Settlement Agreement: In the Matter of Regal Capital Planners Ltd.
R.S.O. 1990, c. S.5, as amended
AND
IN THE MATTER OF
REGAL CAPITAL PLANNERS LTD.
SETTLEMENT AGREEMENT
I. INTRODUCTION
1. By notice of hearing dated January 31, 2000 (the "Notice of Hearing"), the OntarioSecurities Commission (the "Commission") announced that it proposed to hold ahearing to consider:
(a) whether, pursuant to section 127 of the Act, it is in the public interest for theCommission to make an order:
(i) that the registration of Regal Capital Planners Ltd. ("Regal") besuspended or restricted for such time as the Commission may direct,or be terminated, or be subject to such terms and conditions as theCommission may order;
(ii) that trading in any securities by Regal cease permanently or for suchperiod as the Commission may order;
(iii) that the exemptions contained in Ontario securities law do not applyto Regal permanently or for such period as the Commission mayorder;
(iv) that Regal submit to a review of its practices and procedures andinstitute such changes as may be ordered by the Commission;
(v) that Regal be reprimanded; and/or
(vi) such other order as the Commission may deem appropriate; and
(b) such other matters as the Commission considers appropriate.
II. JOINT SETTLEMENT RECOMMENDATION
2. Staff of the Commission ("Staff") agree to recommend settlement of the proceedinginitiated in respect of Regal by the Notice of Hearing in accordance with the termsand conditions set out below. Regal consents to the making of an order against itin the form attached as Schedule 'A' on the basis of the facts set out below.
III. STATEMENT OF FACTS
Acknowledgment
3. Regal agrees, for the purposes of this settlement agreement only and for no otherpurposes, with the facts set out in this Part III.
Factual Background
Montpellier and Regal
4. Pierre Alfred Montpellier ("Montpellier") is an individual who at all material timeslived in Sudbury, Ontario, and was registered with the Commission to sell mutualfunds, limited market products and scholarship plans. Montpellier worked out of theoffices of the Montpellier Group Inc., an Ontario corporation of which Montpellierwas the sole officer.
5. Regal is registered with the Commission as a mutual fund, limited market product,labour-sponsored venture fund and scholarship plan dealer. Regal wasMontpellier's employer and sponsor under the Act from June 17, 1994 untilDecember 9, 1998.
Montpellier's Office and Staff
6. In April 1995, Regal's Sudbury office relocated. Montpellier remained at the oldlocation until December 1996, when he established his own storefront locationknown as the Montpellier Group Inc. Despite having separate premises, theMontpellier Group office was never registered with the Commission as either abranch or a sub-branch of the Sudbury office.
7. Regal was aware that Montpellier was operating out of his own premises, andbecame aware that Montpellier's office was not properly registered.
8. In February of 1996, Sandra Mews ("Mews"), Regal's Sudbury branch manager,became aware that Montpellier was selling or promoting products not approved byRegal or sold through Regal. Mews requested an audit and clarification of herresponsibilities regarding Montpellier's handling of unauthorized products.
9. By June of 1997 the Montpellier Group employed nine full- and part-timeemployees, including Montpellier and two other registrants, Terry Papineau("Papineau") and Daniel Leduc ("Leduc"). All three registrants were sponsored byRegal. The Montpellier Group offered services to the public, including financialplanning, investment products through Regal, insurance products through Manulife,and assorted bookkeeping and tax planning and preparation services.
10. Both Papineau and Leduc were hired by Montpellier. Neither met Mews until afterhe commenced his employment. From Montpellier, both understood their reportingrelationship to be first to Montpellier and then to an unregistered manageremployed by the Montpellier Group.
11. Exterior display signs identified the Montpellier premises as the "Montpellier GroupInc." with no mention of any affiliation with Regal. Regal had no profile in theMontpellier Group offices.
12. In October of 1996, during a tour of Montpellier's offices while those offices wereunder construction, Regal chairman Paul Rockel directly queried Montpellier onhow he could afford such an office. Montpellier said that he was able to do sobecause of a combination of his insurance and other financial services endeavoursand as part owner of a separate business venture.
Foreign Capital Corporation
13. Between September 1995 and September 1998, Montpellier participated in the saleof in excess of $4 million worth of investments in Foreign Capital Corporation("FCC"), a private Ontario corporation of which Montpellier was one of two officers.Investors were advised that their funds would realize a minimum return of 7% peryear, although investors were told to expect 20% per year. While sponsored byRegal, Montpellier also borrowed from clients and sold other investment productsnot authorized by Regal.
