R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
MARK BONHAM, STRATEGICNOVA FUNDS
MANAGEMENT INC. AND BONHAM & CO. INC.
AMENDED AMENDED STATEMENT OF ALLEGATIONS OF STAFF
OF THE ONTARIO SECURITIES COMMISSION
Staff of the Ontario Securities Commission (the "Commission") make the following allegations:
Bonham, StrategicNova Funds Management Inc. and Bonham & Co. Inc.
1.Mark Bonham ('Bonham") is an individual who resides in the Province of Ontario. During the period July 31, 1997 to June 30, 1998 (the "material time"), Bonham was registered with the Commission pursuant to the Securities Act (the "Act") as Investment Counsel/Portfolio Manager. During the material time Bonham acted as the Portfolio Manager with respect to seven mutual funds managed by SVC O'Donnell Fund Management Inc. ("SVC").
2.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. On July 26, 2000, SVC formally changed its name to StrategicNova Funds Management Inc.
3.Bonham & Co. Inc. ("B&C") is a corporation organized pursuant to the laws ofCanada. During the material time, B&C was registered with the Commission as an Investment Counsel Portfolio Manager. During the material time B&C was Bonham's employer and the sponsor of Bonham's registration.
Manual Pricing of Shares in the Portfolios of SVC Funds
4.During the material time, Bonham manually priced certain shares held by three of the seven mutual funds Bonham managed for SVC, The Strategic Value Fund, The Canadian Equity Value Fund and the Dividend Fund.
5.SVC received a price feed from a third party source on a daily basis ("price feed"). The feed contained the "end of the day" share prices to be used in the valuation of SVC's mutual funds.
6.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's closing price of the share; or
(b)the price feed did not contain a price for the shares.
7.Bonham would then review the highlighted items and determine a value of the shares based on his own discretion. The majority of the highlighted items were of the nature of category (a).
8.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 mutual fund.
9.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 that investors pay or receive.
10.During the relevant period, SVC did not have a written policy governing manually pricing shares and Bonham did not apply a specific or consistent methodology in manually pricing shares.
11.Bonham did not record or maintain any notes with respect to the determination of the manual price.
12.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 net asset 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 days during the material time.
(c)The Dividend Fund was overvalued for 60 of the 231 trading days during the material time.
13.By his conduct during the material time, Bonham: a) failed to act honestly, in good faith and in the best interests of the mutual fund; and b) failed to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances, contrary to section 116(1) of the Act and contrary to the public interest.
SVC O'Donnell Fund Management
14.The board of directors of SVC (the "Directors") were responsible for determining when a valuation methodology for the shares held in the portfolios of the mutual funds other than market value would be used.
15.SVC did not have any written policies or procedures in place governing under what circumstances Bonham should value the securities in the portfolios of the mutual funds and the valuation methodology to be used.
16.The Directors relied on Bonham to make the day-to-day security valuation determinations.
17.The Directors (or a primary delegate) did not supervise or review the manual prices determined by Bonham.
18.The Directors (or a primary delegate) did not implement internal controls to ensure a segregation of duties in the performance of the daily valuation of the mutual funds.
19.SVC did not take adequate steps to monitor and prevent the conduct of Bonham as set out in the allegations.
20.During the material time, SVC: a) failed to act in the best interest of the mutual fund; and b) failed to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances contrary to section 116(1) of the Act and contrary to the public interest.
Bonham & Co.
21.B&C, as the sponsor of Bonham's registration was responsible for supervising Bonham's activities and did not properly supervise Bonham in regard to the conduct of Bonham as set out in the allegations, contrary to its obligations under Ontario Securities Commission Rule 31-505 (3.1).
22.Staff reserves the right to make such further and other allegations as Staff may submit and the Commission may allow.
November , 2000.