Staff of the Ontario Securities Commission v. John Illidge, 2008 ONSEC 15

Ontario Securities Commission

Commission des valeurs mobilières de l’Ontario

P.O. Box 55, 19th Floor 20 Queen Street West Toronto ON M5H 3S8

CP 55, 19e étage 20, rue Queen Ouest Toronto ON M5H 3S8

Citation: John Illidge et al., 2008 ONSEC 15

Date: 2008-08-08

IN THE MATTER OF THE SECURITIES ACT R.S.O. 1990, c. S.5, AS AMENDED

• and -

IN THE MATTER OF JOHN ILLIDGE, PATRICIA McLEAN, DAVID CATHCART, STAFFORD KELLEY and DEVENDRANAUTH MISIR

HEARING HELD PURSUANT TO SECTIONS 127 AND 127.1 OF THE ACT

SETTLEMENT HEARING RE: JOHN ILLIDGE

REASONS FOR DECISION TO APPROVE THE SETTLEMENT AGREEMENT

HEARING: Thursday, May 15, 2008

PANEL: James E. A. Turner

• Vice-Chair and Chair of the Panel

Margot C. Howard

• Commissioner

APPEARANCES: Ian Smith Michael De Verteuil

• for Staff of the Ontario Securities Commission

John Illidge

• for himself

REASONS FOR DECISION TO APPROVE THE SETTLEMENT AGREEMENT

Background

1This matter relates to a settlement agreement entered into on May 13, 2008 between Staff of the Commission ("Staff") and Mr. John Illidge ("Illidge") (the "Settlement Agreement"). We heard oral submissions from Staff and from Illidge with respect to the terms of this settlement on May 15, 2008.

2On May 15, 2008 we approved the Settlement Agreement and gave brief oral reasons. These are our more detailed reasons. They are intended to indicate our approach to the approval of the Settlement Agreement and what influenced us to approve it.

3It is clear that the test we have to apply is whether we are satisfied that the Settlement Agreement in the form in which it is submitted to us is in the public interest (Re M.C.J.C. Holdings and Michael Cowpland (2002), O.S.C.B. 1133 at 1134).

4To be in the public interest, we must be satisfied that investors will be protected in the future, i.e. that Illidge will not have the opportunity to cause any future harm to investors. We must also consider the issue of deterrence and whether the terms of the settlement would deter others from similar conduct.

Illidge's Conduct

5We will not summarize in detail the background facts set forth in the Settlement Agreement. It is important to understand, however, that based on the facts as submitted to us, Illidge was at the centre of the illegal conduct here. He was the President and CEO of Hucamp Mines Ltd. ("Hucamp") from March 1996 until May 2001, and from May 2001 until September 6, 2001 he was the Chairman of Hucamp; in addition, Illidge was the founder of St. James Securities Inc. in 1996. Illidge had experience in the securities investment industry and is a former registrant.

6In our view, Illidge knew that the conduct described in the Settlement Agreement was improper and constituted a breach of the Securities Act, R.S.O. 1990, c. S.5, as amended (the "Act"). Illidge caused Hucamp to issue news releases that were materially misleading and participated with others in manipulating the shares of Hucamp.

7With respect to the private placements, Hucamp would issue a news release announcing the terms of and completion of a private placement and that transaction would, in fact, not occur or would occur on different terms. This behaviour occurred in respect of four private placements. Illidge knew that trading was occurring in shares of Hucamp when material facts with respect to the private placements were not known by the public. The Settlement Agreement states that Illidge permitted inaccurate public disclosure and this disclosure was left uncorrected. Illidge failed to be duly diligent in this regard.

8Equally unacceptable, Hucamp was subjected to abusive trading by Illidge in 2000 and 2001. Illidge and others:

a. controlled the market for Hucamp shares and manipulated or attempted to manipulate the market price for those shares;

b. engaged in trading for the purpose of creating a false appearance of trading volume in and demand for Hucamp shares;

c. frequently engaged in trades in Hucamp shares with each other;

d. dominated trading in Hucamp shares;

e. engaged in trading of Hucamp shares by using nominee accounts;

f. both bought and sold Hucamp shares through jitney trades;

g. engaged in "up ticking" and "high closing"; and

h. engaged in wash trades.

9Accordingly, we agree with the submissions of Staff that the conduct here was egregious and caused substantial harm to investors and the public markets.

Mitigating Circumstances

10Illidge asserted in the Settlement Agreement a number of mitigating circumstances, including the following:

(a) with respect to the private placements referred to above, that he relied on lawyers, accountants and associates to close those placements;

(b) with respect to two of the private placements, he was not aware that units were placed into an account in his name;

(c) that he gave trading authority to the registered representatives on his accounts as he was managing two other businesses and traveling extensively for business purposes at the time of the trading; and

(d) that he lost in excess of $4 million when Hucamp was cease traded and another entity was placed in receivership.

11In the circumstances, we do not accept that the factors referred to above are mitigating circumstances. Illidge breached important provisions of the Act. It is no answer to say that he was careless of his responsibilities in doing so or that he relied on others. In addition, quite apart from the breaches of the Act, Illidge had a responsibility as an officer and director of Hucamp to exercise care. The factors in (a) to (c) indicate that he ignored that responsibility and breached his duty to exercise care. In our view, the fact that he lost money as a result of the consequences of his illegal conduct is not a mitigating factor. One might well ask whether those funds were obtained, in the first instance, by legitimate conduct.

Sanctions

12The sanctions imposed on Illidge are severe. In our view, they are appropriate in the circumstances, given the seriousness of Illidge's conduct. We note in particular that Illidge was a prior registrant and that there were prior disciplinary orders against him.

13We would not have approved the Settlement Agreement without a financial penalty or an order as to costs against Illidge but for the representation that Illidge is an undischarged bankrupt. That means that Illidge would not have been able to settle these allegations if we had imposed a financial penalty or costs. It is the Commission's practice to require immediate payment of a financial penalty or costs as part of a settlement. The Commission has accepted in other matters the principle that it may not be fair to an impoverished respondent to prevent that respondent from entering into a settlement because they have no money. We must, however, be satisfied of all the circumstances and with the overall level of sanctions.

14We also considered the combination of orders here, both the previous ban by the Investment Dealers Association (the "IDA") of Illidge as a member of the IDA and the effect of our order issued on May 16, 2008. In effect, Illidge will have a lifetime ban from participating in any way in the securities industry or securities markets. We believe that is the overall effect of approving this settlement and issuing the order dated May 16, 2008. We have concluded that approving this settlement will protect investors in the future and constitute a deterrence to others.

15Considering all of the circumstances, we have concluded that it is appropriate for us to approve this Settlement Agreement as being in the public interest. We believe, based on the submissions made to us, that Illidge is entering into the Settlement Agreement voluntarily, that he understands the sanctions that he has agreed to, that as a result of entering into the settlement he will not participate in the hearing on the merits of this matter and that he will not have any right of appeal.

Terms of Order Issued May 16, 2008

16For the record, our order under section 127(1) of the Act is that: Illidge be permanently banned from trading in any securities; he be permanently banned from acquiring any securities; any exemptions contained in Ontario securities law shall not apply to Illidge permanently; Illidge shall resign any position he currently holds as an officer or director of any registrant or issuer; and that Illidge shall be permanently banned from acting as an officer or director of any issuer or registrant.