IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED
- and -
IN THE MATTER OF
MARK BONHAM, SVC O'DONNELL FUND
MANAGEMENT INC. AND BONHAM & CO. INC.
STATEMENT OF ALLEGATIONS OF STAFF OF
THE ONTARIO SECURITIES COMMISSION
Staff of the Ontario Securities Commission (the "Commission") make the following allegations:
Bonham, SVC O'Donnell and Bonham & Co. Inc.
- Mark Bonham ('Bonham") is an individual who resides in the Province of Ontario. Duringthe period July 31, 1997 to June 30, 1998 (the "material time"), Bonham was registered withthe Commission pursuant to the Securities Act (the "Act") as Investment Counsel/PortfolioManager. During the material time Bonham acted as the Portfolio Manager with respect toseven mutual funds managed by SVC O'Donnell Fund Management Inc. ("SVC").
- SVC is a corporation organized pursuant to the laws of Canada. During the material time,SVC was registered with the Commission as Investment Counsel/Portfolio Manager.
- Bonham & Co. Inc. ("B&C") is a corporation organized pursuant to the laws of Canada.During the material time, B&C was registered with the Commission as an InvestmentCounsel Portfolio Manager. During the material time B&C was Bonham's employer and thesponsor of Bonham's registration.
Manual Pricing of Shares in the Portfolios of SVC Funds
- During the material time, Bonham manually priced certain shares held by three of the sevenmutual funds Bonham managed for SVC, The Strategic Value Fund, The Canadian EquityValue Fund and the Dividend Fund.
- SVC received a price feed from a third party source on a daily basis ("price feed"). The feedcontained the "end of the day" share prices to be used in the valuation of SVC's mutualfunds.
- SVC's accounting department highlighted items on the price feed if:
(a) a share price on the price feed was 3% higher or lower than the previous day'sclosing price of the share; or
(b) the price feed did not contain a price for the shares.
- Bonham would then review the highlighted items and determine a value of the shares basedon his own discretion. The majority of the highlighted items were of the nature of category(a).
- If the price determined by Bonham was different than the price received via the price feed,Bonham's price would be substituted and used in the calculation of the value of the mutualfund.
- The valuation of the mutual fund is used to calculate the net asset value per share("NAVPS"). The NAVPS is used to determine the purchase and redemption prices thatinvestors pay or receive.
- During the relevant period, SVC did not have a written policy governing manually pricingshares and Bonham did not apply a specific or consistent methodology in manually pricingshares.
- Bonham did not record or maintain any notes with respect to the determination of the manualprice.
- The result of the manual pricing undertaken by Bonham is as follows:
(a) The Strategic Value Fund was overvalued (i.e dollar difference as a percentage of netasset value per unit) for 201 of the 231 trading days during the material time.
(b) The Canadian Equity Value Fund was overvalued for 123 of the 231 trading daysduring the material time.
(c) The Dividend Fund was overvalued for 60 of the 231 trading days during the materialtime.
SVC O'Donnell Fund Management
- The board of directors of SVC (the "Directors") were responsible for determining when avaluation methodology for the shares held in the portfolios of the mutual funds other thanmarket value would be used.
- SVC did not have any written policies or procedures in place governing under whatcircumstances Bonham should value the securities in the portfolios of the mutual funds andthe valuation methodology to be used.
- The Directors relied on Bonham to make the day-to-day security valuation determinations.
- The Directors (or a primary delegate) did not supervise or review the manual pricesdetermined by Bonham.
- The Directors (or a primary delegate) did not implement internal controls to ensure asegregation of duties in the performance of the daily valuation of the mutual funds.
- SVC did not take adequate steps to monitor and prevent the conduct of Bonham as set outin the allegations.
Bonham & Co.
- B&C, as the sponsor of Bonham's registration was responsible for supervising Bonham'sactivities and did not properly supervise Bonham in regard to the conduct of Bonham as setout in the allegations.
- Staff reserves the right to make such further and other allegations as Staff may submit andthe Commission may allow.
DATED at Toronto this 30th day of October, 2000.