EDITORIAL PAGE — A passing grade

“There’s a bad perception about the Exchange out there, and I believe this will cure some of that.” That is how Vancouver Stock Exchange Chairman Brian Harwood recently explained an investigation — if that’s the proper word — that has been called into the VSE, the junior mining exchange in Canada, and the British Columbia Securities Commission (BCSC).

Critics, while generally agreeable to a probe, are voicing a few objections. Adrian du Plessis, a Vancouver financial consultant and vocal VSE critic, questions whether the review is motivated by public or political interest.

He also feels that six months, the duration of the probe, is too brief for the airing of dirty laundry. The 1964 Windfall scandal in Ontario and the subsequent investigation that led to regulatory changes for publicly listed start-up firms in that province should serve as an effective model, he notes. But that commission had more people on board and more time.

While the time frame for this inquiry is clear, its precise purpose is not. Inquiry chief James Matkin (a lawyer, Bank of Canada director and former executive director of the Business Council of British Columbia) cautions that the inquiry should not be misinterpreted as a vote of non-confidence in current regulators. Rather, it is a “progress report” to point the BCSC and the VSE in the right direction. Matkin, obviously, is downplaying the inquiry. We would have expected both the VSE and the BCSC to have been able to find their own way in the woods — especially now that they have been reorganized (in 1987) into a full securities commission. Apparently not. Murray Pezim, a promoter’s promoter (Hemlo, Eskay Creek) who abandoned Ontario in the wake of the Windfall hearings and the resulting new rules that came into play, echoes du Plessis’ comments, saying the inquiry needs more time — up to a year. “If they are going to get into it, for God’s sake do it properly.”

Pezim suggests stock promoters should be licensed and underwriters should be stricter in their due diligence; they should know more about their operations, financial status, board make-up and other matters. And in case anyone missed the recent, wild gyrations of diamond and gold stocks, Pezim adds: “We are a speculative market and anyone who denies that is a fool. It’s risk capital.”

Hear! Hear! This probe (be it a legitimate evaluation or political ploy) must not destroy the very useful function the VSE performs for Canada and the risk-takers of the world. It was the VSE, not its Toronto counterpart, that spawned the companies that gave us the Golden Giant, Williams and David Bell mines, not to mention a host of others.

If the objective of the inquiry is to enable the VSE to attract venture capital by assuring investors their high-risk investments are at least free from unscrupulous promoters, fine. Get the proper mix of people on the board, give them carte blanche to right the wrongs, and so on.

Very serious concerns about the VSE have arisen in recent years. Address those concerns and write the new rules. But please do not throw the baby out with the bathwater.