Proceedings

 

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

AND

IN THE MATTER OF
RICHARD THOMAS SLIPETZ


Hearing:
June 28, 2000

Panel:
J.A. Geller, Q.C. - Vice-Chair
M.P. Carscallen, F.C.A. - Commissioner
R.S. Paddon, Q.C. - Commissioner

Counsel:
Staff of the Ontario Securities Commission
Sarah Oseni

For R.T. Slipetz
Michael Grayson, Q.C.

DECISION AND REASONS

These proceedings were commenced by a notice of hearing dated March 6, 2000,accompanied by a statement of allegations in which the staff ("Staff") of the Commissionalleged the following.

"1. The respondent, Richard Thomas Slipetz ("Slipetz"), is an individual who was at allmaterial times registered with the Ontario Securities Commission (the"Commission") as a salesperson.

2. Slipetz worked for Sutherland Securities Inc. ("Sutherland") during the periodcommencing on or about January 3, 1995 and ending on or about April 8, 1997.

3. Slipetz worked for Fortune Financial Corporation during the period commencing onor about April 21, 1997 and ending on or about June 17, 1998.

Conduct Relating to T.D.

4. T.D. is an individual who was a client of Slipetz.

5. In early 1997, T.D. gave Slipetz a cheque payable to Sutherland in the amount of$3,000 for purposes of making an RRSP contribution. At Slipetz's request, T.D.initialled the payee and amount portions of the cheque.

6. Before the cheque was cashed, Slipetz was substituted for Sutherland as thepayee.

7. Slipetz advised T.D. that his money was invested, but that the paperwork wasprobably delayed. T.D.'s subsequent calls to Slipetz were not returned.

8. Slipetz made no investment on behalf of T.D. with respect to the $3,000.

Conduct Relating to M.C.

9. M.C. is an individual who was a client of Slipetz.

10. In or about February, 1998, M.C. gave Slipetz a cheque in the amount of $685 forpurposes of making an investment. The payee of the cheque was left blank.

11. M.C. did not receive written confirmation of her investment, but was advised bySlipetz that her money was invested.

12. M.C. confronted Slipetz after she learned that it appeared that Chick 'N' Deli hadbeen inserted as the payee of her cheque. Slipetz advised M.C. that the moneywas placed in the wrong account and that he was working to rectify the problem.M.C.'s subsequent calls to Slipetz were not returned.

13. Slipetz made no investment on behalf of M.C. with respect to the $685.

Conduct Relating to L.M.

14. L.M. is an individual who was a client of Slipetz.

15. In or about October, 1997, L.M. gave Slipetz two cheques totalling $15,000 forpurposes of obtaining shares of Infinity Funds Management ("Infinity") for both L.M.and L.M.'s wife. Slipetz had advised L.M. that he and his wife could only purchaseshares of Infinity through Slipetz. Accordingly, the two cheques were made payableto Slipetz. L.M. understood that Slipetz was to hold the shares of Infinity for thebenefit of L.M. and his wife.

16. Slipetz neither purchased shares of Infinity nor made any other investment onbehalf of L.M. or his wife with respect to the $15,000.

Conduct Relating to R.T.

17. R.T. is an individual who was a client of Slipetz.

18. In or about May, 1997, R.T. made arrangements with Slipetz to make an investmentof $600 for her daughter. R.T. gave a cheque to Markiewitz, an associate ofSlipetz. At the request of Markiewitz, R.T. made the cheque payable to Slipetz.

19. R.T. did not receive confirmation that an account had been opened for herdaughter. After speaking with Slipetz several times, R.T.'s subsequent calls toSlipetz were not returned.

20. Slipetz made no investment on behalf of R.T. or her daughter with respect of $600.

Conduct Contrary to the Public Interest

21. Slipetz converted funds given to him for purposes of investment by each of T.D.,M.C., L.M., and R.T. to his own personal use. Such conduct is contrary to thepublic interest."

At the hearing, Ms. Oseni, on behalf of Staff, called the following witnesses:

 

Rosanne Tzogas

Molly Conlin

Thomas Demoe

Lloyd Miller

Ralph Markiewitz

Mr. Grayson, on behalf of Mr. Slipetz, advised us that he wished to call Mr. Slipetz totestify on his own behalf. However, Ms. Oseni brought to our attention an order made,pursuant to Rule 3 of the Commission's Rules of Practice, by Commissioner Howard at aPre-Hearing Conference held pursuant to that Rule, in which Commissioner Howardordered that Mr. Slipetz deliver to Staff copies of all documents that he intended toproduce or enter as evidence at the hearing, and a list of all witnesses that Mr. Slipetzintended to call to testify on his behalf at the hearing with a signed witness statement orwill say for each such witness, as required under the Rules of Practice. The order wenton to provide that failure to provide disclosure of any witness, document or thing wouldrender that evidence inadmissible for the purposes of the hearing, unless leave of theCommission was obtained.

Mr. Grayson acknowledged that Mr. Slipetz had failed to comply with the order, despite Mr.Grayson's advice to Mr. Slipetz that he was obliged to do so, and asked us to adjourn thehearing to allow Mr. Slipetz now to comply with the order, so that "there be an appearanceof fairness". We declined to adjourn the hearing, or to grant leave for Mr. Slipetz to testifyor to introduce documents. Mr. Slipetz willfully failed to comply with the requirements ofthe Commission's Rules of Practice and the order made by Commissioner Howard. Wedo not accept the argument that it is necessary to permit him to testify notwithstanding thatfailure in order that there be an appearance of fairness. Indeed, in our view it would beunfair to permit Mr. Slipetz to delay the proceedings in this manner, or to make a farce ofthe Commissions' Rules of Practice. In our view, Mr. Slipetz' failure to comply can hardlybe presented as an innocent mistake which would justify leniency in this regard.

