In the Matter of Staff’s Recommendation
for Terms and Conditions on the Registration
of Windstar Equities Ltd.
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 on Windstar Equities Limited (Windstar) the terms and conditions set out below for a period of six months.
2. By letter dated May 4, 2011, Staff of the Ontario Securities Commission advised Windstar that it was recommending to the Director that terms and conditions be imposed on Windstar resulting from the late delivery of its annual audited financial statements. The recommended terms and conditions have two parts. Part one requires the delivery of monthly year-to-date unaudited financial statements and capital calculations for a minimum period of six months. Part two requires Windstar to review its policies and procedures for compliance with Ontario securities law and to provide a report to the Commission. The letter also advised Windstar that late filing fees of $2,700 were due. The late filing fees have been paid by Windstar.
Process for requesting an opportunity to be heard
3. Under section 31 of the Securities Act (Ontario) (the Act), a registrant seeking to oppose Staff’s recommendation for terms and conditions, may do so by requesting an opportunity to be heard (OTBH) by the Director. By email dated May 18, 2011, Stephen Ross, Windstar’s chief compliance officer requested an OTBH. My decision is based on the written submissions made by Mark Skuce, Legal Counsel, Compliance and Registrant Regulation on behalf of Staff of the Ontario Securities Commission and Stephen Ross on behalf of Windstar.
4. The fiscal year end for Windstar is November 30. Under subsection 12.12(1)(a) of National Instrument 31-103 Registration Requirements and Exemptions, the annual audited financial statements of Windstar were due no later than March 1, 2011. Windstar delivered its annual audited financial statements on April 6, 2011, 27 business days after they were due.
5. Section 28(a) of the Act provides that the Director may impose terms and conditions on the registration of a company if it appears to the Director that the company is not suitable for registration or has failed to comply with Ontario securities law. Subsection 27(2) of the Act enumerates the factors that the Director shall consider in determining whether a company is suitable for registration, which includes prescribed requirements relating to proficiency, solvency and integrity.
6. Staff submits that the delivery of annual audited financial statements by registrants is one of the most serious regulatory obligations in the Act and that financial statements are the principal tool enabling Staff to monitor a registrant’s financial viability and capital position.
7. For these reasons, Staff uniformly recommends the imposition of terms and conditions on the registration of registrants that do not deliver their annual audited financial statements on a timely basis. Staff submits that delivery of annual audited financial statements is a serious regulatory obligation and only in extremely rare circumstances would Staff not recommend imposing terms and conditions on a registrant that delivered its financial statements late.
8. In its written submissions to the Director dated June 10, 2011, Windstar acknowledges that its annual audited financial statements were due no later than March 1, 2011 and that it did not deliver its financial statements when due. It submits that this was the first year in its 20 year history that these obligations were required and that its former accountants inadvertently did not properly adhere to this new obligation. Windstar further submits it has now implemented appropriate automatic reminder systems and has taken other steps to ensure the future timely delivery of its financial statements. In this regard, Windstar’s Chief Compliance Officer has certified that Windstar has rectified the problem that led to its failure to deliver its annual audited financial statements on time.
9. On June 20, 2011, Staff made certain submissions in reply to the submissions made by Windstar. In particular, Staff cited a number of previous decisions by the Director that stand for the principle that a registrant cannot relieve itself of regulatory obligations by engaging a third party to make its filings, including Re Enterprise Capital Management (2005) O.S.C.B 9269 , Re Chou Associates Management Inc. (2006) 29 OSCB 4773, and Re AIG Global Investment Corp. (2008) 31 OSCB 4639.
Decision and reasons10. My decision is to impose on the registration of Windstar part one of the terms and conditions recommended by Staff: that Windstar file monthly year-to-date unaudited financial statements and capital calculations for a period of six months starting with the month ending July, 2011. 11. It is Staff’s longstanding position that it is the responsibility of the registrant to ensure that its annual audited financial statements are delivered on a timely basis. As set out above, Staff’s view is that the delivery of annual audited financial statements is one of the most important of a registrant’s obligations. In accordance with previously decided cases, including Re Chou Associates Management Inc., Re AIG Global Investment Corp., Re CR Advisers Corporation (2008) 31 OSCB 6269 and Re Minvestec Capital Corp. (2011) 34 OSCB 5475, the terms and conditions proposed by Staff should be applied to the registration of Windstar. Moreover, in reaching my decision I took into account that there will be minimal hardship involved for Windstar to file monthly year-to-date unaudited financial statements and capital calculations for a period of six months. In Re CR Advisers Corporation, the Director specifically addressed the provision of monthly unaudited financial statements, by stating:
“It should not be a burden for the Registrant to provide monthly unaudited financial statements. The financial statements are not required to be reviewed by an auditor and all registrants are required to maintain proper books and records at all times.”
12. My further decision, however, is that it is not necessary to impose part two of the terms and conditions recommended by staff, namely the recommendation that Windstar review its policies and procedures for compliance with Ontario securities law and to provide a report to the Commission. I accept Windstar’s written submissions that it has taken appropriate action to ensure that in the future it will deliver its annual audited financial statements on a timely basis.
13. Accordingly, for the reasons discussed above, the following terms and conditions are imposed on Windstar’s registration for a period of six months:
On a monthly basis, starting with the month ending July, 2011, Windstar shall deliver within three weeks of the end of the month, the following information to the Registrant Conduct and Risk Analysis team of the Ontario Securities Commission, attention Financial Analyst:
- 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;
14. As a final matter, Windstar is seeking a reduction or waiver of the late fees it incurred as a result of delivering its annual audited financial statements 27 business days after they were due. Based on the submissions before me, I do not find suitable grounds for ordering a reduction or waiver of the late fees in question.
Compliance and Registrant Regulation Branch
Ontario Securities Commission
June 23, 2011