When the reputation of a major securities regulator like the OSC begins to look more like the reality show The Biggest Loser, you know you have a problem that needs fixing.
The trial that began with criminal charges over the Bre-X fraud took six years and ended with the Ontario Securities Commission losing completely. The cost of the investigation and trial soared into seven figures. Charges involving another company, Atlas Cold Storage, resulted in the OSC’s abandoning its prosecution in mid-trial. More recently, the regulator’s nearly seven year stock tipping and insider trading case against Andrew Rankin, the former managing director of RBC Dominion Securities, after unraveling on appeal, yesterday came down to his paying $250,000 to settle the matter. No conviction will be recorded. The costs of that investigation and trial also mount into the millions. The OSC’s charges involving executives at Livent and Hollinger are still to be heard. They would probably move ahead faster if they were sitting on a glacier.
As The Centre for Corporate & Public Governance noted today in a statement about the Rankin settlement:
The regulator’s decision gives rise to troubling questions as to whether this is the proper outcome in light of the facts of the case and the high costs incurred by the OSC, and whether it will serve as an adequate deterrent to stock tipping and insider trading in the future. In addition, there are concerns being expressed widely within and outside Canada about the OSC’s judgment and overall competence in the enforcement field, given this and other events in the recent past.
As we have observed before on these pages and in this post more recently, the OSC’s problems fundamentally come down to an issue of governance: too many people are engaged in playing too many roles as policy makers, investigators and adjudicators with a level of oversight that lacks both transparency and efficacy.
You have to ask yourself how much more evidence and how many more embarrassments do Ontario’s lawmakers need before they get the message that the OSC is operating as a dysfunctional and underperforming institution? If they spent any time talking to investors, and especially those outside Ontario, they would have no doubt.
When the reputation of a major securities regulator begins to resemble the reality show The Biggest Loser, you know you have a problem that needs fixing.
If the boards of Merrill Lynch, Citigroup, Bear Stearns, Société Générale, Countrywide and UBS were comprised entirely of Irish setters and beagles, it is doubtful that the subprime-plagued results of recent months could have been any worse.
Some of the senior staff of Finlay ON Governance have suggested that I might have given the wrong impression about Irish setters being rather high maintenance and posing some challenges during puppyhood. My comments were made while applauding the breakthrough of Uno, the first beagle to win the top spot in the 132-year history of the Westminster Dog Show.We’re not the only former beagle owners who were impressed with the win. CBS’s Face the Nation host, Bob Schieffer, also got a chuckle out of it while praising his previous three hounds.
Trying to turn Jérôme Kerviel into the Lee Harvey Oswald of the banking world won’t fly. There is much more to be suspicious about when it comes to the role of his superiors at Société Générale and the governance failings of global financial institutions.
The disclosure that a lone trader’s unauthorized transactions had caused Société Générale to lose more than $7 billion prompted us to respond with a loud “Incroyable!” But when it was said that the bank’s efforts to minimize its losses may have led to the market meltdown that saw $1 trillion obliterated from stock markets worldwide, one could only think “C’est impossible.”
But of course, both situations were eminently plausible. (more…)
I was interviewed by The Montreal Gazette yesterday in connection with the 12-year sentence handed down to Vincent Lacroix, the former head of Norbourg Asset Management. He was convicted of swindling more than 9,000 investors out of some $115 million over five years. It is one of the stiffest jail terms of its kind in Canada, which has been receiving a lot of criticism in recent years, including on these pages, for its lackluster approach to fighting boardroom crime.
Here’s some of what the story noted in today’s Gazette:
The head of a think-tank dedicated to raising standards of ethics, transparency and accountability in major corporations and public institutions agreed. A sentence of this size might begin the long process of restoring Canada’s reputation when it comes to fighting white-collar crime,” said J. Richard Finlay of the Centre for Corporate & Public Governance. Long jail time tends to get the attention of potential fraudsters,” he said from headquarters in Toronto. “It also gives some confidence to investors that somebody is looking out for them and making sure that the law means something – even when it reaches into the boardroom.
Maybe all of Canada’s white-collar criminals should be tried in Quebec. They’ve gotten off pretty lightly in the rest of Canada. Indeed, David Wilson, head of the Ontario Securities Commission, has boasted that Canada takes a more compassionate approach to dealing with criminal conduct.
Fortunately, Quebec authorities haven’t received this memo yet.
How much further will it go to appease the non-democratic holders of oil wealth or American debt? After its major banks and corporations have succumbed to the influence that multi-billion dollar investment stakes invariably enjoy, will American foreign policy someday become a commodity to be bought and sold like offshore-made pieces of patio furniture at a local Wal-Mart?
There have been many voices at the World Economic Forum this week. There were the voices for combating climate change and the fight against poverty in Africa. There was the voice of Bill Gates, who, judging by media reaction and the response at Davos, single-handedly invented the concept of responsible capitalism. All these are worthy objectives. But one voice seemed notably muted: the voice for democracy. (more…)
Something has gone fantastically awry in the risk management and oversight of some of the world’s most renowned investment bankers and financial institutions. The shortcomings in their controls and governance systems that permitted multi-billion dollar losses at Citigroup, Merrill Lynch, Bear Stearns, UBS and Swiss Re, and the overall failure of top management and boards to comprehend the risks of the subprime related investment vehicles they were packaging and selling, has been a recurring theme at Finlay ON Governance in recent months. We were taken aback, as we noted last week, when new Merrill Lynch CEO John Thain told the Wall Street Journal “Merrill had a risk committee. It just didn’t function.”
But nothing has been as breathtaking as the loss of more than $7 billion by Société Générale, apparently the result of a rogue trader acting on his own. (more…)
