Rep gets two-year suspension for improper compensation arrangement

A veteran rep has agreed to a two-year registration suspension after regulators found that he helped enable an improper compensation arrangement and then misrepresented the situation to regulators.

The Ontario Securities Commission (OSC) reached a settlement with rep Arie Papernick that saw him agree to a two-year suspension starting March 1, 2019 (the date he resigned from his most recent firm). He also agreed to taking certain courses before re-entering the industry.

The settlement stemmed from his involvement with an “undisclosed and inappropriate compensation” arrangement and misrepresentations made under oath in a regulatory interview, the settlement said.

The conduct occurred between 2015 and 2017 when Papernick was a rep with Secutor Capital Management Corp., which acted as a broker in placements by resource issuers.

According to the settlement, Papernick worked closely with an executive at an unnamed fund manager whose funds often invested in Secutor’s offerings.

They agreed to split the fees on these transactions, with the fund manager getting 80% of the revenue and Secutor taking the other 20%.

However, some of the funds were restricted from receiving this sort of revenue under the terms of their prospectuses.

To get around this prohibition, the fund manager instead billed Secutor for “strategic advisory services,” the settlement said.

“The advisory invoices were not for bona fide strategic advisory services,” it noted. “Instead, they were designed to capture aggregate fee revenue which [the fund manager] was not entitled to because of the restriction.”

For his role in these deals, the settlement said, “Papernick admits that he failed to demonstrate the requisite integrity of a registered individual while he participated in transactions on behalf of Secutor while he was aware of the true nature of undisclosed and inappropriate compensation paid to [the fund manager].”

He admitted that he failed to demonstrate integrity “by making misrepresentations and material omissions” in an interview with regulators, it said.

The settlement also noted that “Papernick has accepted full responsibility for his conduct and has expressed remorse.” He corrected his misrepresentations, it said, and agreed to co-operate with regulatory staff in any future proceedings.

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.