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Report On Business Mississauga firm bungled major banks’ principal protected notes, OSC alleges

The OSC said it has reached a settlement agreement with Pro-Financial Asset Management, which it said made a series of errors that led to a misstatement of the size of total cash obligations to noteholders of principal protected notes (PPNs) issued by Société General (Canada) and BNP Paribas (Canada) between 2003 and 2014.

CHARLES PLATIAU/Reuters

Money manager Pro-Financial Asset Management Inc. made record-keeping errors that led to a $1.2-million misstatement of how much was owed to holders of principal protected notes issued by two global banking giants to Canadian clients, the Ontario Securities Commission alleged Monday.

The OSC said the Mississauga-based firm made a series of errors that led to a misstatement of the size of total cash obligations to noteholders of principal protected notes (PPNs) issued by Société General (Canada) and BNP Paribas (Canada) between 2003 and 2014.

Pro-Financial Asset Management was the adviser, selling agent and note administrator for the notes.

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OSC staff will hold a hearing Jan. 14.

The OSC alleged PFAM became aware in 2010 of a discrepancy in the number of notes outstanding between the records of record-keeping firm The Investment Administration Solution Inc. and the records of trustee Concentra Financial, but did not fix the problems.

"PFAM failed to fully investigate this discrepancy in a timely manner and failed to change its internal controls and procedures related to the early redemption of PPNs which resulted in further PPN discrepancies," the commission said.

In April, 2013, PFAM reported to the OSC there was a discrepancy of $1.22-million in the recorded value of outstanding notes. As a result, the OSC said there was a shortfall of that amount in the money available to honour maturities to PPN noteholders.

The regulator said the discrepancy was primarily caused by PFAM submitting more redemption requests to the two banks than it received from noteholders. It also made redemption payments to noteholders based on prices that were different from those being used by the banks.

"By mishandling the redemptions of PPNs, PFAM failed to act fairly, honestly and in good faith with PFAM's clients," the OSC alleged.

The OSC also alleged the firm experienced problems as manager of the Pro-Index Funds mutual funds, publishing some incorrect management expense ratios in 2013 and 2014. The OSC alleged PFAM made numerous administrative errors, including failing to renew prospectuses for the funds, which caused them to cease being distributed to the public.

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The regulator said PFAM founder and chief executive officer Stuart McKinnon and former chief compliance officer John Farrell failed to meet their obligations to the fund as senior executives.

Editor's Note: An earlier online version of this story incorrectly said the OSC has reached a settlement agreement with Pro-Financial Asset Management. In fact, there is no settlement agreement and staff will hold a first hearing on Jan. 14 to deal with the case.

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