OCMT 2006

The Ontario Securities Commission approved a settlement agreement regarding Terrence William Marlow and his companies, which were in bankruptcy and receivership following the loss of investor funds.

The Commission noted that Marlow, a former chartered accountant, had lost everything and was on welfare.

Although no monetary penalty was imposed due to the ongoing receivership and limited recovery for investors, the Commission ordered permanent cease trade and director/officer bans against Marlow, finding the sanctions reasonable and in the public interest.

Xstrata applied to the Ontario Securities Commission for an order to cease trade Falconbridge's shareholder rights plan, which was preventing Xstrata from advancing its unsolicited take-over bid.

Falconbridge cross-applied for an order prohibiting Xstrata from making market purchases of up to 5% of Falconbridge shares under the exemption in section 94(3) of the Securities Act.

The Commission applied the Royal Host factors and determined that it was in the public interest to allow the rights plan to continue for a brief period to allow the auction process to continue, given the competing bid from Inco.

The Commission also suspended Xstrata's ability to make market purchases under section 94(3), finding that such purchases, combined with Xstrata's ability to waive its minimum tender condition, could prematurely end the auction and deprive shareholders of the opportunity to tender to the bid of their choice.

Both the rights plan and the suspension of the 5% exemption were ordered to remain in place until July 28, 2006, or until Xstrata took up sufficient shares to meet its majority of the minority condition.

The Ontario Securities Commission approved a settlement agreement with a former vice president regarding allegations of insider trading and failure to disclose a material change.

The respondent admitted to exercising options and selling shares while aware of an undisclosed contract dispute, avoiding a loss of approximately $729,000.

The settlement included a 15-year trading ban, a 15-year ban on acting as a director or officer, and a $150,000 administrative penalty.

The Commission found the settlement to be in the public interest, noting mitigating factors such as the respondent's lack of experience, reliance on the company's CFO, and cooperation with Staff.

The Ontario Securities Commission approved a settlement agreement between Staff and John Bennett, former CEO and chairman of Bennett Environmental Inc. Bennett admitted to failing to disclose a material change regarding a contract dispute and to authorizing misleading disclosure, contrary to the Securities Act.

The Commission found the agreed sanctions, including a ten-year director and officer ban, a reprimand, a $250,000 administrative penalty, and $50,000 in costs, to be proportionate and in the public interest.

Staff of the Ontario Securities Commission alleged that Universal Settlements International Inc. (USI) traded in securities without registration or a prospectus by offering viatical products to investors.

The central issue was whether these viatical products—fractional interests in the death benefits of life insurance policies—constituted 'investment contracts' under s. 1(1) of the Securities Act.

Applying the Howey and Pacific Coast tests, the Commission found that the products involved an investment of funds with a view to profit in a common enterprise, where profits were derived from the undeniably significant efforts of USI and its agents.

Consequently, the viatical products were deemed securities, requiring USI to comply with the Act's registration and prospectus requirements.

The respondent brought motions for immediate disclosure of materials generated during an investigation and for permission to use those materials to prepare for an interview by the United States Securities and Exchange Commission (SEC).

The Ontario Securities Commission ordered staff to disclose the materials immediately, finding that 'as soon as is reasonably practicable' means without delay if no herculean efforts are required.

The Commission also held that the respondent's use of the materials to prepare for the SEC interview would not breach the implied undertaking rule or section 16(2) of the Securities Act, given the intertwined nature of the SEC and Commission investigations.

Staff of the Ontario Securities Commission alleged that the respondent violated a Cease Trade Order by giving instructions to sell shares in a corporate account over which he had sole trading authority.

The respondent argued that the order's exception permitting trading 'for his own account(s)' allowed trading through a corporate entity.

The Commission rejected this interpretation, finding that the exception did not allow trading through corporate vehicles, even if the respondent was the beneficial owner.

The Commission concluded that the respondent breached the Cease Trade Order and ordered a three-year trading ban, removal of exemptions, and $15,000 in costs.

The Ontario Securities Commission held a hearing to determine whether Momentas Corporation and its founders, Howard Rash and Alexander Funt, violated the Securities Act by trading securities without registration.

Momentas raised over $7.8 million from the sale of convertible debentures using an in-house sales team.

The Commission found that Momentas acted as a market intermediary and could not rely on the accredited investor exemption.

Furthermore, Rash and Funt engaged in acts in furtherance of trades and, as de facto officers and directors, authorized Momentas' breaches of Ontario securities law.

A subsequent hearing was ordered to determine appropriate sanctions.

Teck Cominco Limited applied to the Ontario Securities Commission for an order to cease trade any securities issued under Inco Limited's shareholder rights plan.

The parties consented to an order lifting the rights plan against the Teck bid effective August 16, 2006.

The Commission determined it was in the public interest to lift the rights plan not only against the Teck bid, but against all potential bidders, to ensure an unrestricted auction and allow shareholders to evaluate all offers.

