IN THE MATTER OF THE SECURITIES ACT
R.S.0. 1990, C.S.5, AS AMENDED
IN THE MATTER OF BELTECO HOLDINGS INC.,
TORVALON CORPORATION, GARY SALTER, ELAINE SALTER,
PETER ARTHUR MITCHELL, RODIKA FLORIKA, GLEN ERIKSON,
CHRISTINE ERIKSON, KAI HOESSLIN, HARCOURT WILSHIRE,
921159 ONTARIO INC. and 918211 ONTARIO INC.
October 21; November 16, 17, 18 and 19; December 14, 1998
John F. Howard, Q.C. Chair
G. Patrick H. Vernon, Q.C. Commissioner
Lawrence Ritchie, Esq. and
Nancy Roberts OSC Special Counsel
Darryl T. Mann, Esq. for Peter Arthur Mitchell
Allan Sternberg, Esq. for Glen Erikson and Christine Erikson
In our Decision and Reasons (September 30, 1998) we indicated on page49 that we would reconvene at 10:00 a.m. on Wednesday, 21 October 1998 so thatCounsel for the Respondents could, if desired, make further submissions on theapplicability of the limitation period provisions of the Act. When we reconvened onOctober 21, 1998 Counsel for the Respondents stated that they did want to makefurther submissions on the limitation period matter and wanted to file material insupport of their submissions. On the consent of all Counsel we agreed to adjourn toMonday, 16 November 1998 at which time we would receive submissions on theapplicability of the limitation period and other matters. We stated also that we wouldthen sit continuously until all submissions on all remaining matters had been received.
Prior to the opening of proceedings on November 16 we received a jointvolume entitled the Submissions and Authorities regarding the limitation period issuesigned by both Counsel for the Respondents dated November 13, 1998 and also avolume consisting of the Submissions and Authorities Regarding the Limitation PeriodIssue dated November 13, 1998 on behalf of Staff of the Ontario SecuritiesCommission ("Staff").
This issue was first addressed before us, along with other preliminarymatters, on March 6 and 7, 1997. In our Decision of March 10, 1997 (1997 20 OSCB1333) we ordered that the limitation motion proceed on April 2, 1997. We delivered ourReasons on April 4, 1997 (1997 20 OSCB 1835) and this resulted in three witnessesbeing called on the matter, namely Joanne Fallone on April 9, 10 and 11, 1997, BrianButler on April 14 and 15, 1997 and Mehran Sadvari on April 17, 1997. Argumentfollowed on this motion and others on April 21, 22, 23, 24, 25 and May 5 and 8, 1997.Also during the period April 2, 1997 to May 8, 1997 document exhibits No. 14 to 41 and44 to 52 were received.
We gave our written Decision and Reasons on the limitation motion onMay 26, 1997 (1997 20 OSCB 2921) at page 2927 and following. We decided todismiss the preliminary motion to quash or stay the proceedings based upon thelimitation period. It was , however, made clear that a new application on this matterwould be allowed, if desired, after all of the evidence had been heard during thehearing on the merits. As a result, all of the evidence, productions and submissionsreceived during the course of the hearing on the merits have been available to us aswe considered the renewed application on the applicability of the limitation period inthis matter.
Throughout the hearing on the merits which started on July 6, 1998 weconsidered the evidence adduced to assess whether it was relevant to the limitationissue. For the same purpose we also reviewed all exhibits filed and productions madeboth at the hearing on the merits and on the two preliminary motions respecting thelimitation issue. We note that these include the material which was before us on March10, 1997, the material listed in paragraph 1.08, page 2922 of our May 26, 1997Decision and Reasons and the relevant exhibits and productions particularly thosenumbered 105 onwards.
It is common ground that the statutory limitation period when the Noticeof Hearing in these proceeding was issued (December 15, 1993) was as follows:
129 (1) No proceeding under this Part shall becommenced in a court more than one year after the facts uponwhich the proceeding is based first came to the knowledge ofthe commission.
(2) No proceeding under the Act shall becommenced before the Commission more than two years afterthe facts upon which the proceeding is based first came to theknowledge of the Commission.
Securities Act, R.S.O. 1990, C. s.5 (as amended) s. 129
We note that this Section in the Act has been changed since the date ofthe Notice of Hearing.
It was common ground during the presentation of this matter that Staffhad the onus of satisfying this panel that the proceedings were commenced within thelimitation period.
We have concluded on all of the evidence before us in this hearing thattime began to run when Staff had sufficient "knowledge" after diligent and reasonableattempts at verification of the facts which, if accepted as true by the trier of fact, wouldmake out material elements upon which these proceedings could have been based andfinally decided.
