Investors Scrutinizing the Regulators

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Court deals blow to IDA discipline

July 16, 2008

An Ontario court has ruled the watchdog overseeing the brokerage industry has no authority over former members, delivering a blow to the regulator's ability to discipline brokers who have left their jobs.

In a ruling released yesterday, the Ontario Divisional Court has ruled the Investment Dealers Association of Canada - now called the Investment Industry Regulatory Organization of Canada (IIROC) - cannot discipline former Research Capital Corp. investment adviser Stephen Taub. The regulator had begun disciplinary hearings against Mr. Taub in 2005, alleging he had conducted improper trades for clients. He challenged the hearing panel's jurisdiction on the basis that he was no longer an IDA member.

The court said the Ontario Securities Act only gives IIROC jurisdiction over members. "There is no provision in the section for regulation of former members," it ruled.

However, in a dissenting opinion, Mr. Justice James Carnwath disagreed with the other two members of the court panel, saying the decision will frustrate the primary purpose of the Securities Act.

"The irony of the majority's conclusion is that it frustrates the purpose of the legislation," he said. "Allowing a member to resign and therefore escape sanction for improper acts committed ... can hardly be said to protect investors and foster confidence in capital markets."

Judge Carnwath said he supports an earlier ruling from the Ontario Securities Commission, which found IIROC did have authority over former members.

IIROC spokeswoman Connie Craddock said yesterday the regulator had just received the ruling and had not studied it.