Toronto-based Sentry Investments Inc. will pay $1.5 million to settle allegations that it violated the mutual fund sales practices rule by sending advisors to a lavish conference in California and providing tickets to the Montreal Grand Prix.
An Ontario Securities Commission (OSC) hearing panel approved a proposed settlement with Sentry and its former CEO, Sean Driscoll, to resolve allegations of sales practices violations.
Specifically, the OSC had accused the firm of violating the sales practices rules by hosting reps at a conference in Beverly Hills, Calif., that didn’t meet the requirements of rules designed to prevent mutual fund firms from providing reps with incentives that create conflicts of interest.
The conference, which was held in September 2015, included a party for advisors at a mansion in Beverly Hills that cost the firm more than US$1,000 per guest; gifts of Dom Perignon champagne and jewelry from Tiffany & Co., along with golf outings, a wine tasting and movie studio tour provided at the firm’s expense. In total, the conference cost Sentry $2 million.
The settlement agreement also indicates that Sentry spent excessively on gifts for reps, exceeding $4,000 a year for some reps, on items such as tickets to concerts, hockey, baseball and basketball games, along with other gifts. Furthermore, the OSC alleged that Driscoll provided a rep with tickets to the Montreal Grand Prix in 2015 and 2016, which also violated the rules.
The discovery of spending on the race tickets led Sentry’s board to create a special committee of independent directors to investigate that conduct, which ultimately led to Driscoll offering to resign as the firm’s CEO.
In addition to the $1.5-million administrative penalty, Sentry has also agreed to pay the OSC $150,000 in costs and to bolster compliance. In addition, Driscoll has been prohibited from acting as a director or officer of a mutual fund manager for two years and is prohibited from serving in a senior compliance role for five years. The OSC order also notes that Driscoll has made a “reparation payment” of $100,000 to the firm.
Read: New guidance from OSC on mutual fund-sponsored sales conferences
Sentry says in a statement released following the hearing that it accepts responsibility for the violations and it has pledged to implement compliance improvements recommended by PricewaterhouseCoopers LLP (PwC), which was hired to review its internal controls and compliance practices.
Sentry’s new chief compliance officer, Edna Chu, “will work directly with PwC to ensure best-in-class compliance standards,” the statement says.
“We have learned from this experience and our company will be better for it,” said Philip Yuzpe, who replaced Driscoll as president and CEO of Sentry earlier this year. “Moving forward, driven by our core values of trust and integrity, as well as our focus on investor advocacy, we are committed to best-in-class compliance standards.”
The OSC notes in its reasons for the settlement that neither Sentry nor Driscoll has a disciplinary history and that both the firm and its former CEO co-operated with the regulator’s investigation. The OSC also acknowledges the steps the firm has taken to bolster its compliance.
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