Proceedings

Citation: Hable (Re), 2018 ONSEC 11
Date: March 16, 2018
File No. 2018-2

 

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PDF Version


IN THE MATTER OF
VOLKMAR GUIDO HABLE

REASONS AND DECISION
(Subsections 127(1) and 127(10) of the Securities Act, RSO 1990, c S.5)



Hearing:

In Writing

 

Decision:

March 16, 2018

 

Panel:

Janet Leiper

Commissioner

 

Appearances:

Keir D. Wilmut

For Staff of the Commission

 

 

 

No submission was made by or on behalf of Volkmar Guido Hable.

TABLE OF CONTENTS

I.

INTRODUCTION AND BACKGROUND

 

II.

STATUTORY AUTHORITY TO MAKE PUBLIC INTEREST ORDER

 

III.

THE BRITISH COLUMBIA PROCEEDINGS AND FINDINGS

 

A.

The Findings

 

 

(a)

Breach of Section 57(a) of the BC Act

 

 

(b)

Breach of Section 168.1(1)(a) of the BC Act

 

 

(c)

The BCSC Order

 

IV.

ORDER REQUESTED IN THE PUBLIC INTEREST

 

V.

ANALYSIS AND DECISION

 

VI.

CONCLUSION

REASONS AND DECISION

I. INTRODUCTION AND BACKGROUND

[1] On February 5, 2018, Staff of the Commission (Staff) elected to bring a proceeding, using the expedited procedure as set out in Rule 11(3) of the Commission's Rules of Procedure and Forms (2017), 40 OSCB 8988 (the Rules of Procedure), for an order pursuant to section 127 of the Ontario Securities Act, RSO 1990, s S.5 (the Act) to consider:

a. Whether Volmar Guido Hable (Hable or the Respondent), who is subject to an order made by a securities regulatory authority, namely the British Columbia Securities Commission (the BCSC), should be made subject to sanctions, conditions, restrictions or requirements in Ontario, pursuant to paragraph 4 of subsection 127(10) of the Act; and if so,

b. Whether the Ontario Securities Commission (the Commission) should exercise its jurisdiction to make a protective order in the public interest in respect of the Respondent pursuant to subsection 127(1) of the Act.

[2] Staff rely on the inter-jurisdictional enforcement provisions found in subsection 127(10) of the Act in requesting that a protective order be issued in the public interest.

[3] The Respondent was served with a Notice of Hearing issued on February 6, 2018 and a Statement of Allegations dated February 5, 2016. Although duly served, he did not respond or make submissions in this proceeding.

[4] The Commission may proceed in the absence of a party where that party has been given notice of the hearing (Statutory Powers Procedure Act, RSO 1990 c. S.22, s7(2) and Rules of Procedure, Rule 21(3)).

II. STATUTORY AUTHORITY TO MAKE PUBLIC INTEREST ORDERS

[5] Subsection 127(1) allows for orders to be made in the public interest. The Commission has regard to the purposes of the Act under section 1.1, which are to provide protection to investors from unfair, improper and fraudulent practices, to foster fair and efficient capital markets and confidence in capital markets, and to contribute to the stability of the financial system and the reduction of systemic risk.

[6] Orders made under subsection 127(1) of the Act are "protective and prospective" and are made to restrain potential conduct which could be detrimental to the public interest in fair and efficient capital markets (Committee for Equal Treatment of Asbestos Minority Shareholders v. Ontario (Securities Commission), [2001] 2 SCR 132 (SCC) at para 43).

[7] Subsection 127(10) of the Act facilitates cross-jurisdictional enforcement of findings for breaches of securities law by providing the Commission with the ability to issue protective and preventative orders to ensure that misconduct which has taken place in other jurisdictions will not be repeated in Ontario's capital markets.

[8] In exercising its jurisdiction under subsection 127(10), the Commission does not require a pre-existing connection to Ontario (Re Biller (2005), 28 OSCB 10131 at paras 32-35).

III. THE BRITISH COLUMBIA PROCEEDINGS AND FINDINGS

[9] On June 26, 2017 the BCSC found that the Respondent contravened section 57(a) of the British Columbia Securities Act, RSBC 1996, c. 418 (the BC Act) by engaging in or participating in conduct relating to a security that the Respondent knew, or reasonably should have known resulted in an artificial price for the security.

[10] The BCSC also found that the Respondent contravened section 168.1(1)(a) of the BC Act by submitting false or misleading information to BCSC Staff.

[11] The BCSC made an order on November 7, 2017 that imposed sanctions, conditions, restrictions and requirements upon the Respondent.

