Connect Shareholder Services, LLC

Decision

Headnote

Company finding lost shareholders for issuers exempt from dealer registration -- relief limited to facilitating sales orders for found securityholders of their claimed securities -- execution through appropriately registered CIRO investment dealers.

Statute cited

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 1(1), 25, 74.

October 1, 2024

IN THE MATTER OF
THE SECURITIES LEGISLATION OF ONTARIO
(the Jurisdiction)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
CONNECT SHAREHOLDER SERVICES, LLC
(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) that the Filer be exempt from the dealer registration requirement provided in the Legislation in connection with facilitating trades pursuant to the Share Selling Service (as defined below) (the Exemption Sought).

Under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut (together with the Jurisdiction, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meanings in this decision, unless otherwise defined.

Representations

The decision is based on the following facts represented by the Filer:

The Filer

1. The Filer is a limited liability company formed under the laws of the Commonwealth of Virginia with its principal office located in Maitland, Florida.

2. The Filer is not registered under applicable securities legislation of any province or territory of Canada. The Filer is not in default of securities legislation in any jurisdiction of Canada.

3. The business of the Filer is to provide asset reunification services to issuers and their securityholders, which operates as follows:

(a) the Filer is engaged by issuers to assist them in locating securityholders who:

i. hold interests of entities (including securities of such entities) acquired by or merged into the issuer (or parties related to the issuer),

ii. hold securities which have by their terms matured or terminated or have been redeemed,

iii. hold interests that have been converted (whether by conversion of the interest by the entity and/or conversion of the entity itself and including, without limitation, the conversion of a mutual company into a shareholder-owned company (e.g., a demutualization of an insurance company)),

iv. by virtue of their ownership of securities of the issuer are entitled to receive securities of an entity that has been spun-out by the issuer, or

v. have an entitlement to a cash payment in lieu of the interests set out in subparagraphs (i) to (iv) above, and

have failed to tender their securities or other interest or to take whatever other action is required to receive any entitlement resulting therefrom.

(b) The Filer has been providing asset reunification services in the United States since its incorporation in 2014. The Filer does not require any regulatory permits or registrations to provide asset reunification services in the United States.

(c) Once a securityholder has been actually or potentially located (Found Securityholders), the Filer offers to assist the securityholder in exchanging the unexchanged securities or the claiming of additional securities or cash entitlements, as the case may be, through the delivery of an explanatory notice to such Found Securityholders detailing the steps that the Found Securityholders will be required to take to claim their entitlements (the Claim Notice). The Claim Notice will include the following information, along with the information referred to in sub-paragraphs (d) and (e) and paragraphs 4, 5 and 12 below:

i. Role of the Filer in assisting the specified issuer in locating securityholders,

ii. Name of the specified issuer and the specific entitlements of the Found Securityholder,

iii. Details on how the Found Securityholder can claim an entitlement, including the necessary asset reunification form to be completed by the Found Securityholder,

iv. Details on the service fee payable by the Found Securityholder for the asset reunification service and an explanation that the fee will be paid to the Filer,

v. Details on the optional Share Selling Service,

vi. vi. Details on the fees payable by the Found Securityholder to the Filer for the Share Selling Service, if applicable,

vii. Toll-free phone numbers, along with hours of operation, of the Filer, which Found Securityholders are encouraged to use,

viii. An explanation of the Filer's privacy policy, and

ix. An explanation of what will happen if the Found Securityholder fails to respond to the Claims Notice.

(d) Found Securityholders are under no obligation to use the Filer to exchange their unexchanged securities or claim their entitlements. The issuer may have the capability to arrange for the exchanges and claims separate and apart from the Filer through a transfer agent or other internal process. As part of the Claim Notice, if applicable, the Filer informs Found Securityholders that they can claim the unexchanged securities or their entitlements through the transfer agent, or such other process, if they wish.

(e) If a Found Securityholder elects to engage the Filer to exchange their unexchanged securities or claim their entitlements, the Filer charges a service fee to the Found Securityholder, which is detailed and disclosed in the Claim Notice.