The Ontario Securities Commission held a hearing to consider a settlement agreement between Staff and the respondent regarding insider trading.

The respondent, an insider of AiT, traded shares with knowledge of undisclosed material facts and failed to file insider reports on time.

The Commission approved the settlement agreement, which included a two-year cease trade order, a two-year director and officer ban, a reprimand, a $24,000 payment representing 1.5 times the profit made, and $5,000 in costs, finding the sanctions to be within acceptable parameters and in the public interest.

Staff of the Ontario Securities Commission sought costs of $30,748.50 against the respondents following a hearing on the merits and sanctions.

The individual respondent, who was unrepresented, did not attend the costs hearing or file submissions.

The Commission reviewed staff's timesheets and hourly rates, finding the claimed amount to be conservative and reasonable.

The Commission ordered the respondents to pay $30,748.50 in costs on a joint and several basis.

The Ontario Securities Commission held a hearing to consider sanctions against the respondent for failing to file required insider trading reports, which also constituted a breach of a previous settlement agreement.

The panel approved a settlement agreement between Staff and the respondent, finding it in the public interest.

The respondent was ordered to cease trading in certain securities, reprimanded, and ordered to pay an administrative penalty of $32,000 and costs of $5,000.

Following a merits hearing where the respondents were found to have traded in securities without registration, engaged in an illegal distribution, and failed to disclose commissions, the Commission held a sanctions hearing.

The Commission ordered a permanent cease trade order and removal of exemptions against the principal respondent, along with a disgorgement order of $600,624.

The other respondents received seven-year cease trade orders and were each ordered to pay $7,500 in costs.

The Ontario Securities Commission held a hearing to consider whether to approve a settlement agreement between Staff and several individual respondents regarding their failure to ensure that Philip Services Corp. filed financial statements containing full, true, and plain disclosure.

The Commission approved the settlement, which included reprimands, director and officer bans ranging from five to twelve years, and a collective costs payment of $500,000.

The Commission found the sanctions proportionate and in the public interest, noting the respondents' cooperation and efforts to restructure the company.

The Ontario Securities Commission found that the respondents, Richard Ochnik and 1464210 Ontario Inc., engaged in an illegal RRSP/loan scheme.

The respondents traded securities without registration and distributed securities without a prospectus, contrary to sections 25 and 53 of the Securities Act.

Ochnik targeted financially vulnerable individuals, inducing them to collapse locked-in retirement funds to invest in his company in exchange for promised 'non-repayable loans' that many never received.

The Commission concluded the conduct was egregious and predatory, imposing permanent cease trade orders, permanent director and officer bans against Ochnik, and directing Staff to apply to the Superior Court for restitution orders.

The respondents brought a motion to dismiss the proceeding against them on the basis that it was commenced outside the six-year limitation period under section 129.1 of the Securities Act.

Staff alleged a course of conduct involving unregistered trading and illegal distributions that culminated in sales to broker dealers prior to the limitation date, but argued that subsequent receipt of proceeds and certain private share transfers brought the conduct within the limitation period.

The Commission held that the subsequent events were not integral to the alleged wrongdoing and that the Statement of Allegations contained no separate allegations of wrongdoing for events after the limitation date.

The motion was granted and the proceeding dismissed.

The Ontario Securities Commission held a settlement hearing regarding Zephyr Alternative Power Inc.'s issuance of convertible debentures.

Zephyr relied on the accredited investor exemption but failed to ensure that all investors met the criteria, as some subscription agreements lacked completed certification schedules.

Additionally, Zephyr failed to ensure that the subscription agreements accurately reflected the 20 percent sales commission paid to limited market dealers, with some agreements incorrectly stating a 10 percent commission.

The Commission approved the settlement agreement, which included a reprimand, the implementation of a compliance program, and an undertaking by Zephyr to offer rescission to affected investors.

The Ontario Securities Commission approved a settlement agreement with a registrant who sold convertible debentures off-book without the knowledge or approval of his sponsoring dealer.

The registrant sold $171,000 worth of debentures and received $28,200 in commissions.

The Commission ordered terms and conditions on his registration, a reprimand, $5,000 in costs, and a settlement payment of $28,200 to be designated for the benefit of investors.

Staff of the Ontario Securities Commission alleged that the respondent, a lawyer and business consultant, engaged in unregistered trading and advising, illegal distributions, and made misleading representations regarding securities of Saxton Investments Ltd. and Sussex International Ltd. The respondent had attended meetings and provided updates on Cuban business operations to investors and salespeople.

The Commission found that the respondent's conduct was informational rather than promotional, and did not amount to acts in furtherance of a trade or advising.

The Commission also found insufficient evidence that the respondent knew the operations were running at a loss when he provided updates, or that he engaged in illegal distributions.

All allegations were dismissed.