Tuesday, January 03, 2006

From Gomery to...........investments

It occurs to me that Gomery told the tale of a cancerous level of corruption that spread from the Liberal party out into the industry of advertising. Now I feel we are seeing a tale of a cancerous corruption within the investment industry that perhaps has spread to the government.
The investment industry corruption is many orders of magnitude larger in dollar size and in damage to the public and the country. Peoples money has been used as pawns in financial games that the pro's play. Trust has been abused. Credibility has been spent.
Whether we look deeply into the:
1. income trust issues, (issues of investor suitability, or issues of inside information leaked to those in priviledge)
2. mutual fund abuses like double dipping, DSC self dealing, the corporate lottery of proprietary funds,
3. or basic simple issues like, does your advisor owe you a duty of care and trust or are you on your own or are you in a buyer beware relationship? Does industry owe you an accurate explanation of this?
4. Does your industry even owe you an accurate explanation of what an "advisor" is, and what professional duty they owe you?

When we look carefully into any or all of these and other issues, we find an industry bent on greed, bent of serving itself regardless of the advertising and ethics promises made. Don't believe me? Pick up a copy of THE NAKED INVESTOR, read any newspaper, check out the Small Investor Protection Association at sipa.ca.
Other sites of interest include http://www.investorvoice.ca/, one of the best resources in Canada to shed light on what the industry actually does. Not what they say they do, but what their behavior has given us.
Finally, if you still need convincing, go to http://www.canlii.org/ site of the Canadian Legal Information Institute and type in any investment company by name in the search box. You might be surprised to find dozens, if not hundreds of legal actions underway against any bank or institution. Does this mean they are guilty of anything? No, but where there is smoke, somone better be at very least checking for fire.

Which leads us to the firemen of the country's financial institutions. First line of defense is the Provincial Securities Commissions. When I spoke to a senior investigator at the BCSC about a 90 year old Kelowna man who lost his home to an RBC broker in 2004, they did not want anything to do with it, telling me to, "take it to the IDA". When I informed him politely that some people who know the system feel that the IDA is more of a trade body than a regulator, his reply was "that is how it works".

The problems at the Alberta Securities Commission could perhaps fill a book. My experience with them certainly gives me the impression that they are a dysfunctional organization that at the very least, have no clue or connection to thier role of investor protection. At the very worst they are nothing but industry rubber stamping puppets.

The Sask Financial Services Commission, was faced with 142 pages of testimony by former investment employee Kent Shirley about allegations of wrongdoing he was witness to during his eight years in the business. They chose to refer the file to the OSC, for reasons only they can justify. The employee was left high and dry, his evidence was seized by the very person he complained against (using hundreds of thousands worth of legal muscle), his defense of himself was prohibited by overhanded court orders barring him from even speaking to police or authorities about his complaints. When this occured (it appears) the SFSC dropped his file like a hot potato, saying it was an Ontario problem. The OSC (Ontario) said it was not thier problem. The employee killed himself the next month, and we still have no "competent" inquiry that I know of into his allegations of wrongoing. Wrongdoing, which if true contains abuses of Canadians of an "Enron" size. One other person who dared to speak about the case spent ten days in jail in Calgary this past December. That is how inneffective the SFSC has turned out to be.

The Ontario Securities Commission could probably do with a good book about them as well. Between collecting salaries well over $500,000 at some levels of the commission, doing little to nothing for average members of the investing public, turning a blind eye to the Kent Shirley death and allegations, and turning away legal complaints to a self appointed industry trade organization.....................well, where does one stop the catalogue of failures to serve the public interest?(by the way, in the whistleblower death mentioned in the paragraph above, the OSC was the initial securities commission that granted the firm involved an exemption around the laws against "commission rebating" that was subsequently practiced on many many clients according to the allegations. What are securites regulators doing granting firms the right to go "around the law" to make more money?

Turning to the IDA (Investment Dealers Association) go back to http://www.investorvoice.ca/ if you need a refresher on the IDA, who they are, what they do and what they do not do. Do not go to the IDA web site, as there you will find them talking with a rather forked toungue. Forked from trying to sell two conflicting stories to the public. Story one (where they started) was that of in industry dealers association, much like the Calgary Auto Dealers Association. They were created to protect and preserve the interests of the industry, like any trade association. They even are registered in Ottawa with the Federal government as a lobby group representing the investment industry.

Story two is less clear. Somehow, without clarity to this writer when and how, they "became" annointed as an industry self regulatory agency. Meaning what? They have agreed to grant themselves ability to register, vet, supervise and kick out members as they see fit. They also claim responsibility for standards of behavior of their members. Again, just like your local auto dealers group, although both could probably be guilty of doing much of this with the real motivation of making entry into their business more difficult for newcomers and thus make business a bit easier for themselves.
How they turned this smoke and mirror show into having provincial securites commissions and others actually believing that they were a credible regulator is anyone's guess. I still have yet to have my questions on this answered, and the IDA itself is on record as saying they have nothing legally to offer as a regulator.
See IDA official quotes below from investorvoice.ca.

"The IDA is a private organization and can set its own rules.""...the IDA is not an arm of the government. We are not acting as an agency or a delegate of the securities commission." Brian Awad, IDA Legal Counsel

"First, let's get the facts straight. The only legislative power the provincial governments "delegate" to the IDA is registration of brokers -- and even that is only delegated in B.C., Alberta and Ontario. The provincial governments do not "delegate" securities industry compliance and enforcement." Paul C. Bourque, IDA SVP., Member Regulation, "Penalties needed", Financial Post November 1, 2004

It is like these guys have talked their way into a mormon dance, because they know there are pretty girls inside. How they have continued to fool everyone up to and including the RCMP, IMET commercial crime guys is beyond me. Perhaps, now that they have involved themselves in an insider trading problem (Income trusts) during and involving an election, perhaps this will be the trigger that allows a clear look into these and other parts of the Canadian financial system. It is a system that badly needs a good checkup. It is a system that is so riddled with the cancer of corruption and self dealing that either the patient needs to be shot and put out of her misery, or some farily radical, and aggressive treatments are required.
I look forward to a positive outcome.
investor advocate
http://www.investoradvocates.ca/

investoradvocate@shaw.ca