Crooked investment is simply bad for business

Many years ago a stockbroker, benefitting from some insider information, made a sizable profit. His firm was fined by the financial regulator in the United States, the Securities and Exchange Commission, but his company attracted a following; clients flocked to his office because speculators were attracted to a broker with an “edge.” It is unlikely that would occur nowadays.

Investment is the lifeblood of the economy. It enables companies to expand and innovators to be creative, all the wellspring of economic activity. Anything that interferes with proper investment decisions in the long run adversely affect us. Of course, crooked trading may lead to short-term profits, but it is unconscionable. Therefore, all should welcome the fight against corrupt practices, which are so bad for business generally.

Fraud in the investment business has existed from time immemorial. A few gain, nevertheless, the economy is the biggest loser ultimately.

Unscrupulous individuals, regrettably, seldom are apprehended, with jail sentences now imposed very infrequently.  Although numbers get away with dishonesty, witness the Bre-X Gold Mine scandal, where the culprits never were caught, in the U.S. particularly, government has become an active policeman while attempting to prevent fraud.

Unfortunately, Canada has become a  laggard as we have only provincial regulator authorities, no national organization. Eventually the public here will insist on such a group. So far, provincial governments in Canada have not done an adequate job in cleaning up our investment industry.

The overwhelming percentage of equity trading takes place in London, New York and Hong Kong. Those three jurisdictions are beginning to act more rigorously to enforce fair trading, and currently Canada and other nations are under increasing pressure to act more vigorously to ensure more integrity. For instance, Brazil has stated that fighting improper trading has become “the single, most important task we have.” It would be very reassuring if the Ontario Securities Commission took its responsibilities more seriously because most equity trading in Canada takes place in that province.

Winning a conviction against fraud of any kind in the investment industry is very difficult. Hence, the OSC must be broadened and strengthened. At the present time investors are able to trade more rapidly and in greater volume than ever before. Volume on our exchanges is many times greater than in previous years.

Provincial authorities, primarily the Ontario Securities Commission, first must improve their surveillance systems. Suspicious patterns are taking place around corporate events, but are largely unchecked. Too, brokers must be more vigilant to make sure that their employees are honest. A smoothly and principled investment business is too important to be ignored.


Bruce Whitestone