An Ontario Securities Commission (OSC) hearing panel ruled on Tuesday that an affiliated fund management company and exempt-market dealer — and the two men behind the firms — committed fraud on investors.
The OSC hearing panel found that Quadrexx Hedge Capital Management Inc. (QHCM), Quadrexx Secured Assets Inc. (QSA) and the firms’ “directing minds,” Miklos Nagy and Tony Sanfelice, perpetrated a fraud on investors; that they failed to deal fairly with clients; and that they failed to alert regulators to a working capital deficiency, among other violations.
OSC staff alleged that the fraud stemmed from distributions of securities to investors, including allegations that investor funds were misappropriated; that funds raised from certain investors were used to pay dividends to other investors; and that the process of valuing an asset was manipulated.
The hearing in the case began in 2015 and wrapped up in mid-2016, including 40 days of testimony from various witnesses. The OSC hearing panel upheld most of OSC staff’s allegations against the parties involved, the decision states.
The OSC hearing panel ruled that “the respondents acted deceitfully and created and perpetuated a falsehood by diverting the use of the QAM II proceeds to the payment of dividends rather than to the growth and expansion of the Quadrexx business.”
The decision notes that the respondents denied committing fraud, arguing instead that, at most, the investments’ disclosure was deficient. However, the OSC hearing panel ruled that there were not just disclosure deficiencies.
“Nagy and Sanfelice had subjective knowledge that they were deceiving the QSA investors and that they also had subjective knowledge that their deceit and falsehoods were placing the investors’ pecuniary interests at serious and increased risk,” the hearing panel’s decision states.
As a result, the hearing panel concluded that they perpetrated a fraud on investors, and it will now hold a sanctions hearing to determine penalties in the case.
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