Where are the apologies? That's what I'd like to know. Don't investors deserve something more than excuses from the five fund managers that allowed market-timing activities to take place? Yes, these managers have agreed to pay $205.6 million to unit holders affected by the practice. But that's not the same as saying they're sorry. Apologies help victims come to terms with those who have injured them. They indicate important lessons have been learned and that similar wrongdoing won't happen again.
The chief executive of Manulife Financial Corp. issued an apology Thursday as he promised clients who were steered into funds run by Portus Alternative Asset Management Inc. that they will get their money back.
Dominic D'Alessandro made the pledge to clients of subsidiary Manulife Securities International Ltd. who were referred by financial advisers to Portus, a hedge-fund operator currently under investigation by several regulatory authorities.
"Whatever the outcome of the investigation, Manulife Financial guarantees that you will recover 100 per cent of the principal amount you invested with Portus," D'Alessandro wrote in a letter released Thursday.
"We will, in effect, 'stand in your shoes' and aggressively pursue all avenues to secure and recover invested funds."
That's the spineless way out.DanH wrote:You know that there's a very good reason that no apology has been made by anybody. It's called the fear of class actions. I'm certain that there are fund company executives that are sorry about what happended. But they'd be hurting their shareholders by making a public apology. Plus, their lawyers would jump up and down screaming.
but it's pretty low risk relative to their other options.
For them to offer an apology now would be silly from a corporate standpoint.
Bylo Selhi wrote:That's the spineless way out.DanH wrote:You know that there's a very good reason that no apology has been made by anybody. It's called the fear of class actions. I'm certain that there are fund company executives that are sorry about what happended. But they'd be hurting their shareholders by making a public apology. Plus, their lawyers would jump up and down screaming.
If these executives don't believe their fund companies did anything "wrong" then what are they afraid of?
Bylo Selhi wrote:If they truly believed that what they did violated their fiduciary duty to their unitholders, they'd fess up, aplogize and offer to pay the long-term unitholders who were affected by market-timing a fair compensation for their losses.
Yielder wrote:Ahh, you're more cynical that I am, Dan Hallett.
Yielder wrote:As for suing Portus, the return on invested time and money will probably be zip. If they can figure a way of getting at Société Générale, that might be worth the effort.
The hidden cost of fighting back
Pressure exerted to settle before court action
Vern Krishna, Financial Post, Wednesday, March 30, 2005
If you are guilty of securities violations, do you want to pay the regulatory authorities with cheap pre-tax or expensive after-tax dollars? New tax rules give you a choice and provide powerful incentive to settle rather than fight securities prosecutions. It is no wonder the Ontario Securities Commission is improving its settlement record -- for example, settlements with four mutual funds and three banks implicated in market timing.
It is always difficult to fight with the person who writes the rules, particularly when the rule-writer is government. The latest changes to the tax rules, however, make it even more difficult and expensive for Canadian business to fight against regulatory bodies that can impose fines and penalties.
Generally, the Canadian tax system taxes all income, regardless of its moral taints, and allows taxpayers to deduct expenses that they incur to earned income. The law does not distinguish between legal and illegal income. For example, we tax income from prostitution, drug dealing, insider trading and bribery. Thus, tax law should be neutral and focus on the accurate measurement of income.
Until recently, taxpayers could deduct fines and penalties that they incurred in the conduct of their businesses if the underlying offence was not of an egregious nature. A parking ticket or a fine for an overweight truck was deductible if incurred in the normal course of business. Although the debate on the deductibility of fines and penalties has always been burdened with moral overtones, the Supreme Court of Canada upheld the principle that tax law should generally be neutral. Environmentalists, however, were enraged because the deduction of fines for environmental infractions reduced the overall economic wallop of the fine.
The latest budget amendments overturn the decision of the Supreme Court of Canada and, in the process, affect litigation strategy. Fines imposed by government agencies, regulators, courts, tribunals or statutory bodies with authority to levy penalties -- whether domestic or foreign -- are no longer deductible for tax purposes. Thus, the new rules require businesses to pay fines with after-tax dollars, which virtually doubles their cost. Proceeds of crime forfeited to the state, however, are still deductible as business expenses.
