Who speaks for investors? Part two

May 28 2008 by Ellen Roseman

In my column today, I mentioned the reaction to my blog post of May 5 — an invitation from the Ontario Securities Commission to meet in person to talk about how it planned to consult with investors.

The OSC hasn’t put out a press release yet, but has published the terms of reference for its new joint standing committeee on retail investor issues.

Vice-chair Larry Ritchie hopes to have a first meeting in September that will be open to public participation. The topic: How suitable are the new products sold to retail investors?

Asset-backed commercial paper is an obvious case, as are principal-protected notes — remember the downfall of Portus? I’d include high-priced wrap accounts and guaranteed-income segregated fund portfolios, such as Manulife’s Income Plus and Sun Life’s Sunwise Elite Plus.

The OSC still hasn’t sorted out the access issues. Is it possible to include everyone who wants to join the discussion, no matter where they are in Ontario? What kind of technology would be needed to give all investors a voice?

Ritchie insists this isn’t a replacement for the investor advisory committee. If so, why has there been no appointment of new members to the IAC? Why has no one talked to former members to get their ideas on how to make the IAC more effective? Six months after the last meeting, nothing has been done.

Some investor advocates want to keep talking to the regulators. Others think it’s futile. Check out their opinions and express your own.


  1. Andrew Teasdale

    May 28 2008

    Pamela Reeve makes a comment about the importance of statutory powers and their relevance to the creation of an independent consumer investment panel.

    At the moment, the OSC does not have any mandate, or powers to set up an independent body with such power. Indeed, you could say that its close, statute mandated association with the SROs preclude it from doing so; the IAC was therefore doomed to fail to morph into an independent body with a clearly specified consumer protection role, irrespective.

    As such, the current framework forces an attempt at a solution through the only avenue available, the OSC and its SROs, and by direct implication, the industry; nothing wrong with input by the industry, just as long as it is recognised that it does not represent the interests of consumers and is not allowed to act on their behalf.

    Canada needs a regulatory overhaul, pure and simple. The OSC’s attempt to develop this new committee is an inferior and undesirable option to the development of an independent consumer body as one of many much needed reforms; this should be clear to those with an understanding of the democratic process.

    The OSC, in this context, may be a victim of the inherent failings of the current regulatory system; it is also highly probable that it is aware of this logical dilemma.

    Recent comments provided by the Capital Market’s Initiative, with respect to a lack of leadership, could easily be directed to this specific issue.

    The creation of a so called “gang of four” committee and, the fact that it has been allowed to develop without apparent reservation by anyone or any “body”, substantiates this conviction.

    Canada’s rudderless regulatory framework is drifting as far up the creek as it can possibly go and as far away from the needs of am efficient modern capitalist economy as you can get. From the riverbank it is clear it needs help.

    Andrew Teasdale

    The TAMRIS Consultancy

  2. Mark Yamada

    May 29 2008

    The Financial Services Consumer Panel and its advocacy role in the UK pursuant to the FSA should be a guide for Canada. That there are no members with blatant conflicts of interest contrasts with the OSC’s policy of the “gang of four” (I like that reference, thank you Andrew Teasdale!).

    Perhaps the OSC recognizes that it is “snookered” by circumstance as a provincial player in what should be a national endeavor.

    However, by putting the foxes in charge of the hen-house, the Commission and their cohorts show the true nature of their consumer interests, the orderly and systematic plucking of individual investors. Shameful.

  3. Andrew Teasdale

    May 29 2008

    One other point. The “Fair Dealing Model” proposed by the OSC back in 2004/2005 was, to my mind, one that required a great deal of “political capital”. This must have meant that there was substantial backing for this project within the OSC.

    At one point in time, the OSC appeared to understand the problems in the industry and was taking on board the need to represent consumer interests in the financial services process.

    Since that point, the FDM and the attitude that supported the stance of the FDM has to all intents and purposes disappeared without a trace. The only clue as to what happened lies in the committee reports of the registration reform project.

