Vultaggio, Peter - Opportunity to be Heard
IN THE MATTER OF
AN APPLICATION FOR REGISTRATION OF
OPPORTUNITY TO BE HEARD BY THE DIRECTOR
UNDER SUBSECTION 26(3)
OF THE SECURITIES ACT
June 27, 2006
David M. Gilkes
Manager, Registrant Regulation
Capital Markets Branch
For Ontario Securities Commission staff
For Peter Vultaggio
1. This decision relates to the application of Mr. Vultaggio (also referred to as the Applicant) for registration as a salesperson for Triglobal Capital Management Inc. (Triglobal) a firm registered in the category of mutual fund dealer. Ontario Securities Commission (OSC) staff has recommended that the Director refuse to grant registration.
2. Mr. Vultaggio was registered as a mutual fund dealer salesperson under the Securities Act (the Act) sponsored by Iforum Financial Services Inc. (Iforum) from September 20, 2004 until August 12, 2005. In addition, Mr. Vultaggio has been registered in the province of Quebec as a representative -- group savings plan & scholarship plan since May 1994.
3. In August 2005 an application for the transfer of the registration of Mr. Vultaggio was received. A termination notice had not been received at this time and when it was received it indicated that he had resigned for cause from Iforum effective August 12, 2005. In November 2005 Mr. Vultaggio was contacted by OSC staff to obtain further details relating to his resignation. In his reply, Mr. Vultaggio cited a misunderstanding and said he had resigned from Iforum on July 5, 2005.
4. On November 30, 2005 OSC staff sent Mr. Vultaggio a letter by way of registered mail, notifying him of Staff's recommendation that the request for the transfer of his registration to Triglobal be refused.
5. On December 16, 2005 staff received a letter from Mr. Vultaggio indicating that he wished to exercise his right for an Opportunity to be Heard (OTBH) by the Director. Subsection 26(3) of the Act states:
(3) Refusal -- The Director shall not refuse to grant, renew, reinstate or amend registration or impose terms and conditions thereon without giving the applicant an opportunity to be heard.
6. The OTBH was conducted through written submissions. OSC staff made their submission on May 16, 2006 and counsel to Mr. Vultaggio made his submission on June 1, 2006.
7. Paragraphs 4, 5 and 6 of the OSC staff submission provide the details of their concerns with Mr. Vultaggio.
8. A joint audit by the Mutual Fund Dealers Association (MFDA) and the Autorité des marchés financiers (AMF) covering the period March 2004 to December 2004 uncovered frequent trading in a number of Mr. Vultaggio's client accounts. As a result these accounts incurred a significant amount of deferred sales charges.
9. Iforum had commenced an internal investigation into Mr. Vultaggio's transactions in November 2004. Iforum noted that Mr. Vultaggio had received $420,000 in commissions in 2004, a very high amount of commission income. Iforum put Mr. Vultaggio under close supervision in December 2004 and remained under close supervision until he resigned.
10. The MFDA/AMF audit identified a number of Quebec residents that were affected by Mr. Vultaggio's frequent trading As a result the Chambre de la sécurité financière (Chambre) in Quebec started an investigation into the activities of Mr. Vultaggio. The Chambre has not provided all the findings from their investigation but did say that there were 11 accounts reviewed for excessive and unauthorized trading. They also said that the 11 clients were elderly with an average age of 80.
11. Mr. Vultaggio's submission responded to the OSC staff submission paragraph by paragraph. In response to paragraph 4 counsel noted that Mr. Vultaggio was not at Iforum when the audit took place so he ignores that paragraph. Similarly, paragraph 5 was also ignored other than the reference to the amount of commission income. Finally, in response to paragraph 6 Mr. Vultaggio denied the allegations and noted that it contained incorrect information. For example, the average age of the clients in question was 67.
Suitability for Registration
12. A registrant is in a position to perform valuable services to the public, both in the form of direct services to individual investors and as part of the larger system that provides the public benefits of fair and efficient capital markets. A registrant also has a corresponding capacity to do material harm to individual investors and the public at large.
13. Determining whether an applicant should be registered is an important component of the work undertaken by OSC staff to protect investors and foster confidence in the capital markets. This point was made in the Mithras decision that reads in part:
... the role of the Commission is to protect the public interest by removing from the capital markets -- wholly or partially, permanently or temporarily, as the circumstances may warrant -- those whose conduct in the past leads us to conclude that their conduct in the future may well be detrimental to the integrity of those capital markets. We are not here to punish past conduct; that is the role of the courts, particularly under section 118 of the Act. We are here to restrain, as best we can, future conduct that is likely to be prejudicial to the public interest in having capital markets that are both fair and efficient. In doing so we must, of necessity, look to past conduct as a guide to what we believe a person's future conduct might reasonably be expected to be; we are not prescient, after all.
Re Mithras Management Ltd., (1990) 13 OSCB 1600
14. The standard for suitability is based on three well established criteria that have been identified by the OSC:
The [Registrant Regulation] section administers a registration system which is intended to ensure that all Applicants under the Securities Act and the Commodity Futures Act meet appropriate standards of integrity, competence and financial soundness ...
Ontario Securities Commission, Annual Report 1991, Page 16
15. The meanings of the criteria for the purposes of determining suitability for registration are not defined in Ontario securities legislation but OSC staff consider:
• integrity includes honesty and good faith, particularly in dealings with clients, and compliance with Ontario securities law;
• competence includes prescribed proficiency and knowledge of the requirements of Ontario securities law; and
• financial soundness is an indicator of a firm's capacity to fulfill its obligations and can be an indicator of the risk that an individual will engage in self-interested activities at the expense of clients.
Decision and Reasons
16. The submission made on behalf of Mr. Vultaggio does not refute the allegations made in the OSC staff submission. There are no business reasons or other reasons given for the excessive and unauthorized trading in client accounts.
17. The results of the joint MFDA/AMF, the investigation by Iforum and the subsequent investigation of the Chambre all surround the issue of excessive trading. All the findings of the investigation by the Chambre are not known at this time. However, the limited facts support the allegations.
18. Having reviewed all the information provided to me, I find that the Applicant has not demonstrated the high standard of integrity required of a professional in the securities industry. Therefore, I refuse to grant the Applicant registration as a mutual fund dealer salesperson.
June 27, 2006
"David M. Gilkes"