by Greg Klein
Hedley Beauford’s not a man to mince words. And he speaks for many others. “The TSX Venture Exchange isn’t just broken,” he declares. “It’s unfixable. It’s time to go back to our roots and start all over again.”
We’re seated in Beauford’s office, newly remodelled but with walls displaying reminders of the past. Beauford proudly points to stock certificates from long-forgotten companies, portraits of colourful Howe Street characters, photos of frenzied trading floor activity and other mementoes of the former Vancouver Stock Exchange that was housed in this very building. As tradespeople and new staff bustle about with last-minute preparations, Beauford explains why he’s re-opening the fabled bourse.
It was here that deals were done and money was raised for some of mining’s greatest events, he says. Pyramid, Dynasty, Eskay, Stikine, Afton, Gibraltar, Hemlo, Ekati, Voisey’s, Diavik—the names speak of grit, determination and above all success. It was here that great companies and great discoveries were made possible and here that venture capital will restore itself, Beauford maintains.
Only in Vancouver can the sector correct the catastrophe that began with the VSE’s 1999 merger into a Calgary-based exchange, and the devastation that continued as mining juniors found themselves shunted onto the TSXV. Along the way came a punishing regimen of rules and regulations that nearly killed Canadian venture capitalism, Beauford contends.
That regimen hasn’t done much for Toronto either. Both the TSX and TSXV experience an ongoing decline in listings, financings and total market cap. The Venture in particular has been walloped in trading volume and value. The TMX Group’s own stock (TSX:X) spent most of 2016 trading at five-year lows. Attempts to revitalize the Venture from within, meanwhile, have provoked outright scorn from critics who see no end to excessive fees and regulations.
There have been glimmers of hope elsewhere. Revamped by Ned Goodman, the Canadian Securities Exchange reported record volume last year along with a 20% increase in listings. Last week newcomer Aequitas Neo marked its first year of operation. But even these efforts face impending doom through over-regulation, Beauford argues. The only solution he sees is a return to the VSE, once considered the greatest venture capital market in the world.
Yet the VSE had another reputation too—the scam capital of the world. But say that to Beauford and you’ll experience his 120-decibel, nine-Richter-scale apoplectic rage.
“Outrageous!” he bellows, veins throbbing on his forehead. “Vicious exaggeration! Anyone who’d call Vancouver the scam capital of the world doesn’t know the scam capitals of the world like I know the scam capitals of the world.”
Still that rep, whether overstated or not, dates back to a time when the VSE faced little if any oversight. Now critics say the pendulum has swung to the opposite extreme. According to their argument, re-opening the VSE would solve nothing if the sector continues to be stymied by the Investment Industry Regulatory Organization of Canada and the British Columbia Securities Commission.
Or, as Beauford prefers to call them, “those capital-depleting, blood-sucking, anal-retentive power-trippers.”
But his countenance relaxes as he explains that IIROC and the BCSC will have no jurisdiction here. For that, Beauford credits a very Canadian turn of events.
“Anyone who’s followed Vancouver real estate these past years knew it was only a matter of time before Chinese state-owned companies got involved. That’s finally played out to its logical conclusion. Vancouver now comes under Chinese sovereignty. Beijing will make its official proclamation next week to coincide with Canada’s next formal apology. We anticipate excellent relations with our new oversight agencies—if there are any.”
Freed from those shackles, he looks forward to reliving “the excitement that comes when you send a stock soaring to the heavens with no logical means of support. Then, just before the punters catch on, the delight in crashing it to earth. To me, that’s venture capitalism. And no place can revive it like Vancouver.”
But no matter how laissez-faire, a market can’t overcome lousy commodity prices. Doesn’t Beauford have other concerns besides over-regulation?
“Oh, we won’t be limited to resource stocks,” he answers. “That brings to mind what I’ve always thought of as a conflict of interest in Toronto, where the TMX Group trades its own stock on its own exchange. So once Vancouver’s officially separated from Canada, the VSE will be the perfect venue for a fairly big up-and-coming listing.
