In a speech that June, he noted that companies and their auditors "stretch the interpretation of accounting standards beyond all reasonable limits. In many cases, the reasoning to support positions is weak or nonexistent. In other cases, it is clear that conclusions are based on narrow interpretations of a few words in a standard without regard to their broader context. Too often, we see an approach that treats standards like narrowly written rules rather than broad principles requiring the exercise of sound professional judgment in their application."

Having seemingly fired a shot over the auditors' bow, he warned investors in a September speech that "too frequently, it seems that generally accepted accounting principles [GAAP] have become very elastic."

But in the decade since, an abysmal string of swindles and scams has offered proof that this country still hasn't gotten serious about protecting investors and clamping down on accounting shenanigans. Without a national securities regulator in Canada similar to the U.S. Securities and Exchange Commission (SEC), no one has a voice in this country loud enough to alert Canadians to the danger. But though we're finally creating a national regulator, we're doing it in a way likely to produce just another ineffective body, as toothless as the provincial commissions it will supersede. What's more, we're dispensing with the already–elastic GAAP in favour of a set of standards even more easily exploited. Investors hoping for a new champion will be sorely disappointed.

In the wake of Brown's appointment, it seemed as if the OSC was finally formulating a determined response to white–collar crime, largely in reaction to two very high–profile scandals. Livent, the live–theatre company run by Garth Drabinsky and Myron Gottlieb, had collapsed under the spectre of accounting fraud in 1998. The co–founders were indicted in New York on charges of conspiracy and securities fraud.

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Key “Take Aways” from the Financial Symposium

1. Spotting the danger signals to Fraud using sound analysis
2. Common elements of 'meltdowns' of companies & investment products
3. How investors’ rights & interests have diminished - protecting yourself
4. The increasing risks directors need to plan for
5. How swindlers take advantage of holes in Canada's investor protections
6. Examples of Financial Statement trickery
7. Key Financial class action cases and court decisions to review
8. Probable IFRS Frauds due to very loose rules
9. Where foreign criminals are targeting
10. Battling the inactivity of auditors & regulators
11. Spotting the oncoming financial failures today!

However, after the pair failed to appear in court and were placed under fugitive arrest warrants, they continued to roam free in Canada, not having been charged in this country with anything. That same year, U.S. law enforcement agencies raided the Pennsylvania headquarters of a TSX–listed company called YBM Magnex International, which turned out to be a front for Russian mafia activity headed by Semion Mogilevich. The shares of YBM were worth more than $500 million before they collapsed in value virtually overnight. The scam eventually landed Mogilevich a spot on the FBI's Ten Most Wanted list.

Thanks to scams such as Livent and YBM being prosecuted by U.S. regulators, Canada's stock markets were fast becoming an international embarrassment. The markets welcomed Brown's promises of change with relief. Those changes never came, however. In the end it was all just PR bunk.

Viewed in retrospect, Brown's comments were all couched in a way that seemed dedicated to maintaining the status quo of securities enforcement apathy. For instance, Brown promised that the OSC would "identify creative accounting techniques that don't comply with GAAP and use our enforcement powers to have them rectified." With his reference to GAAP as the appropriate standard, however, he left the door wide open to inaction. That's because GAAP seems to accommodate several misleading financial reporting practices, especially when guidance in interpreting the loose rules comes from the large audit firms. Likewise, Brown noted that "we are prepared to use the muscle of the commission to bring about change where change is necessary." Once again, he left the door open to taking action or not.

Despite claims that a task force had been set up to get tough on creative accounting, very few companies were ever formally brought under investigation. Likening some companies to steroid users, Brown said that the commission would have to develop "more effective screening procedures to detect sophisticated uses of performance enhancers in the form of creative accounting treatments." If this was done, it certainly was not evident in the commission's enforcement record. You can count on one hand the number of cases that the OSC has heard since on the grounds of allegedly inappropriate accounting or financial reporting. Brown himself had said in 1999 that the OSC had "some fairly strong powers to override sections of the accounting principles and accounting practices. They're not instruments we've resorted to at the present time, and we're hoping we don't have to." Apparently, he got what he hoped for. If the OSC found that accounting rules under GAAP had fallen short of serving investors' needs, it certainly didn't do anything about it.

