a third party before they're eligible to purchase exempt market securities from a dealer. This could mean hefty costs for dealers.
"It strikes me as being an extraordinary amount effort and an extraordinary impediment to selling exempt market products to clients," Di Paolo said.
Regulators are also taking steps to ensure advisors selling exempt market securities completely understand how the products work, so that they can properly determine whether they're suitable for clients. "The regulators are coming down hard on advisors and dealers who don't adequately understand their products," Di Paolo said.
Calgary-based Portfolio Strategies Corp. is one firm that's taken steps to address this area of concern. It's introduced a questionnaire that advisors must fill out when they're seeking approval to distribute an exempt market product, according to Ken Parker, vice president of compliance and finance. The questionnaire asks about the advisor's familiarity with the product and the company and individuals offering the product, among other things; forcing advisors to thoroughly familiarize themselves with product before selling it.
"They have to do a bunch of work up front," Parker said. ... -afternoon

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Re: break the law and win. Apply for exemptive relief.

Postby admin » Tue May 22, 2012 1:40 pm

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click to enlarge

The head of Canada’s self-regulatory agency for the investment industry has been named chair of an international organization whose goal is improved investor education.

Susan Wolburgh Jenah, chief executive of the Investment Industry Regulatory Organization of Canada (IIROC), takes on the added role as chair of the International Forum for Investor Education (IFIE).

The International Forum, which held its annual meeting in Seoul, Korea, on the weekend, is an alliance of 26 organizations of regulators, associations and other industry players from 14 countries.

“With today’s challenging environment for financial markets, there has never been a greater need for increased investor protection and investor education,” Ms. Wolburgh Jenah said in a statement Monday. ”IFIE’s global representation and reach allows us to leverage the best standards and practices available and work toward getting them into the hands of investors.”

In calling this FOLLOW THE MONEY at the Post, it becomes the perfect irony. Lets follow the money back in time to Canada's largest economic crime. The crime of willful blindness, moral blindness.


This article shows the appointment of Susan Wolburgh Jenah from the OSC, where she was earning approx $400,000, to the IIROC (investment dealers self regulatory) where her earnings approached $700,000.


Click on image to enlarge
Her first order of the day with IIROC was to denounce investment dealers who "did not know what they were selling".

Picture 9.png

click to enlarge

And yet, the irony is that it was her signature, on the legal exemption applications, which allowed many of the toxic ABCP (sub prime mortgage) investments to be sold here in Canada, despite them not meeting the laws of the Securities Act.

Following the career of this person is indeed an insightful example of following the money. She either, as she says in the following article, has no clue what she is doing, or she is very willfully blind as to what she is doing.


Below is earlier posting from 2008 for some further background to the ABCP scam.

Playing the blame game
In the aftermath of the ABCP fiasco, investigators are looking for answers. What went wrong and who is to blame? So far, the regulatory agencies under fire seem to only be pointing fingers at one another. Janet McFarland, Boyd Erman, Karen Howlett and Tara Perkins report

From Monday's Globe and Mail

August 11, 2008 at 4:00 AM 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

Purdy Crawford, head of the committee to restructure
the frozen ABCP market, in a presentation to investors
in Vancouver last April.
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."
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Re: break the law and win. Apply for exemptive relief.

Postby admin » Sat May 19, 2012 9:15 am

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Unhappy Alberta investors fail to turf former pastor as head of troubled real estate companies

Monitor gets more power to restructure firms


Disgruntled investors in a group of troubled real estate companies failed in their legal bid to have the man at the centre of the cash-strapped developments turfed.

But a judge did give a court-appointed monitor greater powers to restructure the insolvent firms - Legacy Communities, Airdrie Capital, Airdrie Country Estates, Railside Capital and Foundation Place - and maximize recoveries of the $92.9 million raised by former pastor Ron Aitkens and his firms at the height of Alberta's real estate boom.

The lawyer for a committee of angry investors who packed Court of Queen's Bench Justice Barbara Romaine's courtroom in Calgary last week said that thousands of small players had plunked down an average of $23,000 each in 2005 and 2006 on the promise of attractive returns.

David LeGeyt told the court that in the intervening years little or nothing had been done to develop the property acquired, but that millions of dollars of investors' money had been transferred out or paid in fees to other Aitkens-controlled companies.

"He did a very good job at raising money, a very good job at paying it to himself," said LeGeyt, "but not as good a job at developing the land."

The insolvent companies sought and obtained protection under the Companies' Creditors Arrangement Act in late 2011 and early 2012, when Romaine appointed Ernst and Young to monitor their restructuring.

