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Canadian brokerage watchdog probes ABCP complaints

Mon Apr 7, 2008 3:52pm EDT


By Nicole Mordant

VANCOUVER, British Columbia, April 7 (Reuters) - The body regulating Canada's brokerage industry is investigating multiple complaints from individual investors whose brokers sold them commercial paper investments that have since run into trouble, an official with the organization said on Monday.

Connie Cradock, vice-president of public affairs at the Investment Dealers Association of Canada said the body, which can fine, suspend or ban members for wrongdoing, has registered a higher number of grievances than is usual over a single issue.

"It is not often that you have a situation where you have multiple complaints," Cradock said.

"I don't think any of us can recall one situation which has affected this large a number of retail investors in different ways," she said.

About 1,800 individual investors collectively have an estimated C$350 million ($346 million) trapped in asset-backed commercial paper issued by groups other than Canada's big banks. Some 1,400 are clients of independent, Vancouver-based brokerage Canaccord Capital Inc (CCI.TO: Quote, Profile, Research).

The money market investments, which boasted top credit ratings, teetered on the edge of default last summer when the groups that issued them were unable to make interest payments when funding dried up due to market concerns the securities were exposed to U.S. subprime mortgages.

Since then, the institutions owning the biggest swathes of the paper have been working on a fix-it plan for the market, while at the same time freezing any trading in the investments. Investors have been unable to access their money and there is no certainty how much of it they will get back.

Cradock said investors had a variety of complaints relating to sales of ABCP, including misrepresentation of the investment by their broker as well as the suitability of the investment.

At town hall-style meetings across Canada last week, several retail investors, many elderly, accused brokers of moving their funds into ABCP without their knowledge or understanding of the complicated product.

"We did not know what ABCP was until we heard they were frozen," Wynne Miles, a Victoria, British Columbia, resident with a significant part of her and her husband's life savings tied up in ABCP, said at a meeting in Vancouver last week.

Cradock said she couldn't say how long it will take the IDA, which is a national, self-regulatory organization governing more than 200 member firms, to finish its investigation and make a decision whether to hold hearings.

"It is an extremely complex issue so it is involving lots of looking at documentation," she said.

($1=$1.01 Canadian) (Editing by Rob Wilson)

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