Would Enron convictions be as punitive in Canada?

…Canada's system "invites the crooks into the country because they know they won't get prosecuted - - you're the perfect targets, the easy prey.''

The Record
May 26, 2006

Would Enron convictions be as punitive in Canada?

If Kenneth Lay and Jeffrey Skilling had run an energy-trading catastrophe based in Canada instead of Texas, would they be headed to prison or to the golf course?

While the two former Enron Corp. executives join a parade of senior managers facing hard time in the United States, there's a firm perception that Canadian justice is both blind and lame in dealing with corporate wrongdoing.

"I find regulation in this country to be next to useless … from the point of view of protecting investors and other stakeholders,'' shareholder activist Robert Verdun declared after Thursday's Enron verdict in Houston.

"Americans vigorously defend competitive, fair enterprise,'' Verdun said. "There's an almost aristocratic concept in this country that big business is above reproach, and that if you're rich and powerful you do no wrong.''

Lay and Skilling "would be walking free in Canada,'' said forensic accountant Al Rosen.

Even Bank of Canada governor David Dodge has remarked that Canadian markets are widely perceived as a kind of "Wild West'' in terms of the degree to which rules and regulations are enforced.

The headline cases of ineffectual Canadian enforcement are Livent Corp. and Bre-X Minerals Ltd.

Toronto-based theatre company Livent sought bankruptcy protection in 1998 and the Royal Canadian Mounted Police launched a criminal investigation while securities regulators on both sides of the border piled into the case.

Livent's former chair, Garth Drabinsky, and ex-president, Myron Gottlieb, were indicted in New York in early 1999. They failed to appear in court and will be arrested if they return to the United States.

It wasn't until October 2002 that they were charged with fraud in Canada, in a case which continues to drag on in Toronto.

Bre-X collapsed in 1997 in one of the most flamboyant mining frauds in history. An RCMP investigation ended in 1999 with no charges, and an Ontario Securities Commission proceeding against former Bre-X senior geologist John Felderhof — for alleged insider trading — still has not been resolved.

Meanwhile, Alberta-born Bernard Ebbers, former chief executive of WorldCom, was sentenced last July to 25 years in prison at age 63 for his part in the biggest corporate fraud in U.S. history after the telecom company's bankruptcy in 2002.

"Canadian securities fraud enforcement is abysmal relative to the United States,'' said investor advocate Diane Urquhart.

"Canadian executives committing securities offences in Canada of proportionate magnitude rarely receive criminal charges. These offences, in fact, rarely even get administrative sanctions.''

Urquhart noted that Canadian Imperial Bank of Commerce (TSX:CM) has paid more than $3 billion in penalties in the United States for its investment bankers' role in Enron's accounting malfeasance, but "there has not even been a reprimand'' in Canada.

Why the apparent laxity on this side of the border?

"It's the Canadian people,'' said Rosen, head of Rosen & Associates.

"There's no heat on the politicians to clean up the system because the Canadians don't put it on … It's a Canadian tradition, as far as I can see, to accept whatever some authority figure says, regardless of how absurd the authority's conclusion is.''

One result, Rosen said, is that Canada's system "invites the crooks into the country because they know they won't get prosecuted - - you're the perfect targets, the easy prey.''

The Bay Street perspective is less alarmed.

"To my mind, everybody would like to have everything wound up as tightly as possible,'' said Fred Ketchen, director of equity trading at Scotia Capital and former chair of the Toronto Stock Exchange.

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