    I would like to know what happened to the culture that lay behind the development of the proposal for the FDM.

    The disappearance of the FDM and the closure of the IAC provide the clearest confirmation (hard facts) that the current regulatory structure cannot be relied upon to protect and promote consumer interests.

    We currently have a review of Canada’s regulatory structure. The interests of the consumer can only be embodied and protected in statute. The expert committee must have recognised this. And, of course, a strongly represented consumer interest is a prerequisite of a vital, competitive capitalist economy.

    Andrew Teasdale

    The TAMRIS Consultancy

  4. Craig Hubley

    Jul 4 2008

    The laughable Moody’s “ratings” have destroyed any sane person’s confidence in any aspect of the debt-based finance system. Equities seem not much safer given the many abuses in the way index funds are managed (how did Nortel ever get to 33 per cent of the TSX I wonder?) and more recent scandals.

    Ontario can’t even stop people taking out mortgages on other people’s houses. Then they wonder why they see a growth in street or bike gang activity, in international mafias. Don’t you people realize that someone will fill the gap and help if the government doesn’t?

    I agree with Pamela Reeve. The best any Canadian government agency, provincial or federal, could ever do on any matter, is to copy the UK example and try to do it almost as well as them. Ontario has no business trying to regulate securities, it’s far too small a jurisdiction to have the expertise. It should cede its formal authority to a body that copies best practices from all over the world. This has been done in many other areas of law, where global bodies’ rulings count, for example in domain names, telecom interoperability, the size of a standard shipping container. Should credit ratings or financial disclosures be any different? I can’t see why.

    Imagine a single global standard way to disclose say carbon liability (it exists: ISO 14064). Or, as an extreme example, a genuine open public discussion about the merits of the Chinese practice of quickly executing repeat white collar fraud artists. We could debate, for instance, the great harm these parasites do to society, but also the need to have the freedom to make honest errors and the way stupidity can be mistaken for conspiracy. And not just at one time, but over many years, the way Wikipedia trolls debate the merits of each nuanced way of saying the same thing, every different name for it, and ultimately come to uneasy consensus. Totally transparent.

    The debate need not be as shallow as most Wikipedia debates. Since many regulatory and investment issues are ethical issues, we could look at the many positions taken on these issues by the world’s great religions, ideologies and the current state of the art of the legislation of many countries, instead of responding to every new crisis with a bunch of absurd new regulations that the next mob games their way around. There’s always a way around and it’s always been discovered by someone else already elsewhere in the world. So nothing short of a global best practices effort can work.

    Remember, every time someone tries a Ponzi scheme in a place that never saw one before, it works. It will always work. A more sophisticated scheme from the US will work in newly capitalistic East Europe. There are already countries, like Nigeria, growing a locus of expertise in how to do complex frauds. Where’s the locus of expertise in how to prevent it? The UK is as good an answer as any. Haven’t they seen it all?

    I also agree with Gloria Hutton that regulators won’t protect someone effectively who is not legally represented. But the cost of legal representation prevents many people who have already been impoverished by fraud artists from seeking help. This situation requires a special form of legal aid where some of the funds recovered go into a fund to help all other victims – effectively everyone in a regulatory dispute in this ambiguous area of law would be legally insured for at least some basic abuses. Such as false statements of fact in offering documents, total failure of brokers or offering parties to respond or report (“silent failure” should be a crime), or denial by management to acknowledge an error or an abuse that is documented (which should also be a plain crime).

    Sound harsh? Sadly given the incentives to cheat and the many ambiguities in financial arrangements and contracts there is no way to enforce ethical behaviour short of obvious overkill. A proper regulatory scheme would be putting dozens of people into bankruptcy and prison for plain stupidity and common errors of human psychology. This is inevitable. We should demand a much higher standard of accountability from those who handle other peoples’ life savings, and should err on the side of the victims. As things stand, the benefit of the doubt is reliably exploited to keep the money in the hands of the thief. Nothing short of an atmosphere of plain terror is likely to change the self-excusing behaviour of brokers, bond dealers, traders and their management. How many times have we seen a “rogue” disavowed by management after they pocketed many millions he “made” in his heyday?

