http://www.vancouversun.com/columnists/readers+speak+Securities+Commission+must+clean+exempt+securities+market/5077746/story.html
The readers speak: The B.C. Securities Commission must clean up the exempt securities market
By David Baines, Vancouver Sun July 11, 2011
Read more: http://www.vancouversun.com/readers+speak+Securities+Commission+must+clean+exempt+securities+market/5077746/story.html#ixzz1Rxu7GceN
The readers speak: The B.C. Securities Commission must clean up the exempt securities market
By David Baines, Vancouver Sun July 11, 2011 •Story•Photos ( 1 )
Vancouver Sun business columnist David Baines.Photograph by: PNG files, .In four previous columns, I reported that Victoria financial planner David Michaels has sold tens of millions of dollars worth of high-risk, illiquid investments to his clients, many of whom are elderly.
He has promoted these investments through infomercials on C-FAX 1070 radio in Victoria, and "lunchand-learn" seminars at his office in Victoria.
Many of these investments are so-called exempt securities products: investments that are exempted from registration and prospectus requirements.
As such, they can be sold by people who, like Michaels, are not licensed to sell securities, and have no statutory obligation to do due diligence on the products they are selling or ensure they are suitable for their clients.
The bottom line is that Michaels was legally able to sell a truckload of risky investments to people who, in my view, should never have bought them in the first place.
Many of these investments have flamed out, leaving investors with serious losses. Among the casualties is 90-year-old Barbara Hinch of Victoria, who purchased $550,000 worth of investments from Michaels. All are either non-performing, or in serious trouble.
In my view, this not only reflects poorly on Michaels, it reflects poorly on the B.C. Securities Commission, which permits this sort of business activity. Readers apparently agree with me. Here are excerpts from some of their letters:
I just read your article referring to the elderly woman who is out $550,000. I also invested in Focused Money Solutions Inc. in the amount of $100,000. Like Mrs. Hinch, we are expecting very little back after bankruptcy of the corporation. . My heart goes out to Mrs. Hinch.
-Andrew Capeau
Your columns on David Michaels are so frustrating. . Despite all of the news, no one does anything to stop him. Who looks after the plight of that 90-year-old woman? No one.
-Roland Michaels
Thank you very much for your articles concerning David Michaels. My wife and I are also heavily invested in Focused Money, Pepper Creek and Rogers Oil and Gas. Until your most recent article, we had hoped that Rogers was performing as promoted and would continue to do so. Now that seems just a whimsical hope. I do hope your articles will result in the B.C. Securities Commission bringing in much more stringent regulations about who can [sell these investments] and what credentials they must possess to be able to do so in this province.
-A.V. Gordon
As an avid listener of C-FAX radio, I have listened to David Michaels' infomercials and was always a little uncomfortable with it, as it was a sales pitch disguised as an information show. What bothered me was he always seemed to have a new product to pitch: land banking, Arizona real estate, oil companies, insurance annuities. I had to wonder what was next. . I must say I am disappointed in [C-FAX radio host] Terry Moore, someone I give credibility to, to have his name associated with this guy.
-John Haggis, Victoria
I have listened to David Michaels on C-FAX for a number of years and this is how it seems to go with these programs: people get used to hearing this person go on and on about their successes, and they begin to think of the person as a "friend" and someone who they can trust. After all, they have heard his voice, and that of the wellrespected Terry Moore (who is backing him up all the way), so they come to think that it is all so very believable and he will make them piles of money (better than at the bank). Seniors are particularly vulnerable in these situations.
-Larry Westbrook
I have read with interest your recent articles covering Michaels Wealth Creation . I have all my investments now in exempt securities. I always do my own due diligence, extensively, and carefully. I agree with all of your stated opinions on the content of these articles. ... I now view the B.C. Securities Commission as totally out of touch with reality. It is so obvious. I agree that anybody who sells securities must be properly licensed and regulated, and anybody selling securities, public or exempt, should face stiff fines for transgressions. Thank you for your good work on behalf of many of us out there.
-Craig E. Harrold
As somebody who has worked in the exempt market arena and alternative investments business for several years (first in B.C., now in Ontario), it always disappoints me to see these things take place. . Investments in exempt market products are not for everybody -but they can be an excellent way to enhance an investment portfolio of certain clientele. It's unfortunate that a misunderstood industry gets a lot of negative press because of the actions of a select group.
-Blake Wyatt, Oakville, Ont.
You incorrectly stated that the exempt markets are not regulated. As of Sept. 28, 2010 under NI 31-103 the exempt markets are now regulated. There are seven times more funds raised in the exempt markets than by prospectus, $16.3 billion in B.C. during 2010 (BCSC stats) and [this] is a major contributor to the health of the B.C. economy and the development of many small companies. ... There is risk in any investment but I would suggest the returns overall by the exempt markets far exceed the highly manipulated stock market.
-Scotty Grubb, Senior VP Prestigious Investment &
Management Group
BAINES' NOTE: The reader is correct when he says there is a national policy requiring people who sell exempt securities products to be licensed.
However, B.C. and the three other western provinces opted out of this policy.
So people like Michaels are still legally able to sell securities that are exempt from registration and prospectus requirements in B.C.
As for exempt securities products generating far higher returns than the "highly manipulated stock market," I have two responses:
First, I am not aware of any study comparing returns in the exempt market with returns in the stock market. After subtracting the hundreds of flame-outs, I would doubt the exempt market provides superior returns.
Second, my sense is that, while some junior stocks are manipulated, the market for senior issues, which dominate stock-market activity in Canada, is generally very fair.
I mention this because I would not like to see anybody moving from a publicly traded senior security to an illiquid exempt product on a false premise.
dbaines@vancouversun.com
Read more: http://www.vancouversun.com/readers+speak+Securities+Commission+must+clean+exempt+securities+market/5077746/story.html#ixzz1RxuTi9bE
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