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Canada gets an F in enforcing securities regs


Date: Monday, December 4, 2006
Author: David Clarke, InvestmentNews.com

OTTAWA - Are Canada's securities laws being enforced properly?

To the presumed delight of crooks - but probably not cops - a Canadian legislator, regulators and at least one American professor agree that they are not.

In Canada, it is a "fact that laws and securities regulations are not being enforced," John Coffee, a professor at Columbia University Law School in New York, said in an interview with the Toronto-based Financial Post published Nov. 20. "It is fair to say that, by any standard, the system is not working."

The professor pointed to enforcement, stating that: "The problem in Canada is not so much that cases are being tossed out by courts that don't understand them, but rather no cases are being developed to the point that they can be taken to trial."

Mr. Coffee, a former member of the legal advisory boards of the New York Stock Exchange and the Nasdaq Stock Market Inc. of New York, was one of the 12 members of the Task Force to Modernize Securities Legislation in Canada, which released a 3,000-page report Oct. 6.

The Senate Committee on Banking, Trade and Commerce will hold hearings early next year to examine the nation's enforcement record.

"[I am] very unhappy with enforcement," Sen. Jerahmiel S. Grafstein, the committee's chairman, told the Post, adding that

he had "sensed that, for a long time, there hasn't been vigorous prosecution."

Then the senator went on to do some Mountie bashing.

No folllow-up

The Post quoted Mr. Grafstein as saying that "for example, Market Regulation Services, the watchdog that oversees trading activity on Canada's major stock exchanges, told the task force it had referred 99 cases of possible securities violations to the [Royal Canadian Mounted Police's] Integrated Market Enforcement Teams in the past couple of years."

To this day, the senators were told, no regulator had received

any feedback on the status of the referrals.

"We found that to be a shocking revelation," Mr. Grafstein said. "The entire [Senate] committee was taken aback that almost 100 alleged violations have been reported, and we don't know what, at this stage, if anything has been done about them."

Problem is, "we have received no complaints from RS over the [past] four years," said RCMP Superintendent John Sliter, director of the Ottawa-based IMET program. "That was a mistake that the Post has yet to rectify."

"I have no idea where they got that," said Maureen Jensen, vice president of market regulation at Toronto-based Market Regulation Services Inc. "RS did not say that. It is not true."

As for where he got that, "Senator Grafstein said he has 'no comment,'" Mary de Toro, the senator's executive assistant, wrote in an

e-mail.

What did happen was the task force released a background paper stating that the IMET program is investigating eight cases and is "full."

Nevertheless, even the Mounties' top cop admits that there are some problems with enforcement.

Canada suffers from "process constipation," RCMP Commissioner Giuliano Zaccardelli said at a November conference of the Toronto-based Ontario Securities Commission.

He said that the RCMP needs more resources, despite a $105 million (U.S.) commitment over five years when the IMET program was created in 2003. IMET's resources have been "absorbed like a sponge," Mr. Zaccardelli said.

'Biggest challenge'

Indeed the Mounties have not yet announced any conclusions in two high-profile investigations -involving Nortel Networks Corp. of Brampton, Ontario, and Royal Group Technologies Ltd. of Woodbridge, Ontario.

"Effective enforcement is our biggest challenge," said David Wilson, chairman of the OSC. "At any given moment, someone somewhere "is hatching a scam - or misusing privileged information - to rip off innocent investors and rob them of their savings."

The drumbeat for improved enforcement goes on.

The Council of Ministers of Securities Regulation met in Edmonton, Alberta, Nov. 22-23 to approve the next phase of the passport system, which allows one province to recognize the rulings of another's securities regulator.

Ministers also received a report on enforcement issues.

"In particular," according to a statement, "they welcomed the opportunity to work with justice ministers in the creation of a working group of securities regulators, police, prosecutors and policymakers on the issue of addressing capital market fraud."