Securities Law & Instruments

[Update: The terms and conditions imposed by the Director in this decision were removed as at March 31, 2006.]

IN THE MATTER OF

THE SECURITIES ACT

R.S.O. 1990 C. S.5, AS AMENDED

AND

IN THE MATTER OF

ENTERPRISE CAPITAL MANAGEMENT INC.

WRITTEN SUBMISSIONS TO THE DIRECTOR PURSUANT

TO SUBSECTION 26(3) OF THE ACT

DATE:
November 15, 2005
 
DIRECTOR:
Marrianne Bridge
Manager, Compliance
Capital Markets
Ontario Securities Commission (OSC)

DIRECTOR'S DECISION

Decision

Enterprise Capital Management Inc. (ECMI) is registered in the categories of Investment Counsel and Portfolio Manager and Limited Market Dealer. By letter dated October 27, 2005, staff advised ECMI that, as its audited financial statements for the year ended June 30, 2005 had not been delivered within 90 days of its year end as required by section 139 of the Regulation under the Act, terms and conditions would be imposed on ECMI's registration, and a late filing fee would be due. The statements were filed 21 days past the statutory deadline on November 1, 2005.

By letter dated November 8, 2005, ECMI exercised its right under subsection 26(3) of the Act to be heard in writing in respect of a Director's decision as to whether to impose terms and conditions on its registration. Exercising the authority of the Director delegated to me, my decision is that the terms and conditions proposed by staff of the OSC should be attached to ECMI's registration for a period of three months commencing with the month ended November 30, 2005.

Reasons

Section 139 of the Regulation under the Act requires every registrant to deliver to the OSC a copy of its audited financial statements within 90 days of its financial year end.

ECMI argues that its audited financial statements were filed late due entirely to issues related to their auditors -- Ernst & Young -- and not to issues at ECMI. ECMI argues that it made every effort to ensure that its financial statements were filed on time with the Commission.

Ernst & Young finished the field part of the audit process on September 8. On September 27, ECMI contacted the audit senior regarding their financial statements and were assured that the financial statements would be ready to be filed with the Commission before the filing deadline of September 30. On September 30, ECMI was told by the audit partner that the financial statements would not be ready for filing on a timely basis. Sometime after that, Ernst & Young returned to ECMI's offices to complete some outstanding audit work. By email from the Ernst & Young audit partner to staff on October 6 (four business days after the filing deadline of September 30), staff was advised that the delay in filing of the ECMI financial statements was "largely due to [Ernst & Young] staffing issues and should not be viewed as a reflection of the state of the Company's records".

In staff's opinion, the arguments made do not outweigh the need to impress upon this and other registrants the importance of complying with the filing requirement and terms and conditions therefore should be imposed on its registration. The filing of annual financial statements by registrants is one of the most serious regulatory requirements in the Act. Financial solvency is one of the essential components of a dealer or adviser's continued suitability for registration. Financial statements are the principal tool enabling staff to monitor a registrant's financial viability and its capital position. As a result, the late filing (or non-filing) of annual financial statements raises serious potential regulatory concerns and needs to be addressed in a serious fashion. Only in extremely rare circumstances would staff consider not imposing terms and conditions for late filing of annual financial statements. These circumstances are not present in this case.

If ECMI had been more proactive in contacting staff regarding the late filing of its financial statements before the filing deadline of September 30, I may have been somewhat more sympathetic to their argument. As well, given that almost three weeks passed between the Ernst & Young email to Commission staff and the filing of the annual audited financial statements, I do not believe that ECMI took sufficient and appropriate steps to meet its regulatory obligations with respect to the timely filing of its annual financial statements.

On the basis of all written submissions presented to me and after having reviewed them, it is my decision that the registration of ECMI should be restricted by the terms and conditions outlined in the October 27, 2005 letter for a period of three months commencing with the month ended November 30, 2005.

"Marrianne Bridge"