Securities Law & Instruments

IN THE MATTER OF

THE SECURITIES ACT

R.S.O. 1990, c. S.5, as amended

AND

IN THE MATTER OF

MARK BONHAM AND BONHAM &CO. INC.

 

ORDER

WHEREAS on November 6, 2000, the OntarioSecurities Commission (the "Commission") issued anAmended Amended Notice of Hearing pursuant to sections 127(l)and 127.1 of the Securities Act, R.S.O. 1990 c. S.5, as amended(the "Act") in respect of Mark Bonham and Bonham &Co. Inc.;

AND WHEREAS Mark Bonham & Bonham& Co. Inc. entered into a settlement agreement dated July25, 2002 (the "Settlement Agreement") in which theyagreed to a proposed settlement of the proceeding, subject tothe approval of the Commission;

AND UPON reviewing the Settlement Agreementand the Statement of Allegations of Staff of the Commission("Staff'), and upon hearing submissions from counsel forMark Bonham and Bonham & Co. Inc. and for Staff;

AND WHEREAS the Commission is of theopinion that it is in the public interest to make this Order;

IT IS HEREBY ORDERED THAT:

1. the Settlement Agreement dated July 25,2002, attached to this Order, is hereby approved;

2. the surrender of Mark Bonham and Bonham& Co. Inc's registrations as Investment Counsel/PortfolioManagers is hereby accepted, effective July 31, 2002;

3. pursuant to subsection 127(l)(6) of theAct, Mark Bonham and Bonham & Co. Inc. are hereby reprimanded;

4. pursuant to paragraph 2 of subsection 127(1)of the Act, Mark Bonham will cease trading in securities fora period of three years, with the exception of trading inpersonal accounts held in his name or in the name of his holdingcompany, 1256205 Ontario Inc., or for the account of his registeredretirement savings plan (as defined in the Income Tax Act(Canada);

5. pursuant to paragraph 8 of subsection 127(1)of the Act, Mark Bonham is prohibited from becoming or actingas a director or officer of any registrant for a period ofthree years; and

6. pursuant to subsection 127.1(2)(b) of theAct, at the time of approval of this settlement, Mark Bonhamand Bonham & Co. Inc. are ordered to pay $150,000 to theCommission in respect of a portion of the Commission's costswith respect to this matter.

August 20, 2002.

"Paul M. Moore"                    "KerryD. Adams"                    "HaroldP. Hands"

 

IN THE MATTER OF

THE SECURITIES ACT

R.S.O. 1990, c. S.5, AS AMENDED

AND

IN THE MATTER OF

MARK BONHAM AND BONHAM &CO. INC.

 

SETTLEMENT AGREEMENT

INTRODUCTION

1. By Amended Amended Notice of Hearing datedNovember 6th, 2000 (the "Notice of Hearing"), theOntario Securities Commission (the "Commission') announcedthat it proposed to hold a hearing to consider whether, pursuantto sections 127(l) and 127.1 of the Securities Act,R.S.O. 1990, c. S.5, as amended (the "Act"), itis in the public interest for the Commission to make an orderthat:

(a) the registration of Mark Bonham, StrategicNovaFunds Management Inc. and Bonham & Co. Inc. (togetherreferred to as the "Respondents") be suspendedor restricted permanently or for such time as the Commissionmay direct;

(b) terms and conditions be imposed on theregistrations of the Respondents;

(c) the Respondents cease trading in securitiespermanently or for such period as the Commission may direct;

(d) the Respondent, StrategicNova FundsManagement Inc. submit to a review of its practices andprocedures and institute such changes as may be orderedby the Commission;

(e) the Respondent, Mark Bonham be prohibitedfrom becoming or acting as a director or officer of an issuer;

(f) the Respondents pay the costs of theCommission's investigation;

(g) the Respondents pay the costs of theCommission's hearing; and

(h) such other terms and conditions as theCommission may deem appropriate.

