A Vancouver investment firm has agreed to pay back $1.67 million to clients after regulators found that it misused “soft dollars” provided by a brokerage house.
Genus Capital Management Inc. admitted to violating securities rules in its settlement with the British Columbia Securities Commission (BCSC). The regulator reported that the firm used $1.67 million in “soft dollar” credits provided by a brokerage firm to develop in-house software, which was then transferred to another company. The transaction created a conflict of interest that should have been disclosed to clients, the BCSC said.
The regulator noted that, while soft dollars can be used to purchase existing software, they can’t be spent on software development. The firm’s subsequent transaction involving the resulting software also violated securities rules.
“By allowing client soft dollars to be used for ineligible software development services, and then transferring the resulting software platform to a related third party company, Genus failed to deal fairly with clients,” the settlement said.
In addition to repaying clients, the firm agreed to pay a $350,000 penalty to the regulator.
The firm’s former clients will receive cash, whereas existing clients will be repaid with management fee credits, the BCSC said. The $1.67 million in repayments will take place over the next four years.
Additionally, as part of the settlement, the firm agreed to disclose the compliance failures to its clients and to hire an independent compliance monitor to review its soft dollar and conflict of interest practices.
According to the agreement, the firm believed that the expenditures were permissible at the time. It co-operated with the BCSC’s investigation and regulators “found no evidence of dishonest conduct” by the firm.