Saturday, June 24, 2006

FREE RIDER PASSPORT

further to the last post where I hinted at a free ride Passport system being already in place and already failing to protect the public interest.......................

(by the way, if you can obtain a copy of FREE RIDER, by John Lawrence Reynolds, you may never trust the Canadian financial system again. No it is not a consiracy theory book, no it is not fiction and no I am not shitting you when I say this)
but I digress

I checked on the OSC web page at
http://www.osc.gov.on.ca/Regulation/Orders/ord_index.jsp

and found out just how many PASSPORT type orders etc, that all thirteen of our securities teams have co-operated on

The number of rulings, orders, exemptions to deadlines, exemptions to securities law, etc, etc etc, amounted to SIXTY FOUR listed under the letter A alone, in the year 2004 alone.

If I mathematically extrapolate how many fall under the entire alphabet, for the last ten or so years I come up with a zillion. They may or may not all be Passport approval situations, but enough of them are to ensure that we are being misled by provincial commissions and or ministers when they say a passport system is a new solution. It is not new, and it is not a solution. Unless we want to continue to have our top securities police in each province still able to sleep on the job and be paid for it.

below is the actual exemption that all canadians deserve a royal commission on:

IN THE MATTER OF
NATIONAL INSTRUMENT 81-105
MUTUAL FUND SALES PRACTICES
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
ASSANTE CORPORATION

MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of of British Columbia, Alberta, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland, Nunavut, the Yukon, and Northwest Territories (the "Original Jurisdictions") and Saskatchewan and Quebec (collectively with the Original Jurisdictions, the "Jurisdictions") have received an application from Assante Corporation (the "Filer") on behalf of itself and its current and future affiliated distributors and their respective representatives from time to time for a decision under section 9.1 of National Instrument 81-105 Mutual Fund Sales Practices ("NI 81-105") that the prohibitions on certain rebates contained in section 7.1 of NI 81-105 shall not apply to rebates paid by representatives to clients who are switching from third party products to mutual funds managed by, or by an affiliate of, the Filer;

http://www.osc.gov.on.ca/Regulation/Orders/2004

documentary shockumentary

here i sit in toon town. saskatoon to be exact. nice place, very pretty, modern, kind of a calgary without the stressed out SUV drivers, smaller, kinder, slower, and with trees. And that river flowing through town. Wow! Simply beautiful.
Sad that I am here to find out if toon town is home to the country's most desperately greedy financial salespeople. All the signs point to one firm. I got a return phone call from a former worker at that firm today, and it felt like many were in on the pork fest at client expense.

What pork fest?

Well it begins with an application in 1999 for an investment firm to bypass a little securities law. The law is on something called commission rebating, and it is intended to protect clients. It prevents investment firms from paying extra incentives and or kickbacks to clients to incent them to buy crap they would not ordinarily buy.
Extra incentives are usually given to salespersons, and kickbacks to clients to unload dead stock on clients, and by dead stock I am not talking cattle. I am talking about proprietary mutual funds or other less than competitive investment products, but products which make the owners of the firm rich if they can unload them on clients.

The original crime is obvious. Well not obvious, actually, it is quite carefully hidden. But once it is out in the open it becomes obvious to anyone who looks at it.
The backup crime then becomes whether or not the self regulatory agencies will catch this and punish it. Anyone familiar with the industry knows that the self regulators are really and truly trade and lobby groups for the industry, so the answer to this is a definite NO. Whether MFDA, IFIC, IDA, or whatever they are called, the public interest is SOL and the industry is AOK.

Then in steps the crime fighting crew at the provincial securities commissions, right?
Right?.............................................................Hello? Is this mike on?...........................

Turns out the crime fighting crew at the provincial securities commissions have been sleeping at the switch like a late night guard at the water treatment plant. They have a number of "problems", facing them that might make it "difficult" for them to "engage properly". Such as??

problem numero uno: They, ah, how do I put this delicately? They "delegate" all matters of IDA or MFDA involvement down to the self regulator. Let me be clear on this. The provincial securities commissions, of which we have some thirteen in Canada, and people at them earn in excess of a half million dollars a year..........they do not act on the securities act, but delegate many matters to self appointed, self serving, self regulators. Well, not totally self appointed, but these self regulators only have jurisdiction over membership, education requirements, etc., etc. Stuff like that. They DO NOT have authority over, under, or inside the Securities Act of each province. So how do the provincial commissions justify delegating securities act violations to the self regulator? Ask them yourself. They will amaze you at the amount of obfuscation available to their lawyers.

problem number two: There is the small matter of the local commission having GRANTED this firm the legal exemption that allowed them to increase client accounts by some mill...............................sorry, scratch that last line and replace it with, GRANTED this firm the legal exemption that allowed them to increase thier firm's share value to hundreds of millions.