II. JOINT SETTLEMENT RECOMMENDATION

2. Staff of the Commission ("Staff")agree to recommend settlement of the proceedings initiatedin respect of the respondents, Mark Bonham and Bonham &Co. Inc. by the Notice of Hearing dated November 6th, 2000in accordance with the terms and conditions set out below.Mark Bonham and Bonham & Co. Inc. agree to the settlementon the basis of the facts agreed to as hereinafter providedand each consents to the making of an order in the form attachedas Schedule "A" on the basis of the facts set outbelow.

3. This settlement agreement, including theattached Schedule "A" (collectively, the "SettlementAgreement"), will be released to the public only if andwhen the settlement is approved by the Commission.

III. STATEMENT OF FACTS

ACKNOWLEDGEMENT

4. Staff, Mark Bonham and Bonham & Co.Inc. agree with the facts set out in this Part III.

5. SVC O'Donnell Fund Management Inc. ("SVC")is a corporation which during the period July 31, 1997 toJune 30, 1998 (the "material time") was registeredwith the Commission as an Investment Counsel/Portfolio Manager.On July 26, 2000, SVC formally changed its name to StrategicNovaFunds Management Inc.

6. Bonham & Co. Inc. ("Bonham &Co.") is a corporation which during the material timewas registered with the Commission as an Investment Counsel/PortfolioManager and was the sponsor of Mark Bonham's registration.

7. During the material time, Mark Bonham heldover 20% of the shares of Strategic Value Corporation, theparent company of SVC and Bonham & Co., and acted as thePortfolio Manager with respect to three mutual funds managedby SVC and Bonham & Co. As well, Bonham was the ChiefExecutive Officer of SVC and related companies.

8. During the material time, Bonham manuallypriced certain shares held by the three mutual funds thathe managed for SVC and Bonham & Co.

9. SVC received a price feed from a thirdparty source on a daily basis. The price feed contained endof the day share prices to be used in the valuation of SVC'smutual funds. SVC's accounting department highlighted itemson the price feed if a) a share price on the computer pricefeed was 5% higher or lower than the previous day's closingprice of the share or b) the computer price feed did not containa price for the shares. Mark Bonham would review the shareprices and determine a value for shares based on his own discretion.If the price determined by Mark Bonham was different thanthe price received via the price feed, Mark Bonham's pricewould be recorded on a Daily Manual Pricing Sheet. Mark Bonhamdid not apply a specific or consistent methodology in manuallypricing shares and did not adequately maintain records withrespect to the determination of the manual prices.

10. SVC was responsible for establishing policieswhen a valuation methodology other than share prices as shownin the daily price feed would be used for the shares heldin the portfolio of the mutual funds.

11. The valuation of the mutual fund is usedto calculate the net asset value per share ("NAVPS").The NAVPS is used to determine the purchase and redemptionprices that investors pay or receive. SVC did not have anywritten policies or procedures in place regarding the valuationof securities held in the mutual fund portfolios. SVC reliedon Mark Bonham to ensure that the day-to-day security valuationdeterminations were effected in an appropriate manner. SVCdid not, during the material time, implement policies regardinginternal controls in order to ensure a segregation of dutiesin the performance of the daily valuation of the mutual funds.There was no supervision or review of manual prices determinedby Bonham.

12. Canada does not have a standard benchmarkfor materiality for regulatory reporting and/or client compensation.Staff have employed 0.5% of net asset value as the benchmarklevel for materiality, a benchmark used by member jurisdictionsof IOSCO including France, the United Kingdom and the UnitedStates in determining standards for regulatory reporting and/orclient compensation. The result of the manual pricing undertakenby Mark Bonham with respect to each of the relevant mutualfunds he managed based on such standard of materiality andduring the material time is as follows.

(a) The Strategic Value Fund was overvalued(i.e. dollar difference as a percentage of net asset valueper share) for 201 of the 231 trading days during the materialtime, and materially overstated between 0.52% and 4.2%.

(b) The Canadian Equity Value Fund was overvaluedfor 123 of the 231 trading days during the material timeand materially overstated between 0.5% and 2.7%.

