McGill University

CORPORATE MALFEASANCE
A CANADIAN PERSPECTIVE

ABSTRACT

Canada is criticized for not being rigorous with corporate malfeasance and is known to be a safe haven for white-collar crimes. This is seen through the analysis of the $150 million pump-and-dump YBM Magnex scheme where the President received a life time ban from becoming a director or officer of any issuer in Ontario only; the CEO received 5 year ban plus $250,000 fine and former chairman received a 3 year ban plus $ 75,000 fine. Total fines amounted to $1.2 million CAD. In comparison to the U.S and the Enron scandal, the CFO received 10 years imprisonment with no chance of parole, CEO received 24 years and fined $45 million, and the chairman received 45 years. Canada is a breeding ground for fraud because of its fragmented provincial regulatory system, ineffective enforcement and flaws within the legal system, thus leaving the door wide open for corporate malfeasance hence moral hazard. The legal system in Canada restricts the extent of evidence that can be obtained (ability to obtain sworn testimony from witnesses), and the severity of sentencing (only 1/6 of the sentence must be served before asking for parole). When compared to the U.S., the convicted must serve 85% of the sentencing term. With these flaws in the Canadian system, foreign investors are not attracted to Canada. In order for Canada to gain investors confidence in the Canadian securities market and attract foreign investors they must adopt a National Securities Regulator Board, revise the legal system and improve enforcement.
INTRODUCTION

Canada is criticized for not being rigorous with corporate malfeasance and is known to be a safe haven for white-collar crimes. Is it due to our provincial securities regulatory system? How has Canada earned this reputation if each province/territory has regulators, rules and laws? Is it