Investor advocate loses fight with IDA

(May 26, 2005) Former broker Robert Kyle has lost a long-running court battle against the IDA. In a decision released on Wednesday, the Ontario Superior Court of Justice dismissed all aspects of Kyle’s case, which essentially boiled down to the regulatory powers of the brokerage industry association.

The case dates back to 1998, when Kyle and his firm, Derivative Services, were suspended from the IDA due to a possible capital deficiency. However, Kyle refused to cooperate with the IDA’s investigation and challenged the jurisdiction of the IDA over its member firms.

Essentially, Kyle argued that the IDA was authorized to adopts its by-laws only through delegation of authority by the Ontario Securities Commission.

But the court dismissed the appeal, noting that “the Supreme Court of Canada has established the deference that should be shown to securities commissions.”

“The issue for the court is the reasonableness of the IDA’s actions in prosecuting, convicting and fining the appellant,” the judge wrote in a 27-page decision. “I reject the submission that the IDA was unauthorized to adopt its by-laws only through a sub-delegation of authority by the OSC. There is no requirement for consistency in the regulatory scheme.”

As for Kyle, he says he’s disappointed, but not really surprised by the decision. “Ultimately, they side-stepped the issue,” he said in an interview. “We wanted to know if the IDA was governmental or if it was contract only. The court ruled that there is a strictly a contractual relationship between the IDA and its members. If that’s the case, how does the OSC participate in a contract?”

“If the IDA is an entity on its own, with a contract with its members, there’s a disconnect between the OSC and the IDA,” he adds. “This doesn’t answer what the nature of an SRO’s powers are and what protections are afforded, not only to brokers, but to the investing public. I’ve got a lot of unanswered questions and we still have problems in the industry.

“Nothing has changed. My questions have been buried since 1998.” Kyle, whose role in the industry has evolved to that of investor advocate over the years, says he has not yet decided whether to launch an appeal.

In a statement issued Thursday morning, the IDA welcomed the decision. “The court ruling fully supports the IDA’s position in this matter,” the IDA said in a statement. “The court upheld the IDA’s investigative powers, ruling that they do not violate charter rights and do not involve unreasonable search and seizure.

“The court also determined that Mr. Kyle, at that time president and CEO of Derivatives Services, an IDA member firm, had unreasonably refused to cooperate with an IDA investigation. It affirmed the Ontario District Council’s decision that refusal to comply was a serious infraction and that failure to provide information undermined the integrity of the self-regulatory system.”

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