IDA panel bans U.S. regulator from hearing

(December 23, 2004) The IDA’s Ontario District Council has ruled that a representative of the U.S. Securities and Exchange Commission should not be allowed to attend a disciplinary hearing involving a Canadian broker.

Brian Gruson, now with Desjardins Securities in Toronto, is accused of market manipulation involving shares in a U.S. company. The case dates back to last year when Gruson worked for First Associates. Both the IDA and the SEC are investigating the case, but Gruson refused to attend a hearing scheduled for earlier this year when he was informed that an SEC representative would also be there.

Gruson argued that IDA by-laws do not expressly allow a representative of the SEC to attend and participate in an association interview and that he could be subject U.S. legal proceedings as a result of attending the interview.

The Ontario District Council appears to have accepted Gruson’s arguments, but has not yet issued reasons for its decision.

However, Gruson still must appear before IDA enforcement officials within the next 90 days or face a permanent registration ban and $55,000 in fines and costs.

The IDA’s enforcement department has expressed concern that the panel’s ruling could undermine efforts to investigate cross-border cases.

Investor advocate Robert Kyle got involved in the case last month. He wrote a letter to Gerry Phillips, chair of Ontario’s Management Board, expressing concern that the IDA was assuming jurisdiction with respect to an issue which may involve a breach of provincial securities regulation or the Criminal Code and was using its contractual relationship with members to assist a foreign regulatory body.

Under current laws, individuals who give evidence pursuant to IDA regulations do not have the same legal protection as those who appear before the Ontario Securities Commission, Kyle added.

“In my view, the Gruson case underscores the need to review the role of self-regulatory organizations, the nature of their jurisdiction and their relationship with the OSC,” he concluded in the letter.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com