Ittihad Securities Inc. - Opportunity to be Heard
In the Matter of Staff’s Recommendation
to Suspend the Registration of Ittihad Securities Inc.
Opportunity to be Heard by the Director
Section 31 of the Securities Act
|Date of decision:
|November 9, 2010
|Marrianne Bridge, FCA
|Written materials submitted by:
|Mark Skuce, Legal Counsel for the Staff of the Ontario
Securities Commission (OSC)
M. Firaaz Azeez, Chief Compliance Officer (CCO) of Ittihad
Securities Inc. (Ittihad), on behalf of Ittihad
1. By letter dated September 14, 2010, staff advised the CCO of Ittihad that it had recommended that Ittihad’s registration as an exempt market dealer (EMD) be suspended.
2. Staff based its recommendation on Ittihad’s failure to:
- comply since March 28, 2010 with the bonding or insurance requirements set out in sections 12.3 of National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103),
- designate an Ultimate Designated Person (UDP) and CCO by December 28, 2009 as required by sections 16.8 and 16.9 of NI 31-103,
- comply with section 4.3 of OSC Rule 13-502 Fees (OSC Rule 13-502) because of its failure to pay a late fee of $4,100 payable on February 24, 2010,
- demonstrate that the individual designated as its CCO has met the proficiency requirements for a CCO set out in section 3.10 of NI 31-103, and
- submit a completed Form 33-109F6 Firm Registration as required under section 6.1 of National Instrument 33-109 Registration Information (NI 33-109).
Suspension of registration and meanings of suitable and objectionable
3. The purposes of the Securities Act (Ontario) (Act), which are set out at section 1.1, are to provide protection to investors from unfair, improper or fraudulent practices, and to foster fair and efficient capital markets and confidence in capital markets.
4. Section 28 of the Act provides that the Director may suspend the registration of a company at any time during the period of its registration if it appears to the Director that (i) the company is not suitable for registration or has failed to comply with Ontario securities law, or (ii) the registration is otherwise objectionable.
5. A registrant is in a position to provide valuable services to the public. A registrant also has a corresponding capacity to do material harm to investors and to the public at large. Determining whether an applicant should be registered is thus an important component of the OSC’s public interest mandate. As well, as noted in numerous prior decisions, registration is a privilege, not a right.
6. The OSC has, over time, articulated three fundamental criteria for determining suitability for registration – integrity (which includes honesty and good faith, particularly in dealings with clients, and compliance with Ontario securities law), proficiency, and solvency. These three fundamental criteria have been codified in subsection 27(2) of the Act, which provides that in determining whether a person is suitable for registration, the Director shall consider whether the person has satisfied the requirements prescribed in the regulations relating to proficiency, solvency and integrity, and such other factors as the Director considers relevant.
7. The determination of whether an applicant’s registration may be otherwise objectionable goes beyond the three suitability criteria above. Prior OSC decisions have held that registration is “otherwise objectionable” if it is determined, with reference to the purposes of the Act, that it is not in the public interest for the person or company to be registered. For example, see Mithras Management Ltd., Re (1990), 13 O.S.C.B. 1600.
Staff’s arguments for suspension
Failure to maintain the required bonding or insurance
8. Pursuant to sections 12.3 and 16.13 of NI 31-103, as of March 28, 2010, Ittihad was required to maintain bonding or insurance with the prescribed coverage types and limits. The bonding or insurance requirement is a component of Part 12 of NI 31-103, which relates to a registrant’s financial condition. As stated above, the solvency of a registrant is one of the three fundamental criteria for suitability of registration.
9. Staff advised Ittihad on several occasions that its failure to maintain the necessary bonding or insurance was a violation of NI 31-103 and that staff would recommend to the Director that regulatory action be taken unless the firm complied.
Failure to designate a UPD and CCO by the prescribe deadline
10. In accordance with sections 16.8 and 16.9 of NI 31-103, Ittihad had until December 28, 2009 to designate its UDP and CCO. However, Ittihad did not file its Form 33-109F4 Registration of Individuals and Review of Permitted Individuals to advise Staff that it had designated Mr. Azeez for these positions until February 24, 2010.
Failure to pay late fee
11. As set out above, Ittihad did not file its application to seek registration for Mr. Azeez as its UDP and CCO until February 24, 2010. Section 4.3 of OSC Rule 13-502 sets out the prescribed late fees. In this case the late fee was $4,100. An invoice was sent to Ittihad on March 10, 2010. On August 20, 2010, staff advised Mr. Azeez that payment of the late fee (together with evidence of insurance or bonding) was required by September 13, 2010 or Staff would recommend suspension of Ittihad’s registration. To date, the late fee has not been paid.
Failure to designate a CCO with requisite proficiency
12. Section 3.10 of NI 31-103 states that an EMD must not designate an individual as its CCO unless that person has met certain proficiency requirements, which at a minimum includes passing the “PDO exam”, and either the “Canadian Securities Course Exam” or the “Exempt Market Products Exam” (as those terms are defined in NI 31-103).
13. The proficiency requirement is an important one. The Notice that accompanied the publication of NI 31-103 states at page 9 that “Proficiency requirements are meant to ensure that registered individuals have a sufficient level of knowledge before providing dealing or advising services to clients, or compliance functions for their firms”. To date, Ittihad has not submitted an update to item 8 of Form 33-109F4 demonstrating that its CCO, Mr. Azeez, has met the proficiency requirements set out in section 3.10 of NI 31-103.
Failure to submit a completed Form 33-109F6
14. Section 6.1 of NI 33-109 states that “A registered firm that was registered before September 28, 2009 must submit a completed Form 33-109F6 to the regulator on or before September 30, 2010”. Ittihad was required to submit a completed Form 33-109F6, but has failed to do so.
Ittihad’s registration should be suspended
15. Staff submits that Ittihad has not demonstrated sufficient compliance with Ontario securities law to maintain the privilege of registration. The Act permits the Director to suspend a company’s registration where the company has failed to comply with Ontario securities law. Ittihad has not only failed to comply with Ontario securities law, it has failed to bring itself into compliance despite being given multiple opportunities to do so by Staff. For these reasons, Staff recommended that the registration of Ittihad as an EMD be suspended.
16. Ittihad argued that the previous management of Ittihad made significant staff reductions in December 2008. As a result, the operations of Ittihad came to a halt in early 2009. As well, the parent company of Ittihad withdrew its commitment to financially support Ittihad’s operations. These changes led to Ittihad being unable to obtain bonding or insurance. As well, funds were not available for the CCO to obtain the required proficiency. “[Ittihad] in its current form cannot operate as an exempt market dealer without the financial backing of [its parent company] and in the event its license is suspended then the firm will simply remain as such unless/until [the parent company] renews its commitment.”
17. My decision is that the registration of Ittihad should be suspended. Registration is a privilege, not a right. Section 28 of the Act provides, in part, that the Director may suspend the registration of a company if it appears to the Director that the company is not suitable for registration or has failed to comply with Ontario securities law. In my view, Ittihad has demonstrated on multiple occasions that it is unwilling or unable to comply with Ontario securities law. In addition, Ittihad has not demonstrated that it has the required proficiency or solvency to permit it to remain as a registrant in Ontario’s capital markets.
“Marrianne Bridge, FCA”
Deputy Director, Compliance
Ontario Securities Commission
November 9, 2010