Costello gave advice without being registered, OSC panel rules

(February 19, 2003) Brian Costello violated the Ontario Securities Act by not registering as a financial advisor, a three-member panel of the Ontario Securities Commission has ruled. The panel also decided that the popular financial commentator failed to disclose numerous conflicts of interest. A ruling on possible sanctions against Costello will be announced following submissions from his lawyers and OSC staff.

“His failure to make full complete and conspicuous disclosure of his many conflicts of interest was contrary to the public interest,” the panel said in a written ruling issued yesterday. “Providing mere financial information as to specific securities does not constitute the giving of advice, but providing an opinion on the wisdom or value or desirability of investing in specific securities does.”

Costello held a 47.5% interest in Ontario dealer The Financial Planning Group. OSC staff alleged that Costello conducted seminars arranged by FPG between 1994 and 1997 in which he recommended two limited partnerships, Synlan and Enervest, without disclosing he had a financial interest in FPG. Staff also argued that Costello promoted the investments in his newsletter, also without disclosing his personal stake.

“We found that Costello gave advice as to the wisdom or value of investing in securities of Synlan and Enervest on several occasions in his seminars and in his newsletters,” the panel said.

Isolated incidents of giving advice on specific securities would not have been enough to convince them that Costello offered advice in a manner that reflected a business purpose, the panel added. “However, considering the totality of the evidence in this case, we concluded that he was engaged in the business of advising,” said the panel, chaired by commissioner Paul Moore.

During hearings last November and December, Costello’s lawyer, Joseph Groia, maintained his client was a financial educator, not an advisor. But the panel rejected that argument. “There might well have been an educational component to what Costello did,” it said. “However, the teacher exemption was not available to him because his principle occupation was not that of a teacher.”

Groia also argued that Costello operated within the confines of the system, working directly with registrants and urging investors to read the prospectus and seek out independent advice before making a decision.

But the panel said the fact that Costello stated that he did not take clients and always recommended that investors consult an independent advisor did not mean that he could not have been giving advice.

The OSC panel did side with Costello regarding a third allegation. It ruled that he did not direct trading as part of his business. “Whenever attendees of Costello’s seminars later purchased Synlan or Enervest securities, they did so with or through others who were registered.”

Possible sanctions against Costello range from a written reprimand to a trading ban. Today’s written decision suggests the OSC may look favourably on a more lenient approach. “We look forward to hearing the submissions of counsel on what order, if any, we should impose in the public interest,” it said.

What do you think of the decision against Costello? What sanctions, if any, should he face? Share your thoughts in the “Free For All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca