There was little solace to be taken in the tragic story of Bernie Madoff, the ex-Nasdaq chairman and hedge fund manager who pulled off perhaps the most spectacular swindle in Wall Street history. But at least his victims had the consolation of seeing him denied bail and swiftly sentenced to 150 years in prison. In this country, clients of Earl Jones have no such comfort. The unlicensed investment manager, now known as the mini-Madoff of Montreal, is accused of running a Ponzi scheme that may have cost about 150 investors in Canada and the U.S. up to $50 million. But in the panicked days after the allegations first surfaced, Canadians got yet another troubling demonstration of the huge gaps in the way this country fights white-collar crime.
“Our system is a big joke,” says Danielle Manouvrier, a 51-year-old landscaper who used to tend the grounds at Jones’ country home in the Laurentians and who is still owed $3,000 for her gardening work. And that’s on top of the $100,000 Manouvrier and her mother thought was safely being tended by Pointe Claire, Que.–based Earl Jones Consultant and Administration Corp. before complaints over bouncing cheques led the authorities to freeze the now-bankrupt firm’s assets on July 9.
Manouvrier admits her first thought, upon hearing of the scandal, was to dump a load of manure on Jones’ lawn. Losing your life savings, she says, makes people do base things. “Don’t know if your photographer caught me spitting on E.J. [as he was led to face four counts each of fraud and theft on July 28],” she says, but “emotions were very high, and I had promised my mom I would do so on her behalf.” It’s that roiling anger that prompted her to launch a protest to pressure Canadian politicians, regulators and police to get over regional differences and effectively co-ordinate securities-fraud investigations. Until that happens, Manouvrier says, “crooks will keep robbing honest people.”
On July 29, about 100 people attended a rally in front of the court that released Jones on $30,000 bail. Hoisting placards that read “100 victims, 100 years,” they called for U.S.-style jail terms while demanding that Quebec drop its opposition to the creation of a national securities regulator to replace Canada’s controversial patchwork system of 13 regional authorities. Manouvrier promises it was just the first showing of public outrage. Simply put, she says protest organizers can’t accept that an unlicensed investment adviser — who allegedly bilked the elderly and disabled, along with relatives and lifelong friends — managed to openly conduct and advertise his services in Canada for decades. They can’t believe a man accused of stealing millions was trusted to remain free while awaiting trial. And they can’t understand the lack of co-ordination that exists between securities regulators and Canada’s three levels of police.
The allegations against Jones have not been proven in court. But concerns over how authorities have handled the affair so far speak to a deeper problem.
After reports surfaced that the financial adviser was on the lam, some investors took the time to organize an international search using mass e-mail and Facebook. Charlie Washer, 65, despite being best friends with Jones’ brother, felt compelled to blast the suspected swindler’s image around the world (starting with a chain letter sent to his hockey pool) after learning he had personally probably lost $125,000. He estimates his letter eventually hit 250,000 people.
But on July 22, Jeffrey Boro, a Montreal lawyer hired by Jones, announced that the Sûreté du Québec was aware of his client’s whereabouts, even when he left the country to visit his daughter in the U.S. The provincial police declined to comment. But Sylvain Théberge, a spokesperson for the Autorité des marchés financiers, admits Quebec’s securities regulator was never advised of Jones’ location or travel plans.
Furthermore, after alleged victims started complaining about not being able to figure out where to direct complaints, Théberge told Canadian Business that the whose-in-charge question had been cleared up. “The Sûreté du Québec is now leading the investigation,” he said, adding, “the AMF and other Canadian regulators are collaborating with the SQ.”
But a survey of regulatory agencies across the country turned up a lot of contradictory information about who was in charge, and who was supposed to co-ordinate with whom. Tom Atkinson, director of enforcement at the Ontario Securities Commission, said, “We have offered our assistance and are liaising with the AMF to ensure a seamless process for the referral of Ontario victims.” Steve Dowling, corporate counsel for the P.E.I. Securities Office, guessed the Canadian Securities Administrators was “likely” in charge. “This guy is from Quebec, so the AMF have taken the lead,” said Donn MacDougall of the Northwest Territories Securities Office, adding, “This is not something that we sit around and wait on. We have been very proactive, and the AMF has done a good job keeping other commissions up to date.”
According to media reports, at least one of Jones’ clients lives in Manitoba. But Ainsley Cunningham of the Manitoba Securities Commission has no idea if that’s true. “Maybe the AMF can provide you with that information,” she said.
The Jones case provides another stark example of how a common securities regulator could improve the situation in Canada, says Poonam Puri, a securities expert and associate law professor at Osgoode Hall Law School at York University. “The lack of co-ordination amongst the AMF, RCMP, the Quebec police and other regulators in this case is embarrassing,” he says. “A single regulator responsible for, amongst other things, enforcement at a national level, would better protect investors and inspire greater confidence in our capital markets. Enforcement resources could be pooled and more efficiently deployed. Duplicative effort could be reduced, and investors could have a single point of access.”
When it comes to fraud investigations, Ermanno Pascutto, a former securities regulator who is now executive director of the Canadian Foundation for the Advancement of Investor Rights, says there would still be “confusion” with police if Canada reduced its 13 regulatory bodies down to one. Of course, a national regulator wouldn’t prevent fraud from occurring, but it would give investors a single enforcement body to turn to. It would also stop the head-scratching of foreign investors who wonder why the land of Bre-X, Livent and Nortel, not to mention YBM Magnex and Philip Services, still has such a fragmented regulatory system. A single regulator might even lead to the creation of a list of unauthorized investment professionals targeting Canadians — like the one Britain’s Financial Services Authority puts out to warn U.K. citizens.
But nobody should bet on the Jones affair breaking Canada’s regulatory logjam. “There is no rational reason for our current system,” explains a former OSC official who spoke on condition he not be identified. The Jones case, he says, is a “classic illustration of pretending to co-ordinate.” But “creating a national regulator has been the logical thing to do for 30 years.” And although Ottawa might now actually be keen on the idea, persistent opposition from Quebec, Alberta and Manitoba means “it probably still lacks the political currency required to get done.”
Some people on the Street, the ex-OSC official adds, “like the way things are, and the ones who complain are really upset over administrative costs” not justice for fraud victims.
For now, there’s little Jones’ former clients can do but wait, and dream about the kind of vengeance that only a fully loaded manure truck can provide.