In the Matter of Staff’s Recommendation
to Suspend the Registration of
Cornerstone Asset Management L.P.
Opportunity to be Heard by the Director
Under Section 31 of the Securities Act
- Staff has made a recommendation to suspend the registration of Cornerstone Asset Management L.P. (Cornerstone). Pursuant to section 31 of the Securities Act (Ontario) (the Act), Cornerstone requested an opportunity to be heard.
- Cornerstone is registered in Ontario, Alberta and British Columbia as an exempt market dealer. Ontario is its principal regulator.
- The factual basis for Staff’s recommendation is as follows:
- Cornerstone failed to deliver its financial statements for its 2014 financial year by the prescribed deadline of March 31, 2015. They were ultimately filed late on August 21, 2015.
- Cornerstone failed to deliver its completed Form 31-103F1 Calculation of Excess Working Capital by the prescribed deadline of March 31, 2015. This was ultimately filed late on June 3, 2015.
- Between March 31, 2015 and the dates they were ultimately filed, Staff made repeated inquiries as to when Cornerstone would be making its financial information filings and as to whether Cornerstone was maintaining solvency. On several occasions, Cornerstone did not reply by the deadlines imposed by Staff.
- In the course of correspondence with Cornerstone about its late filings, Staff identified concerns with Cornerstone’s solvency and requested information about the recoverability of a related party receivable. The information Cornerstone provided was not adequate to resolve these concerns. Staff took the view that if the receivable proved not to be recoverable by Cornerstone, then Cornerstone would have a working capital deficiency.
- Cornerstone was not responsive to repeated attempts by Staff to obtain the required information to address its concerns.
- Staff’s position is that the elements of the test for suspension of Cornerstone’s registration under section 28 of the Act are present in that:
- Cornerstone is unsuitable for registration in that it lacks the requisite solvency for registration;
- Cornerstone has failed to comply with Ontario securities law and specifically section 12.12 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations,by failing to deliver its financial information within the required timeframe, and subsection 19(3) of the Act, by failing to deliver books and records required to be kept by a market participant to Staff in a timely manner; and
- Cornerstone’s ongoing registration would be objectionable because it would be unfair to other registered firms who have worked to expend the time and resources necessary to meet their solvency obligations and filing requirements and to comply with Staff’s requests.
- Cornerstone initially requested an opportunity to be heard before the Director. However, in a letter subsequent to this request, Cornerstone indicated that it intended to complete the restructuring of its business in a manner that would adequately recapitalize the firm, but that the restructuring was delayed. Cornerstone acknowledged that it has various capital issues and restructuring will be required to remedy the deficiencies. Finally, Cornerstone consented to the suspension of its registration.
- My decision is that the registration of Cornerstone is suspended. I agree with Staff’s recommendations, including its analysis that the facts demonstrate the elements of the test for suspension under section 28 of the Act. Furthermore, Cornerstone was provided with the opportunity to submit materials for review by the Director and no factual information was submitted. Finally, Cornerstone acknowledged and accepted the suspension recommendation made by Staff.
“Debra Foubert” J.D.
Director, Compliance and Registrant Regulation Branch
Ontario Securities Commission
November 6, 2015