“For years Canada’s been pleading with the world to buy us, buy our land, buy our companies, buy our resources,” he continues. “Soon foreigners will be able to buy our country share by share, and this time even Canadians can participate. We expect Canada Corp to make its VSE trading debut exactly 12 months from today, when the country begins its next fiscal year on April 1, 2017.”
by Greg Klein | March 18, 2016
And you thought those stuffed-shirt compliance officers had no sense of fun. Much to the surprise of patrons at a Victoria coffee shop last week, the British Columbia Securities Commission staged a two-minute musical. The purpose? To warn about some common investment pitfalls, especially the no-risk, high-return kind.
One of the most significant reasons people fall for investment fraud is that they can’t actually recognize an outrageous offer when they see one.—Paul Bourque,
BCSC executive director
“One of the most significant reasons people fall for investment fraud is that they can’t actually recognize an outrageous offer when they see one,” said BCSC executive director Paul Bourque at the video’s March 17 premiere.
“A good rate of return in today’s markets is 4% or lower,” he added. “Not knowing this can make it hard to evaluate much higher returns if someone presents them as an opportunity. If you are offered an investment with high returns and no risk, or that is offshore and tax-free, it’s a scam. You should reject the investment and report it to the BCSC immediately.”
The musical marks the latest feature of the BCSC’s BeFraudAware campaign. Launched in 2011 and emphasized during Fraud Prevention Month, the program uses the Web, TV, radio and print to encourage people to take precautions before investing and to tip off the commission about known or suspected frauds.
by Greg Klein | March 9, 2016
It’s a musical with a message, and a decidedly unusual approach to Fraud Prevention Month. The British Columbia Securities Commission invited people for free refreshments and advice in a downtown Victoria coffee shop, then surprised them with a two-minute musical starring Mark Donnelly.
“We want people to remember the warning signs of fraud, as well as some other actions they can take to protect their hard-earned savings, and a song is a fun way to do that,” said Pamela McDonald, BCSC director of communications and education.
She said B.C.’s capital city was chosen “because of the prevalence of retirees and pre-retirees, two demographics that are especially vulnerable to fraud. The BCSC sees the devastating impact caused by investment fraud up close, and our Be Fraud Aware campaign is designed to raise awareness and empower the public to recognize, reject and report it.”
The strategy is one of a number of unusual approaches taken by the commission. In November the BCSC released survey results connecting personality types with individual investment behaviour. In a downtown Vancouver mall last March, the commission set up a TV screen in which an actor posing as a scam artist interacted with shoppers.
by Greg Klein | November 3, 2015
What kind of investor are you—confident, diligent, impulsive, reserved or, God forbid, tumultuous? The British Columbia Securities Commission polled Canadians to categorize them by personality and find out how that affects some of their investment decisions. The result was a 77-page study released November 3.
Psychologists believe five main personality traits “measure most of what is distinct about individual personalities,” according to the Smarter Investor Study. On behalf of the BCSC, Innovative Research Group polled 2,407 people aged 35 or older across the country and measured them for extroversion, agreeableness, conscientiousness, emotional stability and openness to experience. (Take the quiz yourself.)
Using those traits, the study lumped each person into one of five investor personalities: confident (18% of respondents), diligent (22%), impulsive (13%), reserved (20%) and—in disconcerting predominance—tumultuous (28%).
Overall, 52% of respondents said they had no investments, 19% were classed as DIY investors and 30% stated they invested through an adviser. Most of the study focuses on that 30% and their relationships with advisers. Oddly enough, more DIY investors (72.4%) than those using advisers (70%) expressed satisfaction and confidence with their current portfolio and with investments in general.
Researchers also measured how well each personality type could recognize six signs of fraud, defined as follows:
Confident types did best, followed closely by diligent, then reserved, impulsive and tumultuous. As for those who have actually reported getting sucked into a fraudulent investment, confident types led with 8%, followed by diligent (7%) and reserved (7%). Surprisingly, impulsive scored least of all at 5%. Predictably, on the other hand, tumultuous placed highest, with 12% even though their category was least likely to invest in the first place.
