Investors Scrutinizing the Regulators

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Fox Guarding the Hen House

   

 

IDA By-Law 20

(subject to change - too bad they have to improperly destroy careers in the process)

"Badges?

We ain't got no badges.

We don't need no badges.

I don't have to show you any stinking badges.”

So go the famous lines from The Treasure of the Sierra Madre , the 1948 Humphrey Bogart movie.

It could also be a quote from the Investment Dealers Association of Canada while thumbing their noses at the securities commissions.

 

(click on picture for movie clip)

 

Saskatchewan Court of Appeal

dismisses the

Investment Dealers Association of Canada

20 June 2007

"We accordingly find that the IDA is barred by bylaw 20.7 from proceeding with discipline proceedings against MacBain and Neufeld.   Its appeal is dismissed with costs to be taxed."

 

The Saskatchewan Financial Services Commission's decision still stands.

 

“Since the IDA has no authority to regulate former members or former approved persons either under its bylaws or in contract, it has no jurisdiction.”

- William F. Ready, Q.C., Commissioner

06 February 2006

 

On June 22, 2007

(2 days after the Saskatchewan Court of Appeal decision)

the IDA proposed changes to their bylaws

clearly in defiance of the SFSC decision.

 

Several IDA members, in 2004, were correct in questioning the IDA's jurisdiction on this particular point. 

 

Is the release below intellectually dishonest or simply deceptive and harmful to not only the IDA members but also the public?


Excerpts from:

http://www.osc.gov.on.ca/MarketRegulation/SRO/ida/rr/srr-ida_20070622_bylaw20.jsp

"Proposed Rule Amendment

The proposed amendment would make clearer the intent and objective of the continuing jurisdiction provisions in By-law 20. It would make express reference to the fact that the IDA maintains its jurisdiction over Former Registrants and may bring an enforcement hearing against a Former Registrant so long as it does so no later than five years from the date that the Former Registrant ceased registration."


"Continuing Jurisdiction

Recently, there have been judicial challenges to the IDA's continuing jurisdiction over Former Registrants, on the basis that the true intent and meaning of By-law 20.7(1), is that if an enforcement proceeding is not completed five years from the date on which the Former Registrant ceased to be a Registrant, then the IDA loses its authority to discipline the Former Registrant for the acts committed while the person was registered.{4}

This interpretation is patently incorrect, however, to resolve any uncertainties, the IDA seeks to make clearer the language in this provision to unequivocally state that the IDA continues to have jurisdiction over Former Registrants so long as an enforcement proceeding has commenced (i.e. a Notice of Hearing is issued) no later than five years from the date on which the Former Member or Approved Person ceased to be registered. In other words, By-law 20.7(1) does not provide a time limit for the IDA to complete an enforcement proceeding, but rather, it is the limitation period for initiating enforcement proceedings."

The IDA is required to publish for comment the proposed amendments so that the issue referred to above may be considered by OSC staff.

The IDA has determined that the entry into force of the proposed amendments would be in the public interest. Comments are sought on the proposed amendments. Comments should be made in writing. One copy of each comment letter should be delivered within 30 days of the publication of this notice, addressed to the attention of Nancy N. Mehrad, Investment Dealers Association of Canada, Suite 1600, 121 King Street West, Toronto, Ontario, M5H 3T9 and one copy addressed to the attention of Manager of Market Regulation, Ontario Securities Commission, 20 Queen Street West, Toronto, Ontario, M5H 3S8.

 

 

Really?  I thought the SFSC was pretty clear. 

 

Since the IDA has no authority to regulate former members or former approved persons either under its bylaws or in contract, it has no jurisdiction.”

 

What is so confusing about that?

 

Impact

One could easily imagine an unscrupulous broker misappropriating funds from a client, let's say Monday morning, resigning from the member firm that afternoon, and the SROs are powerless to go after the broker. (Not that they have ever had enabling legislation to do anything anyway). But now the decision has been presented before a court and it still stands.

Is this what Canadian investors deserve?

Since the SFSC relies upon the SROs to perform a function that they would otherwise perform themselves - investors are not properly protected.

Will the SFSC pick up where the SRO system fails? Will the SFSC fill that lacuna?

Obviously the contractual agreement by which the IDA regulates its members is insufficient. Why don't the statutory regulators, which administer the securities laws, do their own job and protect investors from unscrupulous brokers instead of relying upon the industry to do it themselves - which they obviously can't - legally or otherwise.

This is very serious and very scary.

 

Saskatchewan regulator rules against IDA

10 February 2006

"I suspect we are going to see a flurry of others making similar applications until the Saskatchewan decision is either overturned or confirmed," says Popovic.  Since the SFSC applies only in Saskatchewan, it's too soon to say how much impact it will have in the rest of Canada. 

I think the Ontario divisional court decision trumps the Saskatchewan commission decision," Popovic says. "We'll have to wait and see."

