Founder pushes back against OSC allegations

Som Seif, the entrepreneur bent on disrupting Canada’s financial industry, has found himself at the center of an unprecedented showdown with the country’s top markets watchdog.

The asset management executive is a consummate marketer — a skill that helped him build a firm that was one of Canada’s early winners in exchange-traded funds, sell it to BlackRock Inc., then start another, Purpose Investments Inc. 

But that knack for self-promotion has caught the attention of the Ontario Securities Commission, which now alleges that Purpose made false or misleading statements about its use of environmental, social and governance factors in investment decisions. The regulator, in its first enforcement action against greenwashing, also went after Seif himself, saying he failed to stop the claims — and laid out potential penalties that would, at the extreme end, see him banned from being a senior executive in Ontario’s investment industry.

Purpose, with about C$26 billion ($18.6 billion) of assets under management, is hardly a global player. But its founder has a public persona in Canada created through years of television appearances and in-flight ads, and that makes him a high-profile target. 

“There’s been a longstanding perception in industry that Canadian securities regulators as a whole are relatively weak on enforcement,” said Doug Sarro, a law professor at the University of Ottawa who previously worked at the OSC. With this filing, Sarro believes Ontario’s watchdog is trying to “deliver on their new head of enforcement’s vision of more impactful, high-visibility enforcement.”

That head is Bonnie Lysyk, Ontario’s former auditor-general, who’s known for a bombshell report on a land development scandal that rattled the government of Premier Doug Ford. 

Several industry players expressed surprise that the commission went after Purpose, which voluntarily stopped making certain ESG claims in 2023.  

During the heyday of ESG fund releases between 2020 and 2022, sustainability expert Tim Nash said he saw marketing “throughout the industry that I felt was pushing the boundaries of greenwashing.” The founder of Toronto-based Good Investing said he welcomes enforcement in this realm, but “it does feel to me that there is a little bit of a target on Purpose.”

“While this case is the first ESG-related enforcement action brought by the OSC, the issue at the heart of it relates to false and misleading statements,” the regulator said in an email. 

Seif and Purpose are contesting the claims, with their first hearing set for Monday. “We remain confident about our position and look forward to the proceedings,” Purpose said in a statement. 

True to form, Seif is also making his case to the court of public opinion in a video, saying the OSC is going after his firm for taking a “genuinely innovative” approach to ESG at a time when no regulatory guidelines existed.

In an interview when the allegations were first unveiled, Seif argued the regulator is seeking to score political points, not protect investors. “A regulator is using their position for political greenwashing goals, as opposed to going after people who cause real investor harm.”

‘ESG Always’

Seif, an engineer by training who got his start in finance as an investment banker with Royal Bank of Canada, rose to prominence on Toronto’s Bay Street by building Claymore Investments Inc., one of Canada’s first standalone ETF providers.

After Claymore was sold to BlackRock in 2012, Seif founded Purpose Investments. It’s now part of his broader firm, Purpose Unlimited Inc., which has received financial backing from the Ontario Municipal Employees Retirement System and the digital investments unit of Allianz SE. 

Seif has long advocated for innovation in the financial industry and beyond, and sits on the boards of Wealthsimple Inc. and an entrepreneurship charity. Purpose, meanwhile, launched Canada’s first physical Bitcoin, single-stock and high-interest-savings ETFs, and also has private-asset and retirement-focused products. 

What it doesn’t offer is standalone ESG funds. Instead, “we had the ambition of embedding ESG considerations as a factor across all of our investment processes,” Seif said in a video uploaded to LinkedIn after the OSC released its allegations — eliciting a supportive comment from a former senior securities regulator.

Ontario’s securities regulator, however, says Purpose’s ambition was more about marketing than action. 

Its case takes issue with at least 19 statements that Purpose or its leader made about ESG between September 2019 and March 2022, including on Purpose’s website and in media interviews. For example, the company said one of its principles was “ESG Always” — a slogan it changed to “ESG Conscious” in 2023, following an OSC review. All but one of the 19 statements came before January 2022, when Canadian securities regulators published their first ESG-specific guidance.  

The regulator alleges that Purpose didn’t consider ESG in making investment decisions for many of its funds and didn’t even have a formal policy. Less than 35% of assets under management in 2019 considered ESG, the OSC added, despite Purpose saying the percentage was 75%.

The watchdog included a range of potential remedies in its filing, from procedural changes to a permanent registration ban. Monetary penalties could be as high as C$5 million for each of five alleged violations. 

The regulator won’t necessarily seek all of those sanctions. “Once the merits of the case have been decided, the OSC will set out specifically what it is seeking to the Capital Markets Tribunal — and this will be informed by a number of considerations, including the Tribunal’s decision, reasons, and factual findings,” said spokesperson Andy McNair-West.

Some securities lawyers say the maximum penalties look too severe for the nature of the infraction. “I don’t think most of it is proportionate,” said Amanda McLachlan, a partner with law firm Bennett Jones in Toronto.   

Cases in which Canadian regulators have permanently banned people from the capital markets include the Bridging Finance Inc. case, in which investors are estimated to have lost at least C$1 billion due to fraud, and the Sino-Forest Corp. scheme, when a Canadian-listed Chinese forestry company collapsed after it was found to have wildly misstated its assets. The OSC’s filing against Purpose doesn’t allege any investor losses.  

Enforcement Push

The OSC’s action comes after the regulator “has had some high-profile decisions come out that have either not gone well for them or have been critical of enforcement efforts,” McLachlan said. 

In 2022, the OSC’s case against three former executives of CannTrust Holdings Inc. fell apart in the middle of a trial, resulting in an acquittal. In November, the Capital Markets Tribunal dismissed the OSC’s case against Cormark Securities Inc. and others regarding illegal distributions, calling the allegations an “overreach.” 

McLachlan said it shouldn’t be surprising that the OSC brought a greenwashing case, given that it completed 128 fund reviews across 41 managers between January 2022 and March 2024. 

Ambiguous ESG materials have led to multimillion-dollar fines in the US. Invesco Advisers Inc. agreed last November to pay $17.5 million to settle allegations that it misled clients about the share of companywide assets under management that integrated ESG factors into investment decisions.