One hundred and ninety-four minutes.
That's all it took Friday for the new head of the Ontario Securities Commission to lose a goodly chunk of the credibility he has built up in his first nine months on the job.
At 9:10 a.m. Toronto time, Ontario Securities Commission chairman Howard Wetston looked exactly like the character he had constructed for himself – the new sheriff in town. He came down like a ton of bricks on a group of top executives at Sino-Forest Corp. , summarily forcing them to resign amid what the regulator alleges is a potential fraud.
Then, in exactly the time it takes to watch Titanic (or The Right Stuff, but in this case the former seems more apt), Mr. Wetston backtracked, admitting that, actually, he doesn't have the power to oust the five executives.
The OSC was "persuaded" that the commission couldn't order the resignations of the group, which included Sino-Forest's chief executive officer, without a hearing, OSC spokeswoman Wendy Dey said, adding that the regulator may still seek a hearing to try again to force them out. She wouldn't say who did the persuading, but there is little doubt it was Sino-Forest's lawyers.
The shoot first, read the rules later misstep is a blot on what otherwise has been a good story. Under Mr. Wetston, the regulator has been moving in the right direction on a lot of counts.
There's a palpable new sense of urgency, with Mr. Wetston promising to step up the pace of enforcement at a regulator that's been maligned for sitting on its hands all too often.
He pledged that this year the OSC would launch three times the number of cases compared to three years ago. He said the commission was looking at new tactics to gather evidence, such as offering immunity.
When the Sino-Forest situation arose in June out of the allegations of an obscure short seller named Carson Block, who claimed the Toronto Stock Exchange-listed company was overstating its holdings of Chinese timber, the OSC immediately launched an investigation.
The regulator went a step further. It soon widened its search by announcing a probe of other companies with similar structures – big operations in emerging markets but listings in Canada. Some of those who are going through that process say it's exceedingly thorough.
There's also a new sense of curiosity in other areas, report those who deal with the regulator regularly.
In the trading world, the perception had long been that the OSC was lagging behind the fast-changing technology that is constantly altering the landscape, and what's worse, that the regulator didn't really care.
Under Mr. Wetston, that perception is changing. The commission is creating an advisory committee of market experts to guide policy. The OSC may never keep up, but at least there's a feeling that now it's trying.
All in all, the regulator was exuding a sense of confidence, and doing the right things to create more confidence in Canada's capital markets.
Given the good signs, it's tempting to hand out a free pass on the Sino-Forest situation; to say that it's better to criticize a regulator for being overly aggressive than for not doing enough. But it's hard to argue that others need to know your rules when you don't know them yourself.
The rest of the OSC's allegations against Sino-Forest remain, as does the cease-trading order, itself a very aggressive and controversial tactic. But what people will remember is the fact that it appears the OSC under Mr. Wetston doesn't know its own powers.
It is Mr. Wetston's name at the bottom of the order saying that the five Sino-Forest executives have to go, and it is Mr. Wetston's name again on the order that came out 194 minutes later at 12:24 p.m. saying no, they don't.