We are of the view that the use of the word "knowledge" in the limitationssection requires that the facts leading up to the proposed proceeding be known to Staffin order to enable Staff to decide that the commencement of proceedings was justified.In coming to this conclusion we relied on the following cases:
Ontario Securities Commission v. Reid (1994), 5. C.C.L.S. 1 (Ont. Ct.(Gen. Div.),
R. v. Fingold (1996) O.S.C.B. 5301 at p. 5312, and
Ontario Securities Commission v. International Containers 1989 O.J. No. 107.
The argument put forward by Respondents' Counsel relied heavily on thefact that for all purposes of this Motion, Canadian Dealing Network Inc ("CDN") andThe Toronto Stock Exchange ("TSE") were agents of the Ontario SecuritiesCommission ("OSC") for investigations and enforcement purposes, that facts known toeither or both of those bodies would automatically be attributed to the Staff eventhough such facts had not in fact been communicated.
Our attention was drawn to a number of Agreements and Letters ofUnderstanding between the OSC and the TSE relating to the operations of CDN thatwere applicable at the relevant time. As we have noted we heard oral evidence fromMr. Sadvari, Ms. Fallone and Mr. Butler, as to the nature of their work and the scopeof their responsibilities. As well we had the evidence of Ms. Kim Stewart regarding theinvestigation at the TSE. It is clear that the TSE and the CDN are for some purposesthe agent of the OSC. In our view the agency arrangements are limited in scope. BothCDN and the TSE began investigations as a result of observed market activity. Areview of Belteco Holdings Inc. ("Belteco") trading was started by CDN in April 1991and referred to the TSE 19 July 1991 and that of Torvalon Corporation ("Torvalon") inJuly 1991 and referred to the TSE in February 1992. A report of these investigationshad been compiled by December 17, 1991. We do not consider it necessary to ourReasons and Decision to decide the scope or the nature of the agency arrangementsbetween the TSE, CDN and the OSC and therefore the degree of knowledge of theagents which might be imputed to the OSC because for reasons to follow we do notconsider that the facts in the Report of December 17, 1991 meet the range of"knowledge" required.
Both Counsel for the Respondents presented extensive and ablearguments on this motion and we appreciated the force and skill of their presentations.A number of new productions and case law references were given to us. In additionCounsel for Mr. Mitchell stressed that "the crux of this case is the trading and patternof trading". In this regard both Counsel set much store in the tables set out in TablesA, B, C and D to our September 30, 1998 Decision and Reasons as constituting thecore basis for our Decision and all those facts constituted the necessary knowledgewere known to the TSE and CDN well in advance of December 15, 1991. We preparedthe Tables as an aid to the reader in understanding the dramatic end up of the wholeabusive manipulation. By themselves the appendices do not reflect the abusive andwell disguised control block situation that was the real concern that we addressed inour Decision.
In our view, in the circumstances of this case, which is based on acomplex set of facts which occurred over an extended period of time and involved manyindividuals and corporations, there would have to be an extensive review of the factsbefore Staff could properly be considered to have the necessary "knowledge" as thatterm is used in Section 129 for time to start running under the limitation provisions ofAct. In particular, we are of the view that even the delivery on or about December 19,1991 of the TSE Investigation Report to the OSC did not in itself complete thenecessary knowledge for time to start running. Clearly it was a mass of data whichdemanded further attention. We note that the Report itself recommends that furtherinvestigations be done. Clearly further work and consideration by Staff was, in ourview, necessary before the requisite "knowledge" as required by Section 129 could beattributed to Staff and on which they could base a proceeding such as that whichevolved in this case. Accordingly we conclude that the onus has been met to oursatisfaction that the "necessary" knowledge can only be attributed to Staff well afterDecember 19, 1991. Accordingly Section 129 is satisfied. In the result for the abovereasons we have decided to dismiss the applications of the Respondents appearingon this limitations motion.
On November 18 and 19, 1998, we heard submissions as to theconsequences which should flow from the conclusions we reached and set out in ourReasons of September 30, 1998. It is not necessary to repeat those conclusions hereexcept to say that we have found that by their conduct the three respondents whoappeared in these proceedings participated to some degree in a scheme which wasmanipulative, deceptive, and unconscionability abusive of the capital markets and thustheir conduct was clearly contrary to the public interest.
In these proceedings, Staff asked the Commission to consider whetherit is in the public interest that an order be made, subject to such terms and conditionsas the Commission may impose, that any or all of the exemptions contained in Sections35, 72, 73, and 93 of the Securities Act (the "Act") no longer apply to the respondentsand that in addition the registration of Peter Arthur Mitchell ("Mitchell") should besuspended, cancelled, restricted, or be made subject to conditions or that Mitchellshould be reprimanded.
