Canada’s AG as negligent as SEC in uncovering major acts of fraud

Just like the SEC refused repeated requests by Harry Markopolos to investigate the fraud being perpetrated by Bernard Madoff on investors so too Canada’s Auditor General has refused the repeated attempts initiated by me and others to investigate the accuracy of Jim Flaherty’s claim that income trust cause tax leakage.

This is not some fishing expedition that we are asking Sheila Fraser to go on, but rather we already know that the analysis used by Flaherty to make this claim is false and employs methodology that flies in the face of what the Auditor General herself has mandated the government to use when preparing its budget estimates, namely accrual accounting. Not using accrual accounting is the basis on which Flaherty creates the false argument of tax leakage. Using accrual accounting would mean there is no tax leakage.

As such, Flaherty's false and manufactured tax leakage claim that resulted in investors losing $35 of their savings is an obvious fraud.

Fraud, noun, 1. intentional deception resulting in injury to another person 2. imposter: a person who makes deceitful pretenses 3. something intended to deceive; deliberate trickery intended to gain an advantage

Why is the Auditor General afraid to investigate this matter, as her job description calls upon her to do, when she describes her role as one that serves the need of “Parliamentarians need objective fact based information on how well the government raises its funds (taxes)”. If this income trust tax had the stated intention of addressing alleged tax leakage, is it not the Auditor General’s role to make a retrospective assessment of whether such a condition existed in the first place and whether or not such a condition may have been caused by this very tax measure itself. That was the finding of accounting firm Deloitte in their study entitled: “Income trust buyouts: Lots of activity, little tax revenue”

Why is Deloitte doing the work that the Auditor General should be doing, but is clearly not doing?

Like Harry Markopolos with the SEC and the Madoff investor fraud, I have made repeated attempts to get Canada’s Auditor General to look into this matter and audit the question of alleged tax leakage, including:

(1) Various letters, phone calls and emails to her office in the months of November and December 2006

(2) Various petitions to her and the members of her advisory counsel to look into this matter, posted on various sites and submitted to her, see here

(3) Working with other to send letters, like the attached letter from Gluskin Sheff + Associates to members of her Advisory Counsel or the Coalition of Energy Trusts who called upon the Auditor General to investigate this matter, see: here

(4) Working with Liberal MP John McKay to get the Liberal Members of the Finance Committee to make a formal request of the Auditor General to investigate this matter. See: here

None of these attempts to get the Auditor General of Canada to do her job have been successful. Her reasons for her professional inaction are that it is not her role to question government policy. Well no one is asking her to question government policy. We are simply asking her to perform an audit on the premise on which this government policy was enacted and “sold” to Canadians and to ascertain whether the policy has fulfilled its stated and intended purpose. That is so fundamental to what an auditor does and what an Auditor General’s role is, that it should go without saying.

To understand what is possibly at play here, I will quote from Harry Markopolos and his words about why the SEC was institutionally paralyzed to act in the matter of the Madoff fraud, which probably goes a long way to explain the institutional paralysis of Sheila Fraser, as Canada’s lame duck Auditor General, happy to turn a blind eye to Canadians taxpayers losing $35 billion of their hard earned life savings on a policy based on a patently false argument, the result of which has been $1 billion in lost annual tax revenues (see Deloitte study), a number which will rise to %7.5 billion a year unless the Auditor General does her job and assumes the moral hazard of her grossly negligent inaction:


"The SEC is ... captive to the industry it regulates and is afraid" to bring big cases against prominent individuals, Markopolos asserted. The agency "roars like a lion and bites like a flea" and "is busy protecting the big financial predators from investors," he said.

While the SEC is incompetent, the securities industry's self-policing organization, the Financial Industry Regulatory Authority, is "very corrupt," Markopolos charged. That organization was headed until December by Mary Schapiro, President Barack Obama's new SEC chief.

The SEC has been sustaining volleys of criticism from lawmakers and investor advocates over its failure to discover Madoff's alleged $50 billion fraud, which could be the biggest Ponzi scheme ever, despite the credible allegations brought to it over years. Against the backdrop of the worst financial crisis since the 1930s, the SEC is being accused of further eroding investor confidence and lawmakers of both parties are calling for a shake-up of the agency.

Madoff, a prominent Wall Street figure, was arrested in December after allegedly confessing to bilking investors in what the authorities say was a giant Ponzi scheme, possibly the largest ever. His repeated warnings to SEC staff that Madoff was running a massive pyramid scheme have cast Markopolos as an unheeded prophet in the scandal.

"The SEC was never capable of catching Mr. Madoff. He could have gone to $100 billion" without being discovered, Markopolos testified. "It took me about five minutes to figure out he was a fraud."