Proceedings

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

AND

IN THE MATTER OF
MARCHMENT & MACKAY LIMITED, AMIT JAMES SOFER,
CHARLES LORNE ORNSTEIN, JERRY MURRAY SALTSMAN,
GREGORY CHARLES OSBORNE AND FRASER JOHN EDWARD PLANT

 

Hearing:
June 22, 23, 24, 25, July 22, 24, August 24, 25, 31, September 9, 29, October 6, 13, 20, November 16, 20, 25, 26, 27 and December 3, 1998
January 5, 6, 7, February 9, 10, 16, 17, March 15, 16, 23, 26, April 29, 30, May 3, 10, 11 and June 23 and 24, 1999

Panel:
David A. Brown, Q.C., - Chair
Helen M. Meyer - Commissioner
Derek Brown - Commissioner

Counsel: For the Staff of the Ontario Securities Commission
James D.G. Douglas
David Hausman
Rima Pilipavicius

Counsel: For Marchment & MacKay Limited
Thomas Dunne, Q.C.
Benjamin Na

Counsel: For Amit James Sofer
Nigel M. Campbell

Counsel:For Charles Lorne Ornstein
Edward Greenspan
Jane Kelly

Counsel: For Jerry Murray Saltsman, Gregory Charles Osborne & Fraser John Edward Plant
Brian H. Greenspan
Sharon Lavine

 

DECISION

1. BACKGROUND

 

The Notice of Hearing in this matter was issued on August 2, 1996.Copies of the Notice of Hearing and the related amended Statement of Allegations are attached.The hearing commenced on June 22, 1998 and continued during 38 sitting daysuntil June 24, 1999 at which time the receipt of evidence and argument relating tothe matters set out in the Notice of Hearing and amended Statement of Allegationswas completed. At the request of the panel, written argument was filed with thepanel and exchanged among the parties. Written argument was delivered bycounsel for Staff of the Commission on May 28, 1999 accompanied by a three-volume Compendium and a Brief of Authorities; written argument was delivered bycounsel for the Respondents on June 14, 1999 accompanied by a two-volumeCompendium; written reply was delivered by counsel for Staff on June 17, 1999.Oral argument was delivered on June 23 and June 24, 1999.

The evidence phase of the hearing and the delivery of written argument wascompleted without any suggestion by the panel or any of the parties that theproceedings be reopened for the receipt of evidence and argument on the ordersthat might be made by the Commission should the findings by the Commission onthe merits of the case so warrant. The issue was raised for the first time by counselfor the Respondents in the closing minutes of counsel for Staff's oral argument.After hearing submissions by counsel for all parties, the Commission ruled that itwould not reopen the proceedings for that purpose. The following morning, June24, the Respondents filed an application to the Divisional Court for judicial reviewof this Order and obtained an interim order from Matlow J. staying "...all proceedingsbefore the panel of the OSC directed to the issue of any sanction or penalty thatmight be imposed on any of the applicants." (endorsement of Matlow J. dated June24, 1999). On June 25, 1999, Matlow J. made an order continuing the stay untildisposition of the application by a panel of the Divisional Court.

On June 28, following completion of the oral argument and the delivery by MatlowJ. of his stay order, the Panel reconvened the hearing during which all members ofthe Panel and counsel for all parties participated by conference telephone. At thissession, the Panel advised the parties that it had reconsidered its decision withrespect to reopening the hearing and advised the parties that it would proceed asfollows: the Panel would deliver its Decision on the merits of the issues raised inthe Notice of Hearing and Amended Statement of Allegations not later than Friday,July 16, 1999, without making any findings with respect to any order that may bemade and without giving reasons for its Decision; reasons for the Decision wouldbe delivered at a later date; and, should it be necessary as a result of the Panel'sDecision on the merits, the proceedings would be reopened after the reasons forthe Decision were delivered for the purpose of receiving additional evidence andoral argument on any Orders to be issued. Because the stay of Matlow J. could beconstrued as preventing the Commission from reopening the hearing to permit thereceipt of evidence and argument on the question of remedies or penalties (in otherwords, preventing the Commission from acceding to the Respondents' request tothe Panel the original denial of which had formed the basis for the application toMatlow J.), the Panel requested that all parties ask Matlow J. to lift his stay on thebasis of the Commission's revised ruling. The hearing was reconvened, again byconference telephone on the same basis, on Wednesday, June 30, 1999 at whichtime counsel for all of the Respondents advised that they would not ask Matlow J.to lift the stay on that basis. Notwithstanding, counsel for the Staff applied toMatlow J. to vary the order made on June 25, 1999. On July 12, 1999, Matlow J.varied the order dated June 25, 1999 to provide that the stay shall not apply toprohibit the panel of the OSC from continuing the proceedings provided that, in theevent of a finding of liability with respect to any of the applicants, a further anddistinct hearing be held with respect to the sanction or penalty to be imposed.

