Accused stockbrokers try to slip regulatory noose
David Baines
Vancouver Sun
Tuesday, August 26, 2008
The nightmare that is Stephen Taub is continuing to haunt Canadian securities regulators, including B.C. regulators.
Taub graduated from chronic securities offender to chronic pain in the butt last month when an Ontario court ruled that the Investment Industry Regulatory Organization of Canada, the self-regulatory organization for stockbrokers, could not pursue Taub because he had left the industry and is no longer an IIROC member.
The court said the Ontario Securities Act stipulates only that IIROC can discipline members, not former members. That's bad news. If the ruling stands, then every crooked broker in Ontario will have the option to cut and run whenever the kitchen gets too hot.
The wording in securities acts in other provinces, except Alberta, are virtually identical. (The Alberta act specifically asserts jurisdiction over former members.) So the Ontario ruling, if it stands, may fetter IIROC's ability to pursue former brokers in other provinces, including B.C.
"The decision is certainly problematic from our viewpoint," B.C. Securities Commission chairman Doug Hyndman said in an interview Monday.
Problematic indeed. Although Taub was a Toronto broker, he had extensive dealings in B.C.
In 1994, he helped Vancouver promoter Brent Pierce, who had been banned from the B.C. market, manipulate the shares of an Alberta Stock Exchange company called Ultra Pure Water Systems.
When the music stopped, Taub's firm, Merit Investment Corp., was left with $941,244 in unsatisfied debits. For his sins, the Toronto Stock Exchange fined him $50,000 and suspended him for a month.
In April 1995, he found new employment at Brant Securities Ltd. in Toronto, and shifted his focus to the dreadful OTC Bulletin Board in the United States, where he began catering to an equally dreadful coterie of clients, most based in Vancouver.
They included Thai financial fugitive Rakesh Saxena, currently under house arrest in Richmond; May Joan Liu, who had been blackballed by the Vancouver Stock Exchange for dirty stock dealings; and Harvey Rubenstein, Phillippe Hababou and Regis Possino, all of whom have done hard time for stock fraud.
By IIROC's reckoning, Taub failed in his duty to keep undesirables out of the market. But by the time they caught up with him, he had left the industry, which, according to the Ontario court, placed him beyond IIROC's reach.
Hyndman said there are several potential remedies. He noted that IIROC and the Ontario Securities Commission have appealed the Ontario decision. A favourable result would presumably mean a return to the status quo.
Failing that, legislative amendments could be made in every province to capture former members. But that would take time, and it is not clear the amendments could be applied retroactively.
Hyndman noted, however, that his commission has unfettered power to pursue brokers, even those who have left the industry. If necessary, the commission will step in and adjudicate these cases, he said.
In my view, however, it should never have come to this. IIROC and its predecessor, the Investment Dealers Association of Canada, have been embroiled in this jurisdictional argument for years, most recently in the case of Charles Dass.
Dass worked for Dundee Securities Corp. in Vancouver until 2004 when he quit the industry. The IDA subsequently cited him for undisclosed alleged offences (details are being kept under wraps pending the outcome of the jurisdictional argument.)
Dass appealed IIROC's jurisdiction to the B.C. commission. In May 2007, a BCSC hearing panel ruled in IIROC's favour. Dass then appealed to the B.C. Court of Appeal. The case was heard in May, but no decision has been rendered yet.
This case, and the Ontario case, have created a legal vacuum that has wreaked havoc with IIROC's disciplinary schedule.
A hearing into former Research Capital Corp. broker John Collias, which was scheduled to start on Aug. 20, has been postponed pending the outcome of the Dass case. Collias is accused of turning a blind eye to illicit trading in a Vancouver-based bulletin board company, Beeston Enterprises Ltd.
Similarly, a hearing into former Union Securities Ltd. broker Trevor Morrison, currently set for Sept. 23, is expected to be adjourned. Morrison is accused of failing to cooperate with an IIROC investigation into his conduct while at Union.
I think these legal problems could have been anticipated. Thunder clouds have been rolling in this direction for years and it was only a matter of time before lightning struck, yet the commission has still not moved to amend the legislation and remove the ambiguity.
Why not?
"We didn't think the legislation was as ambiguous as the court thinks it is," Hyndman replied.
"It's always difficult to anticipate where decisions like this are going to go. We don't want to jump in and plug perceived loopholes because that sometimes creates new loopholes. The question now is how do we make sure we have a bulletproof framework?"
I think the answer is clear. Abolish the provincial commissions and create a national securities commission with a national securities act that specifically gives IIROC jurisdiction over former brokers.
Of course, that's too simple. It will never happen.
dbaines@vancouversun.com
© The Vancouver Sun 2008
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