IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED
AND IN THE MATTER OF THE REGISTRATION OF
FCPF CORPORATION (FORMERLY REDEV CORPORATION) and
1. This settlement agreement (the Settlement Agreement) relates to the registration status under the Securities Act (Ontario) (the Act) of FCPF Corporation (FCPF) (formerly known as Redev Corporation) (Redev)) and Richard Crenian (Crenian) (collectively, the Registrants).
Agreed Statement of Facts
2. Staff of the Ontario Securities Commission (Staff of the OSC) and the Registrants agree to the facts as stated herein.
3. FCPF is registered under the Act as an exempt market dealer. FCPF offers for sale securities of related-party issuers that carry on the business of real estate development in Alberta and elsewhere.
4. FCPF first became registered as a limited market dealer on April 25, 2006. At the time of its initial registration, FCPF was known as Redev. On March 7, 2013, Redev notified Staff that it had changed its name to FCPF effective January 31, 2013.
5. FCPF’s registration was transitioned to the category of exempt market dealer on September 28, 2009.
6. Crenian has been registered with FCPF as follows:
(a) Designated compliance officer: April 25, 2006 to September 28, 2009;
(b) Chief compliance officer: January 25, 2010 to January 10, 2011; and
(c) Ultimate designated person: January 25, 2010 to February 3, 2011, and July 4, 2011 to the present.
7. At the time Crenian became registered as FCPF’s chief compliance officer, he did not meet the proficiency requirements for that position as set out in National Instrument 31-103 – Registration Requirements, Exemptions, and Ongoing Registrant Obligations (NI 31-103).
8. The transition provisions of NI 31-103 permitted Crenian one year from September 28, 2009 within which to achieve the proficiency requirements for the chief compliance officer of an exempt market dealer. Crenian did not achieve these requirements, and accordingly on December 16, 2010, Staff recommended to the Director that the registration of FCPF be suspended pursuant to section 28 of the Act.
9. FCPF requested an opportunity to be heard (an OTBH) in relation to Staff’s recommendation of December 16, 2010. That OTBH was settled on the basis that FCPF’s registration would be suspended until such time as it appointed a properly-qualified chief compliance officer. This suspension was effective February 3, 2011.
10. FCPF’s registration was reinstated effective July 4, 2011 when a chief compliance officer was appointed.
The Compliance Review
11. In the fall of 2012, Staff conducted a review of FCPF’s compliance with Ontario securities law pursuant to section 20 of the Act (the Compliance Review).
12. Through the Compliance Review, Staff identified the following deficiencies in the Registrants’ compliance with Ontario securities law, which the Registrants admit to:
(a) During the period of time that FCPF’s registration was suspended in 2011, the firm traded in securities with investors DT and KH, contrary to section 25 of the Act and section 10.4 of NI 31-103. The trade to DT was conducted by AF, an individual who has never been registered under the Act. Acts in furtherance of the trade to KH were carried out during the time when FCPF’s registration was suspended, and the trade was completed after FCPF’s registration was reinstated.
(b) AF traded in securities on behalf of FCPF on at least eleven different occasions from 2005 to 2011 without being registered under the Act. These sales raised approximately $810,000 for issuers distributed by FCPF, and AF was paid commissions totaling approximately $56,700 for these trades.
(c) No know-your-client (KYC) information was properly recorded for any of the trades carried out by AF.
(d) No KYC information was collected for trades made to clients YJ, RT, or KH, which trades were made through a registered representative of FCPF.
(e) FCPF, through AF, sold securities in reliance on the accredited investor exemption to the prospectus requirement to the following individuals who did not qualify as accredited investors: DT, JM, TF, and NC. These investors signed subscription agreements in which they represented that they were accredited investors.
(f) KH invested in two issuers sold to her by FCPF, both of which were of substantially the same nature. Each investment by KH represented approximately 12.5% to 25% of her “net investible assets” (a term used in FCPF’s KYC form), and on a combined basis they represented approximately 25% to 50% of her net investible assets. These trades were carried out by a registered representative of FCPF, and the firm could not demonstrate to Staff that the representative properly assessed whether these trades resulted in KH being over-concentrated in FCPF offerings, and therefore whether they were suitable for her.
13. The Compliance Review did not find any evidence that FCPF clients had suffered monetary loss as a result of the Registrants’ breaches of Ontario securities law.
Staff Recommends Suspension of Registration
14. On January 2, 2013, Staff sent a report to FCPF setting out its findings from the Compliance Review.
15. Also on January 2, 2013, Staff sent a letter to the Registrants informing them that Staff had recommended to the Director that their registrations be suspended pursuant to section 28 of the Act, and informing them of their right to request an OTBH.
16. On January 16, 2013, counsel for the Registrants notified Staff in writing that the Registrants wished to have an OTBH before the Director made a decision regarding Staff’s recommendation.
17. On February 15, 2013, FCPF consented to the imposition of terms and conditions on its registration which prohibited it from trading in securities. These terms and conditions were imposed on the understanding that they would be in place pending negotiations between Staff and the Registrants to settle the OTBH.
