Vancouver Stock Exchange - Street Wire
Garrod named president of Global Securities
APPOINTMENT COMES AMID BROKERAGE FEAR OF WHAT THE SEC MAY HAVE IN STORE
by Stockwatch Business Reporter
Securities lawyer and former VSE listings vice-president Douglas Garrod has
a new job. On Friday the 50 year old took over the reigns of Art
Smolensky's Global Securities Corp. Mr. Smolensky remains chairman.
His appointment as president is Mr. Garrod's first time back in the
brokerage side of the industry since resigning as corporate secretary and
director of First Vancouver Securities Ltd. nearly 11 years ago. That
retreat came amid official allegations in the U.S. in December, 1988, that
First Vancouver's principal owners were cronies of ousted Philippines
president Ferdinand Marcos and that First Vancouver may have been used to
launder money Marcos stole from his homeland.
Mr. Garrod takes over at Global from David Chernoff, who resigned as
president after just over four years on Aug. 31 to head Chan Buckland's
Bolder Investment Partners, Ltd. "In terms of my career, I felt it was time
for Doug Garrod to do something different, and the brokerage industry
seemed to be the only place where I might be competent to do a half job,"
Mr. Garrod says.
Mr. Garrod has mixed feelings about leaving the law business. "My sense of
it was, opportunity only strikes once," he says. Although he will be paid
more than what he received as a Gowling Strathy & Henderson lawyer (he
declines to provide an estimate of his remuneration), money was not a
priority in his decision to leave. More important, he says, was the
opportunity of having a greater influence on the local market than that
offered as a securities lawyer. As far as compensation is concerned, Mr.
Garrod concedes that he expects to receive an interest in Global once he
settles in. "It's fair to say that will be open to discussion," he says.
Mr. Garrod and Mr. Smolensky are old pals. Their association dates to the
mid-1970s, when the pair were classmates at law school in the University of
British Columbia. Mr. Smolensky's early projects included founding, while
studying law, a chain of camera shops, Lens and Shutter, which he sold to a
partner in 1984. While Mr. Smolensky chose the entrepreneurial side of the
industry, Mr. Garrod practiced law and sought a career in securities
regulation.
After graduating in 1976 and articling for a year, Mr. Garrod took a job as
deputy director, legal, at the B.C. Securities Commission. In 1981, he
joined Worrall Scott & Page. In 1982, at 33, Mr. Garrod was made VSE
listings vice-president; it was a position he would hold until 1985 and it
was the job in which he probably made his greatest impact on the local
market.
With the complexity and depth of the VSE's current rules and regulations,
it is difficult to imagine that in 1982 the market's guiding documents
consisted of one or two pamphlets and a brochure outlining how listings and
underwritings take place. Mr. Garrod set about writing the VSE's first
formal set of rules and regulations, an accomplishment about which he
remains proud. "I was the first person to put all of that into writing,
which is actually a significant feat," he says. "All the policies that are
there now, most of them are varied from what I did way back when."
Mr. Garrod explains that the Vancouver market in the late-1970s was
extremely small compared with today, with perhaps probably fewer than two
dozen securities lawyers handling legal matters. When companies had
problems, they called senior officials directly at the VSE. "There were no
rules whatsoever, on how financings were done, how they were priced,
stoppages in trading, those sorts of things," he recalls.
Mr. Garrod left the VSE for law firm Campney & Murphy in 1985. In November,
1987, while still at Campney & Murphy, he accepted the senior positions at
the newly minted First Vancouver without digging into the identities of the
silent partners behind the brokerage. "I made a mistake by not meeting and
talking to the major shareholders of the company," he says. Instead, Mr.
Garrod took assurances about ownership from New York lawyer Elias
Rosenzweig, who also sat on the First Vancouver board.
In December, 1988, the BCSC and the VSE announced "an implied connection"
between the firm's majority shareholders and Marcos associate Roberto
Benedicto, who was indicted in the U.S. two months earlier on racketeering
charges. No charges in connection with the affair were ever laid in Canada.
In January, 1989, Georgia Pacific Securities took over First Vancouver's
accounts and offered employment to First Vancouver principals George Delmas
and Fausto (Toti) Mabanta. Mr. Garrod, badly singed by the controversy,
resigned his other directorships and focused on securities law.
Mr. Delmas and Mr. Mabanta went on to further controversy as Georgia
Pacific employees. In 1994, the pair faced a VSE disciplinary hearing in
connection with overseas hospital builder Stonewall Resources Ltd. The VSE
alleged that upon joining Georgia Pacific in January, 1989, and October
that year, Mr. Delmas and Mr. Mabanta accounted for 44 per cent of the
market for Stonewall.
