Under paragraph 4.1(1)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual acts as an officer, partner or director of another registered firm that is not an affiliate of the first-mentioned firm. The firms require relief for a limited period of time. The individual will have sufficient time to adequately serve both firms. As one firm is inactive, conflicts of interest are unlikely to arise. The firms have policies in place to handle potential conflicts of interest. The firms are exempted from the prohibition.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 15.1.
August 22, 2013
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
CALDWELL SECURITIES LTD.
e3m INVESTMENTS INC.
The principal regulator in the Jurisdiction has received an application from CSL and e3m (collectively, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief from the requirement in paragraph 4.1(1)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), pursuant to section 15.1 of NI 31-103, to permit Robert Goldberg, a director and the President, Chief Executive Officer and Secretary, ultimate designated person (UDP) and chief compliance officer (CCO) of e3m, to be both a registered dealing representative of CSL and the UDP, CCO, officer and a director of e3m for a limited period of time to maintain the registration of e3m for purposes of reorganizing its affairs and/or soliciting prospective purchasers of e3m (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filers in Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Saskatchewan, Newfoundland and Labrador and Prince Edward Island (with Ontario, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filers:
1. CSL is registered as (i): an investment dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Saskatchewan; (ii) a dealer member of the Investment Industry Regulatory Organization of Canada (IIROC); and (iii) a participating organization of the Toronto Stock Exchange (TSX).
2. CSL engages primarily in securities trading and portfolio management activities.
3. e3m is registered as an investment dealer in Ontario, Alberta, Nova Scotia and British Columbia, and is a dealer member of IIROC.
4. e3m is primarily engaged in the business of providing securities trading services to individuals.
5. The head office of each of the Filers is located in Ontario.
6. The Filers are not in default of any requirement of securities legislation in any of the Jurisdictions.
7. CSL has provided notice pursuant to Section 11.9 of NI 31-103 of the proposed transfer (the Proposed Transaction) of substantially all of the client accounts of e3m to CSL. In addition to the Proposed Transaction, CSL will be offering employment to certain e3m employees, including Robert Goldberg, a dealing representative of e3m.
8. e3m is entering the Proposed Transaction as a result of a capital deficiency arising out of an Ontario Superior Court judgment against it. Although e3m is appealing this judgment, the Proposed Transaction will allow e3m to accumulate and maintain sufficient assets to satisfy this judgment. In addition, e3m is required to remain registered as an investment dealer and a dealer member of IIROC in the interim period before this judgment is satisfied.
9. The Proposed Transaction is also designed to permit CSL to expand its operations in the functional area of securities trading in a timely and efficient manner. It is intended that Robert Goldberg will become employed by CSL. Subject to closing the Proposed Transaction and hiring Robert Goldberg, CSL also intends to hire one other employee of e3m to assist in client servicing to complement the CSL team.
10. Robert Goldberg is currently a director, the President, the Chief Executive Officer and Secretary, and a dealing representative of e3m and acts as e3m's UDP and CCO. Following the closing of the Proposed Transaction, it is intended that Robert Goldberg will be registered with CSL as a dealing representative, and will continue to be a director and officer of e3m and act as the UDP and CCO of e3m (the Dual Registration).
11. e3m has agreed to certain terms and conditions being placed on its registration after the Proposed Transaction closes which include that:
(a) e3m and all its registered individuals shall not trade in securities under securities law and will not open any new accounts.
(b) e3m shall accumulate and maintain sufficient assets to satisfy the Ontario Superior Court judgment against it, and no distribution of these assets up to the amount of the judgment will be made prior to the satisfaction of that judgment except by consent or approval from the Ontario Securities Commission and IIROC.
(c) on an ongoing basis, e3m will provide evidence of the accumulation and maintenance of these assets that is satisfactory to the Ontario Securities Commission.
(d) Robert Goldberg, as Chief Executive Officer and UDP, has agreed to abide by, and ensure that e3m adheres to, the terms and conditions imposed on the registration of e3m.
These terms and conditions will remain in place until e3m's registration is surrendered or e3m is sold and an application is made to remove those terms and conditions by the future purchaser. e3m is being granted "inactive status" by IIROC, effective as of the closing date of the Proposed Transaction, for the purpose of reorganizing its affairs and soliciting potential purchasers of e3m.
12. Prior to the closing date of the Proposed Transaction, clients of e3m will be provided with notice of the Proposed Transaction that includes information about the transfer of client accounts to CSL as well as information that e3m will no longer offer brokerage services to its clients.
13. There is a valid business reason for the Dual Registration in that it will permit e3m to retain its IIROC membership with "inactive status" and its investment dealer registration while it reorganizes its affairs and solicits potential purchasers.
14. Robert Goldberg will have sufficient time and resources to adequately meet his obligations to each firm.
15. The Filers have in place policies and procedures to address any conflicts of interest that may arise as a result of the Dual Registration and the inactive status of e3m will facilitate this, by largely or entirely avoiding any conflicts of interest.
16. Furthermore, CSL has compliance and supervisory policies and procedures in place to monitor the conduct of its representatives (including Robert Goldberg) and to ensure that CSL can deal appropriately with any conflict of interest that may arise.
17. CSL will supervise the activities that Robert Goldberg will conduct on behalf of e3m, including by holding meetings regularly with him and by obtaining regular status reports from him.
18. In the absence of the Exemption Sought, Robert Goldberg would be prohibited under paragraph 4.1(1)(a) of NI 31-103 from acting as a dealing representative of CSL while also acting as an officer, director and the UDP and CCO of e3m.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that (1) the circumstances described above in paragraphs 6, 11, 12, 14, 15, 16 and 17 remain in place, and (2) the Exemption Sought shall expire on the earlier of the following:
(i) two years after the date hereof,
(ii) on the date that e3m is sold,
(iii) on the date that the registration of e3m is surrendered or terminated.