Good afternoon. Bon après-midi.
I'd like to start by telling you about the collapse of non-bank asset-backed commercial paper, or ABCP. This bogus short-term savings product was marketed with an R1 high credit rating—that's the same as a treasury bill—and a bank liquidity guarantee. Both attributes proved to be worthless. Thirty-five billion dollars of this misrepresented savings product was sold to Canadian retail owners such as myself, corporations, and all levels of government. The ABCP failure has removed at least $21 billion from the Canadian economy.
Without either our knowledge or consent, my wife and I had much of our retirement savings transferred from treasury bills into ABCP in July 2007. Two weeks later, this toxic product was worthless. We spent the next 18 months working with many of the other 1,800 retail ABCP owners to get our money back. In our case, we were able to use the Companies' Creditors Arrangement Act, or CCAA, court to force a settlement, whereby most of the retail owners were repaid in exchange for agreeing to support a restructuring. However, approximately three dozen retail owners who had savings of over $1 million were not repaid. A father of a disabled child who had no money to pay his bills committed suicide. All retail ABCP owners had their lives severely disrupted. Corporate and government owners have had to exchange their worthless paper for long-term notes, which may allow them to recoup some of their losses in 2017. The best available estimate is that this paper might eventually be worth 60 cents on the dollar. Equally unjust, the restructuring prohibits any of the injured parties, including those who voted against the restructuring, from suing the responsible parties.
There have been widespread allegations of misrepresentation or fraud in the manufacture, credit rating, and distribution of ABCP. My wife and I, along with others, have filed complaints with the Investment Industry Regulatory Organization of Canada, or IIROC. However, as of December 7, the self-regulatory agencies such as the Ontario Securities Commission, or OSC, and IIROC had not prosecuted any of the individuals or institutions that were responsible for this fiasco. Our representative’s appeals for assistance from the RCMP's integrated market enforcement team, or IMET, were simply referred to the self-regulatory bodies.
Small folks like ourselves were simply left to duke it out with some of the largest financial institutions in the country. Most retail owners were very fortunate to regain their savings. However, there was no opportunity to obtain compensation for 18 months of work or the personal turmoil and hardship this fraudulent savings product has caused. More importantly, the non-retail ABCP owners have lost their savings and none of the responsible parties has been held accountable.
Our experience with ABCP provides direct evidence of how the present system of dealing with white collar crime does not work to protect Canadian citizens. With this background, I offer the following comments on Bill C-52:
One, the present bill appears to be directed towards rogue fraudsters. However, with the ABCP collapse, we faced what appears to be fraudulent misrepresentation or fraud conducted by the banks and financial institutions who manufactured, rated, wholesaled, and retailed ABCP.
Two, as of December 7, the self-regulatory agencies have not laid any ABCP-related charges, despite having more than two years to do so. As indicated by the December 11, 2008, letter from Mr. Dean Buzza of IMET to Mrs. Diane Urquhart, who was retained to assist the ABCP retail owners, IMET has deferred investigations on this complex case to the self-regulatory agencies. That letter has been previously presented to this committee.
Three, given the complex nature of cases like ABCP and the failure of both the self-regulatory agencies and IMET to take effective action, Canadian citizens need a competent securities investment crime unit that is entirely independent from the self-regulatory agencies. This organization, which might be modelled along the lines of the securities crime unit that Gary Logan and Diane Urquhart spoke to you about, should have the mandate to aggressively investigate and prosecute individuals or corporations that employ those individuals and that commit white collar crime.
Four, the revisions to Bill C-52 propose that a judge should have the authority to order felons to repay fraudulently obtained funds. This authority should be expanded to include costs such as having to pay for a second mortgage due to expected funds not being available. These costs should be borne by both the individuals and the corporations they work for.
Five, the CCAA restructuring of ABCP was hampered by the international banks, who were a party to this alleged fraud, being given a court stay that allowed them to be exempt from a standstill agreement. That's a complicated way of saying this gave them undue power to influence the form of the restructuring, and it allowed them to dictate a blanket exemption from lawsuits for all parties. This is a gross miscarriage of justice, as ABCP owners were deprived of their ability to sue the perpetrators of this fraudulent product.
Yesterday, the Globe and Mail reported that IIROC is moving closer to a settlement with the major banks and brokerages that sold ABCP. Penalties are expected to be approximately $200 million.
My initial comments include that $200 million in fines is less than the reported legal fees incurred during the ABCP restructuring. It still leaves a net profit of $34.8 billion.
It has taken IIROC and OSC 28 months to announce, and I quote, “ongoing negotiations”. In contrast, the U.S. authorities invested and charged the perpetrators of a similar toxic scheme related to auction-rated securities in six months.
Finally, no criminal charges have been laid by IMET. It is my opinion that the responsible parties should be accountable to the criminal justice system and, where warranted, sent to jail.
I hope the lessons learned from the ABCP collapse will assist you in improving Bill C-52 and the procedures by which white collar crime is prosecuted in Canada.
Thank you very kindly for the opportunity to be here.