Finance Committee on April 10th, 2008

[Diane Urquhart]

There are two things that must happen to deal with the fraud aspects of what has happened.

I believe the top priority is to create—not to fix, because it is non-existent today—a Royal Canadian Mounted Police integrated market enforcement team that works with the white-collar fraud squads of all the regional and municipal police forces across Canada. I believe that is a higher priority than a single securities commission.

I believe we also need to have a collaborative commission between the province of Quebec and the rest of Canada, because the current provincial securities commission system is broken, is not functioning, and offers no protection to Canadian investors.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you,

And thank you, Mr. Chair.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on to Monsieur Crête.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you and congratulations for your persistence. I would like it so much if no one had to live through what you have lived through. But the fact remains that the 1% whom you represent wield an unprecedented amount of power of a kind that would not be found elsewhere. As Mr. McCallum said, it is important for the Standing Committee on Finance to keep working in two directions.

My question goes mostly to Ms. Miles. You talked about the conditions necessary for the agreement with Canaccord to really apply, but I would like you to go back to that. You all talked about the need to find solutions, to make changes to the legislation. Some made other proposals, like the indemnity fund.

Mr. Pouliot or Ms. De Serres could give us more details about that later, but first I would like Ms. Miles to tell us what it is going to take for the agreement with Canaccord to be acceptable to the people who have gone through what you have.

[Wynne Miles]

Well, as I've said, I would not vote yes and give away my right to sue. I think that's very inappropriate.

But I think most of the retail investors just want their money back. So if someone buys back our notes, then the big boys can have their say. That's a very crude way of putting it.

[Diane Urquhart]

I would add that the offer is a good start, because it is proposing to give par, plus accrued interest, and pay legal costs for 1,400 families. However, there are 1,800 families. So we need to get back to the negotiating table and complete the offer. The other 400 families need to get par, plus accrued interest, and have their legal costs taken care of.

In addition, there is a significant discrimination going on both by Canaccord and the National Bank Financial of Canada. In the National Bank Financial case, they have offered to settle cash only up to $2 million. On anything above $2 million, you get nothing. We have several Quebec families, well-known, contributing, hard-working families, who have accumulated above the $2 million level, who do not deserve to be discriminated against. They are still small investors. They are not pension funds, they are not governments, they are not corporations. These people should be paid.

At Canaccord, people are not being paid if they're over $1 million. Who made up that arbitrary rule? Hasn't anybody ever figured out, with low interest rates, how much money you need to produce your own pension? It's an absurdity to have that arbitrary distinction in the cash settlements.

Retail customers are retail customers, no matter what faith, no matter what colour, no matter how much money those retail customers were able to assemble. They were sold a tainted bill of goods. They want their money back, and I think basically the Canaccord offer is deficient in that regard. The National Bank offer has been deficient from the beginning.

Everyone needs to get back to the table so that we can get the retail customer group settled once and for all, everybody, and then the institutions can proceed with the restructuring that they have negotiated over the last seven months.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you for your comments, Madam, but we have to give Mr. Pouliot time to reply.

[Robert Pouliot]

Mr. Crête, I believe that an indemnity fund would have saved thousands of investors all these difficulties and complications. A fund of that kind would be an important advance for all Canadian investors and the entire Canadian trust industry. It could even become a symbol internationally.

We have to recognize that the market is structured so differently from what it was barely a generation ago. Mr. Crête, ladies and gentlemen of the committee, you should know that the pan-Canadian committee of investors has never had sufficient information on the people who held this famous paper. I know, because I organized the first forum on the ABCP crisis last October for the pension funds. That was when we were flabbergasted to find out that more than a hundred pension funds in Quebec alone were directed affected.

An indemnity fund, therefore, is a legislative instrument that really could help all investors and spare us these nickel-and-dime, fly-by-night, a-deal-here-and-a-deal-there negotiations and the unfair treatment of the investors.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Ms. Urquhart, who are the three or four main players—let us not say perpetrators—who are at the bottom of the present situation and whom the committee should summon to find out how the scheme basically worked? Your testimony is very important, but going beyond it, who is responsible for this and whom should we call here?

[Diane Urquhart]

You would call the president of Dominion Bond Rating Service. You would be calling the senior officers of Deutsche Bank, HSBC Bank, and Merrill Lynch. You would be calling the senior executives, particularly the head of risk management, for Scotia Capital, and also for the National Bank Securities. You would be calling Henri Rousseau, president of the Caisse de dépôt. In my mind, you'd be calling Julie Dickson in the government and asking her why she continued to say that it was not her problem. It is her problem.

That would be the first set, and I could think of many others.

In addition, I would call the son-in-law of Purdy Crawford, the vice-chairman of the Ontario Securities Commission, and ask him why there wasn't an Ontario Securities Commission examination of the failure of the 20 sponsors for distributing product into the market, when Standard & Poor's had already indicated that all the product was below investment grade.

I might add that with all of this evidence that I possess, which has gone to our legal counsel--documentary, testimonial evidence, including documents from the brokers on how this product was sold--has Lawrence Ritchie from the Ontario Securities Commission called me to look at this evidence? Absolutely not, not to my knowledge. I think for the first time Murray has had a call from an IDA investigator, or someone in Manitoba has. There is not a functioning police force in the country.

