Sentry Investments Inc. was ordered to pay a $1.5-million administrative penalty and its former chief executive agreed to a series of reprimands in a first-of-its-kind settlement approved Wednesday by the Ontario Securities Commission.
The settlement followed a multi-year investigation into sales practices at the Toronto-based independent mutual fund company. OSC commissioner Philip Anisman, who approved the settlement, said this was the first proceeding by the OSC that addressed "prohibited payments and gifts" made by an investment fund manager and the "systemic supervisory failures" that permitted them.
As part of the settlement, Sentry, which manages more than $18-billion in client assets, admitted that it made excessive non-monetary benefit payments to certain mutual fund representatives between 2011 and 2016. Under Ontario securities law, fund companies are allowed to provide only benefits that are promotional in nature and of minimal value.
Sentry also acknowledged that it failed to maintain adequate compliance controls and records of benefits paid to its representatives over the period in question. "Sentry admits and acknowledges that it has breached Ontario securities law and that it has acted contrary to the public interest," the company said in the settlement agreement.
Submissions by the OSC at Wednesday's hearing centred around a sales conference in Beverly Hills, Calif., in 2015 where the regulator alleges Sentry spent about $2-million, much of that in lavish non-monetary benefits to representatives in attendance. Among the gifts that Sentry allegedly doled out: bottles of Dom Pérignon, Tiffany and Co. necklaces for female reps, and engraved silver sterling cufflinks for male representatives. Sentry is also alleged to have hosted a number of lavish parties and dinners for representatives at the sales conference that featured open bars, flapper dancers, a cigar bar and fortune tellers.
On other occasions between 2011 and 2016, Sentry is alleged to have given reps various non-monetary gifts such as concert tickets to see Selena Gomez and One Direction, and hockey tickets to playoff games. Spending exceeded $4,000 per adviser a year, in some instances, according to the OSC.
Separately, former CEO Sean Driscoll, who is son of Sentry founder John Driscoll, gifted Montreal Formula One tickets in 2015 and 2016 worth about $28,000 to a top performing representative, according the the OSC – amounts that were far in excess of allowable limits.
In the settlement agreement, Sean Driscoll said that he "admits and acknowledges that, in connection with the Montreal F1 Tickets, he breached Ontario securities law."
The former Sentry CEO also agreed to pay the fund company $100,000 in a reparation payment, and is prohibited from acting as a director or officer at Sentry for the next two years. Nor is he allowed to work as the "ultimate designated person" at any investment fund manager for the next five years. Mr. Driscoll was also ordered to take a course on regulatory compliance.
Sentry first revealed the investigation by the OSC in January shortly after it appointed Philip Yuzpe as its new CEO. Mr. Driscoll stepped down in late 2016 as a result of the OSC's investigation. Sentry's chief compliance officer Jasmin Jabri also left the asset manager around the same time, according to the settlement agreement.
Apart from the administrative penalty, Sentry agreed to pay $150,000 in costs in connection with the investigation.
"Sentry takes these matters very seriously and accepts full responsibility," Mr. Yuzpe said in a statement on Wednesday. "We have learned from this experience and our company will be better for it."
Sentry has also agreed to since bring in external consultancy firm, PricewaterhouseCoopers LLP, which is assisting the firm in improving its compliance practices.