Admission of Non-Compliance with Ontario Securities Law
18. On the basis of the Agreed Statement of Facts, FCPF admits that it did not effectively establish, maintain, and apply policies and procedures to establish a system of controls and supervision sufficient to provide reasonable assurance that the firm and each individual acting on its behalf consistently complied with securities legislation and to manage the risks associated with its business in accordance with prudent business practices.
19. On the basis of the Agreed Statement of Facts, Crenian admits that he failed to properly discharge all of his obligations as designated compliance officer, ultimate designated person, and chief compliance officer under Ontario securities law.
20. The Registrants admit:
(a) FCPF traded in securities during a period of time when its registration was suspended, contrary to subsection 25(1) of the Act and section 10.4 of NI 31-103;
(b) Allan Fulton traded in securities on behalf of FCPF without being registered under the Act, contrary to subsection 25(1) of the Act;
(c) FCPF traded in securities where such trades were distributions of securities and where such distributions were made in reliance on exemptions to the prospectus requirement to individuals who did not qualify for such exemptions, contrary to paragraph 7.1(2)(d) of NI 31-103;
(d) FCPF did not take reasonable steps to ensure that it obtained the KYC information required by section 13.2 of NI 31-103 for each of its clients; and
(e) FCPF did not take reasonable steps to ensure that, before it made a recommendation to, or accepted an instruction from, each of its clients to buy a security, the purchase was suitable for the client, contrary to subsection 13.3 of NI 31-103.
Joint Recommendation to Director
21. In order to resolve the OTBH that has been requested by the Registrants, and on the basis of the Agreed Statement of Facts, the admission of non-compliance with Ontario securities law, and the undertakings set out in this Settlement Agreement, Staff and the Registrants (the Parties) have agreed to the following terms, and make the following joint recommendation to the Director:
(a) The registration of FCPF shall be revoked pursuant to section 28 of the Act;
(b) The registration of Crenian as an ultimate designated person shall be suspended pursuant to section 28 of the Act, and he may apply for a reactivation of registration after a period of eight years from February 15, 2013 (i.e., the date that terms and conditions were imposed on the registration of FCPF prohibiting it from trading in securities). If Crenian applies for a reactivation of registration as an ultimate designated person, the conduct giving rise to this Settlement Agreement may be considered by Staff in assessing his suitability for registration, together with any other relevant consideration;
(c) Crenian undertakes that he will not apply for registration as the chief compliance officer of a registered firm for a period of eight years from February 15, 2013. If Crenian applies for registration as a chief compliance officer, the conduct giving rise to this Settlement Agreement may be considered by Staff in assessing his suitability for registration, together with any other relevant consideration;
(d) Crenian will resign all positions as a permitted individual, and undertakes that he will not become a permitted individual of a registered firm for a period of eight years from February 15, 2013;
(e) Crenian undertakes that he will not apply for registration as a dealing representative in any category of registration for a period of four years from February 15, 2013. If Crenian applies for registration as a dealing representative, the conduct giving rise to this Settlement Agreement may be considered by Staff in assessing his suitability for registration, together with any other relevant consideration; and
(f) Crenian will successfully complete the Conduct and Practices Handbook Course before applying to be registered in any category, or becoming a permitted individual, and will successfully complete the PDO Exam (as defined by NI 31-103) before applying to be an ultimate designated person or permitted individual.
22. The Parties submit that their joint recommendation is reasonable, having regard to the following factors:
(a) The misconduct by the Registrants was significant, but Staff is not aware of any investors having suffered any losses to date as a result of the activities of the Registrants;
(b) The Registrants have not previously been the subject of any regulatory action by the OSC relating to allegations of misconduct;
(c) The Registrants have accepted full responsibility for their misconduct and have expressed remorse for that misconduct; and
(d) By agreeing to this Settlement Agreement, the Registrants have saved the Director the time and resources that would have been required for an OTBH.
23. The Parties acknowledge that if the Director does not accept this joint recommendation:
(a) This joint recommendation and all discussions and negotiations between the Parties in relation to this matter shall be without prejudice to the Parties; and
(b) The Registrants will be entitled to an OTBH in accordance with section 31 of the Act in respect of any recommendation that may be made by Staff regarding their registration status.
Compliance and Registrant
October 1, 2013
Counsel for FCPF Corporation
and Richard Crenian
September 30, 2013
Decision of the Director
Having reviewed and considered the agreed facts, admissions, representations, submissions, and undertakings contained in the settlement agreement (the Settlement Agreement) signed on behalf of Richard Crenian and FCPF Corporation (formerly known as Redev Corporation) on September 30, 2013, and by staff of the Ontario Securities Commission on October 1, 2013, and on the basis of those agreed facts, admissions, representations, submissions, and undertakings, I, Debra Foubert, in my capacity as Director under the Securities Act (Ontario) (the Act), accept the joint recommendation of the parties, and make the following decision pursuant to section 28 of the Act:
(i) Effective immediately, the registration of FCPF Corporation (formerly known as Redev Corporation) is revoked.
(ii) Effective immediately, the registration of Richard Crenian as an ultimate designated person is suspended, and he may apply for a reactivation of registration as an ultimate designated person after a period of eight years from February 15, 2013 (i.e., the date on which terms and conditions were imposed on the registration of FCPF Corporation which prevented the firm or anyone acting on its behalf from trading in securities).
|October 1, 2013
|Debra M. Foubert