When do systems make bad behaviour pay?

I began complaining about misconduct in finance in 1990. Across four decades, the record of matters I raised has come to include permanent bans, collapsed firms, billions in damage, and settlements measured in hundreds of millions.

The amounts are alarming. I am more interested in the time.

This is an essay about institutional learning: what organizations learn when they repeatedly fail to respond, what executives learn when warnings bring no visible consequence, and what victims learn when speaking up changes nothing.

A warning takes work. Someone notices something wrong, checks it, writes it down, finds the right door, and knocks. Often, the person must knock again: another letter, another call, another explanation to someone encountering the problem for the first time.

Sometimes the work costs much more than time. In two of the cases below, I was directly involved, not merely observing. In each, becoming a whistleblower meant relinquishing more than $1 million in carried interest.

Those choices can damage careers. Lawsuits, lost income, professional isolation, and the prospect of being labelled difficult all chill people who possess inside knowledge. Chilling them does not help institutions learn.

Then nothing changes.

The conduct appears to remain non-urgent precisely because the institution is already getting away with it.

Meanwhile, the people whose conduct prompted the warning are also observing what happens. A practice survives one complaint, so its apparent risk falls. It survives another, and confidence rises. Conduct persists; then it hardens. Executives win.

On one side, an institution learns not to hear.
On the other, those benefiting from delay learn not to fear.

The resulting advantage is what I think of as the return on delay. Benefits arrive now. Correction remains uncertain and distant. Each additional year of survival makes the conduct look more normal, more established, and perhaps more defensible.

Delay can function like financing. The people harmed advance the capital; any correction comes years later.

Sometimes nothing happens because responsibility is fragmented or the warning reaches someone without authority. In harder cases, listening threatens revenue, status, or careers. Silence may be useful.

I have begun calling one side of this process learned deafness: an institution becomes progressively less able to receive information that is inconvenient, uncomfortable, or unfamiliar.

Meanwhile, the information reaching it becomes distorted. People who see that nothing changes may stop knocking. Fewer warnings then arrive. Executives can mistake that silence for evidence that the problem is small—or that things are improving.

That is how learned deafness compounds: inattention discourages warnings; fewer warnings produce false reassurance; false reassurance permits greater inattention.

Five warnings

These are not five randomly selected scandals. They are five matters I encountered personally—five occasions on which I saw something, raised a concern, and then watched time add information.

Noram

In 1994, Noram advertised a 35.2 per cent “average annual return” for its standard leveraged account. On the same page, it called itself “financially conservative” and said it minimized risk by investing exclusively in high-grade bonds. I specialized in investment-performance measurement. I could not reconcile those claims. So I called the newspaper’s advertising department, Noram’s clearing broker, and the OSC—repeatedly.¹

Advertisements like this ran for at least five years.

Then the OSC suspended Noram. It later permanently barred Andrew Willman and found that the firm had made misleading or ambiguous representations about risk and conservative investing.²

Trailer commissions

Throughout the 1990s, I complained about mutual-fund trailer commissions paid to discount brokers. The contradiction was plain. Trailer commissions were intended to compensate dealers for continuing advice. Discount brokers were prohibited from providing it. Yet the commissions continued to be extracted from investors’ funds.

Canada’s banks built, bought, and expanded these discount brokerages. Each year of bank ownership and industry-wide acceptance made the contradiction appear more normal, more lucrative, and harder to reverse.

Decades later came the class actions. Announced settlements involving funds managed by CIBC, RBC, and TD now exceed $140 million. Other proceedings continue. That is a great deal of eventual correction. It does not answer the underlying question: What did the intervening decades pay?³

AIC and market timing

More than twenty years ago, I began hearing rumours about a small trading team in a small town moving tens of millions of dollars into and out of retail mutual funds—often.

The practice was called market timing. Traders exploited stale prices in funds holding overseas securities, entering before those prices caught up and leaving after they did. Frequent traders profited at the expense of long-term investors.

I complained while it was happening.

The scale of the eventual reckoning was enormous. In 2004, four fund managers agreed to return money to affected investors: Investors Group, $19 million; AGF, $29 million; CI, $49 million; and AIC, $59 million. The following year, Franklin Templeton agreed to return another $49 million.

Together: more than $200 million.

The AIC disclosure also resolved an old puzzle for me. In September 1999, I had warned in The Globe and Mail that redemptions from AIC’s enormous, illiquid holdings could force sales, depress its daily price, and provoke still more redemptions. I later learned that three large market timers had been allowed to move rapidly in and out of AIC funds. Their repeat investments supplied liquidity I could not see when I wrote the warning.

A problem can remain hidden while an accommodation keeps it running.

Still, correction had not finished travelling. In 2026—more than a quarter-century after the conduct began—an Ontario court ordered AIC and CI to pay a further $170 million in damages and interest. CI said it expected to appeal.

