Proceedings

 

 

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

AND

IN THE MATTER OF
DJL CAPITAL CORP. AND

DENNIS JOHN LITTLE

NOTICE OF HEARING
(Sections 127 and 127.1)

WHEREAS on the 11th day of January, 2000, the Ontario Securities Commission (the"Commission") ordered, pursuant to clause 2 of subsection 127(1) of the Securities Act, R.S.O.1990, c.S.5, as amended (the "Act"), that all trading in securities by DJL Capital Corp. ("DJLCapital") and Dennis John Little ("Little") cease (the "Temporary Order");

AND WHEREAS the Commission further ordered that pursuant to clause 6 of subsection127(1) of the Act that the Temporary Order shall take effect immediately and shall expire on thefifteenth day after its making unless extended by the Commission;

TAKE NOTICE that the Commission will hold a hearing pursuant to section 127 of the Actat its offices on the 8th Floor, 20 Queen Street West, Toronto, Ontario commencing on Friday, the21st day of January, 2000, at 10:00 a.m. or as soon thereafter as the hearing can be held:

TO CONSIDER whether, pursuant to sections 127(1) and 127.1 of the Act, it is in thepublic interest for the Commission:

(a) to make an order to extend the Temporary Order until this hearing is concluded;

(b) to make an order that the respondents cease trading in securities, permanently or forsuch time as the Commission may direct;

(c) to make an order that the registration of the respondents be terminated, suspended orrestricted for such period as directed by the Commission, and/or that terms andconditions be imposed as directed by the Commission;

(d) to make an order that any exemptions contained in Ontario securities law do not applyto the respondents or any of them permanently, or for such period as specified by theCommission;

(e) to make an order that Little resign his position as a director and/or officer of DJLCapital;

(f) to make an order that Little is prohibited from becoming or acting as a director orofficer of any issuer;

(g) to make an order that the respondents be reprimanded;

(h) to make an order that the respondents, or any of them, pay the costs of Staff'sinvestigation in relation to the matters subject to this proceeding;

(i) to make an order that the respondents, or any of them, pay the costs of this proceedingincurred by or on behalf of the Commission; and/or

(j) to make such other order as the Commission may deem appropriate.

BY REASON OF the allegations set out in the Temporary Order and such additionalallegations as counsel may advise and the Commission may permit;

AND TAKE FURTHER NOTICE that any party to the proceeding may be represented bycounsel if that party attends or submits evidence at the hearing;

AND TAKE FURTHER NOTICE that upon failure of any party to attend at the time andplace aforesaid, the hearing may proceed in the absence of that party and such party is not entitledto any further notice of the proceeding.

January 11th, 2000.

"John Stevenson"

 


 

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

AND

IN THE MATTER OF
DJL CAPITAL CORP. AND

DENNIS JOHN LITTLE

TEMPORARY CEASE TRADING ORDER
(Subsection 127(1))

IT APPEARS to the Ontario Securities Commission (the "Commission") that:

1. DJL Capital Corp. ("DJL Capital") is a corporation incorporated under the laws of Ontario onAugust 9, 1993 and carries on business in London, Ontario. Since July 7, 1995, DJL Capitalhas been registered as a dealer in the category of limited market dealer, pursuant to section26(1) of the Ontario Securities Act, R.S.O. 1990, s. C.5 as amended (the "Act") (with theexception of the period from August 7, 1999 to October 6, 1999 for failure to pay renewal feesas required). During the material times, DJL Capital was the promoter of the offering for saleof the units in DJL Capital (the "Units").

2. Dennis John Little ("Little") is an individual residing in Ontario and at all material times wasthe sole director and officer of DJL Capital. Since July 7, 1995, Little has been registered asthe trading officer and director with DJL Capital, a limited market dealer pursuant to section26(1) of the Act (with the exception of the period from August 7, 1999 to October 6, 1999 asdescribed above in paragraph 1).

Trading in the Units Contrary to the Requirements of Ontario Securities Law

3. During the period from September, 1997 to September, 1998, DJL Capital acceptedsubscriptions to the Units from investors residing in Ontario and raised funds in the amountof at least Cdn. $800,000.00.

4. During the material times, the respondents, DJL Capital and Little, traded in securities, namelythe Units, where such trading was a distribution of such securities, without having filed apreliminary prospectus and a prospectus and obtaining receipts therefor from the Director asrequired by section 53(1) of the Act.

5. The Units were purportedly offered for sale pursuant to the "seed capital" prospectusexemption set out in section 72(1)(p) of the Act.

6. The Offering Memorandum dated January 1, 1998 (the "Offering Memorandum") prepared byDJL Capital in connection with the offering of the Units was not delivered to the Commissionas required under Ontario securities law. Further, the Offering Memorandum was not providedto each investor who purchased the Units.

7. During the material times, DJL Capital distributed securities for a period greater than sixmonths contrary to the requirements of the exemption set out in section 72(1)(p)(i) of the Act.

8. In addition, the respondents failed to file a report under Form 20 contrary to the requirementscontained in section 72(3) of the Act and additional requirements contained in the Act.

9. As set out in paragraph 1 above, during the material times, DJL Capital was registered in thecategory of limited market dealer and Little was registered as its trading officer. The Unitswere not sold in accordance with the exemptions from the prospectus and registrationrequirements contained in 72(1)(p) and 35(1)(21) of the Act and other requirements containedin the Act. Accordingly, DJL Capital and Little did not sell the Units in accordance with theirregistration under section 26(1) of the Act.

