Reasons for Decision: In the Matter of CCI Capital Canada Limited
R.S.O. 1990, c. S.5, AS AMENDED
CCI CAPITAL CANADA LIMITED
September 9, 1999
John A. Geller, QC - Vice-Chair
Morley P. Carscallen, FCA - Commissioner
John F. Howard, QC - Commissioner
For the Staff of the Ontario Securities Commission:
These proceedings were commenced by Notice of Hearing dated September 8, 1999, pursuant tosubsection 127(1) of the Securities Act (the "Act"), based upon the following allegations of the staff ("Staff") of the Commission.
1. The Respondent, CCI Capital Canada Limited ("CCI") is a corporation registered pursuantto Ontario securities law as a mutual fund dealer.
2. On March 10, 1999, the Commission notified CCI of its intention to impose conditions ofregistration on CCI pursuant to section 105 of the Regulation (the "Regulation") under theAct.
3. The terms and conditions required CCI to file with the Compliance Department of theCommission, within 30 days of the end of each calendar month commencing March 31, 1999,the following (the "Required Reporting"):
a. year-to-date financial statements, including an income statement, a classified balancesheet and a statement of cash flows, prepared in accordance with GAAP;
b. a calculation of excess free capital prepared in accordance with section 107 of the Actand submitted in a prescribed form;
c. a calculation of adjusted liabilities prepared in accordance with Statement C of Form9 of the Regulation; and
d. a reconciliation of all trust bank accounts.
4. These terms and conditions of registration were accepted by CCI on March 15, 1999.
5. For the month ended March 31, 1999, the Required Reporting was due on April 30, 1999.A portion of the Required Reporting was received late at the Commission on May 21, 1999.This filing omitted the trust account reconciliation in contravention of the terms andconditions imposed upon CCI's registration.
6. For the month ended April 30, 1999, the Required Reporting was due on May 30, 1999.Two portions of the Required Reporting were received late at the Commission on June 2,1999 and June 4, 1999. This filing provided incomplete financial statements in contraventionof the terms and conditions imposed on CCI's registration.
7. For the month ended May 31, 1999, the Required Reporting was due on June 30, 1999. Aportion of the Required Reporting was received late at the Commission on July 9, 1999. Thisfiling omitted the excess free capital calculation, the trust account reconciliation and providedincomplete financial statements.
8. For the month ended June 30, 1999, CCI failed to file the Required Reporting by the deadlineof July 31, 1999. The Required Reporting had not been received by the ComplianceDepartment as of September 7, 1999.
9. For the month ended July 31, 1999, CCI failed to file the Required Reporting by the deadlineof August 31, 1999. The Required Reporting had not been received by the ComplianceDepartment as of September 7, 1999.
10. As at May 31, 1999, CCI was deficient in its obligation to meet minimum capital requirementsunder Ontario securities law in the amount of $38,725. This deficiency had not beencorrected as of September 7, 1999.
11. The conduct of CCI in failing to abide by the terms and conditions imposed on its registrationand in failing to meet minimum capital requirements was contrary to the public interest.
Based upon these allegations, Staff, in the Notice of Motion, requested the Commission to:
a. order that the registration of the Respondent be terminated or suspended or restrictedfor such period as the Commission might order or that additional terms and conditionsbe imposed on the Respondent's registration;
b. order that the Respondent submit to a review of its policies and procedures andinstitute such changes as might be ordered by the Commission; and
c. make such other order as the Commission might deem appropriate.
Ms. Sopinka, on behalf of Staff, did not call any witnesses, but filed, pursuant to section 139 of theAct, the documentary evidence on which Staff relied.
She advised us that, on the basis of financial statements which had now been received by Staff, itappeared that, as of June 30, 1999, the capital deficiency at May 31, 1999 referred to above had beenmade good. We are satisfied that, on the evidence presented, which was not contradicted by theRespondent, with this exception, and with the exception that the deadline dates set out in paragraphs8 and 9 of the allegations above were each out by one day, Staff has made out its allegations.
As to sanctions, Ms. Sopinka submitted that the Respondent's failure to comply with the terms andconditions of its registration was a serious matter, particularly where, as in this case, the failure hadcontinued over several months and was coupled with a capital deficiency for part of the time. Sheargued that the Commission ought to impose a regulatory sanction that would reflect the seriousnature of the misconduct, and that a sanction of three months would reflect the past conduct andprovide a general deterrent to the industry.