14. FCC filed no prospectus or offering memorandum with the Commission. FCC wasnot a product authorized by Regal.
Regal's Supervision of Montpellier's Activities
15. In February of 1996 Mews received information about Montpellier's involvementwith a "foreign endeavour" and a complaint about his sale of GIC's. Mews askedMontpellier about these matters, and was told that the matter had nothing to do withRegal. He attributed the complaint to professional jealousy.
16. Beginning in or about 1997, Montpellier's attendance at the Regal Sudbury office'sregular representatives' meetings declined significantly.
17. In April of 1998 Papineau left the Montpellier Group. Papineau told Dennis Adams("Adams"), a representative of Regal, that he had left the Montpellier Groupbecause he was no longer comfortable working there. Papineau told Adams thathe and other Montpellier Group clients had invested money in FCC with Montpellierand that the interest payments had begun to arrive late. Papineau explained theinvestment as he understood it.
18. Following the meeting between Papineau and Adams, Regal head office personnelbegan to question Montpellier on the sale of non-approved products. Montpellierdid not volunteer any information about FCC. Regal personnel then questionedMontpellier specifically about FCC. Montpellier claimed that FCC was a smallprivate placement, that it had ceased operations and that all investors were beingpaid back.
19. Over the following months, Montpellier promised to Regal personnel that he wouldsupply documents pertaining to FCC. Montpellier's responses to Regal's questionswere delayed, partially answered or ignored completely.
20. Beginning in April 1998, Mews, who had previously enjoyed free access to theMontpellier Group offices, had to be announced and "buzzed" into the privateoffices. Eventually, in December 1998, the manager was advised that she was nolonger welcome to visit the Montpellier offices.
21. By August of 1998, Regal heard that Montpellier was involved in making overseasinvestments in England and Switzerland.
22. By August of 1998, Mews and Regal head office staff were sufficiently concernedby reports of Montpellier's activities, of his sources of funds and of his financialstatus, that they had discussions regarding the possible termination of hisemployment and sponsorship.
23. In October and November of 1998, Regal arranged four meetings with Montpellier.Two meetings were cancelled on little notice. In the two meetings that did takeplace, Regal personnel observed Montpellier to be evasive and nervous.
24. At a meeting on November 23, 1998, Montpellier provided his explanation of theworkings of FCC to Regal personnel. Montpellier explained that there was a delayin the interest payments due to investors but that all investors would be paid byDecember 15, 1998. Montpellier promised to provide documentation in support ofhis explanation to Regal by November 25, 1998.
25. On November 25, 1998, Montpellier insisted he needed more time to prepare thedocumentation. On November 30, 1998, calls to Montpellier's office were notreturned and calls to his home were not answered.
26. On December 4, 1998, Regal demanded that Montpellier supply the promiseddocumentation immediately.
27. On or about December 8, 1998 Montpellier left Canada for England. The followingday Montpellier was terminated by Regal and shortly thereafter the MontpellierGroup offices were closed.
28. Papineau's leaving the Montpellier Group and his expression of concern to Adamsabout FCC took place in April of 1998. From that time until the last confirmed saleof an FCC investment by Montpellier, a total of 19 persons invested approximately$875,000 in FCC.
1996 National Compliance Audit
29. In April of 1996 Regal was the subject of a National Compliance Audit conductedby securities regulators in seven provinces. One of the findings of the audit, underthe heading of "Branch Office Operating Results," noted that Regal did not have inplace any mechanism for determining its branches' financial position.
30. The audit noted specifically that this information would be an indicator of potentialproblems requiring immediate follow up and that the failure to collect and maintainthis information contravened Ontario securities law. The audit recommended thatRegal bring itself into compliance with Ontario securities law by collectinginformation for the purpose of monitoring both its overall operations and that of itsbranches.
31. In their response to the compliance audit, Regal advised that it was formulating abranch reporting format for the purpose of monitoring the financial position of itsbranches.
Regal's Conduct
32. Regal did not, at all times, conduct itself in a manner consistent with the publicinterest in relation to the Montpellier sub-branch, but the owners of Regal haverecently entered into an agreement to sell the business to BRM Capital Corporationand, as a condition of that agreement, a fund has been set aside to meet potentialliabilities of Regal, including those that may arise out of the activities at theMontpellier sub-branch.
