An Ontario Securities Commission (OSC) hearing panel has ordered more than $2 million in disgorgement, sanctions and costs against former exempt market dealer Pro-Financial Asset Management Inc. (PFAM) and Stuart McKinnon, the firm’s former CEO, the OSC announced on Tuesday.
In a merits decision issued last year, an OSC hearing panel ruled that respondents PFAM and McKinnon breached securities rules in connection with the administration and distribution of nine series of principal-protected notes (PPNs) on behalf of two banks. PFAM’s conduct in connection with those notes resulted in a deficiency of more than $1.2 million in the PPNs, the panel found.
In its reasons and decision on sanctions and costs published on Tuesday, the OSC panel ruled PFAM and McKinnon must disgorge $1.18 million, and each pay $200,000 in administrative penalties and almost $500,000 in costs. The panel also imposed a 10-year trading and registration ban on the two respondents.
“The many breaches of Ontario securities law resulted from the respondents’ failure to establish, maintain and apply adequate compliance systems, to keep proper books and records, and to deal fairly, honestly and in good faith with their clients,” the panel stated in its reasons and decision.
The panel acknowledged that there’s no evidence that McKinnon personally benefited from the violations, and said that it “[agrees] with him that not all instances of dishonest conduct are equal.”
However, “registrants are not entitled to use monies given to them in trust for the purpose of ‘making ends meet.’ Registrants must not place their self-interest in keeping their businesses operational ahead of the interests of investors,” the panel said.
“McKinnon’s suggestion that this is a compliance case involving record keeping, processing and administrative problems does not fully reflect the nature and seriousness of the misconduct here,” the panel continued.
“This case is about a registrant firm which failed in its duty to have in place the necessary policies and procedures as well as an adequate system of controls and supervision in order to ensure compliance with Ontario securities law. This failure led to the breaches found against them and ultimately the sanctions which we have imposed. PFAM and McKinnon failed to fulfill their most basic responsibilities as registrants,” the panel concluded.