The Ontario Securities Commission is alerting investors not to purchase securities from North York, Ont.-based Carter Securities Inc.

Effective September 22, Carter’s registration has been suspended by the director on behalf of the OSC. A suspension means that Carter may not sell securities to investors.

Securities legislation permits the OSC to suspend the registration of a firm if the regulator has serious concerns about a firm’s continued fitness for registration, or if it determines that it is no longer in the public interest for a firm to be registered.

Carter was registered as a limited market dealer in 2007, and by operation of law, became registered as an EMD in September 2009. It is owned 50% by two brothers, Flavio Arconti and Gino Arconti, who also own three affiliated companies: NAFG, North American Capital Inc. (NAC), and 970910 Ontario Inc., operating as Prestige Motors. Both NAFG and NAC are finance companies specializing in subprime car leasing, and Prestige Motors is a car dealership.

Carter sells securities issued by NAFC and NAC to its clients under the accredited investor exemption.

The OSC performed reviews of Carter’s operations in 2009 and 2010, and identified concerns with respect to the suitability of Carter’s ongoing registration. In June, OSC staff advised Carter of its recommendation that to suspend its EMD registration.

The OSC staff argued that “Carter has engaged in a pattern of conduct – through its individual registrants – that demonstrates that it lacks the integrity required of registered firms under the Act.”

Specifically, the OSC found that the firm sold clients securities of NAFG without disclosing to clients the severe financial difficulties that NAFG faced. For the year ended December 31, 2009, NAFG’s income statements showed that on revenue of just over $500,000, the company sustained a net loss of over $300,000. Total accumulated net losses to date total almost $1.2 million, according to the OSC.

Furthermore, the regulator found that NAFG’s marketing materials include statements that are misleading, unsupported or not accurate. For example, the material claimed that NAFG has “grown to become a leader in the finance sector”.

“Carter did not take reasonable steps to ensure that the purchase or sale of NAFG securities was suitable for its clients,” said Marrianne Bridge, deputy director of compliance at the OSC, in her decision.

Carter also inappropriately directed investor funds into unsecured, non-interest bearing related party loans, and failed to disclose to investors these loans or the conflicts of interest arising from them, according to OSC staff.

“A material part of investor proceeds raised by Carter for NAFG are used to loan monies to other Arconti companies with no interest income accruing to the public investors in NAFG,” the OSC said. “As a result, in staff’s view, Gino and Flavio Arconti put their own interests ahead of the interests of Carter investors.”

In her decision, Bridge concluded that “Carter is not suitable for registration, that Carter has failed to comply with Ontario securities law, and that Carter’s ongoing registration is objectionable.”

IE