IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
MARK BONHAM, SVC O'DONNELL FUND MANAGEMENT INC. AND BONHAM & CO. INC.
AMENDED STATEMENT OF ALLEGATIONS OF STAFF OF THE ONTARIO SECURITIES COMMISSION
Staff of the Ontario Securities Commission (the "Commission") make the followingallegations:
Bonham, SVC O'Donnell and Bonham & Co. Inc.
1. Mark Bonham ('Bonham") is an individual who resides in the Province of Ontario.During the period July 31, 1997 to June 30, 1998 (the "material time"), Bonham wasregistered with the Commission pursuant to the Securities Act (the "Act") asInvestment Counsel/Portfolio Manager. During the material time Bonham acted asthe Portfolio Manager with respect to seven mutual funds managed by SVCO'Donnell Fund Management Inc. ("SVC").
2. SVC is a corporation organized pursuant to the laws of Canada. During thematerial time, SVC was registered with the Commission as InvestmentCounsel/Portfolio Manager.
3. Bonham & Co. Inc. ("B&C") is a corporation organized pursuant to the laws ofCanada. During the material time, B&C was registered with the Commission as anInvestment Counsel Portfolio Manager. During the material time B&C wasBonham's employer and the sponsor of Bonham's registration.
Manual Pricing of Shares in the Portfolios of SVC Funds
4. During the material time, Bonham manually priced certain shares held by three ofthe seven mutual funds Bonham managed for SVC, The Strategic Value Fund, TheCanadian Equity Value Fund and the Dividend Fund.
5. SVC received a price feed from a third party source on a daily basis ("price feed").The feed contained the "end of the day" share prices to be used in the valuation ofSVC's mutual funds.
6. SVC's accounting department highlighted items on the price feed if:
(a) a share price on the price feed was 3% higher or lower than the previousday's closing price of the share; or
(b) the price feed did not contain a price for the shares.
7. Bonham would then review the highlighted items and determine a value of theshares based on his own discretion. The majority of the highlighted items were ofthe nature of category (a).
8. If the price determined by Bonham was different than the price received via theprice feed, Bonham's price would be substituted and used in the calculation of thevalue of the mutual fund.
9. The valuation of the mutual fund is used to calculate the net asset value per share("NAVPS"). The NAVPS is used to determine the purchase and redemption pricesthat investors pay or receive.
10. During the relevant period, SVC did not have a written policy governing manuallypricing shares and Bonham did not apply a specific or consistent methodology inmanually pricing shares.
11. Bonham did not record or maintain any notes with respect to the determination ofthe manual price.
12. The result of the manual pricing undertaken by Bonham is as follows:
(a) The Strategic Value Fund was overvalued (i.e dollar difference as apercentage of net asset value per unit) for 201 of the 231 trading days duringthe material time.
(b) The Canadian Equity Value Fund was overvalued for 123 of the 231 tradingdays during the material time.
(c) The Dividend Fund was overvalued for 60 of the 231 trading days during thematerial time.
13. By his conduct during the material time, Bonham: a) failed to act honestly, in goodfaith and in the best interests of the mutual fund; and b) failed to exercise thedegree of care, diligence and skill that a reasonably prudent person would exercisein the circumstances, contrary to section 116(1) of the Act.
SVC O'Donnell Fund Management
14. The board of directors of SVC (the "Directors") were responsible for determiningwhen a valuation methodology for the shares held in the portfolios of the mutualfunds other than market value would be used.
15. SVC did not have any written policies or procedures in place governing under whatcircumstances Bonham should value the securities in the portfolios of the mutualfunds and the valuation methodology to be used.
16. The Directors relied on Bonham to make the day-to-day security valuationdeterminations.
17. The Directors (or a primary delegate) did not supervise or review the manual pricesdetermined by Bonham.
18. The Directors (or a primary delegate) did not implement internal controls to ensurea segregation of duties in the performance of the daily valuation of the mutualfunds.
19. SVC did not take adequate steps to monitor and prevent the conduct of Bonham asset out in the allegations.
20. During the material time, SVC: a) failed to act in the best interest of the mutual fund;and b) failed to exercise the degree of care, diligence and skill that a reasonablyprudent person would exercise in the circumstances contrary to section 116(1) ofthe Act.
Bonham & Co.
21. B&C, as the sponsor of Bonham's registration was responsible for supervisingBonham's activities and did not properly supervise Bonham in regard to the conductof Bonham as set out in the allegations, contrary to its obligations under OntarioSecurities Commission Rule 31-505 (3.1).
22. Staff reserves the right to make such further and other allegations as Staff maysubmit and the Commission may allow.
DATED at Toronto this 1st day of November, 2000.