Investors Scrutinizing the Regulators

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Small investors unhappy with OSC

Retail-oriented organizations to talk to politicians


Barry Critchley

Financial Post


Friday, August 13, 2004

Judging by the calls and e-mails, the Ontario Securities Commission, the country's largest securities regulator, has some problems with one of its core constituents: small retail investors.

Those investors claim the OSC doesn't look after their interests -- a surprising accusation, given investor protection is a key objective of the OSC.

Those concerns may be front and centre next week when a committee of the Ontario Parliament holds hearings into the OSC -- hearings that are now mandated to be held every five years.

It's understood a number of retail-oriented organizations have applied to address the politicians. (For those wishing to get aboard, it's too late: Wednesday was the last day to make application.)

Yesterday's column spoke about some of the issues market participants would like addressed. They are concerned about enforcement -- an area of high priority for the OSC under chairman David Brown.

But despite that priority, investors remain skeptical, given that the OSC seems to target the minor players.

They point to the case of Donald Parker, a Toronto accountant who netted $900 from one illegal inside trade.

Parker was put through two years of hell for his transgression.

In response to yesterday's column, one retail investor indicated he had been dealing with the OSC for about four years on a matter of disclosure by the banks. Only now are his concerns being addressed.

The good news, at least, is that after four years, they did agree that matters raised by the investor were indeed legimate concerns and in need of correction.

While the retail investor was pleased some progress is occurring, he was interested in two other matters: what is the OSC going to do about other institutions making prohibited statements; and what penalties will they extract from the institutions for past transgressions.

Adds another investor whose dealings with the OSC have been less than satisfactory: "I wanted to know whether an investment advisor could up the percentage of equities in the portfolio for an elderly person without the client knowing? They refrained from answering the question, which struck me as very odd."

Indeed, the lack of activity by the OSC has meant some extra business for certain lawyers.

For instance, John Hollander, an Ottawa lawyer with Doucet McBride who specializes in the area of unsuitable trading, has been very busy of late.

And Hollander makes life easier for some clients because he offers to act on a contingency basis. He is scheduled to speak at next week's hearings.

Hollander has a web site ( that states the "aim is to educate people who suffered losses in stocks and mutual funds as to their rights, and to encourage them to seek professional advice as to their potential right to compensation."

Certainly the recent IPSOS Reid stakeholder satisfaction study indicates some of the problems that the OSC is up against -- most of the general public weren't aware of the OSC.

Maybe with good reason.

The OSC's web site lists 16 consultative committees, most of which deal with technical matters such as bond market transparency, commodity futures advisory board and institutional equity traders.

Investors are largely absent.

For instance, there are 16-people on the Continuous Disclosure Advisory Committee. Just two of the members list their occupation as an investor.

At next week's hearings, attention may also focus on the way the OSC releases information.

It's understood that at his presentation next week, David Brown the OSC's Commissioner will speak about the so-called Osborne report.

That report is a critique of the multiple enforcement roles played by the OSC: it is the investigator, the prosecutor and the judge.

Some believe that's too many. The talk is that the report is critical of the multiple roles. Let's wait and see what Brown says next week.

What's known is that the report was finished in the spring and the OSC has been waiting for the right time to talk about it. If a reporting issuer adopted a similar approach to what can be regarded as a material event, then the OSC would go after them.

"They follow disclosure disclosure standards that are of a substantially lower standard than what public companies are supposed to be held to by them," noted one market participant.

The parliamentary committee may also like to press the OSC on one of its more bizarre non-disclosure practices in recent years. A few years back, it conducted an audit of the Investment Dealers Association, a body that is both a regulator and an industry association.

That report, which was understood to have been negative, wasn't made public. So some interested parties approached the province's privacy commission to see if that body could get the report released. In due course, the privacy commission ordered the OSC to release the report.

The OSC is resisting that order and we now have the odd situation that one arm of the Ontario government is challenging another in court.