OSC must be held accountable for Purpose greenwashing case

The Ontario Securities Commission has put its credibility on the line with a lengthy, costly and highly personal prosecution of asset manager Purpose Investments Inc. and its founder, Som Seif.

Bay Street executives, who widely expect the regulator to lose this case, are openly calling for OSC chief executive officer Grant Vingoe and his leadership team to be held accountable.

The OSC is spending enormous time, money and reputation on an issue that simply doesn’t matter to investors, or the integrity of markets.

Last September, the OSC accused Purpose, which oversees $33-billion in client assets, and Mr. Seif of “greenwashing” their environmental, social, and governance or ESG credentials when marketing funds.

Mr. Seif is a familiar face to anyone who pays attention to ads on Air Canada flights. He is an entrepreneur who disrupted the cozy world of money management by introducing low-cost exchange-traded funds.

Mr. Seif and Purpose decided to fight the allegations rather than settle, as many individuals and companies do when the regulator brings an action against them. When the OSC announced its claims, Mr. Seif called it out for chasing “a political matter. They are trying to find a greenwashing case to go after.”

OSC presses greenwashing allegations in closing arguments against Purpose Investments

A 20-day hearing concluded last Friday, when Mr. Seif’s lawyer Joe Groia estimated the regulator spent more than $1-million on the case.

The OSC’s allegations are based on Purpose marketing campaigns that date back to 2019, when ESG was a hot, emerging trend in fund management, with minimal regulatory guidance.

The commission’s lawyers argued Purpose exaggerated the extent of its ESG screening of investments. Mr. Seif claimed the company’s marketing correctly showed Purpose incorporated ESG across its screening process.

In the next 90 days, a three-member, independent panel of the OSC’s Capital Markets Tribunal is expected to make a decision.

If the tribunal tosses out the allegations against Purpose and Mr. Seif, the ruling would continue a losing streak for the OSC.

In 2024, a capital markets tribunal dismissed allegations of improper distribution of shares that OSC lawyers made against investment dealer Cormark Securities Inc. and fund manager Saline Investments Ltd. In that losing cause, the OSC also personally targeted executives at Cormark and Saline.

On Bay Street, the question is why the OSC sank so much of its scarce resources into an increasingly irrelevant marketing issue. By the time the OSC targeted Purpose and Mr. Seif last year with sanctions that could amount to $25-million in fines and an industry ban, ESG and DEI concerns were distinctly out of fashion in investment circles.

On Friday, Mr. Groia, who is also the OSC’s former head of enforcement, spoke for more than his client when he said in a filing: “After this case, whatever trust or confidence there may once have been in the OSC’s enforcement efforts, it has now been sorely shaken if not totally destroyed.

When the OSC launched this case last September, numerous industry veterans took the unusual step of publicly questioning the regulator’s motives, which they see as an attempt to burnish their ESG enforcement efforts.

The OSC’s former director of capital markets, James Scarlett, wrote on LinkedIn: “From all we have seen the case against Purpose and Som is nothing short of abusive.”

Mr. Scarlett, a retired partner at law firm Torys LLP. and former chief legal officer at Hydro One Inc., said: “It is difficult, if not impossible, to find a justifiable regulatory rationale for launching these proceedings.”

“Responsibility for pursuing this matter has to lie at the feet of the most senior officers of the OSC,” said Mr. Scarlett. The former OSC executive said: “If the result is what we all expect it to be there should be appropriate consequences for the senior staff members responsible.”

Fund manager John Ruffolo, who backed Purpose as an OMERS executive when Mr. Seif launched the company in 2013, also questioned the OSC’s priorities. In a LinkedIn post, he said: “We will expend considerable resources from all parties (including the taxpayer) to debate this issue when it seems difficult to ascertain how the public should have been protected” from false ESG claims.

“There were no investor losses claimed, nor any complaints,” said Mr. Ruffolo, who is now managing partner and founder of Maverix Private Equity.

Leaders of the OSC, an agency with a $192-million annual budget, can set the tone in capital markets by using enforcement cases to target bad apples.

If a provincial tribunal finds the regulator wasted that opportunity by going after Purpose and Mr. Seif, as it is widely expected to do, the OSC’s CEO and his team should face tough questions on how they set their priorities.