(f) The Filer will verify the Found Securityholder's entitlement to the unexchanged securities or to the additional securities or cash and will work with the issuer and its transfer agent to:

i. have the applicable security certificates or 'direct registration statements' issued in the Found Securityholder's name and sent to the Found Securityholder, or

ii. have payment of the cash entitlement sent by cheque or other form of payment to the Found Securityholder, or

iii. have a combination of security certificates/DRS and cash entitlement sent to the Found Securityholder.

4. Once a Found Securityholder has exchanged the unexchanged securities it holds for its entitlement, or claimed the additional securities to which it is entitled, the Filer wishes to offer the Found Securityholder the ability to sell those securities by using a third-party registered dealer to execute the trade at the prevailing market price (the Share Selling Service). The Share Selling Service will only be available for publicly listed securities. The Share Selling Service will be outlined in the Claim Notice, and it will be clear that only Found Securityholders who elect to use the Filer to exchange their unexchanged securities or claim their entitlements to additional securities may use the Share Selling Service.

5. Found Securityholders are not required to sell the securities they receive in respect of any exchange or entitlement and will not be required to sell their shares through the Filer. Found Securityholders who wish to sell their securities or entitlements in another manner (for example, by transferring their holdings to another dealer with whom they have a brokerage relationship) will be able to do so. This ability to do this will be outlined in the Claim Notice and the Filer will not charge a fee in respect of any such transfer.

6. Under the Share Selling Service, Found Securityholders, subject to applicable foreign laws, will be able to sell their securities they acquired through the entitlement by contacting the Filer either through written instructions (sent by mail or delivered in person or provided via an internet web portal) or by telephone.

7. Under the Share Selling Service, Found Securityholders will only be able to instruct the Filer to sell the securities at the market price. The Found Securityholders will not be able to place a "price limit order" with the Filer. The Filer and its directors, officers, employees, contractors and agents will not provide recommendations or advice regarding the decision to sell or hold the applicable securities to Found Securityholders. The Filer will inform all Found Securityholders with inquiries concerning the decision to sell or hold the applicable securities to contact a professional advisor.

8. The Filer will establish an account with a registered investment dealer and member of the Canadian Investment Regulatory Organization a (the Assisting Dealer). The Assisting Dealer may change from time to time.

9. The Filer will transfer the securities to the Assisting Dealer for execution and will arrange with the Assisting Dealer to sell the securities of any Found Securityholder who wish to do so. The Assisting Dealer will take instruction from the Filer (as per the Filer's communication with the Found Securityholders) and will execute the trade at the market price.

10. The Assisting Dealer will provide the Filer with settlement advice and the settlement proceeds. The Filer will remit the proceeds of the trade, less applicable fees, to the Found Securityholders, as soon as possible following the receipt of the settlement proceeds from the Assisting Dealer.

11. The Filer holds Found Securityholders' securities and cash separate and apart from the Filer's own property, and cash will be held in a designated trust account held at a Canadian financial institution in trust for Found Securityholders, pending distribution to the Found Securityholders. The Filer maintains records sufficient to show the beneficial ownership of the cash and securities of each Found Securityholder. The Filer maintains sufficient insurance coverage for its business activities.

12. A Found Securityholder that wishes to use the Share Selling Service will pay the Filer a fee plus, depending on the program, a cents-per-share fee for each sale of securities under the Share Selling Service. The nature of the fee to be paid to the Filer will depend on the specific asset reunification program and will be negotiated with the issuer engaging the Filer. The Claim Notice will outline the fees to be paid by the Found Securityholder to the Filer in respect of the Share Selling Service. No other fees are paid by the Found Securityholder in relation to the Share Selling Service. The Filer itself will pay the brokerage commissions to the Assisting Dealer.

13. Any materials distributed to Found Securityholders regarding the Share Selling Service will not contain any recommendations or advice as to whether the Found Securityholder should hold or sell their securities.

14. Found Securityholders who choose to use the Filer to exchange their unexchanged securities or claim their entitlements, but who do not elect to use the Share Selling Service at the time they notify the Filer of their decision to use the asset reunification services of the Filer, will not be able to later use the Share Selling Service, and will not receive further communications regarding the Share Selling Service.

15. In providing the Share Selling Service, the Filer will facilitate trades pursuant to the Share Selling Service by: (i) receiving orders from Found Securityholders to sell their securities, (ii) instructing the Assisting Dealer to execute the order to sell the securities, (iii) remitting the proceeds less applicable fees from the sale of securities to the Found Securityholders, and (iv) receiving a fee from the Found Securityholders for the Share Selling Service.