A. The Findings

[12] The Respondent was sanctioned for conduct that took place between February 18 and February 22, 2013. At the time, the Respondent was a resident of British Columbia. He was employed by Samaranta Mining Corporation (Samaranta) as the Executive Vice President of Mining and Exploration.

[13] Samaranta was a Vancouver-based corporation, whose shares were listed on the TSX Venture Exchange.

(a) Breach of Section 57(a) of the BC Act

[14] As at February 12, 2013, through four companies, the Respondent along with his minor children, beneficially owned or controlled a total of 5,067,055 shares of Samaranta. The shares were held in accounts, over which the Respondent had control and direction, in Canada and Switzerland.

[15] Between February 12 and February 15, 2013, the Respondent attempted to sell 4,957,055 of his Samaranta shares. He initially offered his shares at $0.03 per share on the TSXV on February 12, 2013. None were sold. On February 13, 2013, the Respondent lowered the price to $0.02 per share. 410,000 of the shares were sold. The Respondent was unable to sell the remaining shares.

[16] On February 18, 2013, Samarium Group Holding (Samarium) submitted a letter, signed by the Respondent, to Samaranta indicating it was going to make a take-over bid for at least 51% of Samaranta's shares at $0.12 per share. The Respondent was listed as one of Samarium's directors.

[17] On February 19, 2013, before the market opened, the Respondent drafted and issued a press release containing the terms of Samariums' proposed offer to acquire the Samaranta shares. The Respondent withdrew his outstanding offers to sell 4,547,055 Samaranta shares for $0.02. Next, the Respondent reoffered his shares for sale at $0.04 per share. After the market opened, Samaranta shares traded on the TSXV for two hours until they were halted by the exchange at the request of Samaranta. During those two hours there was a significant increase in both trading volume and price of Samaranta's shares.

[18] On February 19, 2013, Samaranta issued a press release stating it had no prior notice of Samarium's offer.

[19] During the trading days of February 20, 21, and 22, 2013, the Respondent sold all of his remaining 4,657,055 Samaranta shares at prices between $0.25 and $0.55, for total proceeds of $157,596.96.

[20] On February 22, 2013, after the Respondent had sold his Samaranta shares, Samarium issued a press release indicating that it was not proceeding with its previously announced take-over bid for the Samaranta shares. The Respondent was terminated from his position at Samaranta that same day.

[21] On February 25, 2013, Samaranta issued a press release stating that it was never provided with any evidence of Samarium's financial ability to carry out its announced take-over bid, and that Samaranta did not believe the offer was genuine.

[22] The BCSC concluded that the Respondent had contravened section 57(a) of the Act.

(b) Breach of Section 168.1(1)(a) of the BC Act

[23] During the investigation by the BCSC, Staff asked the Respondent to turn over certain documents and in particular, proof of Samarium's financial ability to carry out its announced intention to complete a take-over bid for the shares of Samaranta.

[24] Eventually, the Respondent provided BCSC Staff with a document purporting to be the 2012 Annual Report for a company called Samariums Group (Holding) Pte. Ltd., described in the report as a Singapore-incorporated entity.

[25] The Monetary Authority of Singapore, the government agency responsible for corporate registry of Singapore corporations, advised that it had no record of Samarium Pte. The text and numbers in the two annual reports were identical except that the name Samarium replaced the other company's name and some of the dollar amounts had been changed. The BCSC found the annual report had been an altered version of an unrelated company's annual report.

[26] The BCSC concluded that the Respondent had contravened section 168.1(1)(a) of the Act.

(c) The BCSC Order

[27] The BCSC imposed the following sanctions, conditions, restrictions and requirements on the Respondent:

a. Under section 161(1)(d)(i) of the BC Act, the Respondent resign any position he holds as a director or officer of an issuer or registrant;

b. The Respondent is permanently prohibited:

i. Under section 161(1)(b)(ii) of the BC Act, from trading in or purchasing any securities or exchange contracts;

ii. Under section 161(1)(c) of the BC Act, from relying on any of the exemptions set out in the BC Act, the regulations or a decision;

iii. Under section 161(1)(d)(ii) of the BC Act, from becoming or acting as a director or officer of any issuer or registrant;

iv. Under section 161(1)(d)(iii) of the BC Act, from becoming or acting as a registrant or promoter;

v. Under section 161(1)(d)(iv) of the BC Act, from acting in a management or consultative capacity in connection with activities in the securities market; and

vi. Under section 161(1)(d)(v) of the BC Act, from engaging in investor relations activities;

c. The Respondent to pay to the BCSC $157,596.96 pursuant to section 161(1)(g) of the BC Act; and

d. The Respondent to pay to the BCSC an administrative penalty of $400,000 under section 162 of the BC Act.

