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© Copyright 2000 Rogers Media. The following article first appeared in the August 2000 edition of
BENEFITS CANADA magazine.
The RT scandal
At least one client is calling it a tempest in a teapot. Time will tell.
By Kevin Press
Share price manipulation charges against RT Capital Management Inc. are a crushing blow to Canada's pension
industry. The trust between plan members, plan sponsors and the money management community has been shaken.
That much was obvious by the time Royal Bank of Canada admitted on June 23 that four RT employees made
trades that "had the effect of overstating the value of certain portfolios."
But while this may have a damaging ripple effect, few (if any) RT Capital clients are jumping ship.
"I just don't view this as that big a deal," says Kim Goheen, vice-president and treasurer with Cameco
Corporation in Saskatoon, Sask. "I don't view that what has happened has had a huge economic consequence to
the funds."
Goheen says he doesn't endorse what RT has admitted to. As scandals go however, this is relatively minor.
"It's not quite a victimless crime," he says. "But no one yet has shown that someone has really suffered."
The Ontario Securities Commission (OSC) charges that RT's portfolios increased $38.6 million as a result of
high closing by Peter Larkin and Gary Baker. High closing--sometimes called juicing--is buying shares at
the closing bell (often at month-, quarter- or year-end) at a price higher than the last trade. While it
can improve a trader's performance numbers, the impact on client accounts is marginal.
"We understand that the effect on our performance results has been minimal," says Laurie Hodson, a
consultant with the Calgary Firefighters' Supplementary Pension Plan. "We don't wish to be seen as passing
this off lightly. Still, my board [of trustees] is of the view that this is a bit of a tempest in a
teapot."
One of the more important questions in all of this is senior management's role. Either they knew and chose
to look the other way, or they were unaware of what was going on under their own roof.
Hodson describes the firm as "sticklers for process." He, like other clients, was surprised by the news. "I
wouldn't have expected this," he says. "But in every well-run organization, some things can sometimes go
wrong."
That message comes through time and again from RT's clients. They are troubled by this ethical breach. But
they recognize that this is a firm with consistently strong return numbers, the likes of which could not be
fabricated. For now at least, clients will remain loyal to what they consider a respectable organization.
"We're dealing with a manager that has a pretty solid reputation," says Hodson. "I don't wish to be naive,
but we're going to give them the benefit of the doubt for the time being."
RT negotiated a settlement with OSC in July, which included the resignation of president and chief
executive officer Timothy Griffin.
Still, the larger question of high closing remains unanswered. If it is as widespread as some say, Canada's
money management community must be taken to task--by regulators and clients. The more often this
happens, the more concerned you should be.
It's a question of trust.
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