16. The Filer submits that the Exemption Sought is not prejudicial to the public interest because:

(a) A significant number of the Found Securityholders may not have any prior experience in share ownership or brokerage relationships, and so would have to take additional steps to independently establish an account and bear any associated costs. Given the relatively small number of securities that they may hold, brokers may not be interested in opening individual accounts for such small security holdings.

(b) The Share Selling Service is an efficient and effective way by which Found Securityholders can obtain their unclaimed assets, in a cash form, that they may not otherwise obtain due to their lack of experience in share ownership or brokerage relationships and given the small number of securities that they will likely hold.

(c) It is considered good corporate governance for issuers to engage asset reunification firms, such as the Filer, to locate securityholders who have not claimed their entitlements and to allow such Found Securityholders to have options in monetizing their holdings through the Share Selling Service.

17. Upon the granting of the Exemption Sought, the Filer will be a "market participant" as defined in the Legislation. As a market participant, among other requirements, the Filer will be required to comply with the record keeping and provision of information provisions under the Legislation, which include the requirement to keep such books, records and other documents as are necessary for the proper recording of business transactions and financial affairs and the transactions executed on behalf of others and to deliver such records to the principal regulator if required.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted, provided that all of the following conditions are met:

(a) The Filer facilitates only the sale of securities from Found Securityholders through an Assisting Dealer, which will be an investment dealer and member of the Canadian Investment Regulatory Organization.

(b) The Filer deals honestly, fairly and in good faith with the Found Securityholders.

(c) The Filer and its directors, officers, employees, contractors and agents will not provide investment recommendations or advice regarding the decision to sell or hold the applicable securities to Found Securityholders.

(d) The Filer will inform all Found Securityholders with inquiries concerning the decision to sell or hold the applicable securities to contact a professional advisor.

(e) The Filer holds any client securities and client cash separate and apart from the Filer's own property and holds client cash in a designated trust account held at a Canadian financial institution in trust for Found Securityholders, pending distribution out to the Found Securityholders.

(f) The Filer maintains records sufficient to show the beneficial ownership of the cash and securities of each Found Securityholder.

(g) The Filer remits the proceeds of any trade made under the Share Selling Service, less applicable fees, to the Found Securityholders, as soon as possible following the receipt of the settlement proceeds from the Assisting Dealer.

(h) Where a Found Securityholder uses the Share Selling Service, the Filer will provide Found Securityholders with a statement outlining the detail of the trade(s) made under the Share Selling Service, including the number of securities sold, the proceeds of any sale and the fees paid by the Found Securityholder.

(i) The Filer will not require, recommend or advise that Found Securityholders sell the securities they receive in respect of any exchange or entitlement and Found Securityholders who wish to sell such securities will not be required to do so through the Filer's Share Selling Service. These facts will be outlined in the Claim Notice.

(j) Within 30 days of the end of the first year (2024) and the third year (2026) after the date of this Decision, the Filer provides to the principal regulator the following information for each issuer for whom the Filer has established a Share Selling Service for the applicable period since the date of this Decision or the date of the last report, as applicable:

i. The number of Found Securityholders who elect to use the Filer to sell their shares pursuant to the Share Selling Service,

ii. The proportion of Found Securityholders who use the Share Selling Service out of all Found Securityholders who elect to use the Filer to exchange their unexchanged securities or to claim the additional securities or cash entitlements,

iii. The number of shares and value of those shares sold pursuant to the Share Selling Service,

iv. The fees paid to the Filer by the Found Securityholders using the Share Selling Service, and

v. Any complaints received from the Found Securityholders relating to the Share Selling Service and how those complaints were resolved.

(k) The Filer will provide, on a timely basis, any report, document or information to the principal regulator that may be requested by the principal regulator from time to time for the purpose of monitoring compliance with securities legislation and the conditions in the Decision, in a format acceptable to the principal regulator.

(l) This decision may be amended by the Ontario Securities Commission from time to time upon prior written notice to the Filer in accordance with applicable securities legislation.

"Joseph Della Manna"

Application File #: 2024/0372