The theory underlying the new rules is that the deduction of a fine or penalty has the effect of blunting the magnitude of the financial sanction against the transgressor. But the prohibition also has other important implications for civil and criminal counsel. For example, where a Securities Commission, whether domestic or foreign, brings an action against a company for alleged violations of securities law, the company will have to consider whether it should settle the action without prejudice and admission of liability or defend itself in litigation.
If it settles, it will probably be able to deduct the amount of the settlement in computing its income for tax purposes. If it does not settle the action and loses, it will have to pay any resulting fine or penalty with after-tax dollars. A fine of $1-million that a business pays out of after-tax dollars, for example, translates into a cost of approximately $1.5-million. Thus, domestic and foreign regulators can use the threat of non-deductibility of fines as an extra-judicial weapon to pressure settlements from Canadian businesses. The prohibition also puts into doubt the deductibility of legal fees to the extent that the fees apply to arguments on the amount of the fine or penalty in each case.
Citizens who fight government are always at a disadvantage because governments are rarely sensitive to the costs of litigation financed by the public purse. The financial sanctions of having to pay fines out of after-tax dollars, however, means individuals and corporations must now assess the additional risk of fighting big government against the incremental cost of losing. The new rules have the potential for coercing unwarranted settlements. © National Post 2005
TORONTO, April 1 (Reuters) - Fines of C$7.2 million ($5.9 million) collected during a recent crackdown on mutual fund trading practices will be distributed to investors affected by the abuses, Canada's Investment Dealers Association said on Friday.
The IDA, the self-regulatory body of Canada's brokerage industry, said the money is part of the C$41.3 million extracted from three bank-owned brokerages for failing to prevent instances of market timing in 2002 and 2003.
It said the money will be distributed to mutual fund companies whose funds were affected by the brokerages' conduct. The IDA expects the fund companies to then pay out the money to investors hurt by the trading abuses.
"The IDA expects mutual fund managers to administer these settlement funds to benefit unitholders in a manner consistent with their fiduciary duties," IDA vice-president Paul Bourque said in a release.
The IDA's crackdown ran alongside a larger investigation of Canada's mutual fund industry by the Ontario Securities Commission, Canada's most powerful regulator.
The OSC eventually settled with five of Canada's largest fund companies, forcing them to pay back a total of more than C$200 million to investors who were affected by trading abuses.
Market timing involves the rapid buying and selling of mutual funds to take advantage of fund prices that are slow to reflect the changing value of individual stocks. It is usually carried out by market professionals, and causes long-term retail investors to lose out on potential gains.
The crackdown focused on the fund companies and brokerages that allowed the practice to take place.
The IDA said the C$7.2 million payout -- part of the settlement with dealers owned by Royal Bank of Canada (RY.TO: Quote, Profile, Research) , Bank of Montreal (BMO.TO: Quote, Profile, Research) and Toronto-Dominion Bank (TD.TO: Quote, Profile, Research) -- represents "trailer fees", which are paid by fund managers to the brokers that sell their funds.
James Daw wrote:Waterloo investor Russell Lavoie has lost a tax appeal over $313 in restitution paid by two mutual fund companies.
Lavoie was paid part of the $205.6 million in compensation the Ontario Securities Commission negotiated with fund managers after finding in 2004 they had allowed short-term traders' profit to create losses for long-term investors.
Justice E.A. Bowie of the Tax Court of Canada rejected Lavoie's claim the payment was a tax-free windfall, ruling it was the equivalent of a withdrawal from his registered retirement savings plans.
"When the appellant (Lavoie) cashed the cheques and applied the funds to purposes other than restoring the value of the fund holdings in his RRSPs then those amounts fell to be treated as amounts received by him in the year as benefits out of or under his RRSPs, and so were taxable in his hands," Bowie ruled.
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