In the Matter of Staff's Recommendation
For Terms and Conditions on the Registration
of Hill Harris Hunt Capital Limited
Opportunity to be Heard by the Director
Section 31 of the Securities Act (Ontario)
1. For the reasons outlined below, my decision is to impose the terms and conditions set out below on Hill Harris Hunt Capital Limited (Hill Harris Hunt) for a minimum period of six months.
2. By letter dated May 6, 2011, Staff of the Ontario Securities Commission advised Hill Harris Hunt that it was recommending to the Director that terms and conditions be imposed on Hill Harris Hunt in relation to the non-filing of its annual audited financial statements. The terms and conditions had two parts (Terms and Conditions). Part one required the filing of monthly year-to-date unaudited financial statements and capital calculations for a minimum period of six months. Part two required Hill Harris Hunt to review its procedures for compliance with Ontario securities law and to provide a report to the Commission. The letter also advised Hill Harris Hunt that the late filing of the required financial statements results in the imposition of late fees of $100 per business day, subject to a maximum of $5,000.
Process for requesting an opportunity to be heard
3. Under section 31 of the Securities Act (Ontario), if a registrant wants to oppose Staff's recommendation for terms and conditions, the registrant may request an opportunity to be heard (OTBH). By letter dated May 16, 2011, Adrian Russell, the President and Chief Compliance Officer (CCO) requested an OTBH. My decision is based on the written submissions of Staff (Mark Skuce, Legal Counsel, Compliance and Registrant Regulation Branch) and Adrian Russell on behalf of Hill Harris Hunt.
4. The fiscal year end for Hill Harris Hunt is December 31. Under section 12.12(1)(a) of National Instrument 31-103 Registration Requirements and Exemptions, the annual audited financial statements of Hill Harris Hunt were due no later than March 31, 2011. As of June 3, 2011, Hill Harris Hunt had not yet filed its annual audited financial statements.
5. Staff submits that the filing of annual audited financial statements by registrants is a serious regulatory obligation placed on registrants and that financial statements are the principal tool enabling Staff to monitor a registrant's financial viability and capital position.
6. For these reasons, Staff regularly recommends the imposition of terms and conditions on the registration of registrants that do not file their annual audited financial statements on a timely basis. Only in rare circumstances would Staff not recommend imposing terms and conditions on a registrant that filed its financial statements late.
7. Hill Harris Hunt submits that it was unaware that the filing of annual financial statements was necessary given that the firm is "not yet started and is not currently operating and has never had any revenue". They also provided me with a preliminary statement from the auditors confirming that the firm is solvent and told me that they had been informed by their auditors that the audited financial statements would be completed by early June. As well, Hill Harris Hunt did not request an exemption from paying the applicable filing fees.
8. Hill Harris Hunt also submits that:
- If part one of the Terms and Conditions were imposed, they should not be imposed for longer than six months, and b.
- Part two of the Terms and Conditions is not necessary given their previous submissions.
Decision and reasons
9. My decision is to impose both parts of the recommended Terms and Conditions on the registration of Hill Harris Hunt.
10. It is Staff's longstanding position that it is the responsibility of the registrant to ensure that its annual audited financial statements are filed on a timely basis. In this case, the audited financial statements were not filed as of June 3, 2011. Thus the filing requirements of section 12.12(1)(a) of NI 31-103 have not been met and, in accordance with decided cases, including Re Chou Associates Management Inc. (2006) 29 OSCB 4773, Re AIG Global Investment Corp. (2008) 31 OSCB 4639, Re CR Advisers Corporation (2008) 31 OSCB 6269 and Re Minvestec Capital Corp. (2011) 34 OSCB 5475, the Terms and Conditions should be applied to the registration of Hill Harris Hunt. Staff submits, and I agree, that the submissions of Hill Harris Hunt do not meet the rare and extenuating circumstances for not imposing the recommended Terms and Conditions.
11. I also do not agree with the submission of Hill Harris Hunt that Part 2 of the recommended Terms and Conditions are not necessary. The firm should have been aware of the requirement to file its annual audited financial statements. As at June 3, 2011, the firm was more than two months late in filing these statements. As a result, in my view, the report contemplated in Part 2 is an appropriate requirement in these circumstances.
12. The terms and conditions imposed on Hill Harris Hunt's registration are as follows:
The Firm shall file on a monthly basis with the Registrant Conduct and Risk Analysis team of the Ontario Securities Commission, attention Financial Analyst, starting with the month ending June 30, 2011 the following information:"Marrianne Bridge", FCA
no later than three weeks after each month end.
- year-to-date unaudited financial statements including a balance sheet and an income statement, both prepared in accordance with generally accepted accounting principles; and
- month end calculation of minimum required capital;
The Firm will review its procedures for compliance with Ontario securities law and, no later than July 15, 2011, will file with the Compliance and Registrant Regulation Branch of the Ontario Securities Commission, addressed to the attention of the "Financial Analyst", a report setting out:
- the reasons for its failure to meet the filing requirements as at December 31, 2010 as required under Ontario securities law (the Filing Requirement);
- a certification from its Chief Compliance Officer to the effect that the Firm has reviewed its system for on-going compliance with Ontario securities law and rectified the problem(s) that led to its failure to satisfy the Filing Requirement; and
- details of the specific measures that will be taken to ensure that the Filing Requirement will be satisfied at all times in the future.
Compliance and Registrant Regulation Branch
June 10, 2011