The Ontario Securities Commission (OSC) Monday announced a series of allegations against fund manager and exempt market dealer Quadrexx Asset Management Inc., and the firm’s top executives.
The OSC says it plans to hold a hearing on February 20 to consider several allegations against Quadrexx, including that they are responsible for certain disclosure deficiencies that amounts to fraud on investors; that they failed to promptly report a working capital deficiency; and, failed to deal fairly with clients. The regulator’s charges have not been proven.
A statement of allegations released Monday by the OSC notes that the firm agreed to cease trading back in 2012, following a compliance review; its various registrations were suspended in 2013; and, in June of last year, it filed for bankruptcy.
The allegations lay out several claims of fraudulent conduct associated with securities offerings. The OSC charges that offering memorandums used by Quadrexx to raise money for an investment vehicle failed to disclose the process that it followed in arriving at a valuation for one of the businesses it intended to buy.
Additionally, the OSC charges that Quadrexx raised money from investors ostensibly to expand its distribution business, but that some of the money was actually used to pay dividends to investors. And, that, in connection with another offering, Quadrexx paid itself more than was set out in the offering documents. These acts also amounted to a fraud on investors, the OSC alleges.
Additionally, the OSC says that Quadrexx failed to maintain required working capital because the extra fees it allegedly took inflated its cash position.
“Had Quadrexx only taken the fees it was entitled to from QSA, Quadrexx’s excess working capital would have been below zero by Oct. 31, 2012,” the OSC says.
As a result, the commission says that Quadrexx also failed to deal fairly, honestly and in good faith with its clients, and that the two top executives failed to fulfill their compliance responsibilities.