(c) The Dividend Fund was overvalued for60 of the 231 trading days during the material time andmaterially overstated between 0.5% and 0.69%.

13. The estimated impact of the overvaluationwas:

a) $64,519.64 as regards the Strategic ValueFund;

b) $115,458.14 as regards the Canadian EquityValue Fund; and

c) $197,674.92 as regards the Dividend Fundfor the material time.

14. In approximately June of 1998, the issueof Bonham's manual pricing was the subject of a review performedby the compliance officer of SVC and the matter was ultimatelyreferred to SVC's Audit Committee. The Audit Committee concludedthat the manual pricing that had occurred was reasonable andconsistent with what the funds permitted. Subsequently, theBoard of Directors decided that a formal procedure shouldbe implemented with respect to manual pricing. The policyadopted was that as a general rule, manual pricing shouldnot occur. A policy was adopted whereby on the exceptionaloccasions when a manual price was considered appropriate,the matter would be referred to the Chief Financial Officerand a portfolio manager (other than the portfolio managerraising the issue) to determine an appropriate manual price.

15. In June of 2000, SVC and related companieswere acquired by an arm's length third party and new managementwas put in place. Neither Mark Bonham nor Bonham & Co.has had any further involvement with SVC or related companies.

16. By Settlement Agreement dated November1, 2000, SVC entered into a Settlement Agreement with Staffby which it agreed to the following terms:

(a) On or before December 31, 2000, SVCmade payments of or otherwise credited $64,519.64 to theStrategic Value Fund, $115,458.14 to the Canadian EquityValue Fund and $197,674.92 to the Dividend Fund to compensatefor the overpayment made by investors to those funds duringthe material time;

(b) SVC made a payment of $50,000.00 tothe Commission to be allocated to such third parties asthe Commission may determine for purposes that will benefitinvestors in Ontario;

(c) SVC submitted to a review of the valuationpractices and procedures involving the Strategic Value Fund,Canadian Equity Value Fund and Dividend Fund, performedby a third party (the "expert") approved by Staffat SVC's expense and implemented such reasonable changesas were recommended by the expert in a report within reasonabletime frames set out by the expert after consultation withSVC. SVC provided Staff with a copy of the report and therecommendations of the expert and with progress reportsconcerning the implementation of the expert's recommendations;

(d) SVC submitted to a review of the manualprices used in the calculation of net asset value per sharefor any day during the period July 1, 1998 to September30, 2000 inclusive on which manual pricing occurred in anyrelevant mutual fund. Such review was carried out by theexpert at SVC's expense to determine whether the manualpricing activity that formed the basis of this proceedingwas repeated during this time period. As part of this reviewSVC agreed to produce to the expert at SVC's expense, allof the manual pricing sheets for this period. If it wasdetermined that Strategic Value Corporation or SVC engagedin this material and improper manual pricing activity duringthis period then the expert was to determine the impact,if any, on Strategic Value Corporation or SVC's clientsas a result of manual pricing. SVC provided Staff with acopy of the review carried out by the expert;

(e) If, as a result of the reviews set outin paragraphs (d) and (e), it was determined that the fundvalues and/or published results, communicated either tothe public or to individual clients, were materially misstated,then SVC would recalculate such fund values and make anyrequired restitution to any relevant mutual fund; and

(f) SVC was reprimanded.

17. SVC completed its obligations under theterms of settlement as set out in the above paragraph.

18. The manual pricing did not have any materialimpact on the compensation paid to Mark Bonham and Bonham& Co. during the material time.

19. Effective July 31, 2002, Mark Bonham andBonham & Co. Inc. have agreed to surrender their registrationwith the Commission and agree not to apply for registrationfor a period of three years thereafter.

CONDUCT CONTRARY TO THE PUBLIC INTEREST

20. By the conduct described above, Mark Bonhamfailed to act in good faith and in the best interest of themutual funds and failed to exercise the degree of care, diligenceand skill that a reasonably prudent person would exercisein the circumstances, contrary to section 116(l) of the SecuritiesAct, and contrary to the public interest.