The study forms part of the BCSC’s awareness program that “provides investors with the tools to research and assess potential investments in order to protect people from unsuitable or fraudulent investments.”
by Greg Klein
Should anyone misunderstand this British Columbia group’s stance on the Investment Industry Regulatory Organization of Canada, Don Mosher’s quick to clarify matters. “We want to throw IIROC right out of the goddamn province. The hell with them.” The B.C. Securities Commission should be doing that job, he declares, but only a radically restructured BCSC could do it fairly. Put simply, that’s the manifesto of the Venture Capital Markets Association expressed to B.C.’s legislature in an open letter that’s gaining “overwhelming” support.
The group fears for the viability of the junior exploration sector, already hammered by the lengthy downturn. “Strangulation through regulation” threatens the juniors’ ability to raise capital, the VCMA argues. As a result the entire sector, and the thousands of jobs it supports, faces a “death knell.”
That’s more or less been the VCMA’s message since the group surfaced in May 2013. But Mosher says the open letter distributed August 13 is getting “quite a bit of traction” and even the support of B.C. cabinet members Andrew Wilkinson and Bill Bennett, respectively ministers of advanced education and mines.
As president of the VCMA and a partner at B&D Capital, Mosher argues that banks, among Canada’s biggest businesses, control IIROC to the detriment of smaller brokerages and small cap issuers. But IIROC operates in B.C. only because the BCSC delegates some of its responsibility to the organization.
“IIROC has the ability to set regulations, police regulations, act as judge and jury, and carry out the sentencing, which I would argue is an inexcusable situation in a democracy,” he maintains.
“I think there is actually an intent to consolidate the financial industry in Canada down to maybe 10 or 12 members, and those 10 or 12 members will obviously be the largest institutions in the country. Why would they do that? Well from IIROC’s standpoint, it makes their job much easier. Instead of a couple of hundred brokers, if you get it down to 10 or 12 it makes your job much easier. So they’ve continued to pile on regulations to the point where 60% of a broker’s revenue goes to compliance and surveillance costs.
“What we’re dealing with here is the biggest businesses in Canada running the financial sector, intentionally putting the smallest businesses out because of costs.”
Turning to the BCSC, he says, “We need to restructure this thing. The salaries are ridiculous. They need to justify what they’re doing and there needs to be meaningful discussions with the business community.”
He points to some BCSC salaries in the half-million-dollar range. Out of 170 staff, “you have to go down to 114 in their employee list to get the first person below $100,000.” Numbers divulged by the Vancouver Sun for the 2013-2014 fiscal year bear that out. Meanwhile, “here’s our market on its death bed.”
Fines help pay those salaries, although the BCSC states most of its revenue comes from filing, registration and application fees.
The commission creates unnecessary obstacles to venture financing, for example with the accredited investor clause and an unwieldy process for rights offerings, Mosher says. “Theoretically they answer to B.C.’s minister of finance. But the reality of it is, when they pass a regulation they send it to the department of finance which basically rubber stamps it because they don’t understand the regulations. They put so many regulations in place that nobody understands them.”
What we’re dealing with here is the biggest businesses in Canada running the financial sector, intentionally putting the smallest businesses out because of costs.—Don Mosher, president
of the Venture Capital
In addition BCSC staff are “policing their own regulations, acting as judge and jury and sentencing people they convict of doing something wrong.” He maintains that commission proceedings work on the presumption of guilt and there’s no recourse for people who believe they’ve been maltreated. In one example, Mosher says, the BCSC abandoned a case about five minutes into the tribunal, but not before subjecting the accused to “several months of lost sleep and anxiety, and thousands of dollars in costs for lawyers.”
Some of Mosher’s comments, however, conflict with an e-mailed response to ResourceClips.com from Richard Gilhooley of BCSC media relations. BCSC staff and the BCSC tribunal operate independently of each other, Gilhooley wrote, separating the roles of prosecutor and judge. Decisions and orders issued by a tribunal can be appealed to the B.C. Court of Appeal or respondents can apply to the tribunal for a variation of the order, he added.
