IN THE MATTER OF THE REGISTRATION OF
ROYAL SECURITIES CORP. and
NINGYUAN GUO also known as MARK GUO
OPPORTUNITY TO BE HEARD UNDER SECTION 31
OF THE SECURITIES ACT (ONTARIO)
- Royal Securities Corp. (RSC) is registered under the Securities Act (Ontario) (the Act) as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer.
- Ningyuan Guo, also known as Mark Guo (and collectively with RSC, the Registrants) is registered under the Act as the ultimate designated person, chief compliance officer, and sole advising representative and dealing representative of RSC.
- By way of a letter dated May 26, 2011, staff (Staff) of the Ontario Securities Commission (the OSC) informed Mr. Guo that Staff had recommended to the Director that the registration of the Registrants be suspended on the grounds that they lacked the requisite integrity for continued registration. Staff’s letter of May 26, 2011 identified the allegations upon which its recommendation was based. These allegations were subsequently revised and restated in a letter from Staff to the Registrants dated June 24, 2011, and were as follows:
- the Registrants engaged individuals to trade in securities of the Dragon IPO Fund (the Dragon Fund) who were not registered to do so under the Act;
- RSC, being both the portfolio manager to the Dragon Fund and its dealer, breached the terms and conditions of the firm’s registration by failing to inform clients prior to commencing any trading or advising with those clients that RSC provides services as both a dealer and adviser;
- the Registrants engaged in the illegal distribution of securities by selling units of the Dragon Fund to eleven investors pursuant to the accredited investor exemption to the prospectus requirement when those individuals did not qualify for that exemption;
- the Registrants failed to determine the suitability of investments in the Dragon Fund for nine investors;
- the Registrants failed to deal fairly, honestly, and in good faith with their clients by:
- closing the trust account for another investment fund managed by the Registrants known as the Royal China Fund, and apparently maintaining no trust account for the Dragon Fund;
- advising clients that the Dragon Fund was operating normally when its assets under management had apparently decreased substantially;
- employing an unregistered representative who lied to an investor by advising them that the Dragon Fund was a liquid security and was traded on the Toronto Stock Exchange;
- employing an unregistered representative who lied to an investor by telling them that earlier investors had received their money back and had made money on their investments;
- employing an unregistered representative who utilized high pressure sales tactics;
- employing an unregistered representative who made extravagant claims about the return on investment for the Dragon Fund; and
- failing to promptly return calls from clients;
- an individual acting on the Registrants’ behalf made a prohibited representation regarding rights of redemption to an investor;
- a promotional email circulated for the Dragon Fund by an individual acting on behalf of the Registrants referred to the Registrants’ registration under the Act, and the RSC website featured the emblem of the OSC;
- Mr. Guo made a material misrepresentation to Staff when, in response to a request by Staff to identify individuals soliciting investments in the Dragon Fund or otherwise employed by RSC, he failed to identify nine individuals; and
- the Registrants failed to cooperate with Staff when they sought to conduct a compliance review of RSC pursuant to s. 20 of the Act.
- On June 2, 2011, the Registrants, through Mr. Guo, requested an opportunity to be heard (OTBH) pursuant to s. 31 of the Act in regards to Staff’s recommendation that their registration be suspended. Mark Skuce, legal counsel for Staff, sent an email to Mr. Guo confirming the request for an OTBH, and setting out a schedule for the exchange of written submissions. This schedule required Staff to provide me with its written submissions by June 24, 2011, and required the Registrants to provide me with their written submissions by July 15, 2011.
- On June 24, 2011, Mr. Skuce delivered Staff’s written submissions to me and the Registrants.
- On June 28, 2011, pursuant to s. 6(c) of the Procedures for Opportunities to be Heard Before Directors’ Decisions on Registration Matters, I emailed a letter to the Registrants and to Mr. Skuce stating that due to the seriousness of the allegations in this matter, I required this OTBH to proceed as an in-person appearance before me, commencing at 9:00 a.m. on July 15, 2011. In my letter, I also requested that Mr. Guo confirm his attendance by July 8, 2011.
- On July 4, 2011, Mr. Guo requested that the in-person OTBH be adjourned for two months from July 15, 2011.
- On July 5, 2011, I refused Mr. Guo’s request for an adjournment on the basis that to further delay the OTBH in light of the seriousness of Staff’s allegations would be contrary to the public interest, and reiterated my request that he confirm his attendance at the in-person OTBH.
- On July 5, 2011, Mr. Guo informed me and Mr. Skuce that he would not attend the in-person OTBH as I had directed, but would instead provide written submissions.
- Mr. Skuce has provided me with copies of two emails sent by him to Mr. Guo on July 6, 2011 informing him of the importance of attending the July 15, 2011 OTBH in person.
- On July 11, 2011, Mr. Guo delivered written submissions, which I found disjointed, confusing, and generally difficult to understand.
- Mr. Skuce has provided me with a copy of an email sent by him to Mr. Guo on July 13, 2011 reiterating the importance of attending the OTBH on July 15, 2011.
- Mr. Guo failed to attend at the OSC on July 15, 2011 as I had directed for the purpose of this OTBH.
- Based on the submissions before me and the fact that Mr. Guo failed to attend the OTBH and refused to cooperate with Staff’s attempt to conduct a compliance review of the Registrants, my decision is that the registration of Mr. Guo and RSC be suspended, effective immediately.
Compliance and Registrant Regulation
Ontario Securities Commission
July 15, 2011