21. In failing to properly supervise the activitiesof Mark Bonham, Bonham & Co. acted contrary to OntarioSecurities Rule 31-5-5(3.1), and contrary to the public interest.

IV. TERMS OF SETTLEMENT

22. Mark Bonham and Bonham & Co. agreeto the following terms of settlement:

(a) Mark Bonham and Bonham & Co. will,on or before August 30, 2002, make a payment of $50,000.00to the Commission to be allocated to such third partiesas the Commission may determine for purposes that will benefitinvestors in Ontario;

(b) Mark Bonham and Bonham & Co. will,on or before August 30, 2002, make a payment of $150,000.00to the Commission as their contribution to the costs ofthe investigation and hearing of this matter;

(c) Mark Bonham and Bonham & Co. willbe reprimanded;

(d) Mark Bonham will not be an officer ofdirector of a registrant for a period of three years;

(e) pursuant to paragraph 2 of subsection127(1) of the Act, Mark Bonham will cease trading in securitiesfor a period of three years, with the exception of tradingin personal accounts held in his name or in the name ofhis holding company, 1256205 Ontario Inc., or for the accountof his registered retirement savings plan (as defined inthe Income Tax Act (Canada);

(f) Mark Bonham and Bonham & Co. undertakethat they will not be involved, either directly or indirectly,in the pricing or valuation of a mutual fund for a periodof three years. If Bonham and/or Bonham & Co. are registeredpursuant to Ontario securities laws after three years andare involved in the pricing or valuation of a mutual fund,they agree to be subjected to appropriate supervision byanother registrant of any such valuation;

(g) in the event that either Mark Bonhamand/or Bonham & Co. are involved directly or indirectly,in initiating a mutual fund within three years of the dateof this Order, the material terms of this Settlement Agreementincluding paragraphs 19 to 22 must be disclosed in any prospectus,public disclosure document or enabling instrument.

STAFF COMMITMENT

23. If this Settlement Agreement is approvedby the Commission, Staff will not initiate any complaint tothe Commission or request the Commission to hold a hearingor issue any order in respect of any conduct or alleged conductof Mark Bonham & Bonham & Co. in relation to the factsset out in Part III of this Settlement Agreement.

24. If either Mark Bonham or Bonham &Co. reapply for registration with the Commission at any timeafter July 31, 2005, Enforcement Staff will not oppose theapplication by reason of the facts set out in this agreementand/or the Commission's order resulting from this SettlementAgreement.

VI. PROCEDURE FOR APPROVAL OF SETTLEMENT

25. The approval of the settlement as setout in this Settlement Agreement shall be sought at a publichearing before the Commission scheduled for such date as isagreed to by Staff and Mark Bonham & Bonham & Co.in accordance with the procedures described herein and suchfurther procedures as may be agreed upon between Staff andMark Bonham & Bonham & Co.

26. If this Settlement Agreement is approvedby the Commission, it will constitute the entirety of theevidence to be submitted respecting Mark Bonham & Bonham& Co. in this matter and Mark Bonham & Bonham &Co. agree to waive any right to a full hearing and appealof this matter under the Act.

27. If this Settlement Agreement is approvedby the Commission, the parties to this Settlement Agreementwill not make any statement that is inconsistent with thisSettlement Agreement.

28. If, at the conclusion of the settlementhearing, and for any reason whatsoever, this settlement isnot approved by the Commission or an order in the form attachedas Schedule "A" is not made by the Commission:

(a) this Settlement Agreement includingall discussions and negotiations leading up to its presentationat a hearing, and all negotiations between Staff and counselfor Mark Bonham & Bonham & Co. concerning the matterof the terms of settlement proposed for Mark Bonham &Bonham & Co., shall be without prejudice to Staff andto Mark Bonham & Bonham & Co.. Staff and Mark Bonham& Bonham & Co. will be entitled to all availableproceedings, remedies and challenges, including proceedingto a hearing of the allegations in the Notice of Hearingand Statement of Allegations, unaffected by this agreementor the settlement negotiations;

