April 10, 2008 at 2:12 PM EDT
OTTAWA — Retail investors who feel they were “duped” into losing their
life savings by investing in non-bank asset backed commercial paper want
the federal government to get involved in recoup their losses.
At a hearing before the House of Commons Finance Committee, investor
activists gave harsh accounts about how their financial advisers had
stashed their savings in non-bank ABCP, telling their clients it was as
safe as Guaranteed Investment Securities or treasury bills.
“Everything has turned horribly wrong,” said Murray Candlish, a
semi-retired farmer who put his inheritance and much of his life savings
in non-bank ABCP — the same commercial paper that has been frozen since
“Please help the individual investors...to get back what is rightfully
ours,” he asked the committee. “If individual investors are guilty of
anything, they are guilty of trusting the Canadian banking system.”
Retail investors, including Larry Elford, are testifying about the way
their ABCP holdings are being treated before the Standing Committee on
Finance in Ottawa
Since investment brokers and financial advisers are self-regulating and
prone to convoluting their investment advice, Canadian clients are
vulnerable, and end up trusting their advisers blindly, with little
recourse if something goes wrong, said Larry Elford, a former financial
adviser from Lethbridge, Alta.
“They give Canadians a false sense of security,” he said. “We are
sitting ducks, financially.”
Retail investor Wynne Miles, a self-employed Victoria resident, said her
savings were invested in non-bank ABCP without her knowledge or consent,
since her adviser believed she was merely putting Ms. Miles' money in a
The future of their savings is caught up in the high-stakes plan to fix
Canada's frozen $32-billion commercial paper market. About 1,800
individuals have money tied up in that market, but they collectively own
just about 1 per cent of the frozen paper.
The plan to fix the market is scheduled for a vote on April 25, and each
investor gets one vote, regardless of the quantity of frozen paper they
Many of the panel members appearing before Commons committee on Thursday
suggested they would vote against the plan, however, because they would
have to give up their right to sue, and because they would still sustain
substantial financial losses.
However, Vancouver-based brokerage Canaccord Capital Inc. announced on
Wednesday a relief plan for 1,400 of its customers who collectively hold
$269-million of the frozen paper.
The package is contingent on the April 25th restructuring vote passing,
and so some analysts believe the Canaccord proposal will ensure success
of the vote.
The House of Commons hearings were billed as a “briefing” and committee
chairman Rob Merrifield warned the panel that MPs would not get drawn
into a private-sector dispute in the days before a crucial vote.
But most of the investors and activists before the panels had advice for
Ottawa anyway, ranging from recommendations to increase the power of
federal banking regulators to crack down on foreign financial
institutions active in Canada, to recommendations for a bail-out fund to
compensate retail investors.
The Conservative MPs on the committee tried to steer the focus of the
discussion to the perceived need for a national securities regulator.
Finance Minister Jim Flaherty has frequently placed the blame of the
commercial paper caper on provincial securities regulators and hints the
whole issue could have been avoided with streamlined oversight.
“Most of the businesses involved that sold this product are provincially
regulated, were supposed to be provincially regulated in our current
system by provincial securities commissions. And, as you know, we are
advocating and I am a strong advocate of a national securities regulator
in Canada,” Mr. Flaherty said on Wednesday.
Still, the committee agreed to pursue its hearings into the causes of
the ABCP collapse, placing the issue near the top of their list of
priorities to handle before the summer.
The investors told the MPs that the issue has prompted many retail
investors to lose confidence in Canada's capital markets and regulation
of the banking system in Canada.
One man, the treasurer of an affordable housing co-operative in
Waterloo, Ont., described how the residents would have to forego new
furnaces. Another panel member recounted how an acquaintance, an
83-year-old veteran of the Armed Forces, was having blood pressure
problems because his retirement savings were now frozen and unlikely to
be full restored.
“Most of us just want our money back,” said Ms. Miles. “If someone would
buy our notes, then the big boys can [do what they please.]”