Monitor Neil Narfason has since uncovered significant variances in what investors were told in the offering memorandums and how their money was actually spent.

In the case of Legacy Communities, 202 hectares near the Glencoe Golf Club west of Calgary were to be acquired with the $35.4 million raised from about 1,400 investors.

But Narfason found only 82 hectares were actually purchased, and the firm no longer has the $9 million needed to exercise the option for the rest of the property.

Instead, about $9.3 million was transferred to a firm controlled by Aitkens and invested in properties in Panama, Ontario and Red Deer, money Narfason has now asked be repaid.

The monitor also found the firm had spent $2.4 million more than expected in the offering, including an overpayment of approximately $550,000 in management fees to Aitkens' firms and about $660,000 in unknown disbursements which may have related to the original land acquisition.

Upset by how their money had been used, Aitkens' perceived conflict of interest and his slowness in supplying Ernst and Young information, the investors' committee wanted him removed as a director and a restructuring officer of their choice to replace the court-appointed monitor.

But Aitkens' lawyer Randal Van de Mosselaer argued there was little evidence his client had been unhelpful during the insolvency and that removing him as director now was inappropriate.

"I appreciate the erosion of trust between the (investors' committee) and Mr. Aitkins," Romaine said in her ruling.

"I'm not satisfied that the insertion of a (chief restructuring officer) would not cause delays and make the process more expensive."

Instead, Romaine gave Narfason the final say in deciding on a restructuring plan for the insolvent firms and whether to legally pursue Aitkens' companies if negotiations over the transferred monies fails to produce a settlement.

During a break in the proceedings, Aitkins said the real estate companies were hurt by the recession and that he was confident a restructuring plan would be completed by the end of June.

"It's no different than any other developer out there," he said.

"It's just a balance sheet restructuring that we want to give bondholders a chance to vote on."

Nicole Shurko, a former sales-woman with Aitkens who said she invested $10,000 of her own money and convinced dozens of clients to invest another $2 million in total, was disappointed with the ruling.

"We wanted Aitkens out and a manager we can trust at the helm," said Shurko, "to give us transparent information about these assets and to maximize what's left."

As of the end of March, the in-solvency had already cost investors about $820,000 and by the end of June the monitor expects to spend another $1.4 million.

Those costs include about $300,000 in management fees that continue to be paid to firms controlled by Aitkens.

He was disciplined twice in 2009 for breaking securities laws.

The Alberta Securities Com-mission fined Aitkens $45,000 and Foundation Capital another $120,000 for misleading remarks made a year earlier while raising money for a planned real estate development near Priddis.

Authorities in Saskatchewan issued a cease trade order because Aitkens and his related firms failed to file their offering with regulators before selling investments to residents of that province.

Read more: ... z1vKgst7kO
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Re: break the law and win. Apply for exemptive relief.

Postby admin » Fri May 18, 2012 9:03 pm

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Industry News

Exempt market dealers struggling with compliance obligations

Suitability has been a particularly problematic area
By Megan Harman | March 21, 2012 16:50

As the exempt market continues to come under regulatory scrutiny, dealers are being urged to ensure their suitability, marketing and other compliance practices are up to standard.

At the Strategy Institute's Registrant Regulation Compliance Strategies Summit in Toronto on Wednesday, regulators said they're heavily focused on ensuring exempt market players are familiar with, and complying with, the applicable regulations.
"We're trying to understand our exempt market. We're also trying to bring into registration those who should be registered," said Mark French, manager of regulation and compliance in the capital markets regulation division of the British Columbia Securities Commission. "We're going to be doing a lot of compliance outreach work, visiting these firms, doing what we call inspections – limited scope examinations."

Added French: "where we see risk, we'll take action."
Prema Thiele, partner at Borden Ladner Gervais, LLP, said exempt market dealers which haven't yet been audited will likely be contacted by regulators in the months ahead. "There's a lot of emphasis on the compliance side," she said.

Exempt market dealers have been struggling to keep up with the ongoing regulatory changes that have been taking place since National Instrument 31-103 came into effect in 2009, according to David Gilkes, director of the Exempt Market Dealers Association and president of North Star Compliance & Regulatory Solutions Inc. He said there have been 10 regulatory staff notices, amendments and proposed rules affecting exempt market dealers since 2009.

"It is hard for people to keep in touch," said Gilkes. "I'm hoping that the regulators will appreciate how much is being pushed onto dealers at this time."
It's been particularly challenging for new registrants in the exempt market, which had to register for the first time in 2009 under NI 31-103, said Geoffrey Ritchie, executive director of the EMDA. "They're struggling to understand their compliance obligations," he said.

