The Ontario Securities Commission (OSC) has ordered almost $2 million in disgorgement, penalties and costs, against a former exempt market dealer and portfolio manager that admitted to improperly distributing securities and misleading investors, among other violations.
On Thursday, the OSC announced that it has reached a settlement agreement with Mississauga, Ont.-based exempt market dealer Gentree Asset Management Inc., R.E.A.L. Group Fund III (CANADA) LP, Canpro Income Fund I, LP, and Normand Gauthier. The settlement orders them to disgorge $1.8 million that was obtained through securities law violations, return $114,400 to investors in one fund, and pay a $15,000 penalty and $10,000 in costs.
Additionally, the three organizations are permanently banned from trading, while Gauthier is banned from trading for 10 years, and is permanently banned from serving as a director or officer of any registered firm, and from becoming registered.
The settlement comes amid their admissions that between 2004 and 2011, the parties committed various breaches of securities laws and rules, including violating laws while selling securities, misleading potential investors; and that Gentree, which was an exempt market dealer and portfolio manager, and its principals, failed to comply with their obligations in terms of record keeping, capital requirements and portfolio management.
According to the settlement, Gauthier was registered as a dealing representative, chief compliance officer and ultimate designated person (UDP) of Gentree; he was also the sole officer and director of R.E.A.L., and he controlled the general partner of both CanPro and R.E.A.L. It states that Gauthier and Gentree sold $1.8 million worth of securities in Gentree to approximately 60 investors, not all of whom qualified as accredited investors or met other applicable prospectus exemptions; and that they also sold shares in various limited partnerships funds to investors that didn’t qualify for exemptions either.
Also, the settlement states that certain investors were told that their funds would be used to invest in real estate development projects in the U.S., but that instead, “a significant portion of the funds raised from investors were diverted to Gentree and utilized for purposes not disclosed to the investors.” Additionally, it states that Gentree’s record keeping was faulty, that it had solvency issues and was not meeting the minimum capital requirements, and that it violated the know your client (KYC) and suitability obligations.
In terms of mitigating factors, the settlement also notes that investors have received some of their money back, and that Gauthier has committed to personally repay the outstanding $114,420 to R.E.A.L. investors. The parties have also given an undertaking to the OSC to repay that money. The settlement also states that the parties co-operated with OSC staff throughout the investigation.