November 10, 2010 09:15 ET

ExemptAnalyst: Firm Pioneers Rating System for Exempt Market Securities Helping Exempt Market Dealers to Protect Investor Capital

CALGARY, ALBERTA--(Marketwire - Nov. 10, 2010) - Over the last few years, numerous Ponzi schemes and other types of frauds uncovered in the exempt market industry throughout Alberta have demonstrated the importance of due diligence. Now, Calgary-based ExemptAnalyst is helping to foster a culture of transparency within this growing investment category, providing Exempt Market Dealers with a systematic approach to investment due diligence. ExemptAnalyst researches investment opportunities on behalf of Exempt Market Dealers, adding an additional layer of security and confidence to the products they offer clients. The research also serves to help them to identify superior investment portfolios for their clients.

"Loss of investor capital is a direct result of improper or ineffective due diligence," says William McNarland, CFA and founder of ExemptAnalyst. "Our research strives to weed out fraudulent or unnecessarily risky opportunities and identify those opportunities with attractive risk-adjusted returns."

So far the company has discovered some serious fraudulent activity, misuse of investor capital, and even Ponzi-like activities. In one instance, they discovered a company that was using investor capital to purchase luxury automobiles for company executives. In another case, they exposed a company promoting an investment in which over 60% of investor capital went to management fees and offering costs in the first year of the investment term. 

Still, in the absence of reliable returns through traditional investments, many firms are embracing exempt market securities and alternative investments for their clients.

"There are many opportunities with excellent profit potential. Those firms that have thorough third-party due diligence processes and internal gate keeping practices can protect investor capital and potentially make a profit for their clients," explains Mr. McNarland. "These firms must delve much deeper than the offering documents to fully understand all the risks involved." 

Similar to the bond and credit ratings used in the traditional markets, ExemptAnalyst has established a formal rating system for common types of alternative investments including Mortgage Investment Corporations (MICs), real estate development projects, limited partnerships, private preferred shares and bonds. Both the quantitative and qualitative details of each investment opportunity are reviewed with particular focus on the expected rates of return and risk levels. From this information, each opportunity is assigned a rating. Exempt Market Dealers and alternative investment representatives use this rating to assess the attractiveness of the investment for their clients.

Once viewed as a secondary market, the exempt market now draws significant investor capital. Recent widespread changes to the market mandated by the Canadian Securities Administrators (CSA) through National Instrument 31-103 have beefed-up due diligence, suitability assessments, and know-your-product obligations.

"Many newly registered Exempt Market Dealers do not have the internal bandwidth or resources to conduct the type of due diligence now required," says McNarland. "ExemptAnalyst provides an opportunity to outsource this cumbersome but crucial process." 

About ExemptAnalyst

ExemptAnalyst provides independent, third-party research on alternative investments and exempt market securities for Exempt Market Dealers (EMDs) and EMD representatives. With the goal of helping to foster a culture of transparency within the exempt market industry, our experienced roster of Chartered Financial Analysts perform rigorous quantitative and qualitative research on specific investment offerings under consideration for representation by Exempt Market Dealers for their clients.

Disclaimer: ExemptAnalyst provides independent, third-party research on alternative investments and exempt market securities for Exempt Market Dealers (EMDs), EMD registered agents and EMD company employees only. ExemptAnalyst does not provide research or advice to non registrants. Reports by ExemptAnalyst do not constitute an offering of securities and cannot be distributed to investors or be circulated as investor suitability advice. EMDs, EMD registered agents and EMD company employees still must consult Offering Memorandums.

Contact Information

  • White Rabbit Communications
    Angela Joyce
    Marketing & Communications Consultant