The Ontario and Quebec securities commissions have approved a settlement with CIBC World Markets Inc. at a joint hearing held Thursday. In the agreements, CIBC World Markets admits that it failed to make adequate disclosure of its potential conflicts of interest in recommending the purchase of shares of Shoppers Drug Mart Corp. in five equities research reports published between December 2001 and February 2002.

Specifically, CIBC World Markets failed to adequately disclose that it had acted as lead underwriter in Shoppers’ initial public offering of shares in November 2001, contrary to section 41 of the Securities Act.

In addition, CIBC World Markets agreed that it had failed to adequately disclose that it held 7,450,000 shares of Shoppers at the time of the research reports, and that Shoppers was indebted to its parent bank, CIBC, throughout this period.

By way of sanction, CIBC World Markets agreed and the OSC ordered that CIBC World Markets submit to a review of its conflict disclosure practices by an independent expert. The results of this review will be provided to CIBC World Markets and to the OSC, and the OSC may make further orders requiring compliance with the expert’s recommendations.

The OSC reprimanded CIBC Word Markets for its conduct, and required it to make a payment of $100,000 towards the costs of the joint investigation of the matter.

In approving the settlement agreement, and after reviewing the research reports in question, Commissioner Theresa McLeod stressed the importance of making required disclosure in a type size that is large enough to be easily read by investors, and of separating and highlighting key disclosures, rather than “bury(ing) them in the middle of dense paragraphs” of boilerplate text.

The agreements were reached at the conclusion of a joint investigation of CIBC World Markets’ actions by staffs of the OSC and QSC.

Copies of the Notice of Hearing issued by the OSC, the Statement of Allegations filed by OSC Staff, the Settlement Agreement and the Order made are available at www.osc.gov.on.ca.