Watchdog finds Costello broke law
OSC says personal-finance speaker violated securities rules Author recommended investments without being registered
MADHAVI ACHARYA-TOM YEW
BUSINESS REPORTER
Personal finance speaker Brian Costello broke securities laws by recommending investments without being registered as an adviser, Ontario's stock market regulator has ruled.The Ontario Securities Commission also ruled that Costello neglected to disclose "his many conflicts of interests" to the public. "His failure to make full, complete and conspicuous disclosure of his many conflicts of interest was contrary to the public interest," the OSC's three-member disciplinary panel wrote in a decision released yesterday.Lawyers for both sides will submit written arguments on a penalty, which could include a reprimand, a ban from securities trading or an order to pay commission investigation costs. No dates have been set for future hearings. Lawyers for Costello will argue that sanctions are not necessary. "We believe Brian has already paid an enormous price in terms of the publicity, and since he has essentially been out of the business for over 12 months and has missed two RRSP seasons," Joe Groia, head of Costello's defence team, said in an interview yesterday.Costello, formerly a regular speaker on the investment seminar circuit, bills himself as "Canada's foremost tax planning expert" on his Web site. "Brian now feels with most of the cloud off of his shoulders that he would like to go back to work doing what he's always done, which is educating Canadians about financial matters," Groia said.He added that Costello would do so only in accordance with the OSC ruling.Costello was accused in January, 2002, of giving financial advice without a licence and without disclosing his financial interest in companies he allegedly promoted. The OSC panel heard evidence from 18 witnesses, including former colleagues and seminar-goers, during 12 days of hearings last November and early December.The panel heard that Costello held a 47.5 per cent stake in Financial Planning Group, or FPG through a holding company called FPG Service Co. FPG paid part of its commissions to FPG Service Co. under a 1992 deal.From 1994 to 1997, Costello conducted seminars arranged by FPG sales people in which he recommended limited partnership units in EnerVest Resource Management Ltd. and Synlan Securities Corp. He also mentioned the investments in his monthly newsletter, distributed at seminars free of charge.Costello told seminar-goers that he was not licensed to sell securities, did not take clients and that they should consult a registered adviser. But that doesn't mean he didn't dispense advice, the panel wrote in its decision. "Based on the evidence, we found that Costello gave advice as to the wisdom or value of investing in securities of Synlan and EnerVest on several occasions in his seminars and in his newsletters."Costello also failed to disclose his financial stake in FPG. "He only said that he founded FPG and hand picked its advisers," the panel found. The panel rejected defence arguments that Costello acted as a teacher, educating investors without providing specific financial advice. "His principal occupation was not that of a teacher. His recommendations of specific securities were an integral part of his business as a financial speaker and commentator."The newsletters never disclosed Costello's holdings in FPG Service Co., or that he stood to gain from the sale of securities by FPG. Nor were paid advertisements properly identified, the panel found. "It was inappropriate for Costello to allow the views of promoters of Synlan, EnerVest or others to appear as his own views in articles in his newsletters, and not to disclose that they were paid advertisements."The panel also found that Costello gave advice on radio spots that aired in Toronto and Ottawa in February, 2001, featuring Retrocom Growth Fund Inc., a labour-sponsored investment fund. In 1999, Costello was sued by a group of 23 Saskatchewan investors who claimed he should have known that Richard John Smith, the president of Synlan, had been convicted of fraud. Costello denied all wrongdoing. That case is still pending.
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