The Ontario Securities Commission will hold a hearing Thursday to consider a possible settlement in an alleged case of trading without registration at a hedge fund.

The hearing will consider a settlement agreement entered into between staff of the commission and Daniel Sternberg, Parkwood GP Inc., which he controls, and Philco Consulting Inc. (of which he was also the sole director and officer), concerning allegations that, between May 2004 and June 2011, Sternberg and Philco engaged in advising without being registered; that Sternberg and Parkwood GP traded in securities without registration; and, that Sternberg and Parkwood GP also breaching undertakings that they made to the OSC. The allegations have not been proven.

According to the allegations, questions about proper registration were uncovered by the OSC’s compliance department during a hedge fund sweep in 2009. The OSC says that it found that the Parkwood Limited Partnership Fund was advised by Eosphoros Asset Management Inc. (which was properly registered), but that EAM paid the majority of the management and performance fees it charged the fund, between approximately 85% to 95% of the fees, to Philco for consulting services. And it claims that Sternberg assisted EAM in providing advisory services to, and in making investment decisions for, the fund, thereby advising the fund about securities without proper registration.

After the sweep, OSC staff warned that Philco and Sternberg were engaging in advising without registration. It says that in 2010, Sternberg told the OSC in a letter that, while he disagreed that they had been engaging in advising without registration, Philco would cease to act as a consultant to EAM, and that he would apply for registration as an associate advising representative. However, the OSC says that after that, Sternberg continued to assist EAM in providing advisory services to, and in making investment decisions for, the fund, without being registered.

Additionally, the OSC alleges that Sternberg and Parkwood GP (the fund’s general partner) distributed limited partnership units of the fund to investors, when they were not registered with the commission, and an exemption from registration was not available to them. This was also pointed out by OSC compliance, and they promised to cease that activity too. However, the regulator says that they subsequently made 11 sales of limited partnership units to investors in 2010, none of which were distributed by properly registered dealers.