2011 BCSECCOM 244


Order

SFCS Capital (Canada) Corp. and
Robert John Alexander Stitt 

Securities Act, RSBC 1996, c. 418

Order

1. under section 161(1)(d)of the Act, Stitt be prohibited from acting as chief compliance officer (CCO) or ultimate designated person (UDP), as defined in National Instrument 31-103, for any registrant;

2. under section 161(1)(f) of the Act, conditions to be imposed on SFCS’ registration as a portfolio manager, that:

(a) all advising in securities by Stitt to individual or retail clients must be reviewed for suitability by SFCS’ CCO within 24 hours; and

(b) SFCS and its CCO must file with the Director of Capital Markets Regulation quarterly compliance reports, with content satisfactory to the Executive Director.

Agreed Statement of Facts
Background
1. SFCS is a British Columbia corporation, registered under the Act as a portfolio manager. SFCS has its principal business office in Vancouver.

2. SFCS was the investment fund manager for the investment fund SFCS Titans Limited Partnership (Titans).

3. Stitt resides in Vancouver, and is registered under the Act as an advising representative, director and officer of SFCS.  At all material times, Stitt was the chief compliance officer (CCO) of SFCS.

4. Between January 11 and January 15, 2010, in its capacity as portfolio manager, SFCS invested funds in Titans on behalf of five British Columbia residents (the Investors).

Investments in Titans
5. Between July 14, 2010 and October 4, 2010, Stitt and SFCS filed five different exempt distribution reports for the Investors relating to their investment in Titans (the Reports). 

6. One of the five Reports purported to rely on the accredited investor exemption.

7. At times, the Reports contained errors including:

(a) not being in the required form;

(b) not including phone numbers for the Investors; and

(c) not identifying compensation or referral fees with respect to Titans.

8. On October 21, 2010, Commission staff conducted a compliance exam (Exam) at the offices of SFCS, and found evidence that Stitt and SFCS:

(a) did not obtain complete know-your-client information for the Investors prior to their investments in Titans;

(b) relied in part on a third party to determine if Titans was suitable for the Investors; and

(c) purported to rely on the accredited investor exemption for the Investors in one of the Reports without first ensuring that that exemption was appropriate for each Investor.

Compliance Failures
9. SFCS and Stitt:

(a) failed to establish and maintain an adequate compliance system, contrary to sections 5.2 and 11.1 of National Instrument 31-103 (NI 31-103); and

(b) did not obtain complete know-your-client information for the Investors, or perform a full suitability review for each Investor, contrary to sections 13.2 and 13.3 of NI 31-103.

Mitigating Factors
10. Stitt and SFCS cooperated fully with Commission staff during and after the Exam.

11. On April 13, 2011:

(a) Stitt ceased acting as CCO of SFCS; and

(b) the Executive Director approved the application of a new qualified CCO and ultimate designated person (UDP) for SFCS;

12. Stitt and SFCS provided the Investors with Risk Acknowledgment forms that informed them that Titan investments were risky investments.

13. Stitt recently completed the Canadian Securities Institute Chief Compliance Officers Qualifying Examination.

Undertakings
14. Stitt and SFCS undertake to:

(a) comply fully with the Act, the Rules and any applicable regulations; and

(b) pay $5,000 to the Commission in respect of settlement of this matter, which sum is due and payable immediately without further demand.

 

1. under section 161(1)(d) of the Act, Stitt be prohibited from acting as CCO or UDP, as defined in NI 31-103, for any registrant;

2. under section 161(1)(f) of the Act, conditions be imposed on SFCS’ registration as a portfolio manager, that:

(a) all advising in securities by Stitt  to individual or retail clients must be reviewed for suitability by SFCS’ CCO within 24 hours; and

(b) SFCS and its CCO must file with the Director of Capital Markets Regulation quarterly compliance reports, with content satisfactory to the Executive Director.

 

Robert Stitt                                           )

Paul Bourque

¶ 10 Paul C. Bourque, Q.C.
Executive Director