Did the Ontario Securities Commission overplay its hand if the told everyone around you it had garnered “the largest volume of investor compensation thus far within an OSC no-contest”?
Last week the OSC stated it’s reached a “no-contest settlement with CI Investments Inc.,” noting the “settlement involves approximately $156.Millions of being returned to harmed investors.”
By any measure this can be a big number nevertheless it needs to be remarked that neither everyone company (CI Financial) nor the manager (CI Investments) is paying one penny in the $156.A million “settlement.”
Instead the repayments – that are being made because investors traded units in seven affected funds in a underestimated net asset value (NAV) – is available in the funds themselves.
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And the quantity is very large since the problem persisted for six years until CI discovered it and reported it for the OSC last year.
The $156 million compensation equals the accumulated interest the funds earned but which hadn’t been within the resolution of NAV. Accordingly, the money to pay for the investors for your miscalculation of NAV is available in the funds.
As CI Investments said within the release: “The accumulated rates come in accounts owned by the mutual funds at year ’round remained in those accounts becoming an asset of those funds instead of was co-mingled using the property of CI Investments.”
In its release, the OSC said the “settlement follows allegations by OSC Staff that CI’s system of controls and supervision, which is monitoring and oversight of the outsourced company, weren’t sufficient to address the very first cash collateral feature of certain funds and to make sure that interest earned in related accounts was recorded and within the NAV.”
What’s interesting in regards to the OSC quote could be the reference to “outsourced company,” the entity that determines NAV. That entity is RBC Investor & Treasury Services, formerly known as RBC Dexia Investor Services Trust.
RBC Investor & Treasury Services was asked whether it may be developing a payment to help CI. “In the eye of client confidentiality, plus line with this particular policies, we do not discuss individual clients or perhaps the nature inside our client relationships,” it said in reply.
Next month the CI funds sends out cheques – each and every cheque similar to the clients’ share from the accumulated interest – to a many affected parties. CI has estimated 48 percent of clients can get under $100.
But CI Financial will likely be affected. Once the released its financial results last week it took a $10.75 million provision “for remediation from the administrative error the topic of the Settlement Agreement.” That provision includes the $8 million voluntary payment “CI Investments will quickly make towards the Ontario Securities Commission.” CI may also be paying $50,000 towards investigation costs.
And CI Financial happen to be affected as investors attempted to comprehend the situation. News in the “settlement” premiered before industry closed last Wednesday and before CI reported its financials. The shares fell immediately and continued to fall in the morning on five-times normal daily volume. On the three-day period the shares were down 10 per cent.
If investors were fully aware it had been $8 million – rather than $156 million – the result may have been different.
The OSC said the “language” in its news release “is in conjuction using the OSC’s Statement of Allegations, Settlement Agreement as well as the firm’s own release.”
bcritchley@nationalpost.com