IV. POSITION OF THE RESPONDENT
33. At all material times Regal had a comprehensive compliance program in place.
34. At no time did Regal authorize or acquiesce in the impugned activities ofMontpellier, nor did Regal receive any benefit, directly or indirectly, from thoseactivities.
35. Regal was misled throughout by Montpellier despite its efforts to supervise him.
36. Regal has cooperated throughout with Staff in the investigation of the impugnedactivities of Montpellier.
V. TERMS OF SETTLEMENT
37. Regal agrees to the following terms of settlement:
(a) Regal will be reprimanded by the Commission;
(b) Regal will submit to a review of its compliance practices and procedures,such review to be carried out by an expert appointed by the Commissionupon the joint submission of Regal and Staff, at Regal's expense, and willimplement such changes as are recommended by the expert, withinreasonable time frames set out by that expert after consultation with Regal;
(c) upon the approval of this settlement, Regal will make a payment of $100,000to the Commission, to be allocated to such third parties as the Commissionmay determine, for purposes that will benefit investors in Ontario; and
(d) upon the approval of this settlement, Regal will make a payment of $20,000to the Commission in respect of a portion of the Commission's costs withrespect to this matter.
VI. STAFF COMMITMENT
38. If this settlement is approved by the Commission, Staff will not initiate any complaintto the Commission or request the Commission to hold a hearing or issue any otherorder in respect of any conduct or alleged conduct of Regal in relation to the factsset out in Part III of this agreement.
39. If this settlement is approved by the Commission, Staff will not initiate any otherproceeding against Regal in relation to the facts set out in Part III of this agreement.
VII. PROCEDURE FOR APPROVAL OF SETTLEMENT
40. Approval of the settlement set out in this agreement shall be sought at the publichearing of the Commission scheduled for February 7, 2000, or such other date asmay be agreed to by Staff and Regal, in accordance with the procedures describedin this agreement.
41. Staff and Regal agree that if this agreement is approved by the Commission, it willconstitute the entirety of the evidence to be submitted respecting Regal in thismatter, and Regal agrees to waive its rights to a full hearing and appeal of thematter under the Act.
42. Staff and Regal agree that if this settlement is approved by the Commission, neitherStaff nor Regal will make any public statement inconsistent with this agreement.
43. If this settlement agreement is approved by the Commission, Regal agrees that thesale referred to in paragraph 32 herein will be completed forthwith, failing whichStaff shall be entitled, at its option and upon written notice to Regal, to treat thissettlement agreement as at an end. In the event that Staff so elects to terminatethis settlement agreement:
(a) Regal shall consent to an order of the Commission setting aside or varying anyorder approving this settlement agreement;
(b) Regal and Staff shall be restored to the positions they were in prior to enteringinto this settlement agreement and prior to any order of the Commission approvingthis settlement agreement.
44. If, at the conclusion of the settlement hearing, and for any reason whatsoever, thissettlement is not approved by the Commission, or an order in the form attached asSchedule "A" is not made by the Commission, or Staff elects to terminate thissettlement agreement pursuant to paragraph 43:
(a) each of Staff and Regal will be entitled to all available proceedings,remedies and challenges, including proceeding to a hearing of theallegations in the Notice of Hearing and Statement of Allegations, unaffectedby this agreement or the settlement negotiations;
(b) the terms of this agreement will not be referred to in any subsequentproceeding, or disclosed to any person, except with the written consent ofboth Staff and Regal or as may be required by law; and
(c) Regal agrees that it will not, in any proceeding, refer to or rely upon thisagreement or the negotiation or process of approval of this agreement as thebasis for any attack on the Commission's jurisdiction, alleged bias,appearance of bias, alleged unfairness or any other remedies or challengesthat may otherwise be available.
VIII. DISCLOSURE OF AGREEMENT
45. Counsel for Staff or for Regal may refer to any part or all of this agreement in thecourse of the hearing convened to consider this agreement. Otherwise, thisagreement and its terms will be treated as confidential by all parties to theagreement until approved by the Commission, and forever if, for any reasonwhatsoever, this settlement is not approved by the Commission, except with thewritten consent of all parties or as may be required by law.
46. Any obligations of confidentiality shall terminate upon approval of this settlementby the Commission.
IX. EXECUTION OF AGREEMENT
47. This agreement may be signed in one or more counterparts which together shallconstitute a binding agreement.
DATED as at the 31st day of January, 2000.
REGAL CAPITAL PLANNERS LTD.
STAFF OF THE ONTARIO SECURITIES COMMISSION