Toronto mutual fund executive Michael Kovacs has reached a settlement with the Ontario Securities Commission, acknowledging he wrongly traded units of one of his firm’s mutual funds from his personal brokerage account.
Mr. Kovacs, chief executive officer of Harvest Portfolios Group Inc., agreed to pay penalties and costs totalling $15,000 and hire a new chief compliance officer for his firm who will preclear any personal trading he does for one year. Mr. Kovacs said his rule breaches were “inadvertent.”
The OSC case involves an announcement in 2011 by one of the firm’s mutual funds, the Harvest Canadian Income and Growth Fund, that it would buy back almost 600,000 of its units and warrants representing 10 per cent of the public float of its outstanding securities in a transaction known as normal course issuer bid. Mr. Kovacs was in charge of giving trading instructions for the share purchases to traders overseeing the account at Dundee Securities.
In the settlement agreement, he acknowledged he used his own personal trading account at RBC Direct Investing Inc. between August and November, 2011, on “repeated occasions” to enter bids and purchase units of the Harvest fund, which may have facilitated the issuer bid purchases because he entered bids that improved pricing in the units by narrowing the pricing spread for the securities.
The OSC said that his purchases established a trading price just before issuer bid purchases were conducted. “Usually, within a short period of time, the [issuer bid] buy orders entered the market and traded at the price levels established through [Mr.] Kovacs’[s] passive facilitation,” the agreement said.
The OSC said the traders at Dundee responsible for handling the issuer did not not know Mr. Kovacs was trading the units from his personal account.
The settlement agreement said he also did not disclose his status as an insider of Harvest to RBC Direct Investing, so orders entered from his account were not correctly identified as insider orders. Mr. Kovacs also did not file insider trading reports with regulators to disclose the purchases during the relevant time.
Mr. Kovacs said his rule breaches were “inadvertent” and he did not know about rules requiring trades for issuer bids to take place at the price of the last independent trade not done by an insider.
In the settlement agreement, he said the correlation between the issuer bid trades and his own trades were the result of “habit and convenience” because he found it simpler when travelling to make purchases for his own accounts and order trades for the issuer bid at the same time.