Proceedings

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

AND

IN THE MATTER OF
M.C.J.C. HOLDINGS INC. AND MICHAEL COWPLAND

STATEMENT OF ALLEGATIONS OF STAFF OF THE ONTARIO SECURITIES COMMISSION

 

Staff of the Ontario Securities Commission (the "Commission") make the followingallegations:

The Respondents

1. The respondent Michael Cowpland ("Cowpland") is an individual resident in Ontario. At allmaterial times Cowpland was a director and the president and chief executive officer of CorelCorporation ("Corel"). Corel was, at all material times, a reporting issuer in Ontario.

2. M.C.J.C. Holdings Inc. ("M.C.J.C.") is a private company which was incorporated pursuantto the laws of Ontario. At all material times Cowpland was a director of M.C.J.C..

Summary of the Allegations

3. Between the dates of August 11, 1997 and August 14, 1997, M.C.J.C. sold 2,431,200 Corelshares for total proceeds of approximately $20.4 million. At the time that these Corel shareswere sold, M.C.J.C. had knowledge of a material fact with respect to Corel which had notbeen generally disclosed. The material fact was that Corel would fall short of its forecastedsales for the third quarter of 1997 ("Q3 1997") by a significant margin (the "material fact").

4. M.C.J.C. learned of the material fact from Cowpland who, as a director and officer of Corel,was an insider of Corel and therefore in a "special relationship" with Corel as defined in theSecurities Act, R.S.O. 1990, c.S.5, as amended (the "Act"). By learning of the material factfrom Cowpland, M.C.J.C. was in a special relationship with Corel.

5. Therefore, M.C.J.C., as a company in a special relationship with Corel, a reporting issuer,sold securities of Corel with knowledge of a material fact with respect to Corel that had notbeen generally disclosed. In this way, M.C.J.C. contravened subsection 76(1) and paragraph122(1)(c) of the Act.

6. By informing M.C.J.C. of the material fact before it had been generally disclosed and otherthan in the necessary course of business, Cowpland contravened subsection 76(2) andparagraph 122(1)(c) of the Act.

7. In addition, as a director of M.C.J.C., Cowpland authorized the commission of the offenceby M.C.J.C. under subsection 76(1) and paragraph 122(1)(c) of the Act and thereforecontravened subsection 122(3) of the Act.

8. Cowpland attended a voluntary interview with Staff of the Commission on May 20, 1998.During this interview, Cowpland made a number of statements to Staff of the Commissionwhich were misleading and untrue in a material respect. By making such statements to Staffof the Commission, Cowpland contravened paragraph 122(1)(a) of the Act.

Cowpland's Knowledge of the Material Fact

9. Corel had prepared a forecast for analysts that sales for Q3 1997 were expected to be $94million U.S..

10. On or about August 6, 1997, Cowpland was informed by Corel's vice-president of sales thatthe best Corel could achieve for Q3 1997 was $63 million U.S. in sales. This fact was notdisclosed to the public.

11. On or about August 7, 1997, Cowpland instructed his sales staff to place as much inventoryas possible with Corel's largest distributor to make up the shortfall between actual sales andthe sales forecast for the quarter. At this time, Cowpland knew that the distributor had alarge inventory of Corel products which would be exacerbated by the sale of further Corelproducts to the distributor.

12. Between August 11, 1997 and August 14, 1997, M.C.J.C., Cowpland's personal holdingcompany, sold 2,431,200 Corel shares for total proceeds of approximately $20.4 million.

13. On August 18, 1997, a deal was concluded with Corel's largest distributor to purchase $70million U.S. of product. Corel also agreed to accept returns of existing product in the amountof $18 million U.S.. This deal cost Corel over $7 million U.S. in concessions.

14. On September 9, 1997, Corel determined that a substantial portion of the revenue for the $70million sale could not be recognized for the quarter. As a result of this decision, Corelanticipated a loss for the third quarter of 1997 of $32 million U.S.. The anticipated loss waspre-announced by press release on September 10, 1997 and confirmed by press release datedSeptember 24, 1997.

15. Following the announcement of Corel's loss for the quarter, the price of Corel shares listedon the Toronto Stock Exchange fell considerably.

False Statements to Staff

16. On May 20, 1998, Cowpland attended at the offices of the Commission for a voluntaryinterview conducted by Staff of the Commission. During this interview, Cowpland gave anumber of statements to Staff which were misleading and untrue in material respects.

Conduct Contrary to the Act

17. The following conduct by M.C.J.C. and Cowpland contravened the Act and was contrary tothe public interest:

a. At the time of the sale of Corel shares by M.C.J.C. in August 1997, M.C.J.C. was acompany in a special relationship (as that term is defined in the Act) with Corel as itlearned of the material fact from Cowpland who, as a director and officer, was in aspecial relationship with Corel. M.C.J.C. had knowledge of a material fact withrespect to Corel that had not been generally disclosed;

b. M.C.J.C.'s trades in shares of Corel from August 11, 1997 to August 14, 1997therefore constituted a contravention of subsection 76(1) and paragraph 122(1)(c) ofthe Act;

c. Cowpland informed M.C.J.C. of the material fact before it had been generallydisclosed and other than in the necessary course of business contrary to subsection76(2) and paragraph 122(1)(c) of the Act;

d. In addition, as a director of M.C.J.C., Cowpland authorized the commission of theoffence by M.C.J.C. in subsection 76(1) and therefore contravened subsection 122(3)of the Act; and

e. Cowpland also acted contrary to the public interest by giving statements to theCommission which were misleading and untrue in material respects in contraventionof paragraph 122(1)(a) of the Act.

Other

18. Such additional allegations as counsel may advise and as the Commission may permit.

DATED at Toronto this 14th day of October, 1999.