The Decision of the Panel on the merits is set out below without giving reasons forthe Decision. Written reasons will be released by the Panel on Tuesday, July 27,1999.

There were a number of other motions brought prior to and during the course of theHearing in relation to which decisions were rendered. These included the followingmotions by the Respondents:

Motion to quash the Notice of Hearing

  • November 4, 1996- Motion to quash the Notice of Hearing, or, in thealternative, strike out certain portions of the statement of allegations. Bydecision dated December 4, 1996, the Commission dismissed the motion(published at (1996), 19 OSCB 6637).
  • June 26, 1997- The Respondents sought judicial review of the decision ofthe Commission dated December 4, 1996. By decision dated June 26, 1997,Southey J., for the Divisional Court, dismissed an application for judicialreview (reported at 34 O.R. (3d) 284).
  • The Respondents brought a motion for leave to appeal the decision of theDivisional Court to the Court of Appeal. The motion for leave to appeal wasdismissed on October 3, 1997.

 

Motion regarding bias

  • September 26, 1996- The Respondents brought a motion arguing that six ofthe nine Commissioners of the Commission should be disqualified fromsitting on the substantive hearing in the proceedings by reason of theexistence of bias or a reasonable apprehension of bias. By decision datedOctober 22, 1996, the Commission found that the Commissioners were notprecluded by actual bias or reasonable apprehension of bias from sitting onthe substantive hearing in the proceedings (published at (1996), 19 OSCB6163).
  • May 29, 1997- The Respondents sought judicial review of the decision of theCommission dated October 22, 1996. By endorsement dated May 29, 1997,Southey J., for the Divisional Court dismissed the application for judicialreview.
  • The Respondents brought a motion for leave to appeal the decision of theDivisional Court to the Court of Appeal. The motion for leave to appeal wasdismissed on October 3, 1997.

 

Procedural motions

  • June 22 and 23, 1998- The Respondents brought a motion for an ordercompelling Staff to make full disclosure to the Respondents of informationand documents relevant to the hearing, an order restricting Staff from leadingevidence in respect of the nature of the securities or product traded byMarchment & Mackay and a declaration that Staff shall not lead evidencefrom and after the date of the Notice of Hearing and Statement ofAllegations. On June 24, 1998, the Commission dismissed the motions.

Prior to the commencement of the hearing, a settlement was reached by Staff withNorman Frydrych, a salesman who had been employed by Marchment & MacKayLimited ("Marchment"), which was approved by another panel of the Commission.Accordingly, this Decision and the reasons to follow will relate only to the remainingRespondents, who will be referred to collectively in this Decision and the reasonsto follow as the "Respondents".

2. PURPOSE OF THE HEARING

 

The purpose of the Hearing, as set out in the Notice of Hearing, was to considerwhether it is in the public interest for the Commission to order that the registrationsof Marchment, Charles Lorne Ornstein, Amit James Sofer, Jerry Murray Saltsman,Gregory Charles Osborne and Fraser John Edward Plant be suspended,terminated, restricted or made subject to terms and conditions pursuant toParagraph 1 of subsection 127(1) of the Securities Act and whether, pursuant toParagraph 3 of subsection 127(1) of the Act, any and all of the exemptionscontained in the Act not apply to the Respondents. Staff has also asked theCommission to consider whether pursuant to Subsection 37(1) of the Act it is in thepublic interest to suspend, cancel, restrict or impose terms and conditions upon theright of the Respondents to call at or telephone to any residence in Ontario for thepurpose of trading in any security or in any class of securities. Staff has urged usto make these orders in response to conduct alleged to have been undertaken bythe Respondents commencing in January 1993 and as set out in considerable detailin the amended Statement of Allegations.

