Caldwell Investment Management to pay $1.8 million for best execution violations

In its first disciplinary case involving a firm’s failure to ensure best execution, the Ontario Securities Commission (OSC) has reached a $2-million settlement with Toronto-based Caldwell Investment Management Ltd. (CIM).

An OSC hearing panel approved a proposed settlement with Caldwell on Friday that will see the firm pay a $1.8-million penalty and $250,000 in costs to settle allegations that it violated securities rules by directing client trades through an affiliated dealer (Caldwell Securities Ltd.) when it often could have received better terms at an independent dealer.

“CIM did not do what it needed to in order to ensure that it preferred its clients’ interests over its own interest. That is a serious breach of the trust that was placed in CIM, and it is a serious violation of Ontario securities law,” the panel said in its reasons approving the settlement.

The settlement resolves the regulator’s allegations that Caldwell failed to comply with best execution obligations for both bond and equity trades and that the firm had inadequate policies and procedures to ensure best execution, as well as with related disclosure violations.

“CIM’s failure to develop, document and enforce clear policies and procedures for best execution led to self-interest dictating how client orders were handled,” said Jeff Kehoe, director of the OSC’s enforcement branch, in a release. “These are serious lapses in oversight that will not be tolerated.”

The panel also noted that the firm admitted the violations, co-operated with the regulator’s investigation and has taken voluntary action to improve its best execution policies and procedures.

Along with the monetary sanctions, the firm also agreed to hire an independent consultant to review its new policies and procedures and assess its compliance with them.

“In my view, the settlement properly reflects the principles applicable to sanctions, including general and specific deterrence… the seriousness of the misconduct, and the importance of fostering investor protection and confidence in the capital markets,” the panel said in its decision.

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.