The Ontario Securities Commission has ordered former Bay Street fund manager Wayne Pushka and his company to pay over $20-million in penalties after a hearing panel concluded he acted in an “appalling” fashion and breached his duty to investors in a 2009 deal to buy management rights for a group of investment funds.
In a decision released Monday, a hearing panel said Mr. Pushka and Crown Hill Capital Corp. must disgorge $18.2-million of gains, plus pay a penalty of $1.88-million and costs of $300,000.
Mr. Pushka is also banned from trading securities in Ontario until he pays the penalties, and is banned from working as a registrant in the investment industry for at least 10 years, but that ban will be extended if the outstanding amounts have not been paid.
The OSC found that Mr. Pushka breached his duties to investors in the Crown Hill Fund in a 2009 deal to buy management contracts for 13 Citadel investment funds that had more than $1-billion of assets under management.
Mr. Pushka said Monday he was "shocked and appalled" by the OSC's original decision on the merits of the case, so did not expect the sanction decision would go well.
"After receiving the merits decision, my expectations about the process were so low I was not surprised by the sanction decision," he said in an e-mailed statement. "We will of course appeal."
Mr. Pushka's lawyer, Alistair Crawley, said the penalties in the case are "unprecedented" and amount to confiscation of money earned by Crown Hill in the four years after the transactions at issue in the case.
"Considering there were no investor losses, the sanction decision is outlandish," Mr. Crawley said. "Crown Hill and Mr. Pushka intend to appeal both the decision on the merits and the sanction decision."
Crown Hill Capital, a management company, borrowed $28-million from its Crown Hill Fund to finance the purchase of the Citadel contracts. The loan represented more than 60 per cent of the value of the assets in the Crown Hill Fund, and the OSC ruled the money was inappropriately borrowed.
The hearing panel said the purchase was completed even before unitholders of the fund were notified about a meeting to vote on approving the loan, and a circular sent to unitholders to approve the deal was “materially misleading.”
The OSC panel also said Mr. Pushka and Crown Hill Capital acted inappropriately in two other transactions, including another deal to buy management rights using money borrowed from the Crown Hill Fund. Mr. Pushka was the sole shareholder and chief executive officer of Crown Hill Capital.
“Overall, Pushka’s conduct was appalling for a person in a fiduciary relation with [Crown Hill Fund],” the panel said.
OSC enforcement director Tom Atkinson said the substantial sanctions ordered in the case demonstrate that the OSC will take a tough stance with fund managers who breach their fiduciary duties to investors.
“It also sends a clear message to the marketplace that if you break the rules, you’re going to pay,” he said in a statement. “The commission doesn’t shy away from ordering large monetary penalties when the amounts obtained are a result of non-compliance with Ontario securities laws and abusing the trust of investors.”
Mr. Pushka denied the allegations and told the OSC he operated honestly. He said the business transactions were structured on the advice of legal counsel and approved by independent directors on the board.
He also argued for milder penalties because there were no allegations of fraud and investor funds were not misappropriated, and because Crown Hill Capital has gotten out of the business of managing investment funds. Mr. Pushka has surrendered his registration and is not working in the industry.
OSC staff had argued for permanent bans to prohibit Mr. Pushka from ever working in the investment industry, but the hearing panel said a 10-year ban is appropriate in the case because there were no allegations of fraud or illegal distributions.