Proceedings

 

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

AND

IN THE MATTER OF
PRICE WARNER SECURITIES, IAN ROLIN AND LORNE ROLIN


Hearing:
Thursday, August 3, 2000

Panel:
Howard I. Wetston, QC - Chair
John F. Howard, QC - Commissioner
Morley P. Carscallen, FCA - Commissioner

Counsel:
For the Staff of the Ontario Securities Commission
Johanna M.E. Superina

For Price Warner, Ian Rolin and Lorne Rolin
Michael B. Miller
Gordon H. Lewis

REASONS FOR DECISION

This is another high mark-up case. The order provided to us in its amended form wasapproved by the Commission on August 3, 2000. These are our reasons for the order.The facts are contained in the settlement agreement and the written submissions providedto the panel.

We note that of the 13 issuers, Price Warner held stock in its inventory, or it exercised theoption agreements to acquire the stock in the issuer immediately prior to thecommencement of the principal trading in the stock with its clients.

We note that Price Warner resold the stock to its own clients at mark-ups significantlyabove the acquisition costs ranging from 112 to 574 percent. During the material time,Price Warner's gross revenue from the sale of the stock less the acquisition cost earnedfrom the principal trading in the stock of the 13 issuers was as agreed, $26.4 million.

We note that Price Warner, Ian Rolin and Lorne Rolin, have admitted that the mark-upsso charged to the clients of Price Warner were excessive. Price Warner has admitted alsothat in engaging in the conduct described above, Price Warner may have placed itself ina conflict of interest with its clients, and that its conduct therefore contrary to the publicinterest.

Moreover, Ian Rolin and Lorne Rolin have admitted that in allowing Price Warner toengage in the conduct set out above, each of the respondents acted in a manner whichis contrary to the public interest.

By making these admissions, it is apparent that the respondents have avoided thenecessity of the Commission conducting a lengthy hearing into this matter.

Staff counsel referred to a recent decision of the commission in A.C. MacPherson (2000),23 O.S.C.B. 2689, another high mark-up case. In that case, the Commission alsoimposed an order for the conduct therein. The firm also was acting as the principal on itstrading account with its clients and it was also not acting in the best interest of their clients.That is also the case herein. In other words, the conduct was contrary to the publicinterest.

We also observed that in the settlement agreement, Price Warner may have placed itselfin a conflict of interest with its clients. That language suggests some uncertainty, but, inreviewing the facts underpinning the settlement agreement, we have concluded, in thiscase, that mark-ups of this nature make it difficult to reach any other conclusion than thatthe use of such excessive mark-ups was a conflict of interest.

In this regard, it is also likely that the respondents knowingly and repeatedly tookadvantage of clients who placed their trust in the hands of these individuals and the firm.

Also we emphasize that where the trading by the respondents accounted for a substantialportion, and in most cases a substantial majority, of the trading, this trust is also placed injeopardy.

We note that the Commission has not yet developed any criteria as to what constitutes afair mark-up. We have noted the NASD manual and policy which outlines the appropriateconduct for registrants and provides guidelines with respect to such mark-ups. Staffcounsel did highlight that the policy refers to a 5 percent policy which is a 5 percent mark-up above a prevailing market price.

However, Ontario Rule 31-505 imposes a duty on all registrants to deal fairly, honestlyand in good faith with its clients. We can infer, on the basis of the settlement agreement,that in charging mark-ups ranging from 112 to 574 percent, the respondents have alsobreached this rule.

August 15th, 2000.

"Howard I. Wetston"
"Morley P. Carscallen"
"J. F. Howard"