In view of the bifurcation of the hearing as described above, this Decision and theReasons to follow will not deal with the Orders requested in the Notice of Hearing.This Decision and the Reasons will deal only with the Commission's findings withrespect to the alleged conduct of the Respondents set out in the amendedStatement of Allegations. As a result of our findings, the parties will be given anopportunity to introduce evidence and make submissions with respect to Orders tobe issued on August 3, 1999. Accordingly, we will not deal with any Orders thatmay flow from our Decision until after that phase of the hearing has beencompleted.

3. DECISION

 

We have concluded that Marchment has, since January 1993, engaged in extensivecampaigns to sell speculative penny stocks from its inventory by telephone throughnumerous salespeople without regard to the suitability of the trades to the needs ofits clients. These campaigns have been conducted in a manner intended to inducethe customer to make a hasty decision to buy the security being offered withoutdisclosure of the risks inherent in the investment or disclosure that an integral partof Marchment's selling campaign is the establishment by Marchment from time totime of the trading price of the securities. We have also concluded that theindividual Respondents, Charles Lorne Ornstein and Amit James Sofer conceivedand implemented this aspect of Marchment's business and in so doing failed todeal fairly, honestly and in good faith with Marchment's clients, did not act in thebest interest of clients, permitted Marchment and its salespeople to breachtheir "know your client" obligations and otherwise acted contrary to the publicinterest. We have also concluded that the individual Respondents, Jerry MurraySaltsman, Gregory Charles Osborne and Fraser John Edward Plant were eachknowing and willing participants in these campaigns. In so doing these threeRespondents failed to act fairly, honestly and in good faith with their clients,did not act in the best interest of clients, breached their "know your client"obligations and otherwise acted contrary to the public interest.

Staff have not established, to our satisfaction, however, that each and every of theitems of specific conduct alleged in the amended Statement of Allegations wasengaged in by the Respondents, or all of them, or that the effect of every one of thealleged business practices was as set out in the amended Statement of Allegations.

The allegations in Section A of the amended Statement of Allegations were notcontroverted in any material respect. Our specific conclusions with respect to eachof the allegations in the amended Statement of Allegations, commencing withSection B., "Allegations Relating to Trades in Securities to Clients of Marchment"are set out below. The letters and numbers of headings and paragraphscorrespond to the equivalent designations in the amended Statement of Allegations.

B.7. We have concluded that Marchment and the individual Respondents,Saltsman, Osborne and Plant failed to deal fairly, honestly and in goodfaith with clients and/or potential clients of Marchment, did not act in the bestinterests of clients, and otherwise acted contrary to the public interest. Wehave not concluded that the individual respondent, Sofer, engaged directlyin such conduct. With respect to the specific allegations set out insubparagraphs (a) to (m), our conclusions with respect to Marchment andthe individual Respondents, Saltsman, Osborne and Plant are set out belowwith the word "yes" denoting our conclusion that these Respondentsengaged in the conduct as alleged and the word "no" denoting that we havenot concluded that these Respondents have engaged in such conduct. Inview of the fact that we have not found that Mr. Sofer engaged directly in theconduct alleged generally at the beginning of the paragraph, it follows thatwe make no findings with respect to Mr. Sofer's alleged participation in theconduct specifically alleged in these subparagraphs.

(a) Yes -- with respect to Marchment, Saltsman, Osborne and Plant

(b) Yes -- with respect to Marchment, Saltsman, Osborne and Plant but only with respect to that part of the allegation relating to failure to disclose that the securities traded by Marchment were of limitedliquidity or marketability; No -- with respect to all Respondents with respect to the remainder of this allegation.

(c) Yes -- with respect to Marchment, Saltsman, Osborne and Plant

(d) Yes -- with respect to Marchment, Saltsman, Osborne and Plant

(e) Yes -- with respect to Marchment, Saltsman, Osborne and Plant

(f) Yes -- with respect to Marchment, Saltsman, Osborne and Plant

(g) No -- with respect to all Respondents

(h) No -- with respect to all Respondents

(i) No -- with respect to all Respondents

(j) Yes -- with respect to Marchment, Saltsman, Osborne and Plant

(k) No -- with respect to all Respondents

(l) Yes -- with respect to Marchment, Saltsman, Osborne and Plant

(m) Yes -- with respect to Marchment and Saltsman; No -- with respect to Osborne and Plant.

C.8. We have not concluded that the sales training courses for prospectivemembers of Marchment's junior sales staff conducted by Mr. Sofer andMarchment, taken as a whole, were contrary to the public interest andprudent business practice. Consequently, it is not necessary for us toaddress the specific allegations contained in subparagraphs (a) to andincluding (h).

