It’s a prestigious and well-paying job, but Brenda Leong, who was appointed as chairwoman of the B.C. Securities Commission this past October, has no illusions about the challenges she faces in dealing with a market repeatedly compromised by securities fraudsters.

“A strong enforcement program is critical to any credible regulatory regime. It naturally grabs the most attention,” she says in her first wide-ranging interview since being appointed. “But that’s not enough. To get the best results, we need an integrated approach. We have to have a robust compliance program; targeted rules that are carefully thought through to ensure we are getting at the problem; a good, comprehensive investor education program; and good use of administrative powers given to us by the legislation.”

Leong replaces Doug Hyndman, who served as chairman almost since the BCSC was created in 1987 and who ranks as Canada’s most senior regulator. In July 2009, he left to head the Canadian Securities Transition Office, which the federal government has formed to usher in a national securities regulator.

Leong is a logical successor. She has worked at the BCSC for the past 18 years and has all the requisite tools for the top job.

Born in Calgary, Leong, 48, obtained a commerce degree from the University of Alberta and a law degree from Osgoode Hall Law School in Toronto. She spent several years working in corporate and securities law at Bull Housser & Tupper LLP and Stikeman Elliott LLP before joining the BCSC as a securities analyst in 1992. Since then, she has worked in various capacities at the BCSC — most notably, as director of legal and market initiatives, which included the development of legislation, rules and policies.

In 2004, Leong was appointed executive director. Again, she was an obvious choice because, at the time, the BCSC was revamping the B.C. Securities Act to incorporate principles-based rules. Ultimately, British Columbia’s provincial government decided to shelve the proposed legislation because it was radically out of step with other Canadian provinces. (Hyndman is still a proponent of principles-based rules and is expected to incorporate them in the new federal legislation.)

As chairwoman of the BCSC, Leong is in charge of 200 employees and an annual budget of almost $30 million. Her base salary is $375,000. If she matches the more than $200,000 Hyndman made in bonuses, pension and other benefits last year, her annual compensation will reach $575,000, exceeding Hyndman’s overall pay and maintaining the position as one of the most highly paid in B.C.’s public sector.

The terms of her appointment, however, remain fuzzy. Leong says Hyndman has been “seconded to the CSTO for three years … these were the contractual terms by which he would leave the commission. Because if I were in his shoes, this [national initiative] could have fizzled within six months, and so do I [referring to Hyndman] really want to give up my job?”

Asked whether those terms open the door for Hyndman to return, which potentially makes Leong interim BCSC chairwoman, she replies, somewhat contradictorily: “No, I am chairwoman for the period of time he is not here.” She stresses that Hyndman is intent on setting up a national commission and “making it go” — in which case, he would not return to the BCSC.

The top enforcement challenge for Leong remains the Vancouver companies that register with the U.S. Securities and Exchange Commission and whose shares trade on the loosely regulated over-the-counter bulletin board and pink sheets in the U.S. Many are scams.

This problem surfaced in the 1990s, when the old Vancouver Stock Exchange embarked on a cleanup campaign. Needing new outlets for their penny-stock scams, Howe Street promoters turned to the U.S. OTC markets. The problem escalated rapidly as they registered five to six new issues in the U.S. every week. By 2008, there were about 800 of these companies littering Vancouver.

“It’s fair to say we did not take immediate action, largely because we were trying to figure out what the problem was,” Leong says. “We came to the conclusion this was a systemic, widespread problem that enforcement alone was not going to address.”

In September 2008, the BCSC implemented new rules to prevent these companies from issuing shares under exemptions from B.C. prospectus and registration requirements. This forces them to become B.C. reporting issuers and comply with B.C. securities rules. As a result, about half of the 800 OTC issuers have severed their connections to B.C. Of the other half, 190 have become reporting issuers and 140 have been issued cease-trade orders.

@page_break@The new rules have dramatically reduced the proliferation of these companies, but there are still dozens of fraudulent OTC issues that are being run out of Vancouver but are preying on unwary investors.

Another concern relates to companies that use exemptions from prospectus and registration requirements to raise large amounts of capital from thousands of shareholders but remain private. The result is that these inves-tors, many of whom are unsophisticated, are deprived of the usual protections afforded to shareholders of public companies.

This raises the question: should private issuers be forced to become public companies when they have raised a certain amount of capital and/or have acquired a certain number of shareholders? Leong replies that the exempt market is a “very valuable source of financing for companies in B.C.”

She says the problem is some companies act in a fraudulent manner — and would continue to do so regardless of any thresholds that might be imposed. “They are very creative,” she says. “We have found in cases in which we use bright-line tests [objective rules], they use tactics to skirt around them.”

Rather than change rules, she says, the BCSC is using “targeted enforcement” to identify and issue cease-trade orders against private issuers that misrepresent their business affairs or engage in illegal practices.

Asked about the RCMP integrated market enforcement team in Vancouver, Leong expresses disappointment. Since the Vancouver IMET was launched six years ago, the team has secured only two criminal charges — only one of which has resulted in a conviction. “I think it’s fair to say we would like to see more prosecutions,” Leong says. “From our perspective, strong criminal enforcement would certainly complement what we do.”

Leong is married to Michel Belec, vice president of legal services for Telus Corp. They have a 12-year-old daughter, which adds up to a busy life. “Our life is very full, but we support each other,” Leong says. “That’s how we are able to do it.”

Leong loves to cook and attended the internationally renowned Dubrulle cooking school in Vancouver. She is also an avid gardener. She and her family love to ski at Cypress Mountain in West Vancouver. IE