In argument, Mr. Ritchie, on behalf of Staff, submitted that in thecircumstances of this case, the following order should be made:
a) As to Glen Erikson ("Erikson"), an order that none of the exemptionscontained in Ontario Securities law, including the exemptions containedin Sections 35, 72, 73, and 93 of the Act, shall apply to him permanently,whether acting directly or indirectly through another person or company,or through any person or company acting on his behalf, including anytrust arrangement.
b) As to Christine Erikson ("Christine"), an order that none of theexemptions contained in Ontario Securities law, including the exemptionscontained in Sections 35, 72, 73, and 93 of the Act shall apply to her,acting directly or indirectly through another person or company, orthrough any person or company acting on her behalf, including any trustarrangement, for a period of between five to ten years.
c) As to Mitchell, an order suspending Mitchell's registration for a periodranging from five years to outright termination and an order that none ofthe exemptions contained in Ontario Securities law, including exemptionscontained in Sections 35, 72, 73, and 93 of the Act, shall apply toMitchell, acting directly or indirectly through another person or company,or through any person or company acting on his behalf, including anytrust arrangement, for a minimum period of two years.
d) As to the respondents Kai Hoesslin ("Hoesslin"), and Harcourt Wilshire("Wilshire"), who are non residents of Canada and who did not appear,an order that none of the exemptions contained in Ontario Securities law,including the exemptions contained in Sections 35, 72, 73, and 93 of theAct shall apply to these respondents, acting directly, or indirectly throughanother person or company, or through any person or company acting ontheir behalf, including any trust arrangement, for a minimum period of twoyears.
As to Belteco and Torvalon, it was submitted that no order is necessarysince a cease trade order issued by the Commission in respect of these corporationsremains in effect.
It should also be noted that pursuant to a settlement and agreementapproved by the Commission, an order of the Commission was made March 21, 1997imposing sanctions on the respondents Gary Salter, Elaine Salter, Rodika Florika,921159 Ontario Inc., and 918211 Ontario Inc. The order is reported at (1997), 20OSCB, 1575. For ease of reference, the operative portions of that order are set outhere. They are:
1. Pursuant to section 127 of the Act, none of the exemptions provided forin Ontario Securities law shall apply to Gary Salter, Elaine Salter, 921159and 918211, directly or indirectly, including any company of which anyof them is an associate or which is an associate of any of them, from thedate of the issuance of this Order, subject to further order of theCommission.
2. Notwithstanding the foregoing, after the expiration of a two (2) yearperiod commencing from the date of this Order, Elaine Salter may tradein securities for the accounts of her registered retirement savings plans(as defined in the Income Tax Act (Canada)), and Gary Salter may tradein securities, so long as:
(a) the trades are in securities referred to in clause 1 of subparagraph35(2) of the Act; or
(b) in the case of securities other than those referred to in (a)
(i) the securities are listed and posted for trading on theToronto Stock Exchange;
(ii) neither Gary Salter nor Elaine Salter nor any member oftheir respective families is an insider, partner or promoterof the issuer of the securities;
(iii) Gary Salter and Elaine Salter do not own directly orindirectly through another person or company, or throughany person or company acting on their behalf or on behalfof either of them, independently or in aggregate more thantwo and one-half (2-1/2) per cent of the outstandingsecurities of the class or series of the class in question;and
(iv) the law governing such trades is otherwise complied with.
3. Pursuant to section 127 of the Act, none of the exemptions provided forin Ontario Securities law shall apply to Florika or any company which isan associate of Florika or of which she is an associate for a period of twoyears from the date of the issuance of this Order.
We set out the terms of that order here principally because we accept theargument advanced by Mr. Sternberg on behalf of the Eriksons that whatever sanctionsare to be imposed should be fair and should be proportional to the sanctions imposedby the Commission on others who were participants in the scheme which is the subjectof these proceedings. In this connection, we note, however, that pursuant to the termsof the settlement agreement which is attached to that order, the parties to thesettlement agreed that they would not be "market participant"(s), as that term is definedin subsection 1(1) of the Act from the date of the issuance of the order. In the case ofthe individuals involved, that agreement means that in the case of the individualsinvolved, they would not act as a director, officer or promoter of a reporting issuer.
There may be some doubt as to whether or not the Commission has thejurisdiction to issue an order to this effect which we believe would more directly protectthe public from future conduct of a respondent who has engaged in inappropriateconduct in the past than the removal of exemptions available under the Act, but clearlythe existence of such an agreement and any breach thereof would be a material factshould a respondent apply to the Commission to modify an order removing exemptionsfor an indefinite term.
In our view, the authority to prohibit a person who is engaged in conductwhich is abusive of the capital markets from acting as a director, officer or promoter ofa reporting issuer, is a more direct way of ensuring the Commission's primary mandateto protect the public interest and foster confidence in the integrity of the capitalmarkets.
