Investors Scrutinizing the Regulators

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Colossal bungling at the OSC


Terence Corcoran

National Post


Monday, November 4, 2002

In an obviously insane burst of irrational optimism, an editorial two weeks ago speculated that the worst of the post-Enron regulatory juggernaut was running out of fuel. Stock markets were rising and investor confidence seemed to be improving. The perceived need for a major expansion of regulatory power, from legislatures and securities watchdogs just might have been waning.

The editorial was clearly way ahead of the curve; there might not even be a curve. Over the last week, the politicization of the world's largest corporate sector continued in the United States. The Republican head of the Securities and Exchange Commission is under attack for failing to appoint an accounting czar who met Democratic standards of toughness. Accountants are on the brink of becoming civil servants, free speech of analysts and the investment community is under assault, Martha Stewart has been burned as a witch, the whole system is being dragged into a regulatory nightmare. That's a bit of exaggeration, but not much, especially if it doesn't stop soon. The situation in Canada, where there are no Enrons or WorldComs, looks worse.

Led by David Brown, Imperial Regulator of the Ontario Securities Commission, Canada's corporate and securities regimes are about to be swept up in unprecedented and stifling regulation. If you doubt this, visit the OSC Web site ( and check out the full range of anti-market, anti-capitalism, anti-corporation, anti-enterprise initiatives. On the home page, start with the Fair Dealing logo. It takes you direct to a moving image of the Imperial Regulator himself, voice and picture, telling small investors that the regulatory system is "obsolete" and needs to be replaced by a more meddlesome system that will get right in and control the personal relationship between brokers and investors.

For even scarier material, click on What's New and read through last week's speeches/comments from Mr. Brown. In a fanciful reading of the stock market, Mr. Brown declared Canada needs a massive increase in regulation because, "For the first time in history, we are witnessing a disconnect between a robust real economy and a weak capital market." Oh really?

At the national level, Mr. Brown is in cahoots with regulation enthusiasts in Ottawa, including Financial Institutions Minister Maurizio Bevilacqua and a host of bureaucrats from finance, justice and other agencies. For a monster rundown of their activities, visit, go to What's New, and a document titled "Fostering Confidence in Canada's Capital Markets."

What you won't find on any Web site, and especially not the OSC's, is any discussion, let alone acknowledgement, of the commission's colossal bungling of one high-profile case after another. There is no mention, for example, of the hellish foxhole the OSC has dug for itself in the Felderhoff/Bre-X insider trading trial. Half the young investing public doesn't even remember the $6-billion Bre-X gold mine fraud, but the OSC is still sluggishly floundering around in the jungles of Indonesia.

In a ruling on Thursday, an Ontario Superior Court Justice dismissed the OSC's attempt to have a judge removed from the Felderhoff trial because it didn't like the way the judge was handling the case. Most of the legal community thought the OSC's attempt to dump the judge to be the height of foolishness, and the court agreed. Who at the OSC authorized the judge-replacement strategy?

And where does the Felderhoff/Bre-X case go now"? Is the OSC going to go back to court under the original judge it attempted to have ousted for bad judgment"? Will it appeal to a higher court, thus delaying the trial for months if not years'? Or will it abandon the trial, leaving the Bre-X fiasco as another of the OSC's many unsolved mysteries'?

Another OSC operation, the Russian mafia caper known as YBM, is into its 160th day of hearings before the commission, with no end in sight. Garth Drabinsky's Livent, now the object of RCMP fraud charges, appears to be heading into a decade-long haul through the courts. This is not to pre-judge who might be guilty of what infraction in any of these cases. For all anybody knows, they're all innocent.

The OSC, unable to unravel obvious ancient frauds such as Bre-X and YBM -- although quite capable of prosecuting the life out of minor and even non-existent insider-trading cases -- now wants to gloss over its numerous failings and fiascos. Why would we want to entrust an agency that can't shoot straight with an arsenal of new powers to fight a corporate crime wave for which there is no evidence"?

The question is not how to fix corporate Canada. It's how to fix the OSC. What's their problem"? How can the commission have bungled these and other cases'? Who's setting the legal agenda"? Who approved decisions that created delays and botched procedures that led to endless wrangling with no resolution"? Are these the right people to lead a massive new regulatory overhaul of Canada's corporate and securities laws'?