What good are new regulations aimed at curbing corporate malfeasance if we are unable to enforce existing rules?

Former Calgary businessman Sheldon Zelitt’s apparent contempt for the Alberta Securities Commission (ASC) is only the most recent indication of a problem that appears to be seeping on to the securities scene.

Much ink has been spilled over such technical matters as amalgamating the provincial commissions, which currently function independently throughout Canada. New, toughened accounting rules have also drawn media attention. Much talk, especially from our federal government, has focused on penalizing corporate malfeasance.

But talk is cheap, because one of the big problems in Alberta business regulation today involves accused
offenders ignoring ASC proceedings against them.

Thanks to the way Canada’s regulations are enforced, it’s far too easy for those who are charged with, or even
convicted of, securities offences to simply disappear.

The key to the loophole is staying just this side of the criminal code. As long as securities violations fall short of attracting the police – which appears to be quite easy, considering how difficult it can be to prove intent in complex securities cases – then there is no mechanism to pursue malefactors outside Canada and little incentive to pursue convicted offenders even within this country.

As Wayne Alford, director of enforcement for the ASC, told Business Edge: “The people who are the subject
of a (securities) arrest warrant pretty much have to stumble into the police.”

As a result, the only incarceration since 1997
(when the system changed) in this province has been of the relatively small-time offender, Michael Hills, who violated the Securities Act by raising $2.9 million from the public while claiming to be a “private issuer” and making “misrepresentations” to the ASC.

When he violated the conditions of his six-month house arrest, he was taken into custody. But at least Hills showed up for his sentencing last August. Brothers Kevin Patrick Boyle, Brian James Boyle and Jason Patrick Boyle, on the other hand, disappeared prior to a judge’s decision in a different case in September. In their absence, they were sentenced to a jail term of up to 30 months.

The Boyle brothers were convicted under Alberta’s Securities Act after a lengthy court case in Edmonton in which they were charged with improperly raising $4.7 million.

As of last week, they had yet to be found.

Even more disturbing is Zelitt’s absence at his trial this week in Calgary. There is not even counsel representing him.

Zelitt is a former resident of Strathmore, Alta., and founder of VisuaLABS Inc. He is accused of passing off a commercially available television as his own invention to shareholders. He is also accused of falsely claiming to have working prototypes of his 3-D video technology.

While Zelitt, via his former lawyer, entered a plea of not guilty in pre-trial submissions last March, the court is not certain where he now resides (possibly the Czech Republic, where his wife and eight children live), so his trial is progressing in his absence.

Regardless, the absence of any representation in court suggests Zelitt feels no compelling need to even defend himself – a slap in the face to the Alberta Securities Commission.

These three cases constitute a troubling trend that I first became aware of when the key executives of Calgary-based Bre-X Minerals Ltd. left Canada in the face of potentially serious securities charges.

Could there be a more dramatic example of a company dragging the name of Canada’s business community through the mud than Bre-X? The mining company claimed to have the largest gold find in the world. It turned out to be a dud.

The Northern Miner was the first publication to suggest someone was salting core samples in Bre-X’s Indonesian mine. The RCMP found it impossible to tie any Canadians to criminal complicity in that billion-dollar deception. And that’s where securities regulations are supposed to fill the gap.

Securities law does not carry criminal-code weight. It’s more about moral responsibility. The privilege of accessing public markets comes with understandable burdens on the executives who run such
companies.

Because Bre-X was listed on the TSE, Ontario securities regulators were charged with ensuring the company complied with the Securities Act. It’s their job to prosecute any directors who violated that law.

But six years after the company imploded, takings billions of dollars of shareholder equity with it, the proceedings are still under way. No conclusions have been reached.

Through his lawyer, Bre-X’s former director of exploration, John Felderhof, continues to plead his innocence in court. But his home in the Cayman Islands is his best insurance against incarceration or
penalties of any kind. Canada’s securities laws are unable to touch him there. According to Alford, security offences by themselves are “non-extraditable.”

And there’s the rub.

Neither Felderhof nor Zelitt or even the Boyle brothers
can be forced to set foot on Canadian soil again.
If securities laws are going to mean much, this will have to change.