Costello loses court appeal

(July 13, 2004) Former financial guru Brian Costello, who was reprimanded and fined by the Ontario Securities Commission last year, has lost a court appeal of his case.

Costello, a popular media commentator and seminar presenter, had argued that the OSC made a mistake when it ruled he provided financial advice without being registered and did not disclose conflicts of interest.

He claimed his activities fell in the realm of investor education and also maintained that any restrictions against him constituted a violation of the Charter of Rights.

Ontario’s Superior Court of Justice rejected those arguments and sent the case back to the Ontario regulator, which originally slapped a $300,000 fine on Costello and said it would conduct a thorough review of his business activities.

“The court dismissed all aspects of Costello’s appeal but for the issue of the costs order which the court directed to be reconsidered by the commission,” the OSC said in a statement released today.

The OSC added the Ontario court “affirmed the Commission’s finding that Costello was acting as an advisor as defined in the Securities Act in that he was making recommendations on specific securities during his investment seminars. He therefore should have been registered.”

This is the first case in Canada where the courts have interpreted the meaning of the term “advisor” under securities legislation, the commission noted.

In the 1990s, Costello held a 47.5% interest in Ontario firm the Financial Planning Group. The OSC said 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. The commission also said that Costello promoted the investments in his newsletter, also without disclosing his personal stake. Costello sold his interest in FPG for $2.7 million in 1997.

“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 in February of last year.

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.

Costello has effectively been out of the financial services industry since the OSC announced in 2002 it was investigating his activities. He no longer gives seminars, his radio show was cancelled, his newsletter has ceased publication and his Web site is not operational.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com