NEWS Summary
Do the regulators provide investor protection?
2003 November 14 - In today's Toronto Star
The regulators
say they are responsible for investor protection, but are they really
doing their job?
Can brokers be
trusted to follow the rules?
Can mutual funds
be trusted to follow the rules?
Can corporate
executives be trusted to provide good governance?
Can accountants and auditors be trusted to report the facts?
Is insider
trading acceptable?
Can analysts be
trusted to provide impartial advice?
Is the S.E.C. considered to be doing a better job than the CSAs?
Can the
regulators be trusted to enforce the rules?
An article
in yesterday’s Toronto Star (November 13th) is headlined
“Dump abusive fund firms, former U.S. regulator says”. The article states “Investors should dump mutual fund
companies that condoned market-timing abuses and illegal late trading,
former U.S. Securities and Exchange Commission chairman Richard Breeden
said yesterday.” The article also states “Breeden said scandals at the
NYSE and mutual funds show that problems in the U.S. capital markets
extend beyond companies such as Enron Corp., Tyco International Ltd. And
WorldCom Inc.”
Although it
is discouraging to see the widespread fraud and investor abuse, it is
encouraging to see the media reporting that will help to make the public
aware that the investment industry is not so well regulated as one would
like to believe.
It seems
every day there are new scandals and additional millions or billions of
dollars lost by investors. Today’s Star contained five articles about
various frauds or abuses by big business. This is not the small fraudsters
like Patrick Kinlin who defrauded his clients of some $20 million. This is
big business with frauds in the 100s of millions.
It is
interesting to note that in the five articles, three case involve fraud,
one involves looting and one involves insider trading. Remember this is
only one day and one paper.
Stock
watchdog hails partial victory
The article says “The Ontario Securities Commission has scored a partial victory in an appeal of the insider-trading case against Glen Harvey Harper, former president of mining company Golden Rule Resources Ltd. The Ontario Court of Appeal upheld the way the commission calculates fines under the Securities Act, but did not change the amount of the penalty handed down in the case. … Harper, who was convicted of insider trading in July, 2000, should be fined $2 million, a panel of three court of appeal judges said in a ruling issued Oct. 31. The commission had asked the judges to re-impose the $3.95 million fine set by the judge in the original case.”
The OSC is promising to get tough on Insider trading.
Putnam,
SEC settle fund misconduct case
”WASHINGTON—Putnam Investments, the fifth-biggest U.S. mutual fund firm, will make restitution to investors, add independent directors and limit trading by employees to settle Securities and Exchange Commission misconduct charges. The SEC also will impose a fine yet to be determined, the securities regulator said yesterday.
But Massachusetts Secretary of the Commonwealth William Galvin and New York Attorney-General Eliot Spitzer, who uncovered wrongdoing in mutual fund trading, faulted the SEC for not requiring Putnam to admit guilt and for not addressing fees.”
The article also states “In the past two months, more than 30 people have been suspended or fired in the probe, including Putnam's former chief executive officer Lawrence Lasser. … The SEC alleged that Putnam committed securities fraud by failing to disclose securities trading by two former money managers who took advantage of inside knowledge about the international funds they managed to generate quick profits for themselves at the expense of their customers. Putnam also failed to properly supervise the money managers, Justin Scott and Omid Kamshad, the SEC said. Scott and Kamshad have been charged by the commission with securities fraud.”
The article quotes Galvin as saying "The SEC seems far more concerned about making nice with the industry than they are in protecting investors. It's the same old story: There's no admission of guilt, they're going to make some changes and back out they go."
Spitzer said the SEC's deal with Putnam should not be viewed as a model for a settlement with his office and that his investigation would continue.
The article also states “In other developments:
Pilgrim
Baxter & Associates said its two founders, Harold Baxter and Gary
Pilgrim, have stepped down from their positions in the company after an
internal investigation uncovered questionable practices by the two top
executives related to trading in the firm's mutual funds.
Janus
Capital Group Inc. said it has uncovered 12 arrangements that allowed
market timing, or frequent trading, across its U.S.-based mutual fund
business. The admission came in a filing with the SEC."
Ex-secretary
testifies on loans, affair at Tyco
“New York – Dennis Kozlowski’s former executive secretary at Tyco International Ltd. … testified she processed requests at Kozlowski’s direction for more than $16 million (U.S.) in loans to pay for a variety of personal expenses.”
The article also states “Kozlowski and former chief financial officer Mark Swartz are accused of looting the company of $600 million. Prosecutors say the two men raided corporate loan programs to fund a lavish lifestyle.”
Former
Gateway executives charged
Toronto
Star November 14th 2003
The @Biz article states “Gateway Inc. settled on a U.S. Securities and Exchange Commission investigation into its fiscal 2000 without any penalties and fines, with the computer and electronics maker agreeing to an order prohibiting future violations of securities laws.
The article also states “The SEC targeted none of Gateway’s current management, but the company’s former chief executive, financial chief and controller are now facing SEC fraud charges, according to the Wall Street Journal.
Ex-Dynegy
staffer guilty
Toronto
Star, November 14th 2003
An article not getting much prominence in the middle pages states “Former Dynegy Inc. tax executive Jamie Olis was found guilty of six counts of fraud in connection with charges he illegally disguised a $300 million (U.S.) debt as income to inflate his company’s finances. The jury in U.S. District Court deliberated less than two hours before reaching its decision. Olis, 37, faces up to 35 years in prison.”
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