Misrepresentations to Investors Contrary to the Public Interest

(i) Use of Proceeds

10. DJL Capital represented to investors in the Offering Memorandum and in promotional materialthat DJL Capital was establishing itself as a merchant bank for the purpose of raising capitalfor dynamic, growing businesses. The summary of the Offering Memorandum states, in part,the following with respect to "Use of Proceeds" from the sale of the Units:

The estimated net proceeds to the Corporation from a maximum offeringhereunder will be $612,000 after deducting the Agent's fee, corporate financefee. Of this amount, approximately $480,000 will be used to institute a$30,000,000 bond offering (See "Bond Offering"). The writing andpreparation of customized software for the business is expected to require$40,000. A further $20,000 will be used as capital to establish theappropriate office facilities and systems. The remaining $72,000 will beadded to the working capital.

11. During the material times, DJL Capital and Little failed to disclose to investors that fundsaccepted from investors for the purchase of Units were not used for the purposes set out in theOffering Memorandum and further failed to disclose that investors' funds were used insteadfor payments to various companies and persons, including payments to Little in the amount of(at least) approximately Cdn. $158,000.00. In addition, investor funds of at least Cdn.$315,000.00 were deposited to an account held in the name of Little and/or Heritage Arabian Farms Ltd.("Heritage"), a company incorporated under the laws of Ontario. Little is the sole officer anddirector of Heritage.

(ii) Price of Units Offered by DJL Capital

12. The Offering Memorandum states that the offering is comprised of a maximum of 25 unequalUnits, and that each Unit consists of a minimum of 2,000 Class A preferred shares to amaximum of 15,000 Class A preferred shares per Unit. However, the accompanyingsubscription form for the sale of the Units states that each Unit consists of 100 Class APreferred shares. The subscription form further states that the subscription price of each Unitis $1,000.00 (or 100 Class A Preferred shares at a price of $10.00 per preferred share).

13. DJL Capital and/or Little further represented in the Offering Memorandum that thesubscription price per Unit was established by DJL Capital and "Michael Carnegie, C.A.,C.B.V., Senior Vice-President, TL Corporate Financial Services Inc., of Hamilton, Ontario".Michael Carnegie and/or TL Corporate Financial Services Inc. had no role in establishing thesubscription price per Unit contrary to the representations made to investors as set out in theOffering Memorandum.

(iii) Additional Representations made by DJL Capital and Little

14. DJL Capital and/or Little made the following representations which were misleading toinvestors and contrary to the public interest:

(a) DJL Capital and/or Little represented in promotional material that "... capital will beguaranteed by money on deposit held by the corporation ....", and that " .... at all timesthere will be at least five dollars on reserve for each dollar of obligation to investors";

(b) DJL Capital and/or Little represented in the Offering Memorandum that DJL Capitalintended to pay a 12% annual dividend on its preferred shares and that the return wouldcommence March 31, 1998 once funding was completed and that dividends wouldthereafter be paid quarterly; and

(c) DJL Capital and/or Little represented in the Offering Memorandum that DJL Capital".... anticipates profits of $15,000,000.00 by the year 2002" and that this ".... anticipatedgrowth of approximately 750% over five years should allow all shareholders toexperience a significant gain". It is further stated in the Offering Memorandum thatDJL Capital ".... anticipates an annualized rate of return of approximately 100%".

15. Investors have not received dividends contrary to the representations made by DJL Capital andLittle outlined above. Further, investors have requested repayment of funds invested in respectof the Units offered by DJL Capital and Little or requested that DJL Capital repurchase theUnits for the price paid by investors. DJL Capital and/or Little have not repaid funds orrepurchased shares from investors.

Conduct Contrary to the Public Interest

16. DJL Capital acted contrary to the public interest by:

(a) trading in securities which constituted a distribution without a prospectus contrary tosection 53(1) of the Act;

(b) trading in securities contrary to its registration under section 26(1) of the Act; and

(c) making representations to investors in the Offering Memorandum and promotionalmaterial which representations were misleading to investors and contrary to the publicinterest.

17. Little acted contrary to the public interest by:

(a) trading in securities which constituted a distribution without a prospectus contrary tosection 53(1) of the Act;

(b) trading in securities contrary to his registration under section 26(1) of the Act; and

(c) authorizing, permitting or acquiescing in the representations made by DJL Capital toinvestors in the Offering Memorandum and promotional material which representationswere misleading to investors and contrary to the public interest.

PURSUANT to subsection 127(5) of the Act, the Commission is of the opinion that the lengthof time required for a hearing could be prejudicial to the public interest;

AND WHEREAS by authorization order made February 17, 1999, pursuant to subsection3.5(3) of the Act, the Commission authorized each of David A. Brown, John A. Geller and HowardWetston, acting alone, to exercise the powers of the Commission under the Act, subject to subsection3.5(4) of the Act, to make orders under section 127 of the Act;

IT IS THEREFORE ORDERED that pursuant to clause 2 of subsection 127(1) of the Actthat all trading in any securities by DJL Capital and Little cease.

IT IS FURTHER ORDERED that pursuant to clause 6 of subsection 127(1) of the Act thatthe aforesaid order shall take effect immediately and shall expire on the fifteenth day after its makingunless extended by the Commission.

January 11th, 2000.

"David Brown"