IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, c. S.5 AS AMENDED
- AND -
IN THE MATTER OF AN OPPORTUNITY TO BE HEARD
REQUESTED BY NEIL MACPHERSON
1. This settlement agreement (the Settlement Agreement) relates to an opportunity to be heard under section 31 of the Securities Act (Ontario) (the Act) requested by Neil Macpherson (Macpherson) regarding a recommendation by staff of the Ontario Securities Commission (Staff) that his application for registration as an advising representative in the category of portfolio manager with Return on Innovation Advisors Ltd. (ROI Advisors) be refused.
Agreed Statement of Facts
2. Staff and Macpherson agree to the statement of facts as set out herein.
Macpherson’s Employment Activities
3. Since April 2005, Macpherson has occupied the position of Senior Vice-President, Investments at ROI Advisors. ROI Advisors is registered under the Act as an investment fund manager, portfolio manager, and exempt market dealer. Macpherson has never been registered under the Act in any capacity.
4. ROI Advisors is a member of a corporate group that included Return on Innovation Capital Ltd. (ROI Capital), which was registered as a limited market dealer, and subsequently as an exempt market dealer, from July 2009 to September 2010. ROI Advisors is the continuing entity following the amalgamation of ROI Capital, Return on Innovation Advisors Ltd. and Return on Innovation Management Ltd. on September 1, 2012 (the Amalgamation).
5. ROI Advisors’ business activities include entering into financing transactions with third-party businesses including real estate development projects. Prior to the Amalgamation these activities were conducted by ROI Capital.
6. The majority of the financing transactions entered into by ROI Advisors and third-party entities (the Financed Entities) include one or more of the following components: (i) a loan agreement between ROI Advisors and the Financed Entity, secured by a mortgage, (ii) an unsecured loan evidenced by a promissory note issued by the Financed Entity in favour of ROI Advisors, and (iii) a limited partnership agreement between ROI Advisors and the general partner of the Financed Entity.
7. ROI Advisors is paid “work fees” by the Financed Entities calculated as a percentage of the amount of financing received by the Financed Entities from ROI Advisors. In some cases, the financing transaction also includes the issuance by the Financed Entities of securities such as options and warrants, which are held in the participating Funds and are not paid as compensation to ROI Advisors.
8. The capital used to provide financing to the Financed Entities is raised through the issuance of loan participation interests in the financing transactions to the various investment funds managed by ROI Advisors, the securities of which are sold to the public.
9. Since the time he joined ROI Advisors, Macpherson’s duties have consisted of the following activities:
- Identifying Financed Entities;
- Conducting due diligence on the Financed Entities;
- Presenting financing opportunities to senior management at ROI Advisors and providing his opinion regarding those opportunities;
- Negotiating and documenting financing between ROI Advisors and the Financed Entities; and (e)
- Post-financing monitoring of third-party companies.
Previous Applications for Registration
10. On March 6, 2006, Macpherson applied for registration as an advising representative in the category of investment counsel and portfolio manager.
11. On March 21, 2006, Staff notified a representative of ROI Advisors that Macpherson’s application for registration was deficient in that it did not identify how he met the proficiency requirements of an advising representative. These deficiencies were not corrected, and on April 7, 2006, Staff notified the ROI Advisors representative that Macpherson’s application had been abandoned.
12. On March 3, 2008, Staff provided a compliance field review report to senior management at ROI Advisors which noted that, in the course of its recently-completed compliance review of the firm, Staff discovered that Macpherson was carrying on registerable activity without being registered (i.e., the conduct described in paragraph 9, above).
13. In April 2008, senior management of ROI Advisors responded in writing to the compliance field review report, and informed Staff that Macpherson was in the process of applying for registration.
14. On July 9, 2008, Macpherson applied for registration as an advising representative and as an associate advising representative in the category of investment counsel and portfolio manager.
15. On July 10, 2008, Staff notified a representative of ROI Advisors that Staff required confirmation of all courses and experience that Macpherson was relying on as part of his application for registration. In particular, Staff requested proof of Macpherson’s completion of his Masters of Business Administration, and confirmation of his experience performing research and analysis of investments or investment management. None of this information was ever provided to Staff, and the application was not pursued further.
