"1. Canada should not be asked to enforce U.S. laws or standards;
2. That the provincial administrators should not be criticized because they are doing the best they can.
3. That U.S. investigators have no right to come snooping around inside Canada.
4. That we have no right to interfere with mail to or from Canada.
5. That U.S. efforts to prevent U.S. sales by Canadians … provide a monopoly for American broker-dealers.
6. That 'chance taking,' 'honest gambling,' 'grass roots developments' or 'risking a dollar to make a dollar' are not frauds and that in stopping these speculative developments we are interfering with free enterprise and stopping the needed development of Canada.
7. That our Federal Government should cause the States to adopt uniform securities laws so that a Canadian offering doesn't strangle in the 48 qualifications necessary to meet United States requirements…
8. That there is too much delay and expense in registering under the 1933 Act, with an undertone that this is deliberate.
9. That the SEC has deliberately made Regulation D unworkable…
11. That we don't understand or appreciate their problems and try to act like 'big brother.'"
Quickly, however, Canadian securities authorities and the SEC disagreed over how the Regulation D exemption would function. In a strange twist, Canadian authorities now claimed that Regulation D, as interpreted by the SEC, made Canadians vulnerable to securities frauds perpetrated by U.S. issuers. Canadian authorities, especially in Ontario, wanted and understood Regulation D as available only to issuers that had first filed registration documents with a Canadian provincial securities commission. The SEC interpreted Regulation D as having no such requirement. In 1954, the Ontario Commission announced that it would cease cooperating with the SEC, in part because it was enforcing U.S. securities laws while the SEC ignored Ontario's securities laws.(63)
In 1955, an SEC staff member wrote a major report regarding the history of the SEC's relationship with Canadian officials. He opined that the problem of illegal securities offerings from Canada "stands not much nearer solution today than when first encountered…. much more than the faith and reliance on the good-will cooperation and assurances of a few Provincial Securities Administrators…is required."(64) He continued with the belief that the problem would be solved with a treaty was no more than "wishful thinking." He self-servingly opined that U.S. securities laws had almost reached "perfection" but that Canadians were more concerned with raising capital than in protecting investors.
The report listed the many criticisms that Canadians articulated, which included that Canadian officials should not be asked to enforce U.S. laws, that U.S. securities laws interfered with free enterprise, were monopolistic, caused significant delays for foreign issuers, and that the SEC acted like a "big brother."(65) These complaints accurately summed up not only Canadian criticisms of the SEC but also the complaints that other countries would make in the future.
The 1955 report concluded that all attempts to create an adequate enforcement mechanism through cooperation with Canada had failed. It further emphasized that the problems generated by Canada could occur elsewhere. The report suggested that a new United States law was required which would prevent foreign issuers from relying upon any exemption from registration unless it was specifically granted by the SEC. It further recommended legislation which would allow the SEC to suspend a foreign issuer's use of U.S. mail or telephone service if securities violations were suspected.
The report's final suggestion was that, either working through the State Department or through more indirect channels, the United States needed to push Canada to create a Canadian-wide securities law. An irony which clearly escaped the author was that Canada's complaints included that each U.S. state had its own securities commission which enforced "blue sky" laws.
Even with such drastic recommendations, the report still recognized that ultimately the SEC and foreign authorities had to cooperate with each other. Suggestions for such cooperation included continued informal discussions, a possible international conference, creating more comprehensible SEC forms, accelerating approval for foreign offerings and creating an "education program." The 1955 report, in part, set forth a framework for international relations that would become fruitful in the 1990s. As the report concluded, the SEC needed to keep working on such issues even if it took "fifty years" to reach resolution.(66)
(63) March 30, 1955 Draft Confidential SEC Staff report on The Canadian Problem, Illegal Securities Offerings, 1933 – 1955 (courtesy of the National Archives and Records Administration)
(64) Id.
(65) Id.
(66) Id.
