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School of Business at Indiana Universi- ty, crunched some numbers for the Task Force to Modernize Securities Legisla- tion in Canada in 2006, and came back with some startling results. Comparing the OSC and the SEC's records between 1997 and 2005, he found that when scaled for size of the stock market, the SEC has stepped into the Canadian are- na to pursue companies while Canadian regulators have stood on the sidelines. This was somewhat true in the case of Nortel, where the SEC has sought up to US$100 million in fines, but was only awarded $35million, against the high- tech company over accounting manipu- es against companies for this practice. In Canada, it's an altogether differ- ent story. Lawyers from two Canadian law firms, Siskinds LLP and Cavalluzzo Hayes Shilton McIntyre & Cornish LLP, are doing research that suggests there's greater than 95 per cent probability that at least 35 TSX-listed companies have SEC prosecutes 10 times more cases per firm for all securities laws violations and 20 times more insider trading violations than the OSC. Moreover, the SEC re- solves cases faster than the OSC, levying fines that are 17 times more per insider trading case than those of the OSC. In some instances, the statistics are staggering. From 1997 to 2000, the OSC didn't launch one single case or lay one single charge for insider trading (and launched only two in the following two years), while the SEC launched 110 cases. In 2005, while the SEC launched 500 overall cases of securities violations among 6,404 firms that year, the OSC initiated only 24 among 3,610 firms. "The SEC enforces securities laws much more vigorously than the OSC," sums up Bhattacharya. Moreover, the SEC's track record doesn't take into consideration the ef- forts of former New York attorney gen- eral Eliot Spitzer against Wall Street to stop investment banks from inflating stock prices, mutual fund companies from giving preferential treatment to selected clients, insurance companies from using contingent commissions, and stock analysts from giving biased recommendations. And in a number of instances, the lations compared to the $1-million pit- tance eventually negotiated by the OSC (although the OSC is pursuing four of Nortel's former executives for account- ing and other issues). The Conrad Black case was wholly an American endea- vour. "If a Canadian company, or the conduct of Canadian citizens involv- ing a Canadian company, rises to a level where it has any profile in the U.S., then it's certainly a case that lends itself to Canadian regulators stepping in first in front of their American counterparts," opines Jacob Frankel, a Maryland-based lawyer and former SEC staffer. "A case like Conrad Black, a case like Nortel, a case like Livent. Those kinds of cases." Another example of where Canadian regulators may be slow off the draw is stock options backdating, which occurs when an executive is offered stock op- tions at a price when the stock was once trading at a lower price — so when they cash out, they make much more money. A study conducted by Erik Lie at the University of Iowa and Randall Heron at Indiana University published in 2006 found that 29.2 per cent of American firms manipulated grants to top execu- tives at some point between 1996 and 2005. For the past two years, the SEC has been investigating and laying charg- manipulated stock options granted to senior executives since 1987. Their findings were bolstered by a draft pa- per produced out of the University of Manitoba's economics department that examined data from 66 of the biggest TSX-listed companies. "We believe the number of companies we found actual- ly understates to a significant degree the level of options manipulation in Can- ada," says Dimitri Lascaris, a lawyer at Siskinds who is pursuing this research. So far, though, only Research in Mo- tion, makers of the BlackBerry, have stepped forward to say they may have engaged in stock options backdating. The OSC claims it's looking into the issue, but hasn't charged anyone yet (a spokesperson from the OSC says they are examining cases other than just RIM). So what are the reasons for this dis- mal track record? One factor that can't be overlooked is the cozy relationship between the corporate community, their law firms, and Canada's 13 securities commis- sions. For starters, the commissions are run by people who either come from the business world itself, or are lawyers who once worked for law firms that primarily service corporate www. C ANADIAN Law ye rmag.com JANU AR Y 2008 45