Much of the behaviour noted in Thompson Kernaghan's demise is in fact not highly irregular at all in Canadian markets. In point of fact taking money to sell shares at inflated prices is part of what brokers consider that they do for a living in order to please clients they underwrite or work for in any capacity. Whether or not it is illegal, it is what they think they have to do in order to make a market.
Another thing that purports to cause so much consternation amongst officialdom, is that brokers would with alacrity take money from people who admitted to getting it from ill-gotten gain. This is so common that it would hardly cause the average broker to keel over in a dead faint. You could see them looking at their watch as the client recounted his misdeeds in gory detail to impress. It is part of the common trade of brokers to accept cash from crooks it would seem. After all, you can hardly expect them to be investigators into that sort of thing, nor can you expect them to refuse money out of hand. They have to eat.
Brokers in Canada are not a highly ethical lot. The nature of the business where one client is traded off against another lends itself to a certain two facedness that is hard to avoid. The only questions to ask, as the dominoes fall, are which ones are next, and how many will remain? We have seen in the recent past Marchement McKay departed for its aggressive sales tactics of penny stocks to widows and orphans, and some other lesser lights in Toronto for lack of supervision of brokers, but as these departures may leave a void the street that can be filled eventually. What seems may happen as the net closes on the ethics of the street is that no one will be left standing at all who would work with small companies seeking funds.
It is probably the toughest job in the world to raise money from brokers on the street for a start up company. It is also fraught with danger concerning protection of business, patents, properties, reputation and access to capital. Often companies resort to using a stalking horse concept that attracts the investors in order to segue into a more confidential area once funds are raised. Changing horses is so common, they have rules to prevent it more egregious manifestations.
It may be accepted that up to 30% of brokers and firms may from time to time be involved in fraud, unethical securities dealings, dubious stock promotion, taking money from known shady dealers, or out and out excessive greed. This did not start just yesterday. Remember the Robber Barons? So far anything I have seen prosecuted, or exposed, Milliken or Enron notwithstanding, hardly compares to the machinations of Fisk, Gates, Vanderbilt or Carnegie's fraudulent paper empires. This latest stuff is Boy Scout stuff compared to the papering of the street that took place with the Railroads and US Steel. Carnegie used to sell stock out of the back of Railroad cars. 75% of the shares in US Steel were never on the books of the company and were a complete rip off.
Whatever is done, it should be tempered with reason. It may well be that some brokers get a "tad" offside from time to time. I am not saying that TK were angels. But in the zeal to clean up the street the politicos and authorities should remember that the greatest source of complete misprepresentation and waste of money, fraud and breach of trust is the government itself. If campaign promises were compared to a company prospectus and the use government funds in pork barrels, slush funds, and patronage were compared to company expenditures in the market and stock support, and misspent money in pay, pensions, grants and regional incentives were compared to corporate expenditures -- if the corporate CEO's would be jailed, the politicians would be hung.
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