In the U.S., the SEC occasionally overrides the U.S. Financial Accounting Standards Board. It's too bad the OSC didn't do the same thing in this country. Instead, it apparently relied on the advice of conflicted auditors, who have no responsibility to protect investors and every interest in setting weak standards that protect their corporate clients.

Brown assumed the role of OSC chair at a time when Livent and YBM had irked Canadian investors. He responded by making big promises that temporarily mollified the market but were ultimately never kept. Investors were probably not surprised when those assurances fell through, though. They've become accustomed to desultory securities regulation in Canada.

Under the watch of the British Columbia Securities Commission (BCSC), the Vancouver Stock Exchange ran roughshod over investors for decades. Dubbed by The New York Times as "the wild west of stock exchanges," the VSE nurtured a stream of stock swindles. "Canada," said the Times, "produces more stock fraud, at least per capita, than do other countries." Forbes magazine said Vancouver was simply "the scam capital of the world."

With such a dubious track record, the BCSC made an unlikely training ground for regulators. Yet early in 1999, about a year after Brown's arrival as chair, the OSC hired Michael Watson as its head of enforcement. Watson had been head of enforcement at the BCSC. It was hardly an appointment to inspire confidence in investors. Watson oversaw a dismal time for enforcement in the Canadian markets. The vast majority of high–profile enforcement initiatives led nowhere or resulted in minimal fines that failed to deter further shady practices.

U.S. regulators and law–enforcement agencies continually showed up the OSC. Not only did they act first in prosecuting the executives behind the YBM and Livent cases, they also took the lead in seeking justice in the scams involving Hollinger and Nortel. In proportion to its jurisdiction, the SEC was no larger than the OSC, but the U.S. organization managed to keep its own house in order, in addition to cleaning up several embarrassing Canadian messes.

As the OSC's head of enforcement, Watson seemed to think that Canada did not have a systemic problem, that it was experiencing a surge of cases that would soon pass. "You have to be careful about bulking up on staff to meet an anomaly in work," he said, "because then you're going to wind up with staff not necessarily fully utilized."

Unmotivated to pursue Canadian scam artists, the OSC buried its head deeper in the sand. Asked why Canada lags behind the U.S. in high–profile enforcement cases, the commission said that fewer were needed in Canada because we do such a superior job of prevention in the first place. "What is unseen," said Lawrence Ritchie, an OSC vice–chair, "are the cases...where it's not necessary to proceed with enforcement proceedings, because the decision is made that public markets have been adequately protected."

A more reasonable explanation for Canada's sterling record of securities offences is that the commission can't prosecute offenders if it never bothers to look for them. The OSC seemed content to sit back and see "if something big falls out of the sky," to use the Watson's words.

With Brown and Watson in control, the commission's poor enforcement record expanded. It failed almost completely to investigate accounting chicanery and met with a string of high–profile failures in prosecuting cases of insider trading.

One of these involved a former investment banker with RBC Dominion Securities named Andrew Rankin. Rankin was found guilty in July 2005 of providing stock tips to his friend, Daniel Duic, using insider information and was sentenced to six months in jail. To obtain the conviction, the OSC allowed Duic to keep more than half of his ill–gotten gains in return for his testimony against Rankin. The OSC had hardly started to gloat in triumph before the courts overturned Rankin's conviction and criticized the OSC's tactics in the case. Eventually, the commission settled the case, prying from Rankin merely the costs of the investigation and a 10–year ban on trading in Ontario. The penalty didn't amount to much, since, by then, Rankin had left the industry and moved to California.

The OSC had also pursued a case against another well–known Canadian executive, Michael Cowpland, founder of Corel. The commission settled with Cowpland after six years, and he ended up paying little more than what the OSC claimed he'd made on insider trades in the first place.

