Accountancy failings and fee inflation admitted after firm found to be capital deficient
The former CFO of Octagon Capital Corp, which went bankrupt, has been permanently banned and fined $10,000 by the Investment Industry Regulatory Organization of Canada (IIROC).
A hearing panel approved a settlement with Christopher John Everest after he admitted failing to report the firm’s capital position properly between February, 2015 and November, 2015. IIROC concluded that Everest improperly recorded a management fee that was charged to Octagon’s parent company as an allowable asset, boosting its reported capital.
The fee was inflated to a base annual fee of $690,000 from January to September in 2015 from its previous rate of $320,000 in 2014 and $400,000 in 2013. On two occasions, Everest reported the Management Fee on OCC’s Monthly Financial Report (MFR) to IIROC in a way that made it difficult for IIROC to identify that the fee in those months was larger than usual.
Octagon, an institutional boutique, was suspended by IIROC in 2015 after the self-regulatory organization found the firm to be capital deficient. Octagon subsequently entered bankruptcy.
The IIROC settlement notes stated: “The respondent genuinely believed that the guarantees addressed the debit increases in the OCP trading account which were made to offset the Management Fee and, more generally, the capital adequacy of OCC. The respondent did not benefit financially or otherwise from his admitted misconduct.”
It added: “The respondent has provided staff with sworn evidence substantiating that he is experiencing financial hardship and unable to pay a fine greater than the amount recommended.
“The Respondent acknowledges that, if not for his inability to pay, the monetary fine imposed against him would have been significantly higher and that he would have been required to contribute to the costs that IIROC has incurred in this matter.”