    Do the math. It will always be profitable to maintain a system where you can bank the winnings and then disavow and personally blame the broker after a big loss. You cannot clean this system up using the benefit of the doubt, you must reverse the onus of proof so that those who handle the money are presumed guilty if it goes awry, and this presumption only ends if they return all that money. ALL of it.

    Certainly “the industry is more interested in protecting itself than protecting those who try to put hard-earned dollars to work for the future.” It’s not an “industry” at all. It’s an art form.

    If you don’t like using the courts to chill the fraud artists you should at least be urging your Premier to flatly tell the white collar criminals to “get out of my province.” Then to institute such a profound shakeup of the whole system that there are no civil rights lawyers left to employ, all of them having been hired up to represent quakingly self-righteous con artists who run the major banks and brokerages in Toronto.

    Finally, consider a fat bounty on the names of miscreants to be paid to private offshore accounts tax-free and anonymously on conviction. Their colleagues know who these people are.

    I’ve worked with many technology and service and manufacturing entrepreneurs. I can’t think of one who would be discouraged by such a harsh system of financial regulation as long as it came with commensurate benefits such as the freedom to sell your stock on the street with appropriate disclosures. With no parasites (lawyers, accountants, bank managers, and regulators) involved. These people do nothing of any value at all. They are an entire class of people removing value and adding layers of obfuscation to what is, ultimately, gambling. In gambling the most we can hope for is quick harsh enforcement of a few very basic rules, such as:

    – no lying about things other players can’t easily check
    – no hiding your money anywhere other players can’t easily see
    – no collaboration with other players that all cannot observe
    – no hiding extra cards up your sleeve

    Anyone who thinks the above assessment is simplistic or naive is challenged to an open debate on the topic in some forum of public engagement. Pay the expenses and I’ll publicly crush any OSC witness or politician who argues for the status quo. An independent, statutes-based panel is certainly what is now required. And hope for your savings’ sakes it’s a harsh one.

  5. Anne Tesal

    Jul 10 2008

    I wanted to share with readers these thoughts on the idea that market trades may be manipulated. I have heard talk of this in various news articles and now see the recent increase in gold showing this same strange effect on gold companies.

    As I write this, Kinross and Barrick are spiking up to near $1 increases, while Yamana is showing a loss of some points. How can such variation be justified?

    The trend of these companies has been fairly consistent in their movements up and down, but not totally contrary movements like the open of today’s market is seeing. Is this an example of manipulation which investors are suffering for?

  6. John Dayy

    Jul 10 2008

    I noticed that Yamana is trading at volumes 4 times higher than Kinross and Barrick. Is this some kind of sell-off specific to Yamana Resources?

    Strange that the same isn’t happening with the other two gold companies. Has there been recent news to justify this odd pullback by Yamana, which is contradicting the markets so drastically? Or is this more manipulation? Who is trading all the Yamana Resources these days?

  7. Karen Dreddel

    Jul 10 2008

    This is interesting on the gold companies. Yamana is at -.33 points while Kinross is up .56 points (from its earlier spike to near .70 points) and Barrick is strong at 1.04 points up.

    Why is Yamana lagging so much against the market? Gold is up almost 10 points and the TSX is up around 100 points? is this manipulation of Yamana trading??

  8. Tom Kepter

    Jul 10 2008

    Yamana released results for their 2nd quarter on July 9. Kinross, Barrick and other gold companies should show the same significant drop when their results are released, as Yamana stated effects from market and currency conditions, which also affect other gold companies.

    Any investors in Yamana should see a spike, as has happened before, to offset disproportionate movement to other gold companies.