Money's Daytrading news
Special Feature: Markets Makeover
By JOHN SCHREINER
The Financial Post
VANCOUVER - As the U.S.
Securities & Exchange
Commission broadens its
crackdown on microcap stock
frauds to include Canadian
brokers, Canaccord Capital Corp.
of Vancouver has come down hard
on its own brokers handling these
over-the-counter Bulletin Board
stocks.
In an internal memo, Peter
Brown, Canaccord, chairman
disclosed that the firm had fired
one broker and suspended a
second for ignoring the firm's tough
three-year-old rules on handling
stocks in the U.S. OTC market.
"We really believe that it is
fundamentally the most crooked
market in the world," Mr. Brown
said in an interview. "We don't like
the market, we don't like dealing in
it, period."
At least three Vancouver
brokerage houses have been
named (but not charged) in stock
fraud cases that involved trading in
OTC stock by brokers they
formerly employed.
Mr. Brown said that Michael
Johnson, the president of the
Vancouver Stock Exchange,
recently warned member brokers
to expect to see other Vancouver
brokerage houses named in future
SEC actions. Mr. Johnson was not
available for comment.
Early this year, the B. C.
Securities Commission began to
research the scope of Bulletin
Board trading through Vancouver
firms, getting the trading blotters
from 15 firms that covered about
five months of activity.
"The OTC Bulletin Board has
been an issue of concern to us for
some time," Michael Bernard,
BCSC spokesman, said, adding
that other Canadian regulators also
are increasingly alarmed at the
activities in the market.
The SEC began what it calls an
"examination sweep" of microcap
trading activities in January 1998,
focusing on broker-dealers in New
York, South Florida, Colorado and
Utah where the SEC says the most
fraudulent trading is found.
Indictments arising from this
sweep named brokerage firms on
both sides of the border that were
being used for trading accounts in
alleged stock manipulations. The
Vancouver firms drawn in so far
include Pacific International
Securities Inc., Union Securities
Ltd. and Wolverton Securities Ltd.
There are no allegations of
wrongdoing against the firms.
An investigative officer of one
Canadian securities commission,
asking not to be named, admitted
to being frustrated with the
continued light regulation of the
Bulletin Board at a time when
trading there is exploding.
"It approximates the level of
regulation enjoyed by Vancouver
in the 1960s," he said. "It is
unregulated and it gives the
appearance of a market dominated
by promoters and brokers. There
have been very significant
regulatory measures here in
Vancouver at no small cost to the
business," he added. "I've seen it
migrate to the lower standards in
the U.S."
In August Pacific International
imposed stringent rules for its staff
regarding the Bulletin Board after
two of its former brokers were
indicted for fraud in another U.S.
action. Canaccord has comparable
rules in place, including the
banning of short selling in these
securities; the banning of a transfer
of funds or securities by
non-resident clients to third parties;
and the refusal to take U.S.
cheques for securities or to extend
credit. Mr. Brown reminded his
brokers to play careful attention to
the "know your client" rule.
"There are so many problems that
have occurred with Bulletin Board
trading that it is incumbent on
every salesman to take every
precaution to ensure that they are
meeting all the securities
regulations in both the U.S. and
Canada," Mr. Brown wrote. |
