Investors Scrutinizing the Regulators

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Fox Guarding the Hen House


 IDA hearing held in camera


Murray Lyons


November 25, 2004

It didn't take long Wednesday for a public hearing being conducted by the Investment Dealers Association of Canada (IDA) into charges against a Saskatoon financial adviser to end up behind closed doors.

The IDA called the hearing to look into charges related to the investment portfolios set up for clients by former Matrix Financial Corp. partner and financial adviser Wade MacBain. Among the IDA charges are allegations MacBain set up investment portfolios that were far above the risks specified by his clients.

Lawyer Shaunt Parthev, representing MacBain and three former Matrix officials, told the chair of the IDA panel that he believes the panel could be prejudiced because it has seen confidential information that came out of informal talks that Parthev had with the IDA's lawyer about a possible settlement of the IDA complaints.

Parthev says he didn't want to discuss those matters in public with a StarPhoenix reporter and Saskatoon lawyers Jay Watson and Grant Scharfstein sitting in the same room.

Watson and Scharfstein, between them, represent about 150 former clients of MacBain. In general, those clients are suing the former financial adviser for inappropriately loading their investment portfolios with shares of the Saskatchewan Wheat Pool. The grain trading company's shares now trade at less than three per cent of their original issue price of $12.

Regina lawyer Garrett Wilson, who chaired the IDA panel in Saskatoon, agreed with Parthev's request to go in camera.

Before that happened, Parthev says he was shocked to see the substance of informal discussions with the IDA lawyer, conducted "without prejudice," had ended up in an e-mail that had gone to the IDA panel members hearing the case.

Parthev says lawyers for either side in civil suits often discuss the possible basis of out-of-court settlements "without prejudice," which means that should a settlement not be reached anything discussed informally among lawyers is not to be entered into evidence.

"You need to be able to discuss things fully and frankly with the other side," he told Wilson. "Now, the cat is out of the bag."

While the IDA hearing is part of the investment industry's self- regulatory system and not part of the civil court process, Parthev pointed out that the lawyers involved in the lawsuits against Matrix would have been interested in hearing the substance of settlement discussions with the IDA lawyer.

Besides MacBain, the IDA has also laid disciplinary charges against former Matrix compliance officers Karl Neufeld and Ian Frew, and former Matrix president Fred Smith.

The charges allege the two former compliance officers should have flagged the portfolios MacBain set up as inappropriate for his clients. Smith is named by the IDA as the "ultimate designated person" at Matrix.

Matrix is no longer an active financial planning company in Saskatoon, although its corporate assets sit in escrow. Smith is the only one of the four still working as a financial adviser.