Regulators have identified plenty of compliance deficiencies at the exempt market dealers they've reviewed. Suitability has been a particularly problematic area, since many exempt market products are illiquid and considered to be risky. The onus is on the dealing rep to prove that the product is suitable for a particular client, given their risk tolerance and time horizon.
"You've got to think about liquidity as part of your suitability requirement," said Gilkes.

Regulators find that many dealing reps fail to appropriately document conversations about suitability.
"A lot of times we don't see the documentation of these discussions anywhere," said Janice Leung, lead securities examiner at the BCSC. "We're looking for stronger and clearer evidence that that's being carried out."

Marketing is another area where regulators commonly identify deficiencies in the exempt market. "It's a top of mind issue," said Ian Pember, chief operating officer and senior vice president of administration and compliance at Hillsdale Investment Management.
Specifically, Pember said regulators often find exempt market players using exaggerated or unsubstantiated claims on their websites, pamphlets and other marketing materials.
"Unless you can point to some third party source to back it up, you just can't use it," he said.
Since many of these compliance requirements represent new territory for many exempt market dealers, much education will be necessary to bring the industry up to speed, Ritchie said. He's encouraged that regulators seem to be focused on helping to educate dealers on their obligations.
"We're really into a big education phase," he said. ... bligations
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Re: break the law and win. Apply for exemptive relief.

Postby admin » Mon May 14, 2012 7:56 am

Screen shot 2012-05-14 at 8.54.58 AM.png
click to enlarge image.......and they are also part of what looks like a well oiled "money laundering" scheme, where securities commissions conspire with exempt market product "makers" to transfer hundreds of millions in fees, commissions and skim, from vulnerable investors, to the regulators, their lawyer friends and a few con artists. Another reason to hobble our current crop of regulators......they are helping to rob Canadians. Read WILLFUL BLINDNESS
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Re: break the law and win. Apply for exemptive relief.

Postby admin » Mon Apr 23, 2012 6:36 pm

Screen shot 2012-05-19 at 9.42.40 AM.png

click to enlarge
Here is a rather rough, "napkin sketch" of a number of exempt market securities offerings in Alberta that appear to be failing or at great risk of failure. (exempt market securities meaning they do not have to meet the full requirements of our laws)

Estimates are that up to 20,000 Albertans are suffering from this.

You can thank your Alberta Securities Commission and a number of Calgary and Edmonton lawyers who allow this. With $12 billion of exempt market securities going through the ASC last year, I figure the lawyers skimmed $100 million in legal fees while allowing the public to be unprotected. Then, when the products fail, the lawyers auditors and the rest get to skim another hundred million or so between them. It is the greatest "magic money machine" even invented.......allowing garbage investments to be sold, and lapping the fees at both ends.

Again, it is just napkin sketching at this point, don't get excited if you have better info. Join group at facebook and lets get 20,000 people their money back. Alberta government and regulators DO have the money to do this and as far as I can see, they have the liability. (search "Norbourg" in this forum to see how others got their money back from bad regulation)
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Re: break the law and win. Apply for exemptive relief.

Postby admin » Sun Apr 22, 2012 7:24 pm ... story.html
Screen shot 2012-04-22 at 8.25.13 PM.png

Frequent SEC exemptions let companies skirt rules

By David S. Hilzenrath, Published: April 19, 2012

At a time when the Securities and Exchange Commission is under pressure to enforce existing rules and write new ones, it has been busy giving companies permission to ignore the law.

Companies that bump against legal restrictions — brokerages, stock exchanges, life insurance companies, and mutual fund managers, for example — routinely argue that no harm would come from cutting them slack.

The SEC often agrees.

It has issued scores of orders in the past few years exempting individual businesses from rules including how they can use clients’ money and how much information they must disclose to the public.

The financial crisis spurred the government to tighten regulation of Wall Street on a variety of fronts, but some of the SEC’s exemptions seem to poke holes in those efforts.

Currently, for instance, the agency is preparing new restrictions for money-market mutual funds, still haunted by the meltdown of 2008, when a major fund was overwhelmed by customers demanding their money back and the government put taxpayer dollars on the line to backstop the industry. SEC Chairman Mary L. Schapiro has said she wants to prevent trouble at a single fund from triggering broader problems.

But in December, the agency issued an exemption allowing individual mutual funds administered by John Hancock to lend money to each other, potentially exposing them to each other’s troubles. Hancock argued that the exemption would come in handy if any of its funds have too little cash to meet customer withdrawals.

