The Ontario Securities Commission will continue its own investigation into the activities of Mark Valentine, the former chairman of defunct brokerage Thomson Kernaghan & Co. Ltd., despite his U.S. indictment on serious fraud charges and his arrest in Germany.
In June, the OSC alleged that Mr. Valentine, formerly one of the richest players on Bay Street because of his success trading Internet stocks, created a "culture of conflict and non-compliance" at TK and enriched himself at the expense of clients.
Those allegations now seem pale in comparison with new charges from the Federal Bureau of Investigation that Mr. Valentine conspired to commit wire, mail and securities fraud. The FBI indictment said Mr. Valentine paid secret kickbacks to undercover FBI agents and helped other brokers get kickbacks for helping manipulate the price of stock in three companies he controlled.
But the OSC will continue to pursue its case, manager of investigations Brian Butler said. "We still have matters that have to be sorted out that took place in Ontario and involved Thomson Kernaghan, and we intend to pursue our inquiries into these matters."
To protect the investing public, the OSC must complete its work, Mr. Butler said, especially since TK is now bankrupt. "A firm went under. We have to determine what happened and what caused that, and try to ensure things like this don't happen in the future."
The OSC was not involved in the FBI "sting" operation, but that is not surprising, said one former police investigator because of the potential risk to the FBI's undercover investigators.
"It's a 'need-to-know basis,' " he said. "There's a great need to keep those types of things secret."
The RCMP, however, was involved in the case.
Several OSC sources said yesterday there was a great sense of relief at the commission because it has moved against Mr. Valentine, and a cease-trade order against him is in effect. "It's not one of those cases where the Americans arrested someone we weren't aware of," one staffer said. "We would have looked like jackasses then."
The OSC sources said the commission likely will share with the FBI any information it has on Mr. Valentine, who was arrested Wednesday at the Frankfurt airport.
The FBI said it intends to extradite Mr. Valentine from Germany to the United States.
Regulatory sources said yesterday that Mr. Valentine might have been lured to Germany by the FBI. That might have been done because it is easier to extradite a Canadian citizen to the United States from Germany than from Canada.
"Jails are more comfortable [in Canada]than in Germany," one source said. "He probably won't challenge [the extradition]because he doesn't want to be in jail in Germany."
Past experience also indicates it can be very difficult to extradite an alleged white-collar criminal from Canada to the United States, another source said. "The courts tend to want to have you prove your whole case up here [before they'll allow extradition]"
The United States will have 40 days to file an application for Mr. Valentine's extradition, although he can be moved much earlier if he consents to go.
Mr. Valentine's Canadian lawyer, Joseph Groia, said yesterday that his client has hired lawyers in the United States and Germany to help defend against the FBI charges. "We're retained top-notch people and we're going to start letting them do their job for Mark."
Mr. Groia said Mr. Valentine told him "he has absolutely no idea what the [FBI]is talking about." And until he and his client see the detailed evidence, "it's difficult for us to respond other than to say that Mark is going to defend [himself]vigorously," Mr. Groia added.
He said it is very likely that Mr. Valentine will counter the charges by saying that the FBI entrapped him by setting up the sting operation. The FBI set up a fictitious mutual fund and had an agent pose as a corrupt securities trader working for the fund company.
Mr. Groia would not discuss the whereabouts of Mr. Valentine's family or give any details about his arrest in Germany.
"As best we can, we're trying to protect what little private and family life he has left."
Mr. Valentine is the son of Canadian diplomat Douglas Valentine, a former ambassador to Saudi Arabia, Colombia and Yemen. His commissions from selling Internet stocks at TK allowed him to buy a personal jet, a house in Florida and a cottage on Lake Simcoe, north of Toronto.
Mr. Valentine has a sprawling $2-million house in the Forest Hill section of Toronto, held in his wife's name.