Portus

On February 26, 2004, I warned Portus’s principals that they were surrounded by yes-men and missing critical warnings. The next day, I began trying to alert the OSC. My call records show thirteen voicemails. I also submitted key documents. No call came back.

Eleven months later, the OSC barred Portus from accepting new money. Thirteen months after my warning, the firm entered receivership.

Other critics faced more than silence. Portus sued people who questioned its representations. The threat of blowback chilled competitors who possessed useful information.

Regulatory intervention did not end the delay. It took nearly five more years, extensive recovery work, and a $612-million settlement with Société Générale before investors recovered roughly 93 cents on the dollar. Manulife had already made its own clients whole by assuming approximately $245 million of their Portus investments.⁶

Jon Chevreau later examined the warning I had sent nearly a year earlier and wrote: “Young’s missive, read today, seems nothing less than prophecy.” ⁷

It was not prophecy. It was information available before the danger acquired institutional force.

A current test

The fifth matter remains unresolved. It is a decade-long complaint involving the insurance industry. I began warning the board more than four years ago. The executive suite has since changed. By my calculation, shareholders have lost roughly $3 billion in market value during the period. I believe the larger consequence has yet to arrive.

I have told authorities that the evidence raises another question: Did insiders or counterparties silently get risk off while customers and ordinary shareholders remained exposed?

I think my testimony on the phishing part of this matter warrants criminal scrutiny.

After warning the executives, the board, the auditor, and several regulators, must I take the evidence to the police myself?

What the warnings taught

These five encounters are not a representative sample. They cannot tell us how often institutions fail to hear.

No institution can investigate every assertion. Complaints may be mistaken, incomplete, or impossible to prove. But an institution must remain capable of receiving difficult information.

If one analyst nevertheless encountered this pattern repeatedly across four decades, the mechanism deserves investigation.

How many warnings disappear before anyone begins counting them?

The usual record begins late. It tells us when a regulator opened a proceeding, when a board announced an investigation, or when a court approved a settlement. It rarely captures the earlier period in which customers, employees, competitors, or specialists were already trying to make the problem heard.

Those missing warnings matter. They could tell us what information was available, who received it, and what happened next.

In the harder cases, silence may be cultivated. Critics encounter delay, legal threats, professional blowback, or the wearying demand to explain the entire problem again.

The warning does not have to be disproved. Its bearer merely has to be exhausted—or taught to fear what speaking again might cost.

The people trying to warn an institution learn which doors never open, how much exertion another attempt will require, and eventually that nothing changes. Their withdrawal then distorts the institution’s view of itself. Fewer complaints arrive. Management sees less opposition. Silence begins to look like satisfaction.

An institution can teach people not to trust it.

This is why I have begun thinking of a Hard Case Method: start with consequential cases in which early warnings can be recovered, then compare what was knowable with what institutions did. Trace the warning through the system. Find where it stopped, what incentives surrounded that point, and how the delay changed behaviour.

The purpose is not to prove that every complainant was right. It is to learn why some warnings receive serious attention while others must wait for catastrophe to become legible.

How can institutions make early attention more valuable than prolonged avoidance—especially when avoidance pays?

And can institutions predict, prevent, and manage the blowback when a preventable loss finally makes years of ignored warnings visible?

Sources and notes

1. Noram advertisement, “Noram Performance Record Speaks for Itself,” The Globe and Mail, February 9, 1994, p. B15, accessed through ProQuest Historical Newspapers.

2. Ontario Securities Commission, Settlement Agreement in the Matter of Noram Capital Management Inc. and Andrew Willman, February 9, 2001. Source

3. Siskinds LLP, “Mutual Fund Trailing Commissions Class Action.” The page reports announced settlements of $26 million with CIBC, $45 million with RBC, and $70.25 million with TD; the RBC settlement was awaiting court approval when consulted. Source

4. Duff Young, “A dimmer view of AIC Advantage,” The Globe and Mail, September 25, 1999, p. B7, accessed through ProQuest Historical Newspapers.

5. Ontario Securities Commission, Settlement Agreement in the Matter of AIC Limited, December 16, 2004; Fischer v. IG Investment Management Ltd., 2026 ONSC 4142. The 2026 award exceeded $170 million in damages and interest and was subject to possible appeal. Source

6. FAIR Canada, A Decade of Financial Scandals; Thornton Grout Finnigan LLP, Portus receivership summary. Receiver’s counsel reports a recovery of 93.13 cents per dollar of claims. Source

7. Jonathan Chevreau, “E-mail warned of problems,” Financial Post, February 16, 2005, p. FP6, accessed through Canadian Newsstream.

The current test describes an ongoing complaint and includes the author’s own calculation and interpretation. The parties are not identified.