ABCP fines total $138 million

Regulators have released details of settlements reached over the 2007 collapse of the asset backed commercial paper market. Seven securities firms have agreed to pay a total of $138.8 million in administrative penalties and investigation costs.

The probe centered on the distribution of ABCP issued by Coventree, and was a joint effort undertaken by Quebec’s Autorité des marchés financiers, the Ontario Securities Commission and the Investment Industry Regulatory Organization of Canada.

The heaviest penalty will be paid by National Bank Financial, which agreed to pay $75 million to the AMF. The Quebec regulator also agreed to a settlement with Laurentian Bank Securities, which will pay $3.2 million.

CIBC and CIBC World Markets and HSBC Bank Canada reached a settlement with the OSC, agreeing to pay $22 million and $6 million, respectively.

The Investment Industry Regulatory Organization of Canada agreed to three settlements, with Scotia Capital paying $29.27 million, and Canaccord Financial and Credential Securities paying $3.1 million and $200,000, respectively.

The regulators say they are looking for a “fair and appropriate use” for the penalty money.

For some, the fines alone will not be punishment enough. The Retail ABCP Owners Committee is calling for individuals to be held personally accountable, saying that the manufacture, rating and distribution of third party ABCP constituted fraud.

“The persons at the banks and investment dealers who made the decisions to dump ABCP into the retail market between July 25 and August 10, 2007, after they knew its value was impaired, should now be investigated for possible breaches of the Federal Criminal Code,” the organization said in a release.

But the group holds out little hope that individuals will be tried.

“Our experience with ABCP provides direct evidence of how the Canadian system of dealing with white collar fraud does not work to protect Canadian citizens,” it said. “There will be little to deter similar fraudulent schemes in the future unless perpetrators are held personally responsible and face mandatory minimum jail time as stipulated in the federal governments’ proposed amendments to the Criminal Code in Bill C-52.”

Each of the companies has also agreed to an independent compliance review of its fixed income department.

Five of the firms were accused of having inadequately responded to problems that developed rapidly in the summer of 2007, including withholding from clients an email from Coventree, detailing the securities’ exposure to the sub-prime mortgage market.

In the cases of Credential and Canaccord, it was alleged that their Approved Persons did not understand the complex third party ABCP and therefore could not have ensured that their clients understood the product either.

The OSC and IIROC have begun disciplinary hearings against Coventree and Deutsche Bank Securities Limited in this matter.

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(12/22/09)