Costello not in the financial advice business, lawyer argues

(December 6, 2002) Brian Costello made his living as a seminar speaker and financial commentator and was not in the business of giving financial advice, his lawyer argued today before an Ontario Securities Commission panel.

Joseph Groia conceded that Costello’s seminars could be construed as financial advice in a generic sense, but he insisted they did not meet the legal definition of advice under the province’s securities act.

“His seminars were intended to be educational and to give sponsors the opportunity to meet new clients,” Groia said in his closing arguments.

The OSC says Costello conducted seminars arranged by mutual fund dealer Financial Planning Group in which he specifically recommended two limited partnerships, Synlan and Enervest, without disclosing he would personally profit from their sale. Costello held a nearly 50% stake in Financial Planning Group, which he sold in 1997 for $2.7 million He’s also accused of giving financial advice without being registered.

Groia was repeatedly questioned by panel chair Paul Moore today on the advice issue, who noted that one of Costello’s books described him as “Canada’s best-known financial advisor.”

Moore agreed that while there was no evidence Costello provided advice on a one-to-one basis or personally sold securities, the panel must decide if the seminars had a business purpose. “If Mr. Costello was giving advice about specific products, is he crossing the line?” Moore asked.

“If the purpose of the seminar is to sell a product, then I have a problem,” Moore said.

“Mentioning a stock does not meet the definition of advice,” Groia responded. “That would mean anyone who mentions a security is in violation of the Act,” he said, accusing the OSC of becoming a “super watchdog” for anyone talking about financial matters.

But Moore suggested Costello went beyond the occasional mention of a security, saying that he “lost count” of specific product references in Costello’s newsletters and Web site. “He was soliciting people who might be interested,” Moore said.

Groia noted that the commissions Costello’s company received from the Synlan and Enervest investments represented a tiny portion of firm’s income, less than 1%. “That’s an important consideration,” Groia said. “It goes to the question of what is Mr. Costello’s business.”

Groia said the business argument is only valid if Costello was putting his talents into selling something. “This was a widespread practice in the 1990s,” he said, referring to financial seminars. “You have to look at the purpose of the seminar, not the effect.”

OSC staff lawyer Hugh Corbett contends that Costello’s activities meet the definition of an advisor and were designed to steer investors toward a specific product.

Costello faces a possible lifetime trading ban. The hearing continues on Monday.

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

(12/06/02)