Claude Lamoureux on Canadian Governance

The C$96-billion Ontario Teachers Pension Plan only invests in stocks that trade in the U.S. because investor protection is superior there, says CEO Claude Lamoureux.

"When we buy stocks in the U.S., or trade stocks in the U.S., we're protected by U.S. laws. It's easier to sue there to protect your investment, laws are tougher and they are also more owner friendly," he said in a telephone interview this week.

The Teachers' pension plan, second largest in Canada after the Caisse de Depot et Placements du Quebec, has been drawn into legal skirmishes involving Nortel networks (settled out of court) and Biovail. Both cases were based in the U.S. where laws and courts are more helpful.

"No one ever goes to jail for these crimes in Canada. Look at Bre-X or YBM. It's only U.S. regulators who take rigorous action," he said. "As a result, the best way in Canada to steal money is to wear a nice suit and do it in your office instead of taking a gun and holding up a store."

He believes that the biggest problem is the failure on the part of politicians to understand the failings and need for reform.

For instance, Canada has too many competing jurisdictions with the provinces controlling securities laws and the feds, criminal laws. I asked him about other issues such as the fact that the RCMP's white-collar crime section has been inadequately funded by Ottawa for a decade and that prosecutors in Canada are civil servants, often naïve or very politicized.

"Something's got to be done because the public is being taken for a ride and it just goes on and on," he said. "I'm not blaming the securities regulators in Canada. They even say there are jurisdictional issues. There is also little recognition on the part of legislators as to the importance of this. It's not like healthcare and there's a perception that this is a victimless crime. It isn't. People are being stolen from."

Mr. Lamoureux is hopeful that a task force, which is currently working on these problems, will come up with helpful recommendations that will be adopted by politicians.

"It's the system that has to be looked at, as opposed to the people involved," he said. "In the case of a large institution, we are protected because we can always try to sue. But the individual investor is stuck."

A glaring example of Canada's inadequate investor protection involved the issue of market timing and late trading among certain mutual funds and others, he said.

"Look at what happened in Canada about late trading," he said. "A few corporations paid fines, but they stole money from members of the funds. It became difficult to know who personally did it, the names were buried. And the fines were small."

Late trading and market timing was started in the U.S., but justice was more appropriate.
"There were huge fines and in the U.S., people are still being prosecuted over it. They will go to jail. Here, nobody was prosecuted," he said.

The biggest embarrassment was Bre-X, a C$9-billion gold swindle.
"Here's a case where everybody knows there was a problem and nothing has happened," he said. "Another was YBM which was an outright fraud. The securities commission went after a few board members, but none of the owners and managers were extradited to stand trial."

"There was a lack of oversight by the board, but at the end of the day management is responsible. How many got prosecuted? Or are wanted on warrants?" he said.

These companies show that criminals can operate in Canada with impunity, he said.
Another worrisome development is that even though the dreadful Vancouver Stock Exchange was shut down, many of the same questionable promoters are now selling shares to the public through pink sheets or over-the-counter vehicles.

"There are more scandals in the small cap stock sector because there are no big institutions as investors and analysts don't cover them. They fly under the radar," he said. "The people behind some of those scams just changed places, but they are still operating within Canada."

Mr. Lamoureux is also a fan of Washington's Sarbanes Oxley laws which have become controversial in the U.S. because of the additional costs public companies incur to comply.

"Section 404, requiring audit controls went a bit overboard and should be modified, but in general it's good protection," he said. "The fact that 15% of companies had to issue re-statements demonstrates there was a need to have better controls."