Statement of Allegations: In The Matter of Regal Capital Planners Ltd.
IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED
AND
IN THE MATTER OF
REGAL CAPITAL PLANNERS LTD.
STATEMENT OF ALLEGATIONS OF STAFF OF THE ONTARIO SECURITIES COMMISSION
Staff of the Ontario Securities Commission ("Staff") make the followingallegations:
Montpellier and Regal
1. Pierre Alfred Montpellier ("Montpellier") is an individual who at all material timeslived in Sudbury, Ontario, and was registered with the Commission to sell mutualfunds, limited market products and scholarship plans. Montpellier worked out ofthe offices of the Montpellier Group Inc., an Ontario corporation of whichMontpellier was the sole officer.
2. Regal is registered with the Commission as a mutual fund, limited marketproduct, labour-sponsored venture fund and scholarship plan dealer. Regal wasMontpellier's employer and sponsor from June 17, 1994 until December 10,1998.
Montpellier's Office and Staff
3. In April 1995, Regal's Sudbury office relocated. Montpellier remained at the oldlocation until December 1996, when he established his own storefront locationknown as the Montpellier Group Inc. Despite having separate premises, theMontpellier Group office was never registered with the Commission as either abranch or a sub-branch of the Sudbury office.
4. Regal was aware that Montpellier was operating out of his own premises, andbecame aware that Montpellier's office was not properly registered.
5. In February of 1996, Sandra Mews ("Mews"), Regal's Sudbury branch manager,became aware that Montpellier was selling or promoting products not approvedby Regal or sold through Regal. Mews requested an audit and clarification ofher responsibilities regarding Montpellier's handling of unauthorized products.
6. By June of 1997 the Montpellier Group employed nine full- and part-timeemployees, including Montpellier and two other registrants, Terry Papineau("Papineau") and Daniel Leduc ("Leduc"). All three registrants were sponsoredby Regal. The Montpellier Group offered services to the public, includingfinancial planning, investment products through Regal, insurance productsthrough Manulife, and assorted bookkeeping and tax planning and preparationservices.
7. Both Papineau and Leduc were hired by Montpellier. Neither met Mews untilafter he commenced his employment. From Montpellier, both understood theirreporting relationship to be first to Montpellier and then to an unregisteredmanager employed by the Montpellier Group.
8. Exterior display signs identified the Montpellier premises as the "MontpellierGroup Inc." with no mention of any affiliation with Regal. Regal had no profile inthe Montpellier Group offices.
9. In October of 1996, during a tour of Montpellier's offices while those offices wereunder construction, Regal chairman Paul Rockel directly queried Montpellier onhow he could afford such an office. Montpellier said that he was able to do sobecause of a combination of his insurance and other financial servicesendeavours and as part owner of a separate business venture.
Foreign Capital Corporation
10. Between September 1995 and September 1998, Montpellier participated in thesale of in excess of $4 million worth of investments in Foreign CapitalCorporation ("FCC"), a private Ontario corporation of which Montpellier was oneof two officers. Investors were advised that their funds would realize a minimumreturn of 7% per year, although investors were told to expect 20% per year.While sponsored by Regal, Montpellier also borrowed from clients and soldother investment products not authorized by Regal.
11. FCC filed no prospectus or offering memorandum with the Commission. FCCwas not a product authorized by Regal.
Regal's Supervision of Montpellier's Activities
12. In February of 1996 Mews received information and a complaint aboutMontpellier's involvement with a "foreign endeavour" and a complaint about hissale of GIC's. Mews asked Montpellier about these matters, and was told thatthe matter had nothing to do with Regal. He attributed the complaint toprofessional jealousy.
13. Beginning in or about 1997, Montpellier's attendance at the Regal Sudburyoffice's regular representatives' meetings declined significantly.
14. In April of 1998 Papineau left the Montpellier Group. Papineau told DennisAdams ("Adams"), a representative of Regal, that he had left the MontpellierGroup because he was no longer comfortable working there. Papineau toldAdams that he and other Montpellier Group clients had invested money in FCCwith Montpellier and that the interest payments had begun to arrive late.Papineau explained the investment as he understood it.
15. Following the meeting between Papineau and Adams, Regal head officepersonnel began to question Montpellier on the sale of non-approved products.Montpellier did not volunteer any information about FCC. Regal personnel thenquestioned Montpellier specifically about FCC. Montpellier claimed that FCCwas a small private placement, that it had ceased operations and that investorswere being paid back.
16. Over the following months, Montpellier promised to Regal personnel that hewould supply documents pertaining to FCC. Montpellier's responses to Regal'squestions were delayed, partially answered or ignored completely.
17. Beginning in April 1998, Mews, who had previously enjoyed free access to theMontpellier Group offices, had to be announced and "buzzed" into the privateoffices. Eventually, in December 1998, the manager was advised that she wasno longer welcome to visit the Montpellier offices.
18. By August of 1998, Regal heard that Montpellier was involved in makingoverseas investments in England and Switzerland.
19. By August of 1998, Mews and Regal head office staff were sufficientlyconcerned by reports of Montpellier's activities, of his sources of funds and ofhis financial status, that they had discussions regarding the possible terminationof his employment and sponsorship.
20. In October and November of 1998, Regal arranged four meetings withMontpellier. Two meetings were cancelled on little notice. In the two meetingsthat did take place, Regal personnel observed Montpellier to be evasive andnervous.
21. At a meeting on November 23 1998, Montpellier explained the workings of FCCto Regal personnel. Montpellier explained that there was a delay in the interestpayments due to investors but that the investors would be paid by December 151998. Montpellier promised to provide documentation in support of hisexplanation to Regal by November 25 1998.
22. On November 25 1998, Montpellier insisted he needed more time to prepare thedocumentation. On November 30, 1998, calls to Montpellier's office were notreturned and calls to his home were not answered.
23. On December 4, 1998, Regal demanded that Montpellier supply the promiseddocumentation immediately.
24. On or about December 8, 1998 Montpellier left Canada for England. Thefollowing day Montpellier was terminated by Regal and shortly thereafter theMontpellier Group offices were closed.
25. Papineau's leaving the Montpellier Group and his expression of concern toAdams about FCC took place in April of 1998. From that time until the lastconfirmed sale of an FCC investment by Montpellier, a total of 19 personsinvested approximately $875,000 in FCC.
1996 National Compliance Audit
26. In April of 1996 Regal was the subject of a National Compliance Audit conductedby securities regulators in seven provinces. One of the findings of the audit,under the heading of "Branch Office Operating Results," noted that Regal did nothave in place any mechanism for determining its branches' financial position.
27. The audit noted specifically that this information would be an indicator ofpotential problems requiring immediate follow up and that the failure to collectand maintain this information contravened Ontario securities law. The auditrecommended that Regal bring itself into compliance with Ontario securities lawby collecting information for the purpose of monitoring both its overall operationsand that of its branches.
28. In their response to the compliance audit, Regal advised that it was formulatinga branch reporting format for the purpose of monitoring the financial position ofits branches.
Regal's Conduct
29. Regal did not, at all times, conduct itself in a manner consistent with the publicinterest in relation to the matters described above.