Current Application for Registration
16. On November 10, 2011, during the course of another compliance field review, Staff discovered that Macpherson had been carrying on his work duties as before, without ever having obtained registration. Staff immediately notified ROI Advisors of its concerns in this regard.
17. On November 11, 2011, Macpherson submitted an application for registration as an advising representative in the category of portfolio manager (the Application). Macpherson has also applied for an exemption from the proficiency requirements for an advising representative stipulated in National Instrument 31-103 – Registration Requirements, Exemptions, and Ongoing Registrant Obligations on the basis of his activities at ROI Advisors.
18. On November 23, 2011, as part of its assessment of the Application, Staff interviewed Macpherson about the fact that he had been conducting registerable activity without registration. During this interview, Macpherson advised that since the time he applied for registration in July 2008, he had not collected the information requested by Staff on July 10, 2008 or completed his 2008 application.
19. On February 16, 2012, Staff notified Macpherson in writing that it had recommended to the Director that the Application be refused. The basis of Staff’s recommendation was that Macpherson’s performance of registerable activity without registration, despite being notified by Staff in 2008 that his activity required registration, called into question his integrity for registration, and also that Macpherson lacked the requisite proficiency for an advising representative.
20. On March 1, 2012, counsel for Macpherson made a written request for an opportunity to be heard in relation to Staff’s recommendation to the Director that the Application be refused.
21. From the time of the Macpherson’s interview with Staff up until the March 1, 2012 request for an opportunity to be heard, Macpherson, through his counsel, took the position that his employment duties did not require registration under the Act. However, on March 8, 2012 counsel advised Staff that they would no longer take that position, and as a result the parties commenced settlement discussions regarding the opportunity to be heard.
Representations and Acknowledgement by Macpherson
22. Macpherson acknowledges that by performing the activity described in paragraph 9 above, Macpherson engaged in registerable activity without registration, and did so despite knowing that Staff had informed ROI Advisors in March 2008 that registration was required for that activity.
23. Counsel for Macpherson has advised Staff that since November 10, 2011 (i.e., the date Staff notified ROI Advisors of its concerns with respect to Macpherson), Macpherson’s employment duties have been altered as follows:
- All final decisions concerning all new loan commitments by ROI Advisors were to be made and signed off on by the portfolio manager and not Macpherson;
- Any recommendation for approval of a loan commitment made to the investment committee were to be made by the portfolio manager and not Macpherson; and
- The execution of any legal documentation binding on ROI Advisors in respect of any of the financing transactions were to be made by the portfolio manager and not Macpherson.
24. Counsel for Macpherson has also advised that in addition to restricting his employment duties as described above, Macpherson has successfully completed the Canadian Securities Course and the Conduct and Practices Handbook Course.
25. Macpherson accepts full responsibility for his misconduct as described herein
Undertaking by Macpherson
26. Macpherson hereby undertakes to the Ontario Securities Commission as follows:
- Upon the execution of this Settlement Agreement by both Macpherson and Staff, he shall immediately withdraw the Application, and will not reapply for registration for at least ten months from March 8, 2012. Macpherson’s withdrawal of the Application shall be deemed a withdrawal of his request for an opportunity to be heard; and
- He shall not seek an exemption from the proficiency requirement for registration in reliance on his work experience prior to the date of this Settlement Agreement at ROI Advisors. Agreement by Staff
27. On the basis of the representations, acknowledgment, and undertaking by Macpherson as set out in this Settlement Agreement, Staff agrees that following the expiration of the ten-month period of time described in that undertaking in subparagraph 26(a) above, Staff will not recommend to the Director that an application for registration by Macpherson be denied unless Staff becomes aware after the date it executes this Settlement Agreement of conduct impugning his suitability for registration, separate and apart from: (i) the facts set out in this Settlement Agreement; and/or (ii) facts of which Staff is already aware as of the date of this Settlement Agreement, and provided he meets all other applicable criteria for registration at the time he applies.
28. Staff and Macpherson agree that this Settlement Agreement shall be published in the Ontario Securities Commission Bulletin and on the website of the Ontario Securities Commission.
" Marrianne Bridge "
Compliance and Registrant Regulation
" David Di Paolo "
David Di Paolo
Counsel for Neil Macpherson
October 29, 2012
October 29, 2012