IV. ORDER REQUESTED IN THE PUBLIC INTEREST

[28] Staff seek an order imposing terms that are similar to the sanctions imposed by the BCSC to the extent possible under the Act, in order to protect the capital markets in Ontario. Staff's submissions substantially mirror the terms within the BC Order, with the addition of a term that prohibits the Respondent from becoming or acting as an investment fund manager. This provision is not available under the BC Act.

V. ANALYSIS AND DECISION

[29] Subsection 127(10) of the Act plays an important role in facilitating the cross-jurisdictional enforcement of judgments. The Respondent's conduct in B.C. would have constituted a breach of the Act in Ontario. His market manipulation and submission of a fabricated document to Staff would clearly have been considered to be contrary to the public interest and it would attract the same or similar sanctions had this conduct taken place in Ontario.

[30] The Commission must make its own determination of what is in the public interest while being responsive to an interconnected securities industry. The threshold for reciprocity is low. This ensures effectiveness and responds to the protection of the public interest. It also reflects the principle found in section 2.1 of the Act which provides: "The integration of capital markets is supported and promoted by the sound and responsible harmonization and co-ordination of securities regulation regimes."

[31] The Commission may consider a number of factors in determining the nature and scope of sanctions, including:

• the seriousness of the allegations proved;

• the respondent's experience in the marketplace;

• the level of a respondent's activity in the marketplace;

• whether or not there has been a recognition of the seriousness of the improprieties;

• the need to deter a respondent, and other like-minded individuals, from engaging in similar abuses of the capital markets in the future;

• whether the violations are isolated or recurrent;

• any size of the profit gained or loss avoided from the illegal conduct;

• any mitigating factors, including the remorse of the respondent;

• the effect any sanction might have on the livelihood of the respondent;

• the effect any sanction might have on the ability of the respondent to participate without check in the capital markets;

• in light of the reputation and prestige of the respondent, whether a particular sanction will have an impact on the respondent and be effective; and

• the size of any financial sanctions or voluntary payment when considering other factors.

(Belteco Holdings Inc (Re) (1998), 21 OSCB 7743 at paras 7746-7747; MCJC Holdings (2002), 25 OSCB 1133 at 1134)

[32] The findings of the BCSC describe serious and "particularly cynical" misconduct by the Respondent. He engaged in conduct that he knew, or reasonably should have known, would create an artificial price for a security. Then, he gave a fabricated document to the BCSC Staff during the investigation into his conduct.

[33] The Respondent was enriched by his misconduct in the amount of $157,596.96. Harm to investors was involved as purchases of the Samaranta shares were based on false information.

[34] The BCSC found no mitigating factors. The Respondent misused his position at Samaranta for financial gain, which was found to be an aggravating factor, given his role as an officer of the "target" company, which would give the take-over bid announcement more credibility. Ultimately the take-over bid was revealed to be from a phantom company created by the Respondent. His attempt to mislead the BCSC Staff led the BCSC to question his ability to be regulated. It found that he represented a serious risk to the capital markets.

[35] These findings support the making of an interjurisdictional order along the lines requested by Staff. In this way, the Ontario markets will be protected from this Respondent. It is a reasonable regulatory response to make orders that aim to prevent similar conduct from taking place in this province. Given the nature of the misconduct, an additional term prohibiting the Respondent from becoming or acting as an investment fund manager will be added.

VI. CONCLUSION

[36] For the reasons provided, the following Order will be made, pursuant to section 127(10):

(a) pursuant to paragraph 2 of subsection 127(1) of the Act, trading in any securities or derivatives by Hable cease permanently;

(b) pursuant to paragraph 2.1 of subsection 127(1) of the Act, the acquisition of any securities by Hable cease permanently;

(c) pursuant to paragraph 3 of subsection 127(1) of the Act, any exemptions contained in Ontario securities law do not apply to Hable permanently;

(d) pursuant to paragraphs 7 and 8.1 of subsection 127(1) of the Act, Hable resign any positions that he holds as a director or officer of any issuer or registrant;

(e) pursuant to paragraphs 8 and 8.2 of subsection 127(1) of the Act, Hable be prohibited from becoming or acting as a director or officer of any issuer or registrant;

(f) pursuant to paragraph 8.5 of subsection 127(1) of the Act, Hable be prohibited permanently from becoming or acting as a registrant, investment fund manager or promoter.

Dated at Toronto this 16th day of March, 2018.

"Janet Leiper"