Decisions
FORESIGHT CAPITAL CORPORATION [Decision]
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BCSECCOM #:
2001 BCSECCOM 848
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Document Type:
Decision
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Published Date:
2001-08-22
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Effective Date:
2001-08-20
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Details:
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2001 BCSECCOM 848
COR#01/089
IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, c. 418
AND
IN THE MATTER OF FORESIGHT CAPITAL CORPORATION
PANEL
Douglas M. Hyndman
John K. Graf
Roy Wares
DATE OF HEARING
August 13, 2001
DATE OF DECISION
August 20, 2001
APPEARING FOR FORESIGHT CAPITAL CORPORATION
R. David Toyoda
APPEARING FOR COMMISSION STAFF
Chilwin Cheng
DECISION
[para 1]
Foresight Capital Corporation, a registered securities dealer, has requested a hearing and review, under section 165(3) of the Securities Act, R.S.B.C. 1996, c. 418, of a decision by the Director, Capital Markets Regulation to impose conditions on its registration. Foresight has also applied for a stay of the Director’s decision pending the hearing. This is our decision on the stay application.
BACKGROUND
[para 2]
Foresight has been registered as a securities dealer since June 1997. Its business appears to be primarily selling mutual funds and secondarily selling securities of non-reporting issuers under exemptions.
[para 3]
Commission staff examined Foresight in December 1997, after it had been registered for six months, and found some significant deficiencies in its compliance with regulatory requirements. Staff sent its examination report to Foresight with a letter stating that “Failure to adequately address these issues may affect Foresight’s ongoing registration”.
[para 4]
Staff did a second examination in May 1999 and found many of the same deficiencies and some additional ones. Based on the results of the second examination, staff entered into a settlement in May 2000, in which Foresight admitted that it had failed to properly supervise its employees and had violated the know-your-client and suitability rules. Foresight also agreed to limit its growth until it had developed an acceptable compliance program. It also agreed to provide monthly compliance reports to the Commission and to conduct compliance examinations of all of its branch and home-based offices. Finally, Foresight agreed to pay a $10,000 penalty.
[para 5]
In November 2000, staff did a third examination and again found significant deficiencies, many of them the same as those found in the first two examinations. Staff also found that Foresight had not complied with the requirements it had agreed to in the settlement. In the letter accompanying its examination report, staff advised Foresight that it planned to impose conditions on its registration in order to restrict its activities.
[para 6]
After staff and Foresight exchanged further correspondence over the next several months, the Director sent Foresight a letter on June 28, 2001, imposing the following conditions:
1. With limited exceptions, Foresight and its employees are not permitted to rely on the exemptions in the Act. As a result, Foresight would have to discontinue its business of selling securities of non-reporting issuers under exemptions.
2. Gilbert Wong, Foresight’s president, must cease to act as compliance manager or branch manger.
3. Foresight is not permitted to employ registrants who require strict supervision.
The Director has suspended the first two conditions, and the third condition for current employees, pending this stay application.
ISSUES AND FINDINGS
[para 7]
The test for granting a stay pending a hearing and review is well established1.
1Re DiCimbriani (1995), 29 BCSCWS 25 (B.C. Sec. Comm.); Re Quinto Mining Corp. (1996), 42 BCSCWS 4 (B.C. Sec. Comm.).
The applicant must show that it has satisfied all the conditions of a three-part test:
1.There is a serious question to be tried as opposed to a frivolous or vexatious claim.
2. The applicant will suffer irreparable harm if the stay is not granted.
3. The balance of convenience between the parties favours the granting of the stay.
In weighing the balance of convenience, we must consider the public interest.
[para 8]
Foresight says it meets all three parts of the test. It says there is a serious question to be tried because it has resolved many of the deficiencies identified in the three examinations and is working to resolve the others. The only evidence Foresight provides to support this assertion is a letter from counsel that was submitted to the Director in opposing the imposition of the conditions of registration. Staff argues that Foresight has failed to establish that it has a serious question to be tried. However, we need not make a finding on this point because the application fails the other tests.
[para 9]
Foresight says two of the conditions of registration, if left in place, will cause it irreparable harm. First, it says that removing Gilbert Wong as compliance officer will leave Foresight without a compliance officer and, therefore, in breach of the Act. Foresight says that “throughout this process” — presumably for three and a half years — “the company has been diligently looking for a compliance officer” and that it has now found someone, whose registration form has been submitted to staff.
We have no doubt this condition will put Foresight in an awkward position but Foresight has not demonstrated how this would cause any irreparable harm.
[para 10]
Second, Foresight says that preventing it from using the exemptions will disrupt two exempt offerings on which it is now working; eliminate activities providing 30% of its revenues; and deny its clients access to the high risk investments they seek. Foresight provides no evidence to support these assertions or, more significantly, to show that the harm would be irreparable.
Again, we can safely assume that removal of the exemptions will disrupt some aspects of Foresight’s business but this is far from sufficient to establish that Foresight will suffer irreparable harm.
[para 11]
Foresight says the balance of convenience favours a stay because it has retained new counsel in the past few months and is working very closely with staff to resolve the outstanding issues. It says the period of the stay would be very short and that it would work with staff to minimize the effect on the public interest.
Foresight also says that preventing it from having employees that require strict supervision will prevent it from hiring new representatives or having existing representatives upgrade their registration status from mutual fund salesperson to full securities salesperson. Foresight says this would limit its ability to grow and “move forward”.
[para 12]
Foresight does not point to any defect in the Director’s decision or any flaws in the procedure by which it was made. Nor does it seriously challenge staff’s findings of numerous compliance deficiencies. It simply wants more time to resolve issues that have been outstanding for several years.
The purpose of the registration requirement and the standards of business conduct that apply to registered dealers is to protect investors from fraudulent, abusive or unfair business practices. When staff find that a registrant is not complying with regulatory standards it can respond in a variety of ways, ranging from encouraging better compliance to seeking cancellation of registration. In this case, staff has given Foresight several warnings and extracted a penalty and promises to comply. Despite this, it appears, the problems persist. Staff has now escalated its compliance efforts by restricting Foresight’s activities and attempting to force a change in its compliance management.
[para 13]
In the absence of any evidence to the contrary, we should presume that the Director’s decision to impose conditions of registration is in the public interest. In determining the balance of convenience, we must weigh the consequences of staying a decision that is in the public interest, and is intended to protect investors, against the inconvenience to Foresight of leaving the decision in place. Foresight has failed to show that it would suffer any irreparable harm. In fact, it has presented no evidence of any harm at all. We merely have the assertions of counsel that two exempt offerings would be disrupted, that Foresight would lose business representing 30% of its revenue, and that it will not be able to grow while the conditions are in place.
Foresight has chosen to carry on business in the regulated field of securities trading. It must accept that its conduct is subject to regulatory scrutiny and that it may find its activities curtailed by regulatory intervention. It is, of course, entitled to have the Director’s decision reviewed but, to obtain a stay, it must show something more than mere inconvenience or disruption of its business. It has not done so and we therefore find that the balance of convenience favours leaving the decision in place.
DECISION
[para 14]
For the reasons we have set out, we deny Foresight’s request for a stay of the Director’s decision.
August 20, 2001
FOR THE COMMISSION
Douglas M. Hyndman, Chair
John K. Graf, Commissioner
Roy Wares, Commissioner