The conduct of credit-rating companies has also come under scrutiny since the financial crisis. In 2010, Congress expressed concern about conflicts of interest in the credit-rating business. Saying that faulty ratings had contributed to the crisis, Congress directed the SEC to reduce the financial system’s reliance on credit ratings.

But, last year, the SEC told the Kroll Bond Rating Agency it could disregard a rule meant to make credit-raters less beholden to the companies they rate. Kroll wanted to charge companies fees to rate their securities, and the SEC temporarily waived a limit on the amount of revenue Kroll could derive from any one company.

At the height of the financial crisis, short selling — a form of trading that pays off if stocks fall — was widely blamed for destabilizing major Wall Street firms. In response, the SEC adopted a rule limiting short sales that it described as “potentially manipulative or abusive.”

But early last year, the SEC carved out an exemption for the New York Stock Exchange. Citing highly technical considerations, the SEC concluded that its rule could have obstructed “the normal operation of the market.”

In each of these examples, the companies essentially argued that strict adherence to the rules would be counterproductive.

For the SEC, the authority to make exceptions cuts two ways. While it gives the agency the freedom to give away the store, it also gives it the flexibility to embrace new ways of doing business, said William A. Birdthistle, who teaches securities regulation at IIT
Chicago-Kent College of Law. Overall, he said, the system strikes a useful balance.

In a recent report to Congress supporting its budget request, the SEC said it grants relief from laws when “doing so is consistent with the protection of investors.”

“These orders can serve as a testing ground for useful innovation,” the SEC said.

Fielding requests for exceptions is such a significant part of the SEC’s work that it tracks its response time as a measure of its performance. During the last fiscal year, the SEC said in the budget document, its Division of Investment Management issued timely initial comments on such requests 100 percent of the time. The document did not explain the SEC’s definition of timeliness.

Nor did the SEC release statistics on the total number of exemptions sought or granted, and tallying that information independently would be difficult. Though some of the permissions are explicitly posted under the heading “Exemptive Orders,” many are not as neatly categorized.

The Washington Post reviewed what may be the biggest — but certainly not the only — category of exemptions: those involving a law called the Investment Company Act of 1940, which is largely concerned with protecting investors from conflicts of interest. The Post identified 188 orders issued by the SEC from 2009 through 2011 allowing companies to break that law or related rules.

Blanket dispensation

Sometimes, the exception becomes the rule.

As privately traded companies, Twitter, Facebook and Zynga would have been required to disclose extensive information about their business, including their profit or loss, once they gave restricted stock units to 500 or more people. Each received a special dispensation allowing them to cross that threshold without making the disclosures. Eventually, the SEC issued a blanket accommodation for all companies concerned about tripping the same wire.

Over the decades, whole categories of financial products have developed through SEC exemptions — including money-market funds and exchange-traded funds.

In making its case for an exemption, John Hancock, the mutual fund manager, told the SEC that situations could arise in which “certain John Hancock Funds have insufficient cash on hand” to meet customer withdrawals. In those instances, borrowing from other John Hancock funds “would provide a source of immediate, short-term liquidity,” the company said.

The risk of default would be so remote that the funds lending the money would rarely require collateral, John Hancock told the SEC. Collateral provides an added measure of security for lenders.

John P. Freeman, an emeritus professor at the University of South Carolina School of Law who has written about mutual funds, said the arrangement could allow problems at one fund to affect others.

“What this is about is hitting up shareholders and turning shareholders into lenders of last resort when managers get their funds in trouble,” Freeman said.

While Hancock said the arrangement would benefit both the borrowing and lending funds, Freeman questioned whether shareholders in any of the funds could count on getting the best deal possible.

John Hancock spokeswoman Beth McGoldrick said in a recent e-mail that the firm was not yet using the exemption and it was therefore “premature for us to get into any details on our program.”

In an application filed with the SEC, John Hancock promised that it would “ensure equitable treatment of each Hancock fund,” and it said the SEC had already granted similar dispensations to more than a dozen mutual fund groups.

Conflicts of interest

In the case of Kroll, the bond-rating agency argued that its exemption would benefit investors by fostering competition in the credit-rating business — a goal Congress has endorsed.

In the past, Kroll made money by charging users subscription fees for access to its ratings. But when it decided to expand and challenge big rating agencies such as Moody’s and Standard & Poor’s, Kroll looked to adopt their business model, too.

These big credit-rating agencies are generally paid by the companies whose creditworthiness or securities they are rating. The fees can amount to hundreds of thousands of dollars to rate a single security.

To address the resulting conflict of interest, the SEC issued a rule saying that rating agencies cannot provide ratings for companies that account for 10 percent or more of their revenue. Otherwise, the SEC reasoned, the client could hold too much influence over the rating agency.