(b) the terms of this settlement agreementwill not be referred to in any subsequent proceeding, ordisclosed to any person, except with the written consentof Staff and Mark Bonham & Bonham & Co. or as maybe required by law; and

(c) Mark Bonham & Bonham & Co. agreethat they will not, in any proceeding, refer to or relyupon this settlement agreement or the negotiation or processof approval of this agreement as the basis for any attackon the Commission's jurisdiction, alleged bias, appearanceof bias, alleged unfairness or any other remedies or challengesthat may otherwise be available.

VII. DISCLOSURE OF AGREEMENT

29. Counsel for Staff or Mark Bonham &Bonham & Co. may refer to any part or all of this SettlementAgreement in the course of the hearing convened to considerthis settlement agreement. Otherwise, this Settlement Agreementand its terms will be treated as confidential by all partiesto the Settlement Agreement until approved by the Commission,and forever if, for any reason whatsoever, this settlementis not approved by the Commission.

30. Any obligation as to confidentiality shallterminate upon the approval of this Settlement Agreement bythe Commission.

VIII. EXECUTION OF SETTLEMENT AGREEMENT

31. This Settlement Agreement may be signedin one or more counterparts which together shall constitutea binding agreement and a facsimile copy of any signatureshall be as effective as an original signature.

July 25, 2002.

"Mark Bonham"
Mark Bonham

July 25, 2002.

"Mark Bonham"
Bonham & Co. Inc.
(Per) Mark Bonham

August 8, 2002.

"Michael Watson"
Staff of the Ontario Securities Commission
(Per) Michael Watson

 

Schedule "A"

 

IN THE MATTER OF

THE SECURITIES ACT

R.S.O. 1990, c. S.5, as amended

AND

IN THE MATTER OF

MARK BONHAM AND BONHAM &CO. INC.

 

ORDER

WHEREAS on November 6, 2000, the OntarioSecurities Commission (the "Commission") issued anAmended Amended Notice of Hearing pursuant to sections 127(l)and 127.1 of the Securities Act, R.S.O. 1990 c. S.5, as amended(the "Act") in respect of Mark Bonham and Bonham &Co. Inc.;

AND WHEREAS Mark Bonham & Bonham& Co. Inc. entered into a settlement agreement dated July25, 2002 (the "Settlement Agreement") in which theyagreed to a proposed settlement of the proceeding, subject tothe approval of the Commission;

AND UPON reviewing the Settlement Agreementand the Statement of Allegations of Staff of the Commission("Staff'), and upon hearing submissions from counsel forMark Bonham and Bonham & Co. Inc. and for Staff;

AND WHEREAS the Commission is of theopinion that it is in the public interest to make this Order;

IT IS HEREBY ORDERED THAT:

1. the Settlement Agreement dated July 25,2002, attached to this Order, is hereby approved;

2. the surrender of Mark Bonham and Bonham& Co. Inc's registrations as Investment Counsel/PortfolioManagers is hereby accepted, effective July 31, 2002;

3. pursuant to subsection 127(l)(6) of theAct, Mark Bonham and Bonham & Co. Inc. are hereby reprimanded;

4. pursuant to paragraph 2 of subsection 127(1)of the Act, Mark Bonham will cease trading in securities fora period of three years, with the exception of trading inpersonal accounts held in his name or in the name of his holdingcompany, 1256205 Ontario Inc., or for the account of his registeredretirement savings plan (as defined in the Income Tax Act(Canada);

5. pursuant to paragraph 8 of subsection 127(1)of the Act, Mark Bonham is prohibited from becoming or actingas a director or officer of any registrant for a period ofthree years; and

6. pursuant to subsection 127.1(2)(b) of theAct, at the time of approval of this settlement, Mark Bonhamand Bonham & Co. Inc. are ordered to pay $150,000 to theCommission in respect of a portion of the Commission's costswith respect to this matter.

August 20, 2002.

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