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By John Helmer, Moscow

It’s a pity it had to wait until the Facebook folly for a lawsuit to be launched against Morgan Stanley on the double-barrelled charge — the investment bank and underwriter lies in its prospectuses and makes saps of share-buyers. According to the federal US court filing, “the [Facebook] registration statement and prospectus contained untrue statements of material facts.” In addition, Morgan Stanley is charged with selective disclosure of information, so that “preferred investors” get the better of everyone else in the market.

In the market for Russian share sales, telling the truth to the preferred, misrepresenting to the rest has been Morgan Stanley’s modus operandi for years. The Russian clientele which Morgan Stanley has promoted includes Mikhail Prokhorov, Maxim Finsky, Alexei Mordashov, Igor Zyuzin, Alisher Usmanov, and the Evraz owners, Roman Abramovich and Alexander Abramov. Recent, but less well known Russian initial public offerings for which Morgan Stanley helped write the prospectuses were Global Ports Investments and Yandex. Here’s Morgan Stanley’s own list. The Morgan Stanley version of Sovcomflot has been commissioned, and may soon appear. That is, if the Facebook shareholders don’t manage to put an expensive muzzle on the bank’s prospectus-writing in the meantime.

The newest of Morgan Stanley’s promotions for Russian asset flotations is Intergeo, belonging to Prokhorov and Finsky, and targeted for an initial public offering on the Toronto Stock Exchange (TSX). Here is the preliminary prospectus, the credit, reward and liability for which Morgan Stanley shares with BMO Nesbitt Burns. And here is the story of misrepresentation and selective disclosure behind it.

When Canadian investors have attempted to call Finsky to account for what he has already told the stock exchange, and done with another listing, that of White Tiger Gold, the stock exchange and market regulators have refused to intervene. Here’s that tale.

When Morgan Stanley was compiling its market announcement for Intergeo, it isn’t known whether it had discussed with the Ontario Securities Commission (OSC), the government regulator overseeing the TSX, the contents of File #20110405-21066. That’s the file on Finsky and White Tiger Gold. But here’s how the lead inquiries officer of the OSC, Nicole Plotkin, told a complainant shareholder not to complain any more.

From: OSC_General_Inquiries/StratOps/OSC [mailto:OSC_General_Inquiries/StratOps/OSC] On Behalf Of inquiries@osc.gov.on.ca
Sent: Wednesday, May 23, 2012 9:00 AM
Subject: Re: File #20110405-21066 – White Tiger Gold and Maxim Finskiy

Dear Mr. [name withheld] :

Thank you for your follow-up complaint to the Ontario Securities Commission (OSC), by way of copying us on your complaint to the Toronto Stock Exchange (TSX). It appears you continue to be concerned about the business combination between White Tiger Gold (WTG) and Century Mining Corporation (CMC), which were combined by way of Plan of Arrangement on October 20, 2011 (Business Combination). We note you are also concerned about one of WTG’s principal shareholders, Maxim Finskiy.

The OSC regulates the capital markets in Ontario. We make rules and enforce Ontario’s securities laws to provide protection to Ontario investors and to foster fair and efficient capital markets. OSC reviews of complaints are undertaken from a regulatory perspective, to consider whether the issuer may have failed to comply with securities regulatory requirements that apply to it. I have not identified this type of regulatory concern based on your complaint.

According to a news release dated October 20, 2011, the Business Combination was approved by the Ontario Superior Court of Justice on September 26, 2011 and by the Government of Canada, under the Investment Canada Act, on October 12, 2011. In addition, the Business

Combination was approved at special meetings of the shareholders of each of WTG and CMC held on September 13, 2011.

It was explained to you at the time of your initial complaint in April 2011, that since BCSC was the principal regulator of CMC and because BCSC was also responsible for the regulatory oversight of the TSX Venture Exchange on which the shares of CMC traded, your concerns relating to the Business Combination were within the regulatory jurisdiction of the BCSC, not the OSC.

You have suggested to the TSX that they look at the trading violations by insiders of WTG and have addressed concerns of market manipulation. In addition, you have made allegations of false/misleading disclosure practices by WTG during the last several months. However, you have not identified specific examples.

Stock prices are determined by the market. If you have evidence that the market value of the stock is being manipulated, then you should direct your concerns to the Investment Industry Regulatory Organization of Canada (IIROC). This is because, during trading hours, IIROC surveillance officers monitor every single equities trade on the Canadian equity markets as it occurs, including the TSX, TSX V, CNQ, Bloomberg and Market Securities Inc., to identify violations such as insider trading, manipulative activity, frontrunning, and other infractions of the Universal Market Integrity Rules.

IIROC’s Market Surveillance department has robust systems and processes for detecting and investigating inappropriate market activities. This surveillance facility has state-of-the-art systems and software that detect price or volume anomalies in stock trading patterns. In addition, the IIROC Trading Review & Analysis department conducts post-trade reviews of trading data using a variety of tools to look for trading that violates UMIR, which as noted above, includes manipulative trading. When warranted, preliminary investigations regarding insider trading by persons over whom IIROC has no jurisdiction are forwarded to the appropriate securities commission, including the OSC, for additional investigation and possible enforcement action. Contact information for IIROC is available at: http://www.iiroc.ca/English/About/Contacts/Pages/default.aspx.

Matters such as actions of management and the board of directors are not enforced by securities regulators, such as the OSC. However, such matters may relate to other areas of the law such as corporate law. Specific remedies may be available to investors for breaches of corporate law and these provisions are generally enforced by the affected parties.

OSC staff may not provide legal advice. If you wish to pursue these concerns, your best option would be to consult with a lawyer for advice about possible remedies that may be available through civil action. If you do not have a lawyer, you can contact the Lawyer Referral Service of the Law Society of Upper Canada at (800) 268-8326, which offers a free 30 minute consultation to residents of Ontario.

To avoid unnecessary repetition, in the future we may not respond to further communications from you concerning these matters, unless we have new information to share with you.


Nicole Plotkin
Lead Inquiries Officer
Ontario Securities Commission

If this is the standard of regulation in the Canadian market, then Morgan Stanley is in full compliance.

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