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The logo for Canaccord Genuity is shown in Toronto on Wednesday, March 8, 2023.Staff/The Canadian Press

Canaccord Genuity Inc. is facing a potentially “significant penalty” related to its wholesale market-making business, according to one of several regulatory documents the independent Bay Street investment bank has filed, which also revealed the coming departure of its board chair.

In its annual information form, filed Wednesday evening, Canaccord said it expects the probe into its market-making activities “will be resolved in the ordinary course and expects that the resolution of the enforcement matter will not have a material impact on its financial condition or results of operations.”

As the company is based in Toronto but also has operations in the United States, Europe, Britain and Australia, it was not immediately clear where the market-making investigation was taking place.

In a separate filing, Canaccord said board chair David Kassie will step down from his executive management role after the company’s Aug. 4 annual general meeting and step down as chair one year later.

Mr. Kassie has been a Canaccord director since 2010 when the company acquired Genuity Capital Markets, where he was chief executive officer, and has served as chair since 2012. While he also briefly served as Canaccord’s CEO for a six-month period in 2015 prior to the appointment of current CEO Dan Daviau, Mr. Kassie has since been listed solely as the company’s full-time chair of the board.

Both the regulatory probe and the coming change of role for Mr. Kassie have been revealed barely two weeks after a group of more than 50 members of Canaccord’s management team was forced to abandon a $1.13-billion plan to take the company private. Mr. Kassie and Mr. Daviau were part of that group, which cited an unnamed “ongoing regulatory matter” as the main reason why required approvals were not received before the bid expired on June 13.

Over the past four months, Canaccord’s Toronto Stock Exchange-listed stock has fallen from a mid-February high of $11.80 per share – slightly above the management group’s offer of $11.25 per share – to a Wednesday closing price of $8.27 per share. That represents a decline of about 30 per cent.

The regulatory statement filed Wednesday said the company “may incur a significant penalty and additional costs related to its business or become subject to other terms or conditions that may adversely impact its business” with the market-making investigation.

Based on “previous enforcement matters that were settled by other companies,” Canaccord said it had prepared “an estimate for a settlement of the enforcement matter,” though no exact figure was specified. The company more than tripled its provisions for legal issues during its most recent fiscal year, adding $13.4-million to an existing balance of $4.8-million for a total balance of more than $18-million as of March 31.

Regulators in the U.S. and Canada were unable to shed light on the investigation’s location. A U.S. Securities and Exchange Commission spokesperson said it “does not comment on the existence or non-existence of a possible investigation.” An Ontario Securities Commission spokesperson, JP Vecsi, also said the OSC is “unable to confirm or comment on the existence, status or nature of any complaint, review or investigation.”

Mr. Kassie, 67, is not listed among Canaccord’s named executive officers in its most recent management information circular. Asked to clarify what executive management role he would be relinquishing in the weeks ahead, Canaccord did not reply. It is also not clear whether Mr. Kassie plans to remain on the company’s board after stepping down as chair in 2024.

Mr. Kassie was by far the most highly-compensated member of Canaccord’s board of directors during its most recent fiscal year. He was paid a total of $1-million in cash: $450,000 in fees and another $550,000 in non-equity incentive plan compensation – Mr. Kassie being the only director to receive the latter.

The only other director to receive more than $500,000 in total compensation was Gillian Denham, a veteran banker who chaired the special committee of Canaccord’s board that reviewed the management group’s takeover bid. She was paid $490,753 in cash and awarded $90,918 worth of Canaccord stock.

As of March 31, Mr. Kassie held roughly 4.8 million Canaccord shares, worth $52.6-million at the time. Their current market value, however, is less than $40-million.

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