After such embarrassments, the OSC now seems to prefer silence to public investigations. If it enforces the rules at all, it calls closed–door meetings with offending companies and asks politely that they correct the problem. If lessons are to be learned from these exercises, the public never hears them. Meanwhile, such kid–glove treatment practically guarantees that companies will continue to push the regulatory envelope.

Without public prosecutions to alert the market to clean up its act, the OSC remains wholly unprepared and unable to react to broad–based market problems. When many companies at once step over the bounds of acceptable market behaviour, the OSC could make an example of the few, knowing that the rest of the market will take notice. When it fails to act, the commission encourages unacceptable behaviour. The pro–forma financial reporting of Nortel, and the reporting of distributable cash by business income trusts, would never have become such acute problems if the OSC had acted promptly and publicly. Making an example of a few companies at the outset would have saved investors from a world of hurt.

Time and again, the OSC stands back while authorities in other jurisdictions expose the questionable behaviour of Canadian companies. It happened again in 2006, when U.S. authorities investigated more than 130 companies, including Apple and Dell, for the backdating of stock options awarded to their executives.

In the U.S., the crackdown resulted in the dismissal of more than 50 executives and directors. In Canada, the OSC found good evidence that at least 35 Canadian companies had likely engaged in the practice. But the commission charged only one company, Research In Motion, and you can bet it acted only because RIM had a dual stock listing on the TSX and the Nasdaq, prompting the involvement of the SEC.

Even when the OSC does issue a public fine, it usually amounts to a slap on the wrist for the company involved. In the U.S., the SEC fined Nortel $35 million as punishment for restating its financial statements four times. In Canada, the OSC imposed no fine against Nortel at all. It merely made the company contribute to the costs of its investigation. Instead of seeking jail terms for white–collar criminals, authorities in Canada impose inadequate fines that most companies regard as a cost of doing business. "The attitude in Canada," explained Michael Watson, "is that there is a lot more room for compassion and understanding and rehabilitation."

And a lot more room for fraud, as well.

The OSC's lack of interest in accounting issues, its unwillingness to make examples out of companies in order to correct broad market misbehaviour, and its refusal to get tough on white–collar crime, will place investors in even greater jeopardy when Canada replaces GAAP with International Financial Reporting Standards on Jan. 1, 2011. IFRS are loaded with unfortunate cop–outs. In particular, they enable auditors to blame corporate executives for most malfeasance, as they try to absolve themselves of legal liability. Unfortunately, securities officials in other provinces act with no more determination or effectiveness than the OSC.

The U.S. formed its national securities regulator in 1934. For the rest of the century, and well into this one, Canada has continued to dither, while provincial regulators allow companies to get away with financial murder. Even as plans proceed to form a national securities regulator, the initiative will likely fall seriously short of the country's needs.

As if we wanted to shoot ourselves in the collective foot, Canada handed the mandate to form a national regulator to Doug Hyndman, who headed the BCSC for two decades. When Hyndman was in charge of securities regulation in the province, the VSE became notorious throughout the world for swindles, frauds and penny–stock shenanigans. And Hyndman had argued for years against a national regulator in Canada. "Contrary to the claims of many single–regulator proponents," he said, mere months before he took up his new post, "we have a good system of securities regulation in Canada."

With Hyndman in charge, Canada will likely end up with a national securities regulator that focuses not so much on enforcement as on reducing the filing and registration costs associated with maintaining a publicly listed company. Regulation, like accounting under IFRS, will depend on the honesty of companies and their executives to abide by a set of loosely interpreted principles. In the U.K., a similar principles–based regulatory environment failed, so there is no reason to think that it will succeed in this country.

Virtually no enforcement action has been taken on the financial reporting front in Canada for well over a decade, even as the situation has grown progressively worse for investors. It will not likely become any better under a national securities regulator. As far as investors are concerned, the fox remains firmly in charge of the henhouse.

Excerpted from Swindlers: Cons, Cheats & White Collar Crooks ... and How to Protect Your Investments From Them by Al Rosen & Mark Rosen. Publication November 2010 and now in stores. A Madison Lester Edition published by Madison Press Books. Reprinted by permission of the publisher. All rights reserved