OSC and TSE commence proceedings against RT Capital and others
TORONTO, June 29 /CNW/ - Following a year-long joint investigation, the
Ontario Securities Commission and the Toronto Stock Exchange have begun
proceedings against RT Capital Management Inc. and 22 individuals.
The respondents are alleged to have contravened the Securities Act and
TSE rules by manipulating the price of stocks through a process known as "high
closings" to artificially inflate the performance of pension funds managed by
RT Capital, a wholly-owned subsidiary of the Royal Bank of Canada. There is no
indication that the trading activity has placed the funds at risk.
The OSC has made allegations against RT Capital and nine employees and
directors under the Securities Act. The OSC's first hearing date in the matter
is scheduled for July 19, 2000. (See OSC Notice of Hearing and Statement of
Allegations.)
According to the OSC's Statement of Allegations, RT Capital orchestrated
a total of 53 month-end "high closings" on 26 stocks from October 30th, 1998
to March 31st, 1999. There are no allegations of wrongdoing against the
issuers of the 26 stocks.
It is alleged that in some cases the trades were effected by cross-trades
between funds and accounts managed by RT Capital. There was no legitimate
investing purpose for the client in these trades.
In addition, the OSC alleges, the Board of RT Capital "did not monitor,
or ensure that systems were in place to monitor, the trading activities and
practices of RT Capital's portfolio managers and order executioners."
"The OSC is taking action in this case because all forms of market
manipulation, including the use of high closings, strike at the integrity of
our capital markets and erode investor confidence," said Charlie Macfarlane,
Executive Director of the OSC.
TSE Regulation Services alleges that 13 traders, representing 11
brokerage firms at the time of the offences, violated TSE rules against
manipulative trading. This is the largest slate of proceedings ever issued on
one file by the TSE. "These charges should serve as a reminder that the TSE
will take firm action against any trading practices that impair the operation
of a fair market," said John Carson, Senior Vice President of Market
Regulation. "Market participants track closing prices of stocks when making
investment decisions so artificially inflated prices on or near key dates such
as month and year-ends, can misrepresent both a stock's price and a fund's
performance and value."
The TSE allegations stem from an investigation into the failure of
traders to question trades when there was reason to believe that the intended
purpose of the trades was to establish a high closing price.
The TSE has reached settlements with 12 of the 13 traders charged in
connection with this case. A TSE Hearing Panel scheduled for July 20, 2000
must now approve the settlements. The terms of the settlements will remain
confidential until then.
The investigation commenced when the TSE's Market Surveillance Division
detected "high closing" trades executed on and near the last trading days of
certain months and quarters. Further investigation revealed that the trades
were made in a number of different stocks on behalf of a common client, RT
Capital, and the TSE referred the matter of RT Capital's involvement to the
OSC for action.
The conclusion of the investigation is a result of the co-operation
between the two agencies.
In addition, the TSE and the OSC are teaming up with other provincial
regulators to ensure that other funds have not used high closings to
manipulate stock prices and to determine what procedures they have in place to
prevent and detect this type of activity.
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