OSC approves fundcos settlement pay-outs

(July 4, 2005) The Ontario Securities Commission (OSC) has approved the plans of the five mutual fund companies to distribute payments to unitholders affected by in-and-out trading. The five companies, which settled with the commission in December 2004 and March 2005, were alleged to have turned a blind eye to abusive trading practices.

Plans have been drawn up by AGF Fund, AIC, CI Mutual Funds, I.G. Investment Management and Franklin Templeton Investments to return cash to fund-holders who were hurt by frequent, short-term trading. The plans are to be implemented before the end of September.

“We are pleased that the fund companies have been able to develop these plans efficiently and that the timetable achieved will result in investors receiving the payments three months earlier than contemplated by the settlements,” said OSC Chair David Brown. “The investors were always our first priority in this probe and it is only appropriate that funds be returned to them as quickly as possible.”

The settlement amounts — ranging from $21.85 million for Investors Group, up to $58.8 million for AIC — have accrued interest at a rate of 5% since the date of the settlement. The OSC settled with AGF, AIC and CI in December 2004 and with IG and Franklin Templeton in March 2005. The distributions have also been topped up by cash from settlements between the IDA and the dealers who facilitated the transactions.

Details of the five distribution plans are essentially boilerplate copy, with the company names and the amounts involved changed from document to document.

“An investor would be an ‘affected investor’ in respect of a position within a specific fund and within a specific account,” the plan outlines explain. “Positions in different accounts will be considered separately, even if such positions are held by the same beneficial investors or reside in the same relevant fund. Positions in different relevant funds will be considered separately, even if such positions reside within the same account.”

Since some of the affected investors are collective investments, such as wrap products, which may have been sold off at the material time, or purchased since the abuses, the five fund companies will have to “look through” these investments to determine the rightful recipients of the distributions. Other collective investors, such as illiquid fund-linked GICs will not be looked through, as the investors were unable to realize their losses. Distributions will be made directly into these less liquid collective investments.

“Some relevant trades may have affected affected investors adversely while other relevant trades may have benefited affected investors,” reads the plan. “The settlement amount will be allocated amongst affected investors that have been determined to have experienced, in aggregate, an overall adverse effect in a relevant fund when all relevant trades in the relevant fund are considered.”

Settlement distributions will be paid by cheque, mailed to the last address of record for the affected investor, along with a letter explaining the distribution. If the investor held multiple funds that were adversely affected, the companies will combine the distribution amounts into a lump sum.

Any cheques that are not cashed will have their value held in trust for six months, while the companies “use reasonable efforts to attempt to locate any affected investors entitled to payment of $200 or more if that person’s payment has not been completed within such six-month period.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com