She further argued that, in addition to the suspension, measures should be put in place to ensure thatthe Respondents operated in compliance with Ontario securities law once the suspension had run itscourse, and requested that we order the Respondents to submit to a review of its practices andprocedures and implement such changes as might be ordered by the Commission, with the suspensionto remain in force for the longer of three months and the period until the date on which recommendedchanges were implemented as approved by Staff.
Ms. Sopinka asked that the suspension should be delayed for two weeks to permit the Respondent'sclients to be notified and to seek a new mutual fund dealer and the Respondent's registered employeesto seek new sponsors, and that the Commission order Respondent to send a letter to all of its clientsto inform them of the Commission order.
Mr. Ashley Cooper, the Respondent's President, appeared on its behalf. The Respondent was notrepresented by counsel. Mr. Cooper advised us that he was in the process of acquiring the ownershipof the Respondent, and that, following the change, the Respondent would have the resources andpeople to operate properly, and to conduct its business in a prudent and successful manner. Heargued that a suspension of the Respondent's registration would "kill" the Respondent (since it wouldlose its salespeople and clients during the period of suspension), and that no one had been injured asa result of the Respondent's failure to comply with the terms and condition of its registration. Mr.Cooper asked us to give him an opportunity to run the Respondent in the way it ought to be run.
In reply, Ms. Sopinka pointed out that terms and conditions were sometimes imposed as a sanctionwhen a registrant has not been complying with its regulatory obligations. That is what happened inthis case. The terms and conditions were imposed as a result of the Respondent's failure to maintainrequired capital, and file audited financial statements as required, as well as the existence of a shortfallin the Respondent's trust account and other matters. She further argued that when such terms andconditions are not then compiled with, the only appropriate course was to suspend registration. Aswell, she argued that, if the Respondent was not able to comply with such terms and conditions, shehad no comfort in Mr. Cooper's submission that we should trust him and his group of people to putin the appropriate procedures.
Mr. Cooper was the president of the Respondent during the period in which it failed to comply withthe terms and conditions to which it had agreed. It was his obligation to ensure that the Respondentcomplied with such terms and conditions. He failed to do so. We are unable to accept his submissionthat, if we gave him further time, all would be well and the Respondent would become compliant.
We have to look to the past conduct of the Respondent, and of Mr. Cooper, as the best evidence ofwhat their future conduct was likely to be, absent the corrective action recommended by Staff.
The requirements imposed on registrants for the filing of financial statements and other informationwith the Commission are imposed for the protection of their customers, and these requirements arenecessary for the protection of those customers.
It is no light matter for a registrant to consistently fail to comply with these requirements, and evenmore serious for a registrant to fail to comply with terms and conditions imposed as a result of failureto comply with the regulatory requirements. It is not good enough to argue that no one has beeninjured by the failure. It is the possibility of injury with which we have to concern ourselves inmatters such as this one.
As a result, we concluded that we should, in the public interest, impose on the Respondent thesanctions recommended by Staff, and made the Order which appears as the Schedule to theseReasons. We did this, not to punish the Respondent, which is not our function in a proceeding of thissort, but to try to ensure that, if the Respondent is to continue as a registrant under the Act, it willdo so in the manner required by Ontario securities law. It may be, as argued by Mr. Cooper, that theresult of the suspension will be to make it difficult or impossible for the Respondent to remain inbusiness, but the public interest requires that the Respondent, if it is to remain in business, does soonly on the basis that it complies with its regulatory requirements, for the protection of its clients.
Although, in our view the order would have been appropriate in any case, it will also, we trust, havean appropriate general deterrence effect, clearly indicating the seriousness with which the Commissionregards the failure of a registrant to comply with its obligations to duly and punctually file thefinancial statements and other material which it is obliged to file under the Act, the regulations madeunder the Act, and any terms and conditions imposed on its registration. General deterrence is amatter which we are entitled to take into account in subsection 127(1) proceedings. (See In theMatter of Belteco Holdings Inc. et al. (1998), 21 O.S.C.B. 7743; In the Matter of Linden Dornford(1998), 21 O.S.C.B. 7499.)
October 5th , 1999.
"J. A. Geller"
"Morley P. Carscallen"
"J. F. Howard"