Canada's securities regulators are still investigating executives of failed Toronto brokerage firm Thomson Kernaghan & Co., and say more regulatory action may be announced.
On Monday, the Investment Dealers Association of Canada (IDA) held a brief hearing to permanently suspend the license of TK, accusing it of being a financial risk to the industry and the public. The IDA is the self-regulatory body responsible for licensing the brokerage industry in Ontario and a number of other provinces.
The suspension is a formality, since the firm has stopped operating and has been put into bankruptcy proceedings under the supervision of a court-appointed trustee, said Jeff Kehoe, director of litigation at the IDA.
"It's really just a technical matter. There is no Thomson Kernaghan anymore," Mr. Kehoe said at the hearing.
The suspension deals with the firm's licence but does not cover any individuals who were executives of the company.
Mr. Kehoe said in an interview after the hearing that the IDA and the Ontario Securities Commission are continuing to investigate some people connected with TK and added that further action is possible.
The OSC has temporarily suspended former TK chairman Mark Valentine from working or trading in the market, alleging he engaged in improper trades and enriched himself at the expense of clients.
"The IDA is working in tandem with the OSC in the prosecution of Mark Valentine, and there may be some further prosecutions with respect to individuals of Thomson Kernaghan," Mr. Kehoe said. "I can't comment as to which individuals may be prosecuted, but it might not be over."
Last week, the U.S. Federal Bureau of Investigations unveiled a sweeping securities fraud sting operation, charging Mr. Valentine along with 57 other individuals.
In the Canadian regulatory case, Mr. Kehoe said the IDA wishes to recover the costs of its investigation from TK, which run into the "tens of thousands of dollars," but does not want its claim to take priority over clients of the company who have lost money. The IDA will file its request for compensation once it knows the fate of investors, he said.
On Monday, a burned investor of TK said he was furious when he heard last week that the FBI had charged Mr. Valentine with wire, mail and securities fraud in connection with alleged improper trading in the shares of three over-the-counter companies.
Chris Morgis, who is among a group of investors suing the brokerage firm, said he complained in March, 2001, to the OSC, the IDA and the Toronto police department about alleged improprieties in trading activities in over-the-counter stocks at TK. He said Canadian regulators did nothing about his complaints until the spring, when he was interviewed by the IDA. He says nothing has resulted.
"I was furious that our own regulators and enforcement people were asleep at the wheel," he said. "We were happy there is some form of justice, but it was not the right authority that we were counting on to do that justice."
Mr. Morgis has recently amended his lawsuit against TK to also name the IDA. He said many investors continued to set up accounts at TK in the period following his complaints, and they allege they lost money because of improper trading in their accounts.
He said he has spoken to one investor who says he would never have opened an account last year if he'd known about the allegations raised by Mr. Morgis.
"I feel really bad, because he came a year after me," he says.
In a letter to the IDA in 2001, Mr. Morgis warned that he felt the public was at risk from TK, and says he now feels he was proved right.
Mr. Morgis, who estimates he lost $2-million from his trading account, has joined forces with six other investors who are also suing TK, alleging they lost money because of improper trading.
They allege that the brokerage firm guided them to buy over-the-counter-traded stocks that were inappropriate for their investment profiles. Mr. Morgis also alleges that on some occasions, huge volumes of stocks were traded through his account without his knowledge, and alleges the brokerage firm was using him as a sort of "market maker" to provide liquidity in trading of over-the-counter stocks.
Meanwhile Monday, the FBI said a number of the 58 people who were arrested in the undercover sting operation have been released on bail pending trial. A spokeswoman said she did not know how many of them remain in custody, but Mr. Valentine is one of them.
Mr. Valentine was arrested in Germany last week, and the FBI says it will seek his extradition to the United States.
The RCMP has also laid charges in Canada against two men in connection with the case, bringing to a total of 60, including 22 Canadians, the number of people charged in the matter so far.
Janet McFarland