Investors Scrutinizing the Regulators

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Fox Guarding the Hen House


 Former adviser faces hearing


Murray Lyons


October 28, 2004

A former investment adviser who is accused of loading up client portfolios with Saskatchewan Wheat Pool shares in the late 1990s will be the subject of a disciplinary hearing next month in Saskatoon.

Wade MacBain and three of his supervisors from the defunct Matrix Financial Corp. are the subject of complaints by former clients. The complaints have been investigated by the Investment Dealers Association of Canada (IDA).

The IDA hearing comes more than four years after the first civil suits were filed against MacBain by individual clients. None of those civil suits, whose claims against MacBain and Matrix total more than $5 million, have reached a trial stage, says one of the lawyers involved.

The IDA is the self-governing disciplinary body for Canadians licensed to trade securities. Its actions are independent of the lawsuits, said Gil Gauthier of Calgary, a manager of investigations.

He says the IDA has set aside two weeks to conduct a disciplinary hearing into the complaints. The hearings, which are open to the public, begin Nov. 8 at the offices of C.V. Reporting Services Ltd. on Fourth Avenue South.

The three supervisors include Karl Neufeld, who was branch manager and compliance officer at Matrix from September 1997 to June 1998, and Ian Frew, who held the same position between June 1998 and February 2000.

A compliance officer's job is to ensure financial advisers working for a firm are handling client portfolios in a manner that meets the client's stated risk tolerance for investments.

The third is former Matrix partner Fred Smith, who is considered the "ultimate designated person" in charge of MacBain at Matrix.

Some 29 clients, identified only by initials, have complained to the IDA that MacBain caused them to update their investment objectives and risk tolerance documents "to accord with trades which he had previously recommended to them which were not in keeping with their previously documented investment objectives and risk tolerance."

Smith and the two former compliance officers are included in the IDA action for failing to provide effective supervision and control of MacBain's activities, which the IDA alleges "were not within the bounds of good business practice."

The IDA is also investigating complaints from former MacBain clients from British Columbia and the Northwest Territories. The IDA alleges MacBain was never registered to do business in either jurisdiction.

Matrix Financial disappeared in February 2001. Many Matrix financial advisers, including Smith, were offered positions at the Saskatoon offices of Raymond James Financial Corp. Smith is still with the American-owned firm.

Matrix Financial still exists as a Saskatchewan corporation. In an interview upon joining Raymond James in 2001, Smith explained that the share capital of Matrix and other assets, such as its errors and omissions insurance, are being held in escrow until the lawsuits are settled.

Saskatoon lawyer Grant Scharfstein, who represents about 100 of the former Matrix clients who have filed suits against MacBain, says the IDA hearings may help determine the outcome of the lawsuits. Several of Scharfstein's clients put a large portion of their life savings into Wheat Pool stock on MacBain's advice before the share price plummeted.

Scharfstein says he has reached the examination for discovery stage in at least one test case and spent about seven days asking questions of MacBain.

If the IDA should find that MacBain and his supervisors committed offences under IDA rules, that could help form the basis for a settlement in the civil cases, says Scharfstein.

The IDA's Gauthier says the timing of the IDA hearings is unrelated to civil action.

"It's been a fairly complicated case," Gauthier said in a phone interview Wednesday. "It's not a routine file."

Saskatchewan Wheat Pool shares were flying high in the months after the grain-trading giant converted itself from a farmer-owned co-operative to a public company trading on the Toronto Stock Exchange in 1996.

Longtime Wheat Pool farmer members had their patronage dividends converted to stock at an issue price of $12. The stock took off in the months afterwards, reaching a high of $24.

However, many of the Wheat Pool's diversification investments and the level of its corporate debt began dragging the company down about a year after it went public. The grain company's shares trade at less than 40 cents. On Wednesday, it announced its first annual profit in years.