Sentry to pay $1.5M for improper, lavish rep gifts

Sentry Investments says it will pay a penalty of $1.5 million to the Ontario Securities Commission to settle allegations it engaged in improper sales practices by giving extravagant gifts to top-selling dealers between 2011 and last year.

The investment firm says it has also agreed to pay the OSC’s investigation costs of $150,000 and that it has replaced CEO Sean Driscoll, who indicated in October 2016 that he wished to resign. In January, it appointed president and chief operating officer Philip Yuzpe in Driscoll’s place.

Sentry must also submit to a review of its practices and procedures.

The OSC says Driscoll agreed to pay Sentry $100,000 in a reparation payment. He is prohibited from acting as a mutual fund company director or officer for two years and from acting as a mutual fund company ultimate designated person (UDP) or officer for five years.

Further, for future registration as a director, officer or UDP, Driscoll must complete the PDO exam and CCO qualifying exam. For future registration as a CCO, he must complete the PDO exam and CCO qualifying exam, as well as the Osgoode certificate in regulatory compliance and legal risk management.

Driscoll is son of Sentry founder John F. Driscoll.

Gifts to reps

In a settlement agreement, the commission says Sentry gave “excessive non-monetary benefits” to dealing representatives at a mutual fund conference at a Beverly Hills mansion in 2015 — including dinner, an open bar and entertainment — adding up to more than US$1,000 per guest. The conference cost about $2 million in total, says the agreement, with the benefits directed at its top-selling and rising dealers.

Gifts of Dom Perignon and jewelry from Tiffany’s were given at the conference, and, on one day, participants were offered the option of playing 18 holes of golf at Sentry’s expense. Another day, entertainment options included a movie studio tour or a wine-tasting tour, both at Sentry’s expense, or free attendance at a taping of a TV show.

But, when 12 reps arrived too late for the free taping, a helicopter tour was substituted at Sentry’s expense.

Apart from the conference, Sentry was also accused of providing gifts such as concert and sporting event tickets. In several instances, the cost of these non-monetary benefits exceeded $1,000 per rep per event, says the agreement. In some “limited” instances, Sentry spent more than $4,000 per rep per year.

Gifts included Montreal Grand Prix Formula One race tickets, at a cost of more than $12,000 in 2015 and almost $16,000 in 2016, as well as birthday, Christmas and baby gifts.

Failure to comply with NI 81-105

Investment fund managers are prohibited from making a payment of money or providing a non-monetary benefit to dealing reps in connection with the distribution of securities, except in certain permitted circumstances under part 3 (permitted compensation, like commissions and trailers) and part 5 of National Instrument 81-105 Mutual Fund Sales Practices.

In part 5, an example of a permitted circumstance is an educational mutual fund conference with reasonable costs and where permitted topics include things like financial planning and investing. The selection of reps to attend such a conference is to be made only by the participating dealer.

Though Sentry referred to the conference as its “due diligence” conference, the settlement agreement says that “an insufficient amount of time was spent on the provision of permitted topics compared to the time spent on non-permitted topics and recreational activities.”

Further, Sentry extended invitations directly to reps, and only to reps deemed top sellers.

The firm didn’t have adequate controls and supervision in place to ensure compliance with NI 81-105, nor did Sentry maintain adequate books, records and other documents to demonstrate compliance, the OSC says.

Following the conference, one Sentry employee attempted to conceal the gifts by seeking revised invoices, says the agreement.

In a news release, Yuzpe says Sentry accepts full responsibility and has hired a consulting firm to review and recommend improvements to policies, practices and internal controls.

In addition to the review of its practices and procedures, Sentry must refrain from hosting a mutual fund-sponsored conference without approval from its consultant, which reports to the OSC, per the settlement agreement.

Read the full settlement agreement.