OSC suspends exempt market dealer

The panel upheld a decision issued last November by deputy director, compliance and registrant regulation at the OSC, Marrianne Bridge, which ordered the suspensions after concluding that Sterling Grace and Casale were not fit for registration due to concerns about their integrity. The firm and Casale sought to appeal that ruling, and the commission ordered a stay of the suspensions, and held a hearing on the appeal in February. (See OSC stays EMD suspension order, investmentexecutive.com, January 9, 2014.)

In their appeal, Sterling and Casale argued that the OSC erred by failing to give enough weight to the evidence they presented; that the firm’s compliance lapses were proficiency issues, not integrity issues; and that the sanctions imposed against Sterling Grace and Casale weren’t justified.

“It is the applicants’ position that the director erred in finding that the applicants lack the requisite integrity for a registrant or that it would be inappropriate for Casale to remain registered as a dealing representative,” the OSC panel said in its decision; adding that the Sterling Grace and Casale also argued that the director failed to apply relevant prior decisions, failed to give proper consideration to their cooperation with the commission, and that the initial decision didn’t give adequate reasons for essentially putting them out of business.

However, the hearing panel sided with OSC staff in the case, and upheld the original decision. “We find that the applicants’ failure to appropriately identify, respond to and disclose conflicts or potential conflicts of interest and their repeated failure to report capital deficiencies demonstrate a pattern of non-compliance with Ontario securities law, which is not appropriate for registrants,” the panel said in its decision.

The panel also found that Stirling Grace and Casale “failed to meet their KYC and investment suitability obligations, and routinely misapplied the [accredited investor] exemption. Also, the evidence supports a pattern of non-compliance by the applicants with Ontario securities law. All this contributes to our conclusion that the applicants are not suitable for continued registration and are factors for consideration in determining appropriate remedies.”

In its decision, the panel conceded that it is not aware of any investor losses as a result of these compliance lapses, and it noted that it also received supportive statements from clients. However, it also said that the applicants promise to address these compliance problems is undermined by the fact that they failed to do so in the past. “The repeated failure to address certain significant deficiencies undermines the applicants’ submissions that they will change their behavior to conform to requirements of Ontario securities law,” it said.

Ultimately, the panel concluded that the remedies imposed in the original decision are warranted. As a result, it ordered that Sterling’s registration, and Casale’s registration as UDP and CCO, should be permanently suspended; that Casale’s registration as a dealing rep should also be suspended; that she should not be allowed to apply for reinstatement for two years; that she must pass the Conduct and Practices Handbook Course before re-applying; and, that if her registration is reinstated, she should be subject to strict supervision for one year. Additionally, Casale is not allowed to be a “permitted individual”, such as an executive or significant shareholder, of a registered firm for five years.

The panel said that these remedies “are protective and preventive in nature, appropriate in the circumstances and are in the public interest.”