But the rule threatened to block Kroll’s way as it ramped up. Until it amassed enough clients, some of its clients would provide more than 10 percent of its revenue.

If the SEC forced new entrants to follow the rule, “you would never have a start-up rating agency,” said James Nadler, president of Kroll Bond Rating Agency. In September, the SEC gave Kroll permission to violate the prohibition through the end of 2012.

In the case of the New York Stock Exchange, the exchange argued that the SEC’s effort to rein in abusive short selling was out of step with the mechanics of trading in that market.

The SEC has said its rule was meant to prevent “bear raids” and other manipulative trading tactics from exacerbating price declines and shaking confidence in the markets. The stock exchange argued that for technical reasons, it would be hard pressed to use the price benchmark the SEC had prescribed to determine how restrictions should kick in under some circumstances, such as the opening of the trading day.

In a letter to the NYSE, the agency said it was granting the exemption “on the basis of your representations, but without necessarily concurring in your analysis.”

(advocate comment: In Canada, we have similar problems, which are used by financial firms to routinely violate the public interest. See youtube videos at ... ature=mhum

One video is titled ALBERTA MONEY LAUNDERING and is about 3 min in length
Second related video is titled SYSTEMIC CRIME PAYS and is 32 minutes with documents and greater explanation.

Legal exemptions are used to rob Canadians of billions, making systemic crime pay very very well for those in the system. Civil and criminal actions against the regulatory agencies should be strong and numerous, to get money back for all clients who have lost money, and to restore accountability.

The major point of gross negligence in Canada (or conscious wrongdoing) by the regulators is in their routinely ignoring the "public interest requirement" that each exemption must serve, and adding to the negligence with an undue amount of secrecy throughout the process. It appears to be a rather dramatic and bold corruption between investment corporations and the regulators who purport to protect the public.

(Damn ironic to see an image of a PINK SLIME story in the Washington Post page above.........quite a similarity between food safety regulators letting garbage go into your mouths, and financial regulators letting similar things happen to your investments) Prosecute those public officials who breach the public trust.
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Re: break the law and win. Apply for exemptive relief.

Postby admin » Sat Apr 14, 2012 10:38 pm

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Re: break the law and win. Apply for exemptive relief.

Postby admin » Wed Apr 04, 2012 9:42 am


Speaking of our most trusted institutions and our government regulators, etc:

Screen shot 2012-04-03 at 4.09.11 PM.png

click to enlarge image

Here is the record in Alberta, where over 4000 investment firms have applied or received something called "exemptive relief".

It allows them to do or sell something that would ordinarily be illegal under our securities acts.

No one really knows how many times these institutions do things which illegal, immoral or unethical, without being caught, but I suspect it is in the hundreds of thousands of examples, mostly undiscovered. To my knowledge, just those that I am aware of are sufficient to cut the average Canadian's retirement by half, giving the other half slyly over to your trusted "advisor" and his or her firm.

To quote from Bruce Livesey's new book THIEVES OF BAY STREET: (he was referring to excess mutual fund fees in Canada and Britain) "If they put $80,000 into a fund providing typical returns over twenty five years, they would pay $172,000 in unnecessary charges, the paper found". (and Canadian fees have been found to the the highest in the world) see link to Tricks of the Trade. Sales tricks, investment abuses.

If you would like a 30 minute guided and documented tour of how easy it is for the rich and well connected (In Canada) in finance to steal billions, and use exemptions to the law to make these abuses "legal", please see the video at

And if you can handle true horror (with you as the daily victim) grab a copy of Bruce Livesey's book, Thieves of Bay Street. No other in Canada has told it quite as well as him.
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Re: break the law and win. Apply for exemptive relief.

Postby admin » Sat Mar 17, 2012 6:36 pm

images.jpeg (14.3 KiB) Viewed 26815 times
This story comes to us from the experiences of our American neighbours, but it must be remembered that many products sold in Canada as triple A rated "asset backed commercial paper" were nothing but thinly disguised Credit default swaps where someone like DeutcheBank was using Canadian taxpayer monies as a loss prevention strategy for any losses it experienced on it's sub prime mortgage portfolio. Here, for posterity is as simple an explanation as I have found to show the manner in which adult men will act irresponsibly if it makes them millions........


Credit default swaps are insurance products. It’s time we regulated them as such.
Posted: 17 Mar 2012 06:00 AM PDT
Barry Ritholtz
Washington Post
March 10 2012 ... roducts-it’s-time-we-regulated-them-as-such/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29

Last week, Greece officially defaulted on its debt. (Unofficially, it defaulted long ago.) This formal default on about $100 billion triggered payment of $3 billion in credit-default swaps. These are the non-insurance insurance products that pay off in the event of a default.Let’s take a closer look at the tortured history of the swaps and see why they should be regulated as commercial insurance policies.

