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The British Columbia Securities Commission has settled with a B.C. man who contravened various securities laws in order to raise US$34 million from investors to purportedly trade spot foreign exchange (Forex) contracts.

In the settlement agreement, Cem Ali, 33, a B.C. resident, admitted that he illegally traded and distributed securities, made misrepresentations, and contravened a cease trade order issued by the BCSC.

Between Aug. 29, 2006 and January 2008, Ali raised US$34 million from 957 investors through the sale of Horizon FX Investments Limited Partnership (Horizon LP) units without being registered and without filing a prospectus. The investor funds were sent to a U.S. company, Razor FX, Inc., that purported to trade forex contracts on behalf of Horizon LP.

Ali admitted he made untrue, false or misleading statements in an offering memorandum, website and brochure that promoted the sale Horizon LP securities. He also took approximately C$2.5 million of investor funds after the BCSC issued a cease trade order on his business on Oct. 18, 2007.

The money “invested” with Razor was lost by what appears to be outright fraud.

On Sept. 1, 2009, Ali, Horizon LP, Horizon FX Investments Incorporated, and HFX Management Services Inc. declared bankruptcy. The BCSC froze approximately C$2.6 million in assets and property from Ali and his companies and this will be released to the bankruptcy trustee for distribution to investors.

Furthermore, in settlement of this matter, Ali agreed to distribute to investors through the trustee any money returned to him through a claim he filed for Horizon LP on the assets of Razor FX seized by U.S. authorities.

Under the settlement agreement, Ali is permanently prohibited from engaging in investor relations activities, acting as a director or officer of any issuer, becoming or acting as a registrant, investment fund manager or promoter, and acting in a management or consultative capacity in connection with activities in the securities market. He is also permanently banned, with limited exceptions, from trading and purchasing securities.

If Ali were not bankrupt, the BCSC said it would have been assessed a $1 million fine.

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Foreigners continue to buy Canadian

Foreign investors continued to buy up Canadian securities in October, according to StatsCan. Non-residents bought $5.8 billion during the month, with a strong bias toward federal government bonds.

In the first 10 months of 2009, foreign investors bought a net $86.4 billion of Canadian securities, exceeding any previous full-year total.

Federal bonds accounted of $4.5 billion of the total, while corporate bond purchases totalled $1.8 billion. Money market instruments were sold off to the tune of $1.6 billion.

On the equity side, non-residents bought a net $1.4 billion in Canadian stock, making it the ninth consecutive month of positive flows.

In return, Canadian investors sold off $4.2 billion in foreign securities, getting out of both stocks and fixed income products.

Canadians sold off $1.9 billion in U.S. government debt, especially short-term bonds. Foreign money market instruments were also the target of a sell-off, with a total divestment of $363 million.

Positions in non-U.S. foreign equities were trimmed by $1.9 billion.

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Managers bullish on 2010 U.S. equity markets

Recent gains aside, the vast majority of money managers still see plenty of growth potential for U.S. equity markets, a recent survey reveals.

Russell Investments’ latest Investment Manager Outlook survey of almost 200 managers finds that just under 80% of respondents expect U.S. equity markets to rise over the 12 months ending December 2010.

“The managers believe U.S. equity markets can continue to move up from here in 2010,” says Mark Eibel, director of client investment strategies with Russell Investments. “The managers are tentatively hopeful that earnings, driven by increased revenues rather than cost-cutting, and economic recovery can become the main drivers for the market. They expect that this positive development combined with continued accommodative monetary and fiscal policy will sustain the equity markets over the next year.”

Forty-two percent of managers expect the markets to increase by 10% or more in 2010. This year only 19% of managers see the markets as undervalued — a new survey low — compared to 72% of managers surveyed at the same time last year.

“The managers’ enthusiasm for the markets is no longer based on undervaluation, but on the hope that the hand-off from cost-cutting to real economic growth has begun,” says Eibel. “How real this shift is and how long it lasts remain open questions dependent on macroeconomic factors such as unemployment and housing. If the economy continues to heal, many companies could see expanded revenues placed on top of corporate structures that have become very efficient and streamlined. That combination would prove to be a real win-win for the markets.”

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TFSA appoints head of COE

The Toronto Financial Services Alliance (TFSA) has appointed Dr. Catherine Chandler-Crichlow as executive director of the newly established Centre of Excellence in Financial Services Education (COE), effective Dec. 16.

“The COE needs strong leadership — particularly now, in its early days,” said TFSA president Janet Ecker. “We are delighted that we have recruited such a fine candidate to launch this initiative and bring focus to the talent needs of Toronto’s financial services sector.”

The role of the new Centre of Excellence is to act as a research and information aggregator, while facilitating exchanges between employers and educators to enhance the quality of industry-specific education.

“Toronto has an international reputation for the quality of its workforce,” said Dr. Chandler-Crichlow. “The level of education, including specialized designations, the diversity of our community, and the sophistication of the businesses themselves — all of this provides us with comparative advantage, and the COE will help us maintain our leadership.”

(12/17/09)