Investors Scrutinizing the Regulators

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Canadian watchdogs probe ABCP complaints

 

John Greenwood

Monday, April 07, 2008


Eight months after the $35-billion market for asset-backed commercial paper froze up, Canada's banking watchdog has serviced notice it is looking at stepping in.

"We encourage any investor who wishes to complain about ABCP in their accounts to put that complaint in writing to their investment firm, along with any supporting documentation and notes," the Ombudsman for Banking Services and Investments said in a statement.

David Agnew, the ombudsman, said he decided to take the step to help steer angry ABCP holders through the complaint process. The statement was also posted to a Facebook site for individual investors lobbying to get their money back.

"We just thought we would be helpful," said Mr. Agnew.

More than 1,800 individuals hold upwards of $300-million of the frozen notes. Many believe the ABCP was a flawed product that should never have been sold to them.

Under a proposed restructuring, the frozen paper would be converted to new long term notes. But what has many investors fuming is that as part of the deal, the banks that created and sold the ABCP would be released from any legal liability.

Mr. Agnew said his office typically starts looking at a complaint only when the two sides have failed to come to a resolution on their own.

"We exist to be an informal alternative to the legal system," he said.

"We're not the courts and we are not a regulator."

The body regulating Canada's brokerage industry is also investigating multiple complaints from individual investors whose brokers sold them ABCP, an official with the organization said on Monday.

Connie Cradock, vice-president of public affairs at the Investment Dealers Association of Canada said the body, which can fine, suspend or ban members for wrongdoing, has registered a higher number of grievances than is usual over a single issue.

"It is not often that you have a situation where you have multiple complaints," Ms. Cradock said.

"I don't think any of us can recall one situation which has affected this large a number of retail investors in different ways," she said.

Ms. Cradock said investors had a variety of complaints relating to sales of ABCP, including misrepresentation of the investment by their broker as well as the suitability of the investment.

Ms. Cradock said she couldn't say how long it will take the IDA, which is a national, self-regulatory organization governing more than 200 member firms, to finish its investigation and make a decision whether to hold hearings.

"It is an extremely complex issue so it is involving lots of looking at documentation," she said.

Meanwhile, Canaccord Capital, one of the backers of the restructuring, is said to be putting together a proposal to improve the terms of the restructuring for retail investors. Yesterday sources said the firm is days away from tabling an offer.
 

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