The OSC has approved a no-contest settlement agreement with CI Investments Inc. in relation to a matter that CI self-reported to the OSC and that resulted in investors buying and selling units at an understated value.

The settlement involves approximately $156.1 million being returned to harmed investors – the largest amount of investor compensation to date in an OSC no-contest settlement.

This settlement follows allegations by OSC Staff that CI’s system of controls and supervision, and its monitoring and oversight of an outsourced service provider, were not sufficient to address the unique cash collateral feature of certain funds and to ensure that interest earned in related accounts was recorded and included in the NAV.

Staff allege that these inadequacies led to the NAV being understated and that this error was not promptly identified and corrected. Staff do not allege, and have found no evidence of, dishonest conduct by CI.

While having neither admitted nor denied the accuracy of the facts and conclusions of OSC Staff, CI has agreed to the settlement and intends to compensate harmed investors a total of approximately $156.1 million.

In addition, CI has made a payment of $8 million to advance the OSC’s mandate of protecting investors, plus a further payment of $50,000 to be allocated toward the costs of the investigation.

After reporting this matter, OSC says CI provided prompt, detailed and candid co-operation. CI has also taken action to address inadequacies in its systems of controls and supervision. Further, as part of this settlement agreement, CI will be required to report to the OSC on its progress in developing enhanced supervisory and monitoring systems.

“Investors rely on investment fund managers to oversee the accurate calculation of NAV and fund performance to assist investors in making informed investment decisions,” says Tom Atkinson, Director of Enforcement at the OSC. “[W]here this does not happen, we will take enforcement action.”

Comment from CI Investments

In a release, CI Financial states that it’s set aside $10.75 million to remediate the administrative error that is the subject of the settlement agreement. This amount includes the cost of the voluntary payment CI agreed to make to the OSC.

CI further states that the settlement agreement “is in respect of an administrative error that CI Investments discovered in April 2015 and reported to the Ontario Securities Commission. As a result of this error, approximately $156.1 million of interest that had accrued in the bank accounts of seven CI Investments mutual funds had not been properly recorded as an asset in the accounting records of those funds. As a result, the NAVs of these funds, and any funds that had invested in these funds, had been understated for several years. The accumulated interest is in bank accounts owned by the mutual funds and at all times remained in those bank accounts as an asset of these funds and was never co-mingled with the property of CI Investments.”

About half of affected retail investors will receive payments of $100 or less.

CI states it “has already undertaken enhancements to its systems and processes to help prevent similar errors from occurring in the future” and has a remediation plan in place.

Originally published on Advisor.ca
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