OSC reprimands and fines Costello, leaves door open for further sanctions

(April 30, 2003) The Ontario Securities Commission (OSC) has ordered a review of Brian Costello’s recent activities to determine if he is still in the financial advice business. The financial commentator has been reprimanded and ordered to pay $300,000 in investigative costs.

In February, an OSC panel ruled that Costello had violated provincial securities law by failing to register as an advisor and failing to disclose numerous conflicts of interest.

In a sanctions decision released today, the panel said the review will look at Costello’s practices and procedures as an advisor from November 11, 2002, when the proceedings against him started, to April 29, 2003.

The review will determine if Costello has ceased to be a market participant, and if not, what changes should be instituted regarding his practices and procedures, the panel said in a statement. The review, to be completed by the end of June by an outside party, will cover Costello’s Web site, newsletters and seminars. The commission could issue further orders against Costello, based on the review.

“The passage of time calls for a review of Costello’s practices before determining whether sanctions in addition to those which we are ordering today are appropriate,” the panel said.

“We’re saying that if anything happens that we consider to be inappropriate, we would look at it very closely and in light of his past activities,” explained OSC spokesperson Eric Pelletier. “So something that might be treated lightly if done by someone else, might be regarded more seriously if it’s someone who has a track record.”

Costello’s lawyer, Joseph Groia, has said that his client no longer gives seminars, that the Web site has not been updated and that the newsletter is no longer published.

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During the hearings, Groia maintained that Costello’s seminars were educational in nature and did not constitute advice. The panel rejected that argument.

“The evidence clearly showed that a principal purpose of Costello’s seminars was lead generation,” the panel, chaired by OSC vice-chair Paul Moore, said. “Good educational material should be balanced and free from marketing bias. It should not serve as bait.”

The panel did back off on a number of other sanctions suggested by OSC staff, including a trading ban and a recommendation that Costello not be allowed to mention any specific securities in future seminars and must disclose any fees received. Staff also recommended that Costello be forced to reveal that he has been sanctioned by the OSC, is not registered as an advisor and is not qualified to recommend investments in specific securities. But those recommendations could be revisited following the review, Pelletier said.

The commission also ruled that the registration exemption for financial writers and publishers will not be available to Costello for five years.

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What do you think of the sanctions against Costello? Are they too harsh or should the commission have gone even further? 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

(04/30/03)

Doug Watt