While these First Vancouver players moved onto the next game, the stolid
Mr. Garrod would suffer its legacy. He would be a candidate for the
presidency of the VSE in 1995, but would lose to Michael Johnson, the man
from Household Finance, in July of that year.
The First Vancouver debacle was a painful episode for a former exchange
executive whose knowledge of the industry and reputation for integrity
were, ironically, part of the reason he was chosen to join First Vancouver.
"Personally, I was very much affected by First Vancouver," he says
stoically. "I have not been a director of anything public or private since
then."
While a securities lawyer, Mr. Garrod continued to contribute to the
industry, often as a lonely voice calling for measures to improve the
market. He did this publicly in several ways, one of which was with his
column in Stockwatch, called The Regulators, which he wrote from 1986 to
1997. The column often reflected his bedrock support for the Vancouver
exchange.
In September, 1993, he made a submission to the Matkin Commission in which
he proposed that stock promoters be licenced under the statute. Jim Matkin
and the other commission members nodded sagely and politely, and that was
about the end of Mr. Garrod's suggestion. "It was seen as ... well, I don't
know what it was seen as," he recalls. "It wasn't really dealt with; it
certainly wasn't adopted."
Instead of adopting what Mr. Garrod sees as a simple and effective means of
pulling the plug on miscreants, the commission recommended the creation the
position of investor relations, and ordained that they should tell the
truth. The result was a regulation that "basically said you shouldn't lie,
but it struck me that that was the law in any event," he comments.
Global's appointment comes amid concern on the part of many Vancouver
brokers that the Securities and Exchange Commission is cracking down on
penny-stock activity in the U.S., and that Canadian brokers playing the
game south of the border may be at risk. Canaccord Capital's Peter Brown,
in a well advertised but rather late memo of Sept. 2 warns his staff that
the BCSC, in co-operation with the SEC, has gathered all the L board (OTC
Bulletin Board) trading records of several B.C. firms.
Whatever the outcome of this investigation, it will probably not be happy
news to local brokers. Global's solid citizen appointment may be seen in
some quarters as a bid to install a management that can help avoid the
troubles that have befallen Pacific International Securities. Two PI
brokers were arrested in the U.S. recently, and the PI name keeps appearing
in SEC investigations of bulletin board companies.
Global has its own experience on the windward side of the SEC. In July
1996, the SEC requested assistance from the BCSC with an investigation into
the U.S. clients of broker Tracey-Anne Godoy. Ms. Godoy resigned from the
firm, but the case made legal history two years later when the B.C. Court
of Appeal ruled ultra vires the section of the Securities Act that
authorized the 1988 co-operative agreement between the SEC and the BCSC.
The case goes to the Supreme Court of Canada in January, and until the case
is resolved, the BCSC cannot order brokerages to comply with SEC requests.
Mr. Garrod is clear that one of the biggest problems facing the junior
markets is now the over-complexity of rules and regulations, and he warns
that the new Canadian Venture Exchange (CDNX) faces extinction if the
problem that plagues both Vancouver and Calgary is not addressed.
Success for the new exchange will largely depend on its ability to quickly
and effectively process listing applications. "The ultimate issue for
listed companies is whether or not the new exchange will process paper in a
fair and diligent way, because if it's going to take four and five months
to do a deal, this new exchange will fail," he asserts. "They've got to in
certain respects simplify the rules, which are extremely complicated, both
in Vancouver and Alberta."
Global was founded by Mr. Smolensky in 1988 with six registered
representatives. It became a full-service brokerage in February, 1991, when
a trio of ex-C.M. Oliver brokers -- David Levi, Bruce McConnachie and Brian
Worth -- joined the firm. At that time, Mr. Smolensky, now 52, ended his
term as Global's first president, and became its first chairman. The
company now employs around 100 brokers.
Mr. Garrod offers hints about Global's future, with reference to the
overall good of the market. He says key to the future of the brokerage
industry is in meeting the challenge presented by e-trading systems and
other systems that allow investors to trade without brokers. These, he
says, are going to put "enormous pressure" on retail brokers. That means
retail brokers must place a greater emphasis on seeking corporate clients
and expanding the range of products offered through brokers. "Ultimately,
the retail commissions are going to decrease and if you're going to
survive, you've got to pick it up somewhere else."
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch.com
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