Email to Ms. Sheila Fraser, Auditor General of Canada

To date, I have learned the following about Canada's financial institutions:
• the CIBC Ombuds function resolves conflicts by killing the messenger,
• since the franchise relationship has been known since 1956 to create opportunism, franchise bankers and third-party sales consultants have created a lucrative and well-known form of reverse money laundering, engineered to drain SBL funds and exploit new Canadians,
• I only wish the banks had as long-term perspective as the Russian mafia. Where I come from, they only take thirty per cent of all cash,
• SBL bankers keep on saying "we don't care, it's not our money",
• federal small business franchise loans have essentially become a "trap for the trusting" that could not work without the bankers' full knowledge and co-operation of sales agents that circumvent false earnings claims protection under provincial franchise law,
• this "wham-bam", 24-hour turnaround, "if it don't fit, cut it in half (but double count the sales projection)" mentality for SBLs is common knowledge within the franchise industry elite, and
• I understand how Canada could be seen to be a haven for white-collar crime.

I imagine these arrangements provide a great deal of humoUr in some circles.

Email to Ms. Sheila Fraser, Auditor General of Canada

To: Ms. Sheila Fraser, Auditor General of Canada, Office of the Auditor General of Canada
From: Mr. Andrei Oudovikine
Date: May 10, 2005

Ms. Sheila Fraser
Auditor General of Canada
Office of the Auditor General of Canada

Dear Ms. Fraser,

I have strong evidence to believe the Canadian Imperial Bank of Commerce, CIBC, has done and continues to practice systemic, unlawful and predatory Canada Small Business Financing Act, CSBFA, lending.

I have significant evidence of fraudulent lending practices in my case and I am advised the situation is widespread. Many small businesspeople, including a high percentage of new Canadians, are lured into financially devastating business relationships bankrolled via the small business loan program.

The much higher rate default rate of small business loans within the CSBFA program is the result of this "trap for the trusting".

After complaining, the CIBC officials verbally abused, violated confidentiality rules (in an attempt to have third parties force me to abandon my complaint) and then refused to deal with a subsequent letter of concern in any appropriate manner.

I believe this email should provide substantial grounds for a thorough evaluation. I have attached a paper Mr. Les Stewart submitted to Industry Canada on February 25, 2005 that provides a conceptual framework.

I am sending to your attention a full package of evidence (by Express Mail) confirming my allegation of fraudulent activity related to the CSBFA. I hope that after review, you can forward this matter to the proper authorities.

CONTEXT
Imbalance of Information and Economic Power
Consumers are the most vulnerable to the banks' superiority in information and power. While small business investors are also vulnerable, it has been known since 1956 that franchised small businesses are subject to very high levels opportunism from franchisors and banks.

The Auditor General of Canada
The Office of the Auditor General of Canada has reported the following:

"The Department should ensure that lenders have exercised due care in making loans and have complied with the Small Business Loans Act and Regulations." Report 2002, 5.5

“We are still concerned about the ability of the Department to achieve its cost recovery objective for this Program. At 31 March 2001, losses on loans guaranteed between 1995 and 1999 amounted to $155 million, and we estimate that they will reach at least $200 million. There are also indications that disbursements on claims will exceed revenues for loans guaranteed after 1999. Industry Canada must develop a better model to forecast the financial performance of the Program. Parliament must also be informed on a timely basis of any anticipated losses”

"We examined files of financial institutions on loans made under the Small Business Loans Act, and we observed that they did not always contain evidence that the Program rules had been followed. We stressed that the Department needed mechanisms to ensure that financial institutions were exercising due care when they issued loans." 5.39

LEGISLATION
1. Bank Act, BA

Duty of care
Every director and officer of a bank in exercising any of the powers of a director or an officer and discharging any of the duties of a director or an officer shall
(a) act honestly, and in good faith with a view to the best interests of the bank; and
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. s.158(1)

Investment standards
The directors of a bank shall establish and the bank shall adhere to investment and lending policies, standards and procedures that a reasonable and prudent person would apply in respect of a portfolio of investments and loans to avoid undue risk of loss and obtain a reasonable return. s.465

I assume bank officers must maintain this standard across all programs. Therefore, a violation of program-specific legislation is automatically a breach of the Bank Act s.158(1) ((dishonest, bad faith, careless, recklessness lending, etc.). Both the Bank Act and specific program legislation bind a related program-lending officer.

2. Canada Small Business Financing Act, CSBFA

Offence
Every person commits an offence who, in respect of a loan,
(a) knowingly makes any false statement or misrepresentation in an application, report or other document or wilfully furnishes any false or misleading information s.16(1)a.

3. Canada Small Business Financing Regulations, CSBFR

Due Diligence Requirements
In making and administering a loan, the lender must apply the same procedure as those that would be applied in respect of a conventional loan in the same amount, including, before making the loan,
(a) obtaining credit references or conducting a credit check on the borrower;
(b) completing an assessment of the repayment ability of the borrower, taking into account all other financial obligations of the borrower, s.8

Security
A lender must, when making a loan referred to any of paragraphs 5(1)(a) to (c), take valid and enforceable first-ranking security in the assets of the small business whose purchase or improvement is to be financed by the loan. s.14.(1)

ALLEGATIONS
General
The CIBC has acted in a manner that would substantially erode the publics' trust in financial institutions and Canada Small Business Financing Program in my case. They have violated the Bank Act, Canada Small Business Financing Act and the Personal Information Protection and Electronic Documents Act, PIPEDA.

Additionally, I have strong evidence to believe the Canadian Imperial Bank of Commerce has done and continues to practice systemic unlawful and predatory CSBFA lending. There is evidence that other financial institutions are also committing these offences.