Our story thus far: CDS obtained their favored status as unregulated insurance policies courtesy of the Commodity Futures Modernization Act of 2000. It was sponsored by then-Sen. Phil Gramm (R-Tex.) — and benefited Enron, where his wife, Wendy, was a director on the board. The energy company had discovered the fast profit of trading energy derivatives, which was much easier to achieve without those pesky regulations. Late in the year, the CFMA was rushed through Congress. Passed unanimously in the Senate and overwhelmingly in the House, it was mostly unread by Congress or its staffers. On the advice of then-Treasury secretary Lawrence H. Summers, the bill was signed into law by Bill Clinton.

No one associated with this awful legislation has yet to be rebuked for it. Anyone who actually read this debacle and recommended it should be banned for life from having anything to do with public policy or economics.

Why? The act was a radical deregulation of derivatives. It was an example of the now widely discredited belief that banks and markets could self-regulate without problems. Management would never do anything that put the franchise at risk, and if it did, it would be suitably punished by the shareholders.

It didn’t quite work out that way. Across Wall Street, nearly all senior management involved escaped with their bonuses and stock options intact. Lehman chief executive Dick Fuld lost hundreds of millions of dollars and now must scrape by on the mere $500 million or so he squirreled away.

The act did more than change the way derivatives were regulated. It annihilated all relevant regulations. First, it modified the Commodity Exchange Act of 1936 (CEA) by exempting derivative transactions from all regulations as either “futures” (under the CEA) or “securities” (under federal securities laws). Further, the CFMA specifically exempted credit-defaults swaps and other derivatives from regulation by any state insurance board or regulator.

Hence, the law created a unique class of financial instruments that was neither fish nor fowl: It trades like a financial product but is not a security; it is designed to hedge future prices but is not a futures contract; it pays off in the event of a specific loss-causing event but is not an insurance policy.

Given these enormous exemptions from the usual rules that govern financial products, you can guess what happened with the swaps. A very specific set of economic behaviors emerged: Companies that wrote insurance typically set aside reserves for expected risk of loss and payout. When it came to swaps, the companies that underwrote them had no such obligation.

This had enormous repercussions. The biggest underwriter of default swaps was AIG, the world’s largest insurer. Without that reserve-requirement limitation, it was free to underwrite as many swaps as it could print. And that was just what it did: AIG’s Financial Products unit underwrote more than $3 trillion worth of derivatives, with precisely zero dollars reserved for paying any potential claim.

Though this may sound utterly absurd today, circa 2005 it was considered brilliant financial engineering. Consider this quote from Tom Savage, the president of AIG FP: “The models suggested that the risk was so remote that the fees were almost free money. Just put it on your books and enjoy.”

Ahhh, free money — how could that dream ever go wrong?

As it turns out, quite easily. Underwriting swaps was enormously lucrative — so long as you don’t count that unpleasant crashing and burning into insolvency at the end.

Oh, and that massive $185 billion AIG government bailout. Aside from those tiny hiccups, there was some good money to be made.

It was more than just AIG. While the radical deregulation wrought by the CFMA led to AIG’s self-directed collapse, it also helped steer two of the largest securitizers of mortgages — Bear Stearns and Lehman Brothers — into insolvency. Perhaps they were lulled into complacency, believing (wrongly) that they were hedged against losses. The CFMA led to their demise, and it was indirectly responsible for the collapse of Citigroup, Bank of America and Fannie and Freddie. It also was a significant factor in the near-death experiences of Goldman Sachs, Morgan Stanley and quite a few others.

Despite the CFMA’s horrific fatality toll, it has never been overturned. Parts of it were modified by Dodd-Frank regulations, but not the insurance exemptions. Today, these swaps are cleared through exchanges or clearinghouses — but they are still exempt from all insurance regulatory oversight. Which is bizarre, because they are little more than thinly disguised insurance products, with the CFMA kicker that there is no reserve requirement.

Which brings us more or less up to date — and onto more topical issues, such as Greece. Two weeks ago, the International Swaps and Derivatives Association said that “based on current evidence the Greek bailout would not prompt payments on the credit default swaps.”

That is an odd statement about a tradable asset — based on evidence? Typically, an option or futures contract expires, and it either is in or out of the money. Any tradable asset — stocks, bonds, futures, options, funds, etc. — settles on its own. There is a market price the asset closes at, a total volume of sales, and a final print for the day, month, quarter and year. No interpretation is required. Why on earth would anyone need a committee ruling for a trade?