D.9. We have concluded that during the period in issue, Marchment has engagedin activity consisting of an extensive selling campaign by telephone to offersecurities to clients through numerous salespeople without regard to thesuitability of the investments to the needs of the client, in such a manner asto induce a hasty decision to buy the security being offered withoutdisclosure of the material facts relating to the issuer, contrary to publicinterest. We have also concluded that other very important material factsrelating to the investment decision also were not disclosed to prospectiveinvestors, contrary to the public interest .

E.10. As stated above, we have concluded that the individual RespondentsOrnstein and Sofer conceived and implemented the activities of Marchmentreferred to above and in so doing failed to deal fairly, honestly and in goodfaith with Marchment's clients, did not act in the best interests of clients,permitted Marchment and its salespeople to breach their "know your client"obligations and otherwise acted contrary to the public interest. Wehave also concluded that the Respondents, Ornstein and Sofer, as seniorofficers of Marchment, were aware of, permitted, acquiesced andparticipated in the sales activity which we have concluded was conducted byMarchment and more particularly set out in our conclusions under paragraphB7(a), (b), (c), (d), (e), (f), (j), (l) and (m), in each case contrary to the publicinterest . In view of our conclusions with respect to the allegations set out inSection C relating to the sales training courses taken as a whole, we do notmake any finding with respect to the allegation in paragraph E10 as it relatesto the activity alleged in Section C of the amended Statement of Allegations.

E.11. We have concluded that the respondent, Sofer, as the Compliance Officerof Marchment, and the respondent, Ornstein, as the President of Marchment,failed to establish and enforce procedures for dealing with clients thatconformed with prudent business practice. We have also concluded thatsuch procedures would have reduced the likelihood of the activity describedin Section D of the amended Statement of Allegations as well as theimproper selling scheme referred to in Section B of the amended Statementof Allegations, contrary to the public interest. We do not find that suchprocedures necessarily would have prevented such activities as alleged inparagraph E11 of the amended Statement of Allegations.

F.12. We have not concluded that the Respondents, Sofer and Marchment, haveengaged in the activities alleged in this paragraph.




Detailed reasons for the Decision set out above will be delivered on Tuesday, July 27,1999. The hearing will be reconvened on Tuesday, August 3, 1999 at 10:00 a.m. for thepurposes of receiving any evidence which parties wish to adduce and any submissionswhich parties wish to make with respect to any Orders to be issued imposing remedies orpenalties as a result of the Decisions which we have made. We would ask counsel for theStaff and each of the Respondents to advise the Secretary to the Commission before 5:00p.m. on Thursday, July 29 whether or not they intend to call further evidence and/or makesubmissions on this issue.

DATED at Toronto this 16th day of July, 1999.

"David Brown"
"H. M. Meyer"
"Derek Brown"

 


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

AND

IN THE MATTER OF
MARCHMENT & MACKAY LIMITED, AMIT JAMES SOFER, CHARLES LORNE ORNSTEIN, JERRY MURRAY SALTSMAN, NORMAN FRYDRYCH, GREGORY CHARLES OSBORNE AND FRASER JOHN EDWARD PLANT

NOTICE OF HEARING
(Section 37 and 127 of the Securities Act)

 

TAKE NOTICE that the Commission will hold a hearing pursuant to sections 37and 127 of the Securities Act, R.S.O. 1990 c.S.5 as amended (the "Act") at its officeson the 8th Floor, 20 Queen Street West, Toronto, Ontario, commencing on September6, 1996 at 9:30 o'clock in the forenoon;

TO CONSIDER:

(a) whether, pursuant to paragraph 1 of subsection 127(1) of the Act, it is in thepublic interest to order, that the registrations of Marchment & Mackay Limited,Amit James Sofer, Charles Lorne Ornstein, Jerry Murray Saltsman, NormanFrydrych, Gregory Charles Osborne, and Fraser John Edward Plant (collectively,the "Respondents") should be suspended, terminated, restricted or be madesubject to conditions;

(b) whether, pursuant to paragraph 3 of subsection 127(1) of the Act, it is in thepublic interest to order that the exemptions contained in Ontario securities lawdo not apply to the Respondents;

(c) whether, pursuant to subsection 37(1) of the Act, it is in the public interest tosuspend, cancel, restrict or impose terms and conditions upon the right of theRespondents to call at or telephone to any residence in Ontario for the purposeof trading in any security or in any class of securities; and

(d) such further and other order as the Commission considers appropriate.