In saying this, we adopt as the first factor to be considered in decidingupon the sanctions to be imposed for those whose conduct is abusive of the capitalmarkets a statement of this Commission In the Matter of Mithras Management Ltd. etal. (1990), 13 O.S.C.B. 1600 at pp.1610-1611, as follows:
Under section 26, 123 and 124 of the Act, the role of this Commission isto protect the public interest by removing from the capital markets -wholly or partially, permanently or temporarily, as the circumstances maywarrant - those whose conduct in the past leads us to conclude that theirconduct in the future may well be detrimental to the integrity of thosecapital markets. We are not here to punish past conduct; that is the roleof the courts, particularly under Section 118 [now Section 122] of the Act.We are here to restrain, as best we can, future conduct that is likely to beprejudicial to the public interest in having capital markets that are bothfair and efficient. In so doing we must, of necessity, look to past conductas a guide to what we believe a person's future conduct might reasonablybe expected to be; we are not prescient, after all. And in so doing, wemay well conclude that a person's past conduct has been so abusive ofthe capital markets as to warrant our apprehension and intervention,even if no particular breach of the Act has been made out.
In this connection, see also In the Matter of James F. Matheson (June 20,1991), A.S.C. Weekly Summaries, at p. 2 (Alta. Sec. Comm.).
In addition to this principal consideration, we have been referred todecisions of this Commission which indicate that in determining both the nature of thesanctions to be imposed as well as the duration of such sanctions, we should considerthe seriousness of the allegations proved; the respondents' experience in themarketplace; the level of a respondent's activity in the marketplace; whether or notthere has been a recognition of the seriousness of the improprieties; and whether ornot the sanctions imposed may serve to deter not only those involved in the case beingconsidered, but any like-minded people from engaging in similar abuses of the capitalmarkets. We have considered all of these factors. In particular we have had regardto Erikson's experience and the level of his activities in the market place. Theevidence shows that since his involvement with Belteco and Torvalon, Erikson hasbeen a director, officer or holder of more than 10% of the shares of eight publiccompanies and Christine Erikson to a like degree in six of those public companies.According to the record, their most recent transactions in the shares of one of thesecompanies was in August of 1998.
As well, we have been mindful of the submissions made on behalf of therespondents that the result should be fair, proportional to the degree of participationand should have regard for any mitigating factors which are present. We have alsohad regard to these considerations in reaching our conclusions. It was also urged thatwe should exercise caution in considering the numerous cases to which we werereferred as precedent for sanctions as each case must depend upon its particular facts.We have also endeavoured to observe this caution.
Mr. Sternberg submitted on behalf of Erikson that the range of the orderin his case should be from a reprimand to a maximum of two years and that it shouldhave regard to the exceptions in the order made against Gary Salter after two yearsand to the limited exceptions made with respect to personal trading which have beenmade in such cases as Re Robinson (1996), 19 O.S.C.B., 3329.
On behalf of Christine Erikson, Mr. Sternberg submitted that the ordershould be limited to a reprimand in that her participation was limited to acting as anominee director and officer and that the evidence suggests that she was doingnothing more than acting as an accommodation or a partner with her husband.
In his submissions on behalf of Mitchell, Mr. Mann urged that the sanctionagainst him should be limited to a reprimand. In his submissions, he emphasized thatour conclusions with respect to Mr. Mitchell's conduct was limited. While we concludedthat he acted in a manner contrary to the public interest in that he ought to have knownthat the trading he facilitated involved distributions without filing a prospectus whereprospectus exemptions under the Act were unavailable or that reliance upon suchexemptions would constitute an abuse of the exemptions contrary to the purpose andobjects of the Act and that he permitted, acquiesced in, or facilitated the same, therehas been no finding on the direct allegations that he conducted trades without priorauthorization of his clients; failed to maintain accurate books and records; or conducteddiscretionary trades contrary to section 221 of the Regulation. In his submissions, Mr.Mann emphasized that in his evidence, Mr. Mitchell conceded that with the benefit ofhindsight he would have acted differently; that at most his conduct facilitated theegregious trading activities; that he was not a direct participant and that the sanctionsurged on behalf of Staff would amount to a death sentence after more than half acentury in the industry. Furthermore, he urged that on the evidence there was nolikelihood that the omissions which occurred here would be repeated in the future.
Having given anxious consideration to the able submissions made by allcounsel and having particular regard for the degree of participation of each of therespondents', we have concluded that the sanctions to be imposed in the case of GlenErikson and Christine Erikson should parallel the sanctions imposed upon Glen Salter;and that Peter Arthur Mitchell should be reprimanded. We have also concluded thatall personal exemptions under the Securities Act should be denied to Hoesslin andWilshire until further order of the Commission. Having come to these conclusions, wehave today signed an order to this effect which is attached to these Reasons.
Dated this 15th day of December, 1998.
"J. F. Howard" "G. P. H. Vernon"