The BCSC led a project that brought proposed amendments to rights offerings to the Canadian Securities Administrators. The comment period closed in February. “The proposed changes were strongly supported by industry and the dealer community, [and] are currently being considered by staff,” according to Gilhooley.
But as for a BCSC response to VCMA’s open letter, “We don’t comment on our correspondence with stakeholders.”
What might be most controversial about the letter is the VCMA proposal that the BCSC answer to “a new independent board controlled by members who reflect the industry.” Mosher sounded unprepared for any concerns about a fox guarding the henhouse.
Yet initial response to the letter inspires his optimism. “We didn’t think this would accomplish anything,” he says. The original intention was to provide an historic document for people 10 years hence, “when the Canadian unemployment rate is running over 20% because there’s no job creation, when people ask, ‘What happened to the venture market?’ [The letter would show] this is what happened.”
Now “overwhelming” support—including that of two senior cabinet ministers—has brightened his outlook, Mosher says. “A very fragmented industry is starting to understand it needs to come together and speak with one voice.”
Read the VCMA’s open letter Strangulation by regulation: The death knell for B.C. jobs.
by Greg Klein | May 6, 2015
A company that claims to mine 10 tonnes of gold per month and manage $144 billion in assets has been hit by an investor alert from the British Columbia Securities Commission. The May 6 communique warns against buying “memberships or other securities of DFRF Enterprises LLC, DFRF Enterprises Ltd or other companies associated with Daniel Fernandez Rojo Filho.” Claims that investments will return 15% per month are “economically impossible,” the BCSC cautioned, while a promise that DFRF will soon begin trading on a stock exchange is illegal.
The BCSC stated Filho made the following claims, several of which “are characteristic of investment fraud”:
The BCSC urged anyone who’s been approached by or has information about DFRF or Filho to contact the commission at (604) 899-6854 or 1-800-373-6393.
Filho was recently named “Brazilian Personality of the Year,” according to a story distributed by Accesswire on May 4 and attributed to FAME magazine. Calling him “a man able to turn paper into gold,” the account stated, “the 47-year-old entrepreneur has a history rich with charitable organizations and projects. In the 1990s his work in social and philanthropic areas allowed the construction of 409 churches, 47 schools and 19 hospitals around the world.” The story claimed that he currently manages “more than 50 businesses around the world, providing more than 10,000 jobs.”
The story also claimed, “His holdings already include a bank in Switzerland, multiple airlines and a network of hotels and restaurants.”
But “as with any successful business, Daniel’s efforts have been attacked by numerous competitors who have launched fake websites and published unfounded accusations about him and his thriving companies,” the story insisted.
One critical website stated that DFRF is the subject of a lawsuit in Massachusetts and that someone with the same name as Filho had operated a pyramid scheme in Florida.
by Greg Klein | February 3, 2015
Canada’s largest investment regulator wants to pay up to $1.5 million for information leading to sanctions against delinquent issuers. In a February 3 announcement, the Ontario Securities Commission said it hopes to gather “timely information that might otherwise be difficult, or even impossible, to obtain.”
“We have proposed a realistic and concrete program that, in our view, needs to be put into action for the benefit of Ontario investors,” stated OSC CEO Howard Wetston. “We see a whistleblowing program as an important enforcement tool—one that will encourage individuals with high-quality information to come forward and report misconduct.”
The reward would reach up to 15%, capped at $1.5 million, of the total monetary sanctions imposed against a malefactor. To qualify, the info would have to bring about a minimum sanction or settlement above $1 million. But informants would get their loot even if the OSC didn’t. Under the proposal, rewards wouldn’t be contingent on recoveries.
An informant might qualify for a reward even if he or she held a degree of culpability.
OSC staff “would use all reasonable efforts” to hide an informant’s identity. The commission would also consider asking the province to legislate anti-retaliation provisions in Ontario’s Securities Act.
“The program would be the first of its kind for securities regulators in Canada,” the OSC added. But the commission considered the Canada Revenue Agency’s Offshore Tax Informant Program as well as whistleblower programs used by the U.S. Securities and Exchange Commission and the Australian Securities and Investments Commission.