So why would provincial securities police, charged with protecting and serving the public do such a thing you ask? Keep asking? Not one of the gang of thirteen I asked have spoken publicly about it. When I walked into Justice Minister Frank Quennell's office this week, he jumped up to pump my hand like I was a voter. When I broached the subject of my visit, which was, "Frank, why won't the head of your securities agency (David Wild) answer questions on this, and why does he refer me to a lawyer instead of replying? What are these guys trying to hide?"..............well he kind of shriveled up and sank away from me like I was the antichrist.

It felt like I was in school, except I was the principal this time, and he was the poorly behaved child. In my scenario it was always the child who knew he had behaved poorly, but did not have the maturity, or the good sense to admit it, and start to make everything "all better". Instead the child does the Bill Clinton defense of Deny, Deny, Deny, not knowing what else to do. I actually felt sorry for him, watching him squirm. So the entire thing may have actually been inadvertantly CAUSED by the securities commission, in an unwitting and ironic (read PASSPORT) kind of way.

Third little problemo: is the fact that provincial securities commissions are desperately trying to hang onto highly paid employment, despite having been caught sleeping on the job more than once. With the top guys paid over $500,000 per year in several provinces, it comes as no surprise that they feel Canada is better served by having them around. If word gets out that they are useless at investor protection...........and in fact they have become rather incestuous with the industry they regulate......well, anything could happen. They may have to go back to working inside the industry, which is another reason they are soft on anything industry related.

Related to problem number three is the issue of a Niagra-on-the-lake meeting with Frank of saskatchewan, some ministers of finance, some minsters of justice, all those in charge of provincial securities commissions.............to help decide how to "institute" a solution that will allow all those provincial guys to keep their jobs. "Jeez, guys, cant we all co-operate, and maybe approve each others work or something? Lets call it a "passport" system or something, so it sounds as if we are doing something new."

The problem with a "passport" system, where all the commissions will reduce the burden of having to comply with useless paperwork in thirteen jurisdictions...........thirteen jurisdictions in an economy the same size as that of Texas.............................this problem is compounded by the fact that they already have this passport in place. It is called a "free ride passport", and it is exactly what happened with the commission rebating exemption in saskatchewan. As I was talking to Frank, Minister of Justice of Sask, and he was trying as hard as he could to "wish" me out of his office, he gave me the excuse that, "we did not initiate that approval, it was initiated in another province". Yup, I had to give it to him, he was fast. Frank was trying to avoid millions of dollars of damage to thousands or tens of thousands of clients under his care by saying "johnny did it", or perhaps the analogy is better put that, "johnny did it first".
I said, " at the beginning and the end of the day, you still have YOUR department approving something that they now refuse to answer to. How it could possibly be in the public interest".

He said he would "look into it", and get back to me. I can hardly wait.

I got a funny answer from the Alberta Securities Commission. Well, not an answer so to speak, but more of a "go screw yourself". What else would I expect from an agency that spent $1.2 million dollars of industry money (did I mention that our securities commissions, as well as the self regulators are funded by industry?), simply to legally fight whether or not they should be subject to audit by the government auditor??? These guys are not hiding a thing!

So the score is securities commissions thirteen, and public accountability zero.

Talk to your MLA, and ask them if they will find an answer to the burning question?
"In what possible public interest would our provincial securities commission find it to grant a commission rebating exemption to one single investment firm, so they could turn client accounts over to proprietary products (move the dead stock)??"

If they can bodge together an answer for this one, ask them if there was any follow up, or any process to ensure the client protective conditions on this approval were followed up on or investigated?
I intend to ask as many as I can put myself in front of.

Better yet, ask an opposition party to start asking, no demanding answers to these questions.

I will keep you posted on the process and the progress as I go along.

cheers
larry