The SEC engaged in a massive publicity campaign to educate Americans about Canadian securities fraud. Articles about Canadian fraud appeared in national publications and publications directed to securities professionals. In 1951, the NASD sent out bulletins to its 3,000 members warning them against participating in certain Canadian distributions. At various times, the SEC also sought to shut off telephone service to Canadian broker-dealers and prevent their delivery of mail. Such techniques were not effective and resulted in Canadian officials countering that the SEC stifled free enterprise, was unfairly and falsely attacking Canadian businesses, and was violating the constitutional rights of Canadians.
Eventually Canadian officials, the State Department and the SEC recognized that the most efficient way to resolve tensions was through a supplemental treaty. Canadian officials indicated that they might be willing to amend the U.S.-Canadian extradition treaty if the SEC could provide an exemption from registration for smaller Canadian securities offerings. At the time, Regulation A under the 1933 Act was the principal exemption for small offerings but it was not available to Canadians.
Canadian authorities also wanted the mutual recognition by the SEC of an issuer's Canadian registration statement. In other words, if a Canadian issuer registered an offering in a Canadian province, it would be recognized in the U.S. as having fulfilled its 1933 Act registration obligations. The SEC refused mutual recognition but did stop pressing for the treaty to cover all securities law violations rather than just those involving fraud. Still, negotiations lagged on.
In 1951, the SEC compiled a "Black List" of Canadian securities being offered illegally in the United States. The NASD and stock exchanges agreed to warn their members not to sell these securities. With the stick of the "Black List" and the carrot of possible registration exemptions, treaty negotiations continued. At the end of October 1951, Canada and the U.S. signed a supplemental expedition treaty which covered securities frauds. The treaty had taken almost ten years to negotiate.
Shortly thereafter, the SEC promulgated Regulation D, which provided an exemption from registration under the 1933 Act for Canadian offerings in the U.S. not exceeding $300,000 in one year. The SEC explained that the amended treaty and Regulation D was "an experiment in international cooperation in stamping out security frauds across the globe."(62) As a further act of good will, the Ontario Commission banned Ontario brokers from selling securities in the United States by telephone unless they were also registered as brokers within the United States. With increasing cooperation between U.S. and Canadian officials, the problem of alleged Canadian securities fraud was reduced and relations improved for a brief time.
(62) 1954 U.S. Securities and Exchange Commission Annual Report.