The British Columbia Securities Commission has no similar program under consideration, communications officer Richard Gilhooley tells ResourceClips.com. The BCSC does conduct a Be Fraud Aware campaign, which includes an app, and encourages people to report scams. “We also put out investor alerts periodically to inform the public about ongoing scams or trends that we want them to be concerned about or report to us about,” he adds.
The OSC seeks written public input until May 4. In addition, a roundtable discussion will be announced shortly.
by Greg Klein
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Times might be tough for juniors but 155 people (or their companies, anyway) paid $262.50 each to attend an October 17 discussion in Vancouver on that very topic. That, despite admonitions from a rival gathering to save money by attending their $5 event a few hours later.
The earlier shindig was the British Columbia Securities Commission annual Capital Ideas conference, with presentations from the TSX Venture, a TSX-listed miner, an economist, an investment adviser and a representative of the proposed Aequitas Exchange. Three hours later, at the same location, a roughly same-size audience heard the Venture Capital Markets Association tear into the earlier event and Canada’s regulatory regimen.
One problem is obvious to both sides—shrinking capital. What’s less clear is the extent to which a more laissez-faire system might alleviate the suffering. And, if so, what exactly needs to be done to accomplish that?
This year’s Capital Ideas conference drew its largest crowd ever which, BCSC communications officer Richard Gilhooley told ResourceClips.com, reflects the sector’s strong concern. The event marked the release of a KPMG survey called B.C. Junior Mining at a Crossroads, which absolved regulations as a primary cause of the financing crisis. Some attendees, especially at the second event, questioned whether that conclusion was foregone, given that the study was commissioned by the commission. Nor did the survey’s sample size, all of 15 respondents, escape notice.
Acknowledging the small sample, KPMG director of advisory services practice Paul Levelton emphasized the results are “indicative, but not definitive.” The worst cycle many respondents have encountered in 30 to 40 years is rooted in economics, the malaise of commodity prices, slowing growth and a number of global financial crises, the report states. As one respondent put it, “Fear and greed drive the markets, and fear is currently in control.”
Levelton told the conference, “Virtually all of the companies, individuals we talked to said securities regulation is not a significant factor in the availability of financing. There were, however, some irritants… The companies went on to say that even if we fixed the irritants they might save a little bit of cash here and there but by and large that’s not going to help us find financing.”
Capital Ideas allowed plenty of room for other points of view. Just for example, PI Financial senior VP Bill Whitehead bemoaned the state of independent brokerages and the resulting impact on junior equities. Co-panellist and Mercator Minerals TSX:ML president/CEO Bruce McLeod explained how the complexity of corporate social responsibility places unprecedented demands on mining and exploration. Each of them, from different perspectives, attacked high frequency trading. But the most controversial remarks consisted of KPMG’s conclusion. It came up repeatedly in Levelton’s comments and throughout the report. Financing problems are “due to the cyclical nature of the mining industry and current economic and market conditions. The basic message regarding solutions from the participants is to ‘wait it out—the market will come back.’”
But when it does, over-regulation will continue to stifle the juniors. At least that was the VCMA response, often stated emphatically in the day’s later event. Association co-founder Larry Page, chairperson of Manex Resource Group, suggested many of those attending the BCSC gathering were lawyers and accountants, beneficiaries of the status quo. Besides criticizing the survey’s methodology, he noted that the BCSC panel omitted anyone from the commission other than Paul Bourque. As moderator, Bourque declined to answer questions although he said he’d take them under advisement.
On reading the KPMG report, VCMA founder and Cambridge House International chairperson Joe Martin said, “It’s apparent to me these guys don’t know what the regulations are. There’s no mention of IIROC, there’s no mention of all the trading problems and they don’t have the foggiest.”
Even more stridently, Don Mosher singled out the Investment Industry Regulatory Organization of Canada as the real problem. “I don’t even consider the commissions as the bad guys. As a group, they’re as fragmented as we are…. The issue with us is IIROC.”
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