On Friday, the ISDA committee ruled that Greece formally defaulted. Thank goodness that was cleared up. Had they failed to do so, it would have fatally damaged the swaps market and made sovereign debt financing much more expensive.

What makes this issue so fascinating is not whether Greece has or has not technically defaulted. Rather, it is that there is a committee of conflicted interested parties rendering a verdict on that issue.

Funny, no sort of group declaration is required when a futures contract or an option must settle. No committee decision is required. Which (again) is why credit-default swaps look, sound and act a lot more like insurance than they do other tradable assets.

Why does it matter if swaps are not insurance? In a word, reserves. That is the key difference between insurance and swaps. State insurance regulators actually require reserves from insurers — a lot of reserves — to ensure payments can be made in the event any payable event occurs. The swaps industry does not require reserves. Not even one penny against billions in potential losses.

I think you can see why this matters so much. Swaps are a lot less profitable as an insurance product than they are as a trading vehicle. That is the primary issue that we all should be concerned about. It is exactly how AIG blew itself up. There is nothing that prevents the marketplace from doing it again. We could very well see a repeat unless this gets resolved. Indeed, the odds heavily favor such an event occurring, unless we collectively do something to stop it.

Credit-default swaps are insurance products. It is well past time we regulated them as such.

~~~ ... roducts-it’s-time-we-regulated-them-as-such/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29
Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of “Bailout Nation” and runs a finance blog, the Big Picture at Twitter @Ritholtz
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Re: break the law and win. Apply for exemptive relief.

Postby admin » Sat Nov 12, 2011 9:33 am

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Mother Jones

Corporations Hate Regulation, Until They Love It
By Kevin Drum on Fri. November 11, 2011 3:00 AM PDT

Lindsey Turner/Flickr
The "Volcker rule" is a simple thing. Basically, it says that if you're a bank that takes deposits and benefits from federal deposit insurance, you can't also make risky trades that might blow up your bank and cost the taxpayers a bundle. Wall Street never liked the rule, because banks make a lot of their money these days trading for their own accounts and didn't want their trading profits cut off. They fought the idea in Congress, but in the end, the Dodd-Frank bill that passed in 2010 included a version of the Volcker rule in its final draft.

Was this a victory for common sense? Hardly. Last month regulators unveiled their first take on the actual implementation of the Volcker rule, and it had become a monster. "Only in today's regulatory climate could such a simple idea become so complex, generating a rule whose preamble alone is 215 pages, with 381 footnotes to boot," complained American Bankers Association Chief Executive Frank Keating.

Poor banks! But step back for a moment. How did Paul Volcker's baby get so bloated? Keating's crocodile tears aside, the answer is: banks. When it comes to financial regulation, fighting against new laws is merely their first line of defense. When they lose, as they did in the Dodd-Frank battle, the action simply moves to the regulatory agency charged with implementing the law. James Stewart explains what happened next:

When the proposed regulations for the Volcker Rule finally emerged for public comment, the text had swelled to 298 pages and was accompanied by more than 1,300 questions about 400 topics.

"Here's the key word in the rules: 'exemption,'" former Senator Ted Kaufman, Democrat of Delaware, told me. "Let me tell you, as soon as you see that, it's pronounced 'loophole.' That's what it means in English." Mr. Kaufman, now teaching at Duke University School of Law, earlier proposed a tougher version of the Volcker Rule, which was voted down in the Senate. "We've been through this before," he said. "I know these folks, these Wall Street guys. I went to school with them. They're smart as hell. You give them the smallest little hole, and they'll run through it."

This is probably the biggest reason that no one should take too seriously Republican complaints about burdensome regulations strangling the economy. The truth is that most reformers prefer fairly simple rules. In the tax world, they'd prefer to simply tax all income. In the environmental world, they'd prefer to set firm limits for pollutants. In the financial world, they'd prefer blunt rules that cut off risky activity at its knees.

