An Underwriter (the "Underwriter") has agreed
to pay $3.3 million in a settlement with the Ontario Securities
Commission in connection with the initial public offering of
subprime mortgage company FMF Capital Group Inc. (FMF). As part of
the settlement, the Underwriter admitted that it engaged in conduct
contrary to the public interest in that it "conducted due
diligence in a manner that did not comply with reasonable
underwriting practices." The Underwriter did not admit
liability or misconduct, but will be reprimanded.
The Underwriter acted as the lead underwriter in a $197.5
million financing done by FMF, a Michigan-based subprime mortgage
firm, in March 2005. As part of its underwriting, the Underwriter
signed a certificate stating that to the best of its knowledge the
FMF prospectus constituted full, true and plain disclosure of all
material facts relating to FMF's income participating units.
FMF soon folded after its revenue from pooling and selling subprime
mortgages fell sharply.
The settlement agreement lays out guidelines that explain what
the Underwriter could have done better to act with reasonable due
diligence in the public's best interest. These include:
analyzing FMF's declining subprime revenue to properly assess
the materiality of that information; engaging in further testing of
a final and complete version of FMF's cash flow model;
discussing with participating underwriters the compliance
weaknesses set out in a due diligence memorandum by U.S. regulatory
counsel retained by the Underwriter; and talking to institutional
loan purchasers prior to the IPO.
The agreement sets out the OSC's expectations that
"especially thorough due diligence" by an underwriter
will occur when: (i) the issuer is undertaking an initial public
offering; (ii) the issuer has undergone recent significant growth
or a significant change in business in the recent past (eg. 24
months); (iii) the issuer is a new client for the underwriter and
no previous due diligence has been performed on the issuer; or (iv)
the issuer has not previously raised capital in Canada.
The Underwriter earned $4.41 million in fees related to the
underwriting, plus another $659,895.03 on the sale of subordinated
notes. The Underwriter has agreed to pay $3 million to be allocated
under the Securities Act or for the benefit of third
parties, and another $300,000 toward the OSC's costs of the
It's not often that our little blog intersects with such titanic struggles as the U.S. presidential race – and by using the term "titanic" I certainly don't mean to suggest that anything disastrous is in the future.
J.J. v. C.C., is an interesting case in which the court held that an automotive garage owes a duty to minor children to secure the vehicles on the premises by locking the cars and safely storing the car keys...
In Irwin v. Alberta Veterinary Medical Association, 2015 ABCA 396, the Alberta Court of Appeal found that the "ABVMA" failed to afford procedural fairness to a veterinarian undergoing an incapacity assessment.
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