Specifics
1. Ms. Sue Fedorink, CBIC Senior Business Advisor
i. Divulged confidential matters to a third party without permission. Met with borrowers once but several times with a sales agent, Roger Noble of Choice Corporation. BA s.158 & 465, PIPEDA

ii. Fabricated estimated annual gross revenue numbers, Box 9, Borrower's estimated annual gross revenue (see attached) BA s.158 & 465, CSBFA s.16(1)a., CSBFR s.8

iii. Knowingly misrepresented estimated gross revenue. The initial one loan application was rejected. She re-applied but for two loans this time and was approved. Revenue was double-counted CSBFR s.14.(1)

iv. Failed to ensure integrity of secured assets. Approved funding for $229500 of new equipment. Only used equipment was supplied which was independently appraised at $40,000. Equipment purchased from franchisor. CSBFR s.14.(1)

v. Approved the loans without an adequate business plan and failed to follow Guidelines, BA s158(1) & 465, CSBFA s.16(1)a., CSBFR s.8

vi. Had the loan proceeds cheques made payable to a third party (the franchisor), not the borrower. As a minimum, created the perception of kickbacks, conspiracy, breach of duty and fraud within financial institutions (see above i. to iv.), BA s.158(1) 465, CSBFA s.16(1)a., CSBFR s. 8

vii. As an experienced lender, knew that the loan would default resulting in catastrophic loss to the borrower. BA s.158(1) & s.465, CSBFA s.16(1)a.

2. Ms. Sandra Fitzgerald, Manager, CIBC Ombuds Office
Divulged confidential matters to a third party without verbal or written authorization. Fitzgerald refused to meet to discuss the complaint. As part of her investigation of my complaint, she called Roger Noble of Choice Corporation who is not a party in the complaint. Mr. Noble has repeatedly called me and visited my family. He is aggressively pushing me to abandon this complaint. Reinforces collusive belief. Refused to meet or deal with appointed advocate. BA s.158, PIPEDA

3. Mr. Rob Paterson, Senior Vice-President, Small Business Banking
Mr. Charles Scrivener, General Manager Franchise and Commercial Finance Program
Both senior CIBC officers have known of these difficulties since June 21, 2004. They have chosen not to reply to three letters my advisor has sent them. By their inactions they have brought disrepute to the financial institution community. BA s. 158. We believe CIBC senior managers created the perception of conspiracy, breach of duty and fraud, within financial institutions and specifically obstructing investigation and covering up wrongdoings.

4. Mr. Laclan MacLachlan, Ombudsman and Senior Vice President
MacLachlan refused to meet to discuss the complaint. He subsequently refused to communicate further about the complaint. BA s.158(1)

SYSTEMIC CHARACTERISTICS
CIBC has unconscionably delayed the evaluation of an extremely simple concern. They have acted only in their self-interest, in bad faith and communicated to third parties knowing they would attempt to intimidate my family and me. When absolutely forced to respond, their statements are as insincere as above the law they fell themselves to be.

Asking CIBC for a copy of my documents easily substantiates my individual allegations. They have already admitted that they simply don't have the documents that they're required to have under the Canada Small Business Financing Act and Regulations and Guidelines.

Reputational Risk
The result of these actions is a dramatic reputational risk to CIBC, and by extension, all financial institutions and Canada Small Business Financing Program. The logical conclusion is that small businesspeople in Canada, especially within the franchise sector, should expect misrepresentations, intimidation and opportunistic behavior from our federally regulated financial institutions.

To date, I have learned the following about Canada's financial institutions:
• the CIBC Ombuds function resolves conflicts by killing the messenger,
• since the franchise relationship has been known since 1956 to create opportunism, franchise bankers and third-party sales consultants have created a lucrative and well-known form of reverse money laundering, engineered to drain SBL funds and exploit new Canadians,
• I only wish the banks had as long-term perspective as the Russian mafia. Where I come from, they only take thirty per cent of all cash,
• SBL bankers keep on saying "we don't care, it's not our money",
• federal small business franchise loans have essentially become a "trap for the trusting" that could not work without the bankers' full knowledge and co-operation of sales agents that circumvent false earnings claims protection under provincial franchise law,
• this "wham-bam", 24-hour turnaround, "if it don't fit, cut it in half (but double count the sales projection)" mentality for SBLs is common knowledge within the franchise industry elite, and
• I understand how Canada could be seen to be a haven for white-collar crime.

I imagine these arrangements provide a great deal of humoUr in some circles.

I would ask that the Office of Auditor General investigate my allegations as they simply mean asking CIBC for copies of my SBL file. If warranted, application of s.25.2 and 26 of the Superintendent of Financial Institutions Act might be appropriate in this situation.

Challenge
Without the Office of Auditor General of Canada's leadership, we can expect public confidence in these financial institutions and Canada Small Business Financing Program to degenerate further. I would also suggest that inaction on this issue sends the strongest validation to franchise lenders who we allege are engaging in an abusive version of small business lending. And, unfortunately, the message sent to the vast majority of responsible officers will be that neither their employers nor their regulators do not value honesty, good faith and competence.

I have attached the necessary documents to your attention. I would be happy to address the systemic issues, answer question, etc. If you would like to speak to Mr. Les Stewart, Canadian Alliance of Franchise Operators, he has my complete trust in these matters. Thank you.

Sincerely,

Mr. Andrei Oudovikine
416-219-6576

Mr. Les Stewart
Canadian Alliance of Franchise Operators
705-737-4635 Tel
ten.ofac|trawets.sel#ten.ofac|trawets.sel


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