A CANADIAN PERSPECTIVE
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 Presidentreceived 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 fromwitnesses), 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 adopta National Securities Regulator Board, revise the legal system and improve enforcement.
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 itbecause white-collar crimes are considered to be “non-violent crimes”? Is it due to the fact that Canada is represented by thirteen small voices rather than one main voice, so it is seen as less powerful? Or maybe the problem doesn’t lie with the provincial regulators, maybe it is Canada’s law enforcements inability to undergo an investigation due to law restrictions? Where does Canada stand ascompared to the United States in regards to punishment of corporate malfeasance? A lot of people have lost their life savings because of white-collar crimes and investors are losing confidence in the Canadian economy. What should be done to reduce corporate malfeasance? Should changes be made in the legal processes, the regulatory system, or statute? YBM Magnex International Inc., Bre-XMinerals, Philip Services Corp. and Livent Inc. scandals have been a complete embarrassment to the Canadian Stock Exchange costing $9 billion.
We will begin with a brief discussion on the outcome of YBM Magnex compared with Enron followed by an explanation on how the Canadian regulatory system failed to prevent fraud arising from information asymmetry. We will then analyze the current regulatory andlegal system on how the two systems contributed to corporate malfeasance. Finally, we will end the paper with our recommendation on how to improve the current regulatory system.
YBM Magnex International Inc., a Pennsylvania-based company, was incorporated in Alberta in 1994. In a U.S. courtroom, YBM executives admitted that the existence of YBM was to commit securities fraud andto launder money for the Russian mafia. Canada was chosen for the scam because YBM executives believed Canadian securities regulations were lenient.
YBM traded as a penny stock for less than $ 1.00/share in the Alberta Stock Exchange (ASE). Penny stocks have minimum listing requirements. Listing was easier in ASE, allowing easy entry into the Canadian capital market, compared to the...
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