Reading The Globe and Mail's recent investigative report about how easy it is to get away with stock fraud in this country, one begins to get the uncomfortable feeling that the continuous lack of credible efforts by the authorities to fix the problem has verged into unwitting complicity with the fraudsters.
After all, the conclusion a reasonable person takes from the Globe's reporting is not that stock fraud is a risky business for the perpetrators. On the contrary, it is extremely lucrative, to the tune of hundreds of millions of dollars, and the perpetrators will most likely not be punished.
At best, a tiny fraction of them will do a brief stint in jail, but they will be able to keep every red cent they have stolen, and they won't bother paying the paltry fines meant to deter them from re-offending.
Simply put, Canada's poor enforcement, weak laws and impotent regulators mean that the existing deterrents can be written off by criminals as the cost of doing business – and a relatively minor one at that.
One serial offender, Howard Rash, is believed to have netted $23-million from his victims. After his fourth offence, he did nine months in jail. But he has never paid the $1.67-million fine he received, and no one has ever made him return the money he stole.
Another offender, George Schwartz, bilked victims out of $1.4-million by selling them worthless stock. His scam was so egregious that the Alberta Securities Commission tried to make an example of him by banning him from the markets for 15 years and fining him $75,000.
Mr. Schwartz appealed and won. His net gain on his scam was $1.35-million, while some of his victims were ruined.
Canada's regulatory and policing failures related to stock fraud are common knowledge. Former Bank of Canada governor David Dodge has spoken of "the widely held perception that Canadian authorities aren't tough enough."
Other say bluntly that the system isn't working, and they're right. In fact, it is so ineffective that one in nine stock fraudsters will re-offend, according to the Globe's findings.
Mr. Schwartz, for example, went back to work two months after the ASC ruling. He was subsequently "punished" by securities regulators and the courts in two more scams.
One case saw him do nine months in jail. In another, he was given a $1-million fine and told to return $2.5-million of his ill-gotten gains. He has paid neither amount.
His total take in those two cases was an estimated $20.4-million – straight out of the bank accounts of innocent Canadians whom the authorities failed to protect.
Regulators with the Ontario Securities Commission, which sees the bulk of the fraud cases in Canada, say they don't have the resources to track down the proceeds of these crimes. The bad guys either spend the money immediately, hide it or move it offshore.
Regulators are also handcuffed by a Supreme Court ruling that prevents the OSC and other provincial securities commissions from exacting punishment from violators. Their powers are limited to deterrence, such as fines and, most common of all, temporary suspensions from the markets.
The fines too often go uncollected, however, and the suspensions are essentially meaningless, since fraudsters were never really in the markets to begin with.
Jail times are sometimes handed down by the courts, but it's rare. The Globe estimates that just one in 10 offenders will do time behind bars.
The RCMP, meanwhile, set up a dedicated force to investigate white-collar crime in 2003, but it has languished as the Mounties have turned their attention to terrorism.
None of this is acceptable. Stock-fraud perpetrators are predators who target vulnerable people, often the elderly, with high-pressure sales tactics. They ruin people's lives. Our justice system, our regulators and our legislators need to stop abetting these criminals through their failure to deter and punish them in a meaningful way.
They have options. Longer jail sentences handed down more often would be a start. Violators who don't pay regulatory fines or who ignore suspensions should be charged with a criminal offence. Provincial regulators should better inform each other, and the public, of serial predators.
Canada must stop being a haven for financial criminals. Our current enforcement system is laughable and unworthy of a modern country.