Investors Scrutinizing the Regulators

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Fox Guarding the Hen House


 IDA to appeal Saskatchewan ruling


Murray Lyons


April 26, 2006


The Investment Dealers Association of Canada (IDA), a self- regulating body that watches over those licensed to sell financial services, is counting on the Saskatchewan Court of Appeal to uphold its ability to go after former members.

The Saskatchewan Financial Services Commission ruled recently that the IDA has no statutory authority to regulate its former members.

Warren Funt, the IDA's vice-president of member regulation for Western Canada, says the organization is determined to appeal a ruling by the commission that the IDA no longer had jurisdiction over former IDA members Wade MacBain and Karl Neufeld.

Funt says the IDA has pursued former members successfully elsewhere in Canada without a jurisdictional battle.

"Absolutely, that's the norm," he said from IDA offices in Calgary. "Saskatchewan has thrown a bit of a monkey wrench into the works."

The organization's bylaws say members agree they can be subject to IDA jurisdiction for five years after they leave the association. However, in October 2004 the IDA updated the wording in its bylaws with a new provision. The Saskatchewan commission ruled there appears to be a conflict between the old and new bylaw as it applies to former members.

MacBain and Neufeld were employees of a Saskatoon financial services office, Matrix Financial, and ceased being IDA members in 2000 and 2001 respectively. The Saskatchewan commission ruled that a former Matrix executive, Fred Smith, is subject to IDA discipline because he still works as a financial adviser in the province.

Smith is also seeking relief from the Court of Appeal, arguing the provincial commission erred when it ruled the IDA had not engaged in "abuse of process" in its delay until 2004 in commencing an investigation against Smith and the others.

The financial services commission had never been involved in a jurisdictional case involving the IDA before the hearing, conducted last December.

MacBain, now manager of corporate communications for Shore Gold Inc. of Saskatoon, was being investigated by the IDA over whether he convinced former clients to make investments that were inappropriate for their risk profile.

He is alleged to have encouraged those clients to load up their portfolios with shares of Saskatchewan Wheat Pool, which saw its share price nearly double after it had its first public share offering in the mid-1990s. The Pool's debt and other problems in the grain industry turned those shares into a penny stock a few years later.

MacBain's former clients are also pursuing him in a civil suit.

Neufeld was employed by Matrix as a compliance officer, which meant he was supposed to scrutinize the client accounts being managed by MacBain to see whether investments in those accounts met the risk profile of clients.

Smith was named in the IDA action because he was the "ultimate designated person" at Matrix. He is alleged to have failed to supervise and control activities of MacBain between October 1995 and June 1999.

Smith's lawyer argued before the commission that the delay of the IDA in investigating his role in the case has hurt him because important oral and documentary evidence is no longer available and crucial witnesses will not be available to testify or assist him in his defence.

The Saskatchewan Financial Services Commission is holding in escrow nearly $1 million from the former Matrix Financial, money that has been set aside to settle any successful claims of former clients, according to Barbara Shouronis, director of the securities division for the commission.