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Tensions build in market crime unit
Thursday, March 16, 2006
The RCMP's highly touted securities crime investigation unit has been hit with recent senior staff departures and rising internal tensions, leaving critics questioning when it will begin to show results.
The federal government created the Integrated Market Enforcement Teams (IMET) in 2003, pledging it would bring together experts from the RCMP and other regulators to quickly investigate cases and improve Canada's poor track record on white-collar crimes. Almost three years later, IMET has not yet laid charges in any of the prominent cases it has tackled.
And last week, new information emerged about problems between the RCMP and the federal Department of Justice in the Royal Group Technologies Ltd. investigation involving former Ontario finance minister Greg Sorbara.
IMET is under intense scrutiny as the group leading the investigations into most of Canada's top corporate scandals such as Royal Group, Nortel Networks Corp., Portus Alternative Asset Management Inc., Norbourg Asset Management Inc. and Norshield Financial Group. It is also responsible for the investigation of the politically charged allegations of leaked information about federal income trust tax changes.
But despite its high public profile in business circles -- bolstered by a dramatic raid last year of the head office of Bank of Nova Scotia as part of the Royal Group investigation -- IMET teams in Vancouver, Calgary, Toronto and Montreal have so far announced charges in only two cases. One case in 2004 involved an individual accused of stealing stock certificates from a client's account, and the other in 2005 involved defunct Betacom Corp. Inc.
RCMP Inspector Dean Buzza, acting director of IMET, said IMET has had some growing pains in its "implementation" phase.
He said the units needed time simply to hire staff and set up offices.
"When you're three years into a program, you're still young, and you're still going through growth pains," he said. "In my opinion, we are approaching a point where the teams are going to be up at full strength and running, and we're going to be able to see the results in the near future."
He said charges in some cases "are going to start happening."
When IMET was created, senior officials pledged that one of the unit's key goals would be to speed the pace of securities investigations. They repeatedly said cases could be completed within one year.
But Insp. Buzza said it has been difficult to meet that time limit because its investigations have proven so complex, and because of the slow pace of document retrievals.
IMET teams are run by the RCMP in co-operation with the Department of Justice and other regulators, including provincial securities commissions.
David Wilson, chairman of the Ontario Securities Commission, wasn't available for comment about IMET, but said recently he thinks IMET deserves more time to prove itself, telling reporters "I think it's early to throw in the towel."
OSC spokeswoman Wendy Dey acknowledged IMET has not met everyone's expectations yet.
"It's an investment that hasn't borne out as much fruit as some would have liked to have seen by now," she said. "But we need to monitor it and see ways to improve it."
Claude Lamoureux, chief executive officer of the powerful Ontario Teachers Pension Plan, which led a shareholder lawsuit against Nortel, said he was "hoping for more" from IMET and said the long wait for results and the internal staff turnover at IMET have been disappointing to see.
"I find it amazing how long it takes for these cases to finish," Mr. Lamoureux said in an interview.
He questioned why the most prominent U.S. scandals seem to lead to charges more quickly. In cases such as WorldCom Inc. and Adelphia Communications Corp., trials have even wrapped up.
"It's not that the U.S. should be the model for everything, but they certainly have reacted a bit faster," he said.
IMET is now undergoing a reorganization to create more regional oversight of each team.
Insp. Buzza said the IMET teams will no longer report to the RCMP's national office, but will instead report to their local provincial RCMP headquarters. He said the change is a response to wishes for local control, ensuring IMET teams in each region are responding to issues of greatest local interest.
"Instead of me dictating to my Vancouver team what they should be doing, Vancouver can listen more in their own backyards on what has to be done there," he said.
Among its recent troubles, IMET has faced several unexpected departures of senior staff members, including the heads of the Toronto and Vancouver units.
IMET has also faced difficulties with its touted co-operative model. IMET teams were intended to allow police, regulators and the federal Justice Department to work together on investigations.
But the team approach has hit snags, most notably over the Royal Group case.
Last week, Mr. Sorbara applied in the Ontario Superior Court to have his name removed from search warrants implicating him in the Royal Group probe. His lawyer, Rod McLeod, offered a glimpse at the tensions between the RCMP and the Justice Department in an affidavit he filed to support the application.
Mr. McLeod said he held a series of meetings with Crown prosecutor Robert Goldstein in December and January, offering Mr. Sorbara's full co-operation. But on Jan. 30, he said Mr. Goldstein advised him he was no longer working on Mr. Sorbara's case, referring the matter to a colleague. A day later, the second official said he, too, was no longer involved in Mr. Sorbara's case, adding that the Justice Department "was no longer advising IMET" in Mr. Sorbara's case.
Mr. McLeod said he concluded there was no prospect of productive communications with IMET.
Insp. Buzza said he could not comment on any aspect of the Royal Group case.
There have also been reports of tension between the IMET and Quebec's securities regulator over their approaches to the Norbourg investigation. In a press release Friday announcing Securities Act charges in the case, the Quebec regulator took the unusual step of publicly stressing that its actions will not interfere with IMET's criminal investigation.
Mr. Lamoureux from Teachers said the squabbling over the Norbourg case is a bad sign for IMET.
"Everybody is there protecting their own turf as opposed to doing what's right for the public. In my mind, certainly we don't win as a country."
Canada's national securities fraud squad has had to deal with some senior staff departures.
The head of the Toronto Integrated Market Enforcement Teams (IMET) unit and a key investigator in the Royal Group Technologies Ltd. case, Mr. Hannaford retired from the RCMP this year and a replacement has not been announced. The 46 year old was unavailable for comment but a source said he is in the process of setting up a consulting business. A source who works closely with IMET said Mr. Hannaford's departure was a "blow" to the organization. IMET had a clear sense of where it was going under Mr. Hannaford's leadership, but has now lost some of its focus, he said. "He was the one guy really driving it," he said.
Meanwhile, another officer involved in the Royal Group investigation, Staff Sgt. Young, has left the Toronto IMET team for the RCMP's criminal operations branch in London, Ont. He declined comment, but an RCMP spokeswoman said his move was a promotion to the RCMP's Ontario headquarters.
Meanwhile, the head of the Vancouver IMET team, Insp. Majcher, was suspended with pay last year for undisclosed reasons. Insp. Majcher could not be reached for comment, but The Vancouver Sun reported he was disappointed that prosecutors had been unwilling to lay charges in his team's cases.
The national director of IMET, Superintendent John Sliter, has been on a six-month language training course until April.
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