OSC al­leges Cald­well over­charged clients

The Globe and Mail (BC Edition) - - SPORTS - AN­DREW WIL­LIS

Mar­ket reg­u­la­tors tar­geted Cald­well In­vest­ment Man­age­ment Ltd. with pos­si­ble fines and sus­pen­sion on Thursday, al­leg­ing the mu­tual fund firm over­charged clients by di­rect­ing trades to its wholly owned dealer when ri­val firms of­fered bet­ter prices.

The en­force­ment branch of the On­tario Se­cu­ri­ties Com­mis­sion (OSC) al­leged that over a pe­riod of al­most four years, Cald­well In­vest­ment “failed in its obli­ga­tion to pro­vide best ex­e­cu­tion of eq­uity and bond trades for its clients, which re­sulted in over­pay­ments by its clients.”

Ac­cord­ing to the OSC, Cald­well In­vest­ment steered most of its client trades to its own in­vest­ment dealer, Cald­well Se­cu­ri­ties Ltd., “plac­ing it in a clear con­flict of in­ter­est.”

The OSC’s en­force­ment arm is re­quest­ing fines, dis­gorge­ment of any com­mis­sions that came from break­ing the rules and ter­mi­na­tion, sus­pen­sion or re­stric­tion of Cald­well In­vest­ment’s reg­is­tra­tion, which could shut down the mu­tual fund firm.

None of the al­le­ga­tions have been heard be­fore in­de­pen­dent ad­ju­di­ca­tors and on Thursday, com­pany vice-pres­i­dent El­iz­a­beth Nau­movski said in an e-mail.

“Cald­well In­vest­ment Man­age­ment Ltd. has been in dis­cus­sions with OSC staff for some time and has been work­ing to re­solve the is­sues.

“Cald­well In­vest­ment Man­age­ment Ltd. will have no fur­ther com­ment for the time be­ing.”

Both Cald­well In­vest­ments and Cald­well Se­cu­ri­ties are pri­vately held Toronto-based firms con­trolled by founder Thomas Cald­well and his fam­ily; son Bren­dan Cald­well is the pres­i­dent and CEO of the mu­tual fund man­ager. Thomas Cald­well was in­ducted into the In­vest­ment In­dus­try As­so­ci­a­tion of Canada’s In­vest­ment In­dus­try Hall of Fame in 2014.

Cald­well In­vest­ments ran nine mu­tual funds and had up to $400-mil­lion of as­sets un­der man­age­ment dur­ing the nearly four-year pe­riod the OSC al­leges the firm failed to get the best prices for its clients.

As an ex­am­ple of how stock and bond trades played out, reg­u­la­tors al­lege Cald­well In­vest­ment’s bal­anced mu­tual fund did 66 per cent of its stock trades with un­af­fil­i­ated deal­ers at an average cost of five cents a share, a com­mis­sion that in­cluded com­pen­sa­tion for re­search from these firms. The Cald­well In­vest­ment fund sent 34 per cent of its trad­ing with Cald­well Se­cu­ri­ties at an average com­mis­sion of 16 cents a share, a price that did not in­clude any re­search.

Af­ter re­view­ing Cald­well In­vest­ment’s buy­ing and sell­ing of blue-chip stocks such as BCE Inc., Bank of Nova Sco­tia and Onex Corp., the OSC al­leged the fund paid Cald­well Se­cu­ri­ties com­mis­sions that ranged from 4.4 to 13.4 times the fees it paid to un­af­fil­i­ated deal­ers. The OSC said the fund man­ager’s trad­ing de­ci­sions “ul­ti­mately con­ferred a ben­e­fit on Cald­well Fi­nan­cial Ltd., the com­mon share­holder of Cald­well In­vest­ment and Cald­well Se­cu­ri­ties.”

The mu­tual fund man­ager’s clients signed an agree­ment that states Cald­well In­vest­ments “shall at all times en­sure that the prices charged and ser­vices pro­vided by Cald­well Se­cu­ri­ties are com­pet­i­tive,” ac­cord­ing to the OSC. The reg­u­la­tor said de­spite this un­der­tak­ing, the firm “was un­able to pro­vide [OSC] staff with ev­i­dence that Cald­well In­vest­ment en­sured that the prices charged and ser­vices pro­vided were com­pet­i­tive.”

The OSC also al­leges that Cald­well In­vest­ment made “in­ac­cu­rate and mis­lead­ing” state­ments to reg­u­la­tors on its po­ten­tial con­flict of in­ter­est with Cald­well Se­cu­ri­ties when it filed pa­per­work that stated “eq­uity trades were ex­e­cuted on terms that were as favourable or more favourable than could be ex­e­cuted through an­other dealer.”

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