Proceedings

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IN THE MATTER OF

SECTION 139 OF R.R.O. 1990,

REGULATION 1015 (Regulation)

MADE UNDER THE SECURITIES ACT (ONTARIO) (Act)

AND

IN THE MATTER OF

HIGHBRIDGE FINANCIAL ADVISORS, INC.

WRITTEN SUBMISSIONS TO THE DIRECTOR PURSUANT

TO SUBSECTION 26(3) OF THE ACT

DATE:
November 13, 2003
 
DIRECTOR:
Marrianne Bridge
Manager, Compliance
Capital Markets

DIRECTOR'S DECISION

By letter dated October 30, 2003, I, as Manager, Compliance, advised the registrant, Highbridge Financial Advisors, Inc. (Highbridge) that it was deficient in meeting its minimum capital requirements by $7,237 based on its audited financial statements as at July 31, 2003. Highbridge rectified its capital deficiency by subordinating its shareholder's loan. Highbridge was advised that staff was of the view that its registration as an investment counsel and portfolio manager should be restricted by the imposition of terms and conditions (as attached to the letter). In the October 30, 2003 letter, Highbridge was asked to advise staff whether it accepted the terms and conditions outlined in the letter. If not, the registrant was advised that it could avail itself of the opportunity to be heard by a Director pursuant to section 26(3) of the Act. If the registrant intended to exercise this opportunity, it was asked to provide written notice to the Manager, Compliance.

By letter dated November 10, 2003, Highbridge provided written notice that it intended to exercise its right to be heard before the Director.

The facts in this case are simple. Highbridge's annual audited financial statements showed a capital deficiency of $7,237 due to an increase in related party debt which was not subordinated. Highbridge's balance sheet shows related party debt of $70,800, only $39,900 of which was subordinated. The remainder of the related party debt was subordinated on October 29, 2003 after staff advised Highbridge that it was capital deficient.

Regulation 107(3) generally requires every adviser to maintain minimum free capital of $5,000 of working capital (calculated in accordance with generally accepted accounting principles) plus the amount of any deductible under the bonding or insurance policy required under Regulation 108. Working capital (current assets less current liabilities) is a well understood accounting concept.

In its November 10, 2003 letter, Highbridge argues that it should be permitted to calculate its capital using Form 9 of the Regulation -- Financial Questionnaire and Report -- and that by using that form it had excess free capital of $23,663. It further argues that staff's working capital definition is prejudicial to all registrants who conservatively classify as a current liability their subordination agreements (as requested by Regulation 111). Further, Highbridge argues that staff has rejected its assertion that its shareholder's loan is stated correctly in its audited financial statements as $70,800, and instead has chosen to use $39,900 as its working capital adjustment to its detriment.

Highbridge also questions staff's views regarding the validity of the shareholder's loan. The validity of the loan is not in question here. What is in question is whether Highbridge met its ongoing capital requirements as a registered adviser. In my view, it did not. As a result, based upon my review of the submissions provided by Highbridge, it is my decision that the registration of Highbridge Financial Advisors, Inc. should be restricted by the terms and conditions outlined in the October 30, 2003 letter.

"Marrianne Bridge"

 

SCHEDULE "A"

TERMS AND CONDITIONS OF REGISTRATION ON

Highbridge Financial Advisors, Inc. (the "Registrant")

The Registrant shall deliver on a monthly basis with the Compliance section of the Ontario Securities Commission ("the Commission"), attention Financial Analyst, effective with the month ending November 30, 2003, the following information:

(1) year-to-date unaudited financial statements, which includes a balance sheet and income statement prepared in accordance with generally accepted accounting principles; and

(2) month end calculation of minimum required capital;

no later than three weeks after each month end.

The above terms and conditions of registration are agreed to by:

_________________________
____________________
Mr. Grant Y. Jung
Date
President