OSC sanctions unregistered mortgage investments

The operators of a mortgage investment company agreed to settle allegations that they violated securities rules in connection unregistered trading that raised $13 million from investors.

Following a hearing, an Ontario Securities Commission (OSC) panel approved a settlement agreement with HRU Mortgage Investment Corp., HRU Financials Ltd., and three of the firms’ directors — Yau Ling (Patrick) Lam, Qingyang (Michael) Xia, and Zichao (Marshall) Liang.

Under the terms of the settlement, HRUFL, Lam, Xia and Liang jointly paid a $400,000 penalty and $25,000 in costs. Lam, Xia and Liang are also prohibited for three years.

Additionally, HRU Mortgage and HRU Financial agreed that any future trades will be made through a registered dealer, and that they will hire an exempt market dealer (EMD) to review its KYC and suitability records, and to carry out a suitability analysis in cases where the existing documentation is deemed inadequate, among other conditions.

The settlement followed allegations on unregistered trading and other violations.

“Despite not being registered, HRU promoted itself as being registered and/or recognized by the commission, made untrue statements about the registration of one of its directors, and made misleading statements as to its regulation by other Canadian regulators,” the OSC alleged.

The company promoted itself online, through social media and in Chinese-language radio ads, the OSC said.

The regulator said that as former registered reps, Lam, Xia and Liang, should have known about the importance of being registered.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.