However, Mr. Grayson did cross-examine Staff's witnesses, but did not, in our view, in anyway shake their testimony, which, in our view, proved Staff's allegations against Mr. Slipetzin all material respects.

We find that Mr. Slipetz held himself out to the witnesses Tzogas, Conlin, Demoe andMiller as an investment professional who could be relied on to advise the witness well andtake care of the witness' interests, and on whom the witness could depend for disinterestedinvestment advice. He sought and obtained the trust of these witnesses. As a result,Slipetz was in a fiduciary relationship with these witnesses and had, in equity, a strictobligation to deal fairly, honestly and in good faith with them. This obligation existed asa matter of general law. (See: Hodgkinson v. Simms [1994] 3 S.C.R. 337 at 419; Burkev. Corry (1959), 19 D.L.R. (2d) 252; In the Matter of E.A. Manning et al. (1995), 18 O.S.C.B 5317 at 5339.) We find that Mr. Slipetz breached his fiduciary duty, and, instead of actingin the best interests of those to whom he owed the duty, took advantage of and cheatedthem.

We find that, instead of investing moneys which he received from these witnesses solelyfor investment purposes, Mr. Slipetz misappropriated these moneys and used them for hisown purposes. In our view, such an action goes to the very essence of the duties andresponsibilities of a registrant under the Securities Act. (See: In the Matter of ThomasDouglas Thomson (1969), 4 O.S.C.B. 160 at 164.) We can think of no more serious typeof a failure by a registrant to comply with his obligations under the Act to his customers.

When his defalcations were found out by these customers, Mr. Slipetz lied to them aboutwhat had happened, and made no attempt to make good their losses (except, in the caseof Mr. Miller, after Mr. Slipetz' employer had agreed to do so). He showed no remorse forhis actions. Mr. Grayson argued that, in the case of three of the witnesses, Mr. Slipetz'employer had compensated them for their losses, and that, because they had suffered nolosses, in effect no harm had been done. We reject this argument as in any way mitigatingthe seriousness of Mr. Slipetz' actions.

Mr. Slipetz' actions were grossly abusive of these four investors. For us to indicate in anyway that we did not regard them as being extremely serious could, in our view, diminishthe confidence of investors in the capital markets of Ontario. Under section 1.1 of the Act,the purposes of the act are to provide protection to investors from unfair, improper orfraudulent practices, and to foster fair and efficient capital markets, and confidence incapital markets.

Mr. Grayson argued that we should not "take away this man's livelihood." Instead, he said,the Commission should give Mr. Slipetz "a chance to continue on with a reprimand fromthis Commission and let him have his license on probation."

We have no doubt that, in light of Mr. Slipetz' actions, sanctions under subsection 127(1)of the Act are required. The question is what sanctions would be appropriate.

The relevant considerations were described by the Commission in In the Matter of MithrasManagement Ltd. et al (1988), 11 OSCB 1600 at 1610,

"Under sections 26, 123 and 124 [now section 127] of the Act, the role of thisCommission is to protect the public interest by removing from the capitalmarkets - wholly or partially, permanently or temporarily, as thecircumstances may warrant - those whose conduct in the past leads us toconclude that their conduct in the future may well be detrimental to theintegrity of those capital markets. We are not here to punish past conduct;that is the role of the courts, particularly under Section 118 of the Act. Weare here to restrain, as best we can, future conduct that is likely to beprejudicial to the public interest in having capital markets that are both fairand efficient. In so doing we must, of necessity, look to past conduct as aguide to what we believe a persons's future conduct might reasonably beexpected to be; we are not prescient, after all. And in so doing, we may wellconclude that a person's past conduct has been so abusive of the capitalmarkets as to warrant our apprehension and intervention, even if noparticular breach of the Act has been made out."

Similarly, in In the Matter of Gregory McGroarty et al. (1990), 13 OSCB 3887 at 3934, theCommission stated:

"we would say first that this present proceeding is not, as respondent'scounsel seemed to characterize it, the trial of a provincial or criminal offencein which the prosecutor must make out every element of the offence chargedbefore a conviction can be registered. Ours is an administrative proceeding,the focus of which is the protection of the public and not the punishment ofan individual."

We are satisfied that a reprimand is by no means sufficient. Nor do we think thatpermitting Mr. Slipetz to continue to engage in the securities business, merely imposingsome conditions on his activities, will be sufficient to protect the marketplace. As was saidby the Commission in In the Matter of Paul John Rockel (1966) O.S.C.B. 6 at 7:

The Commission recognizes that the cancellation of registration is a severeeconomic penalty, generally a penalty to be applied in cases where thepublic itself has been abused or where it is clear that a man's moral standardis such that he cannot be trusted to trade in securities, which experience hasshown to be a business subject to great temptation.

In the matter before us, the public has been abused, and, in our view, Mr. Slipetz' moralstandard is such that he cannot be trusted to trade in securities. Unless he is removedfrom the capital markets there is, in our view, every reason to believe that he will continueto act with a disregard for his obligations to his customers or for their best interests. Wesee no reason to believe that Mr. Slipetz has learned his lesson, or that, if tempted in thefuture, he will not again take advantage of his customers in one manner or another.

Staff has asked us to make an order, under subsection 127(1) of the Act, that Mr. Slipetzbe prohibited from trading in securities permanently, and that he be reprimanded. We doso, subject to the condition that Mr. Slipetz will be permitted to make trades for a registeredretirement savings plan of which he is the sole beneficiary, through a broker or dealerregistered under the Act.

August 1st, 2000.

"J. A. Geller"
"Morley P. Carscallen"
"R. Stephen Paddon"