But businesses don't like simple rules, because simple rules are hard to evade. So they lobby endlessly for exemptions both big and small. This is why we end up with tax subsidies for bow-and-arrow makers. It's why we end up with environmental rules that treat a hundred different industries a hundred different ways. It's why financial regulators don't enact simple leverage rules or place firm asset caps on firm size. Those would be hard to get around and might genuinely eat into bank profits. Complex rules, conversely, are the meat and drink of $500-per-hour lawyers and whiz kid engineers. If the rules are complicated enough, smart lawyers can always find ways around them. And American corporations employ lots of smart lawyers.

Keep this firmly in mind the next time you hear someone from the Chamber of Commerce complaining about how many thousands of pages of regulations they have to comply with. Some of that is inevitable: We live in a complex world, and that means the rules are sometimes complex too. But they don't have to be anywhere near as complex as they end up being. We could have a simple tax code, simple environment rules, and blunt financial regulations. We could probably cut the size of agency regulations by 10 times if we wanted to.

But businesses don't want to. Sure, they'd prefer no regulation at all, but they know that's not in the cards. So in public they bemoan complexity, but in private they fight endlessly for more of it. To their lawyers, every single extra page is an extra opportunity to make more money. ... complexity
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Re: break the law and win. Apply for exemptive relief.

Postby admin » Wed Nov 02, 2011 8:49 am

s-BLANKFEIN-large300.jpg (17.57 KiB) Viewed 25662 times
TEN LARGEST BANKRUPTCIES from ... cies-ever/

1) Lehman Brothers Holdings, September 2008: $691 billion in assets, TWO EXEMPT FINANCINGS AT ASC
2) Washington Mutual, September 2008: $327.9 billion
3) WorldCom, July 2002: $103.9 billion
4) General Motors, June 2009: $91 billion, five exemptions
5) CIT Group, November 2009: $80.4 billion, SIX EXEMPTIONS, EIGHT EXEMPT FINANCINGS
6) Enron, 2001: $65.5 billion, ONE EXEMPT FINANCING
7) Conseco, 2002: $61.4 billion
MF Global: $41 billion (as of Sept. 30), ONE EXEMPTION ONTARIO
8) Chrysler April, 2009: $39.3 billion, FIVE EXEMPTIONS, ONE EXEMPT FINANCING
9) Thornburg Mortgage May, 2009: $36.5 billion
Pacific Gas & Electric Co., 2001: $36.15 billion

Is this a criminal Breach of Trust?
Screen shot 2011-04-19 at 4.41.06 PM.png
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Re: break the law and win. Apply for exemptive relief.

Postby admin » Tue Nov 01, 2011 9:56 am

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Question: What are Canadian Securities Regulators doing letting investment firms violate our laws.......violate our consumers?

Answer: None of your business ... global.jsp



(the Applicant)


UPON the application (the Application) by MF Global Canada Co. (the Applicant) to the Ontario Securities Commission (the Commission) for a decision pursuant to (i) section 80 of the CFA granting relief from sections 42, 43, 44 and 45 of the CFA and (ii) section 147 of the OSA granting relief from section 36 of the OSA, which contain the requirement to deliver certain confirmations and statements of trade to customers in respect of trades in commodity futures contracts and commodity futures options as well as equity options in the context of trade "give-ups".

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

(they state this with each of thousands of legal exemptions, but never back it up. OSC works very much "below the law" at protecting consumers, while simultaneously acting as if they are "above the law" on accountability and the damage they do to consumers)

================================================== ... cies-ever/

OCTOBER 31, 2011, 10:38 AM ET
MF Global: Likely Among the 10 Biggest Bankruptcies Ever

By Shira Ovide

MF Global, the brokerage run by former Goldman Sachs chief Jon Corzine, today filed for bankruptcy protection, becoming one of the highest-profile U.S. victims of bad bets on European government debt.

With the Chapter 11 filing, MF Global also is likely to be added to the ignominious list of the 10 largest bankruptcies in U.S. corporate history. Here is that list, according to research firm, and based on the value of each company’s assets before its bankruptcy filing.

Based on MF Global’s disclosed assets in its bankruptcy filing, it is likely to slot in just ahead of Chrysler as the eighth-largest U.S. bankruptcy.

1) Lehman Brothers Holdings, September 2008: $691 billion in assets

2) Washington Mutual, September 2008: $327.9 billion

3) WorldCom, July 2002: $103.9 billion

4) General Motors, June 2009: $91 billion

5) CIT Group, November 2009: $80.4 billion

6) Enron, 2001: $65.5 billion

7) Conseco, 2002: $61.4 billion

MF Global: $41 billion (as of Sept. 30)

8) Chrysler April, 2009: $39.3 billion

9) Thornburg Mortgage May, 2009: $36.5 billion

10) Pacific Gas & Electric Co., 2001: $36.15 billion

Source:; SEC filings for MF Global asset size

More In MF Global

CME Group: Questions Persist Around MF Global Recordkeeping
Jefferies Would Like to Say It's Not MF Global
Surveying MF Global's Damage in Asia
MF Global Bond Investors Not Expecting Much Recovery
This Hedge Fund Bet Wrong on MF Global
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