[The Chair, Conservative, Rob Merrifield]

Monsieur Crête.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Can you provide a copy of those documents?

[Diane Urquhart]

Yes, I can, subject to my speaking to legal counsel. This is an affidavit that will be filed in the court next week, so I may ask for the allowance of our counsel, Juroviesky and Ricci LLP, and Shibley Righton LLP, who is preparing the affidavit as we speak.

[The Chair, Conservative, Rob Merrifield]

Do you want that even if it's not in French?

Mr. Menzies.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair.

A heartfelt thank you to all of you involved today, and certainly the investors. Thank you for your rational presentation and for keeping your emotions in check. I realize this is a very troubling time for you and difficult for you to discuss, so thank you.

You need to know that when this motion came forward at committee, it had all-party support to listen to the investors. I think that everybody is absolutely behind hearing your message. I think last August we were all under the premise, when this first came to light, that everyone who was involved in this--both the buyers and the sellers--were quite convinced it was both secure and liquid.

I find it very troubling to hear your comment, Ms. Miles, that you didn't even know you were invested in asset-backed paper. That will be my first question, but I do want to comment about some of what we're hearing today, about the lack of a common securities regulator. Our finance minister has been pushing for that, and I think this is a strong argument.

We hear from Mr. Elford and Ms. Urquhart that the provincial regulators--and at this point in time we're dealing with these regulations, and that's what we have, provincial regulators--are not being effective, were not effective in this role. We as a government have been monitoring it and the Bank of Canada has been monitoring it, but unfortunately that's all both the government and the Bank of Canada can do, because we have 13 regulators across the country. So I'd be interested in some more comments about that.

Also very troubling is the involvement of the foreign banks.

Ms. Miles, perhaps you could elaborate a bit more on what it was you were told. Did you understand what you were buying? As you said, you didn't even know you were buying it.

[Wynne Miles]

No, we weren't asked. As I mentioned, because of the concerns of market volatility, we had a large proportion of our savings in a money market fund, and it was in T-bills. We expected, we had an understanding, that it would be in money or the equivalent of money. When Canaccord sent out the notice—I think I have it somewhere—saying that these ABCPs had been frozen, my husband called just to make sure we didn't have any. That was the first time we'd heard of them. I have to say Canaccord has not been forthcoming with more information on it.

Does that answer your question?

[Ted Menzies, Conservative, Macleod, AB]

It does. It just affirms your original comment.

Mr. Furino, on your comment--and I wrote it down--“unaware of the contents of the paper” is the way you termed it, so I assume you would have the same comment.

[Steven Furino]

Yes. And our broker was also unaware of the contents of the paper. My understanding is that about one-third of all of the money market funds in Canada last summer were held in some form of asset-backed commercial paper. So my expectation is that the vast majority of Canadians who held a money market fund also held some form of asset-backed commercial paper, and they were also uninformed and they were also unaware of the contents of that paper.

[Ted Menzies, Conservative, Macleod, AB]

Mr. Candlish, through you, Mr. Chair.

[Murray Candlish]

I just wanted to add to Ms. Miles' comments about the things that were said to sell this to us, when they had no idea what was in it. The statement, “If this fails, the entire banking system in Canada will fail”--that's why I bought it. When someone makes a statement that strong....

[The Chair, Conservative, Rob Merrifield]

Go ahead, Ms. Urquhart.

[Diane Urquhart]

Subject to the clearance from our lawyer, we do have documentary evidence that indicates that Canaccord brokers were sending e-mails and other written documentation to the customers indicating that this asset-backed commercial paper was triple-A rated, that it had better liquidity than GICs--after all, GICs could not be sold in the secondary market like this paper could--and to top it, there was a statement made that it had better preservation of capital than guaranteed investment certificates. The reason given was that guaranteed investment certificates were subject to the $100,000 limit for the Canada deposit insurance.

For those not familiar with that, that's when you put your money in a bank deposit or a savings account or a term deposit or a GIC. For every bank you have money in, $100,000 of it is insured.

So the Canaccord customers were told in writing. We don't necessarily know it all, but we have a document and other common testimony that indicates this is the basis upon which it was sold to them.

[Ted Menzies, Conservative, Macleod, AB]

Mr. Elford, do you have a comment on that? You're the one who raised the common securities regulator more specifically than anyone else. Perhaps you might comment on that.

[Larry Elford]

I truly hope for a single securities regulator. I've dealt with the securities commissions across the country for 20 years. They are dysfunctional at best, and at worst, they are complicit in the granting of legal exemptions to industry agencies.

If this gentleman makes a complaint to any securities commission in Canada, the doors are closed to him. He is referred to a self-regulatory agency that has no statutory authority. He's referred to an investment dealers association or a mutual fund dealers association. He's told at the front door of a crown corporation in every province of this country that he's not welcome and that he's to go to membership associations to deal with this problem. Typically his problem is not solved, yet any corporation in Canada can walk in and apply for an exemption and freely skirt the laws of our country. The doors are wide open.

It's a very badly structured two-tier system that serves the industry and does no service to the public, in my opinion.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Julian, you have seven minutes.