BY REASON OF the allegations as set out in the Statement of Allegations madeby staff of the Enforcement Branch of the Commission that the conduct of theRespondents was not in the public interest;

AND TAKE FURTHER NOTICE, that any party to the proceedings may berepresented by counsel if that party attends or submits evidence at the hearing;

AND TAKE FURTHER NOTICE, that upon failure of any party to attend at the timeand place aforesaid, the hearing may proceed in the absence of that party and suchparty is not entitled to any further notice of the proceeding.

August 2nd, 1996.

"Daniel P. Iggers"

 

IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990 C. S. 5 AS AMENDED
AND
IN THE MATTER OF
MARCHMENT & MACKAY LIMITED, AMIT JAMES SOFER, CHARLES LORNEORNSTEIN, JERRY MURRAY SALTSMAN, GREGORY CHARLES OSBORNE ANDFRASER JOHN EDWARD PLANT

AMENDED
STATEMENT OF ALLEGATIONS OF STAFF OF
THE ENFORCEMENT BRANCH OF THE
ONTARIO SECURITIES COMMISSION

Staff of the Enforcement Branch of the Ontario Securities Commission allege that:

A. THE PARTIES

1. Marchment & MacKay Limited ("Marchment") is, and was at all material times,registered with the Commission as a securities dealer pursuant to Part XI of theSecurities Act, R.S.O. 1990 c.S.5 as amended (the "Act").

2. Charles Lorne Ornstein ("Ornstein") is, and was, at all material times, the Presidentand a principal shareholder of Marchment. Ornstein is registered with theCommission to trade in securities as an officer and director of Marchment pursuantto Part XI of the Act.

3. Amit James Sofer ("Sofer") is, and was at all material times, a Vice-President andthe Compliance Officer at Marchment as well as a salesperson. Sofer is registeredwith the Commission to trade in securities as an officer and director of Marchmentpursuant to Part XI of the Act.

4. Jerry Murray Saltsman ("Saltsman") is, and was at all material times, a salespersonof Marchment and is registered as such with the Commission pursuant to Part XIof the Act.

5. Gregory Charles Osborne ("Osborne") is, and was at all material times, asalesperson of Marchment and is registered as such with the Commission pursuantto Part XI of the Act.

6. Fraser John Edward Plant ("Plant") is, and was at all material times, a salespersonof Marchment and is registered as such with the Commission pursuant to Part XIof the Act.

B. ALLEGATIONS RELATING TO TRADES IN SECURITIES TO CLIENTS OFMARCHMENT

7. Between January 1993 and the present Marchment, Sofer, Saltsman, ^ Osborneand Plant have failed to deal fairly, honestly, and in good faith with clients and/orpotential clients of Marchment (collectively "clients"), did not act in the best interestsof clients, and otherwise acted contrary to the public interest and prudent businesspractice. Among other things, these respondents:

(a) failed to disclose adequately to clients the risks associated with investing inthe securities offered by Marchment;

(b) failed to disclose in particular that the securities traded by Marchment werehighly speculative, of limited liquidity or marketability, and that an investmentin these securities could result in a loss on the original capital invested;

(c) failed to take adequate steps to ensure that securities sold to clients weresuitable or appropriate in view of the clients' net worth, income, investmentknowledge and experience and objectives;

(d) otherwise failed to trade in securities in conformity with their"know-your-client" obligations;

(e) adopted and used high-pressure sales techniques;

(f) made incorrect, misleading or unjustifiable statements regarding the futuretrading price of the securities offered by Marchment and/or the prospects ofthe issuers of those securities, for the purpose of completing trades ofsecurities to clients;

(g) made representations to clients based upon purported knowledge of insideinformation;

(h) failed to disclose adequately to clients that:

(i) Marchment was selling the securities as principal;

(ii) Marchment was selling the securities at a price that was substantiallyhigher than their initial acquisition costs; and

(iii) Marchment's salespersons received remuneration on each traderanging between 16 and 18 percent of the clients' acquisition cost;

(i) delivered confirmation slips to clients that misled them about the grossprofits earned by Marchment and the remuneration received by Marchmentsalespeople on trades;

(j) failed to disclose that Marchment's salespersons would lose their entitlementto the remuneration referred to in clause 7(h)(iii) above, if clients sold thesecurities they acquired within a certain period of time;

(k) sold securities to clients without making any bona fide independentverification or investigation regarding the nature of the business or financialcondition of the issuers of those securities;

(l) resisted or refused to sell securities when clients instructed them to do so;and

(m) made unjustifiable, misleading and/or false statements to clients designedto induce them to refrain from selling their securities.

