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OSC Reprimands, Fines Stephen Duthie

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TORONTO (–The Ontario Securities Commission found that Stephen Duthie wrongly engaged in activities for which he was not registered and otherwise engaged in unfair and improper activities in the trades that destroyed the Phoenix Fixed Income Arbitrage LP in January 2000 Previous HedgeWorld Story.

The OSC, in a decision released June 2 following an April hearing, Previous HedgeWorld Story, found that Mr. Duthie’s trades from late 1998 onward were contrary to PFIA’s investment parameters. By early 2000, as a consequence of unhedged directional trades, he had accumulated a US$3.3 billion long position in 6% U.S. Treasuries.

Phoenix Research and Trading Corp. was registered with the OSC as an investment counsel and portfolio manager and PFIA was one of the hedge funds for which it provided management services. Mr. Duthie has never been registered with the OSC.

Mr. Duthie had argued before the OSC that he was not an adviser within the meaning of the act and so did not have to be registered. The panel found to the contrary: “As an arbitrage trader, Duthie had discretion to buy and sell, and in exercising that discretion he was, in effect, advising his client as to an appropriate investment with a mandate to carry out that advice.”

The panel also found that both Mr. Duthie’s supervisors at Phoenix Research and the PFIA investors received inaccurate information as a result of Mr. Duthie’s “duplicitous” behavior.

“Duthie was able to obscure his unauthorized trading from being uncovered” through mispricing and through the use of contingency collateral the OSC said, and even if this was not fraudulent, it was “both unfair and improper.”

The OSC reprimanded Mr. Duthie and ordered that he cease any trading in securities for five years and desist from any trading except his personal trading through a registered broker for 20 years; that he resign any position he holds as a director or officer of any issuer for 20 years; and that he pay costs in the amount of C$90,000 (US$65,895).

Mr. Duthie could not be reached for comment.

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