-Alex Popovic, VP of enforcement, IDA

Wait and see what???

Mr. Popovic is correct that an Ontario Court decision does "trump" a Saskatchewan Financial Services Commission decision.

In fact the SFSC relied upon Chalmers v. Toronto Stock Exchange, an Ontario Court decision, in forming their own decision- which is consistent with Chalmers.

(Please note: This decision has stood since 1989)

If the IDA had another Ontario Court decision - I am certain that it would have been argued by the IDA before the SFSC  in an effort to win their case.

As for "the rest of Canada", IDA By-law 20 is the same in Saskatchewan as it is in any other province that the IDA has been able to get a foothold in.

The investing public is therefore no more protected in any other province than they are in Saskatchewan. 

Well, at least they are showing some consistency.

 

Matrix Financial won’t face hearing

11 July 2007


Investment Dealers Association took too long: court

11 July 2007


Power Appeal: Saskatchewan bill to give SROs statutory power in the works

28 March 2007


SRO powers under scrutiny

22 February 2007


IDA appeals SFSC ruling

24 October 2006


IDA Pact Questioned

27 April 2006


IDA to appeal Saskatchewan ruling

26 April 2006


Provincial regulator threatens Canadian dealer group's powers

03 April 2006


IDA appeal has wider implications

10 March 2006

"It said what investors have said for a very long time that they don't have the power to collect fines and penalties...because their contract is unenforceable." - Robert Kyle


IDA appeals decision by Saskatchewan regulator

09 March 2006


IDA can’t discipline former registrants

08 February 2006


Dec. 8 hearing sets precedent

01 December 2005


Investment panel won't drop charges

26 November 2004


IDA hearing held in camera

25 November 2004


Former adviser faces hearing

28 October 2004

 

So why doesn't the Saskatchewan Financial Services Commission

take legal action in order to protect investors since the IDA cannot?

 

It certainly explains why aggrieved investors are so disillusioned when the provincial securities commissions direct them to go to the IDA.

 

For 10 years the IDA has craftily window-dressed their existence by issuing hollow "Orders" for the repayment of ill-gotten gains and levying million dollar fines against brokers who left the industry years before.

 

Neither the MFDA or the IDA has ever had the authority to enforce fines/penalties against brokers who have left their club(s).

 

It is clear that this was all a sham.

 

Not even Doug Henning could have pulled this off for such a long time.

 

File a complaint - make your voice heard. 

 

We need proper regulators -  not con artists.

 


 

The IDA passed By-law 20 by misrepresenting facts to its members and the public.  The Ontario Securities Commission, while aware of those misrepresentations, approved the IDA by-law.

IDA By-law 20

 

PART 4 - CONTINUING JURISDICTION

20.7 Former Members and Approved Persons

(1) For the purposes of By-law 19 and By-law 20, any Member and any Approved Person shall remain subject to the jurisdiction of the Association for a period of five years from the date on which such Member or Approved Person ceased to be a Member or an Approved Person of the Association, subject to subsection (2).

(2) An enforcement hearing under Part 10 of this By-law may be brought against a former Approved Person who re-applies for approval under Part 7 of this By-law, notwithstanding expiry of the time period set out in subsection (1).

(3) An Approved Person whose approval is suspended or revoked or a Member who is expelled from membership or whose rights or privileges are suspended or terminated shall remain liable to the Association for all amounts owing to the Association.

September 02, 2004


Prior to the OSC approving By-law 20 the members of the IDA were asked for comment.  The following was a joint submission made by:

RBC Dominion Securities

HSBC Securities (Canada) Inc.

Scotia Capital

TD Waterhouse

7 January 2004

4.  Part 4 - Continuing Jurisdiction, 20.7(1)

"We also question generally whether the Association has the power to regulate former Members or employees."


The IDA responded to its members with the following:

27 January 2004

"The Court in Derivative Services Inc.2 affirmed the IDA's authority to investigate former members for business while a member, thus (current) By-law 20.21, which is carried through in the proposed amendments to By-law 20, would likely not be found to be ultra-vires as was the case in Chalmers.

Therefore, the IDA has the necessary authority to extend its regulatory reach to impose penalties on former members/individuals in respect of conduct that arose prior to the lapse of membership or approval."    page 5., para.5
2
The Investment Dealers Association of Canada and Derivative Services Inc. and Malcolm Robert Bruce Kyle [I999] I.D.A.C.D. No.29

 

Since when did the Ontario District Council of the IDA become a Court of Law?

(clicking here will take you to "I.D.A.C.D. No. 29")

 

The IDA has misled both  its members and the public.

The OSC has been complicit by refusing to rectify the problem

which leaves the investing public hanging in the wind.

 

How protected do you feel?

 

Chalmers v. Toronto Stock Exchange

 

06 November 1989

"It follows from what I have said that since the Act does not authorize regulation of persons who are former members or employers of same, s. 17.19(1) of the By-law is ultra vires and of no force and effect."