C. ALLEGATIONS RELATING TO SALES TRAINING

8. Sofer and Marchment conducted sales training courses for prospective membersof Marchment's junior sales staff. These courses were designed to instruct thesales trainees to use highly manipulative and promotional techniques to sellsecurities over the telephone. These sales techniques were designed to closesales without adequate regard to the attributes of the securities being promoted orthe client's own investment experience, income, assets or objectives. The trainingprogramme was therefore contrary to the public interest and prudent businesspractice. In particular Sofer and Marchment taught sales trainees:

(a) that the sales trainees should use the uniform sales pitch that Soferdemonstrated during the training course in all sales regardless of the client'scircumstances or the particulars of the securities sold to the client;

(b) that, by using the sales pitch described in subparagraph 8(a) above, thetrainees could foster a sense of urgency and excitement in the minds ofclients so as to facilitate the closing of sales of securities to them;

(c) to advise clients that favourable news regarding the securities then beingpromoted would be forthcoming, and that a positive impact on the tradingprice for the securities would result regardless of the actual prospects of theissuers of the securities traded by Marchment;

(d) to advise their clients that they, as ^ junior salespeople, intended to foster along-term relationship with their clients, although they were not permitted tomaintain any relationship after the first trade of securities to their clients;

(e) to advise clients that the securities they were selling constituted a "specialopportunity" offered only to a select few clients when these securities were,in fact, being offered to each and every prospect that junior salespeoplecontacted over the telephone;

(f) to adopt high-pressure sales techniques designed to dismiss and discountany reservations that a client might have about purchasing the securitiesoffered;

(g) to place no or inadequate emphasis on the speculative nature of thesecurities offered; and

(h) to avoid advising clients about the actual remuneration received byMarchment salespeople and to avoid disclosure of the profits earned byMarchment on trades of securities.

D. HIGH-PRESSURE SELLING ACTIVITY

9. In substance, during the period in issue, Marchment has been engaged in ^ activityconsisting of an extensive selling campaign by telephone to offer securities toclients through numerous salespeople without regard to the suitability of theinvestments to the needs of the client, in such a manner as to induce a hastydecision to buy the security being offered without disclosure of the material factsrelating to the issuer, contrary to the public interest and prudent business practice.

E. ALLEGATIONS REGARDING KNOWLEDGE AND PARTICIPATION OF SENIORMANAGEMENT

10. The respondents Ornstein and Sofer, as the senior officers of Marchment, wereaware of, permitted, acquiesced and participated in the sales activity referred to indivisions B and C above, contrary to the public interest and prudent businesspractice.

11. Furthermore, Sofer, as the Compliance Officer of Marchment, and Ornstein, as thePresident of Marchment, failed to establish and enforce procedures for dealing withclients that conformed with prudent business practice. Such procedures wouldhave prevented the activity described in division D above as well as improperselling scheme referred to in division B above, contrary to the public interest andprudent business practice.

F. ALLEGATIONS REGARDING INTERFERENCE WITH COMPLAINTS TO THEONTARIO SECURITIES COMMISSION

12. Sofer and Marchment have interfered with the administration of the Act by staff ofthe Commission in a manner that is contrary to the public interest. In particularMarchment and Sofer:

(a) offered reimbursement for all or part of the trading losses sustained byclients who had complained about Marchment to the Enforcement Branch ofthe Commission, on the express condition that these clients:

(i) withdraw their complaints; and

(ii) write letters to the Enforcement Branch denying that Marchment hadengaged in any inappropriate conduct in the sale of securities tothem;

(b) offered reimbursement to clients for all or part of the losses that theysustained as a result of their trades in securities through Marchment on thecondition that they not proceed with any proposed complaint to theEnforcement Branch; and

(c) required as a term of settlement with clients who had sustained tradinglosses that the client not disclose any matter relating to their dealings withMarchment with any other person including any representative of staff of theCommission; and

(d) required as a term of settlement with clients who had sustained tradinglosses that the client deliver up to Marchment all documents in the client'spossession relating to the client's dealings with Marchment.

G. OTHER ALLEGATIONS

13. Staff also relies upon such further and other allegations as staff may advise and theCommission may permit.

August 2nd, 1996.