IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, C. S.5, AS AMENDED
- AND -
IN THE MATTER OF
EDWARDS SECURITIES INC., DAVID GERALD EDWARDS,
DAVID FREDERICK JOHNSON, CLANSMAN 98 INVESTMENTS INC.
and DOUGLAS G. MURDOCK
BETWEEN STAFF AND DAVID FREDERICK JOHNSON
1. By Notice of Hearing dated August 9, 2002, the Ontario Securities Commission announced that it proposed to hold a hearing to consider whether, pursuant to sections 127 and 127.1 of the Ontario Securities Act, it is in the public interest for the Commission:
(a) to make an order that trading in securities by the respondents, or any of them, cease permanently or for such other period as specified by the Commission;
(b) to make an order that David Gerald Edwards and David Frederick Johnson, or either of them, resign their positions as officers and/or directors of the respondent Edwards Securities Inc. and resign their positions as an officer and/or director of any other issuer;
(c) to make an order that Douglas G. Murdock resign his position as an officer and/or director of the respondent Clansman 98 Investments Inc. and resign his positions as an officer and/or director of any other issuer;
(d) to make an order that Edwards, Johnson and Murdock, or any of them, are prohibited from becoming or acting as a director or officer of any issuer;
(e) to make an order that the respondents or any of them be reprimanded;
(f) to make an order that the respondents, or any of them, pay the costs of Staff's investigation in relation to this proceeding;
(g) to make an order that the respondents, or any of them, pay the costs of the proceeding incurred by or on behalf of the Commission; and
(h) to make such other order as the Commission considers appropriate.
II JOINT SETTLEMENT RECOMMENDATION
2. Staff of the Commission agree to recommend settlement of the proceedings initiated in respect of the respondents by the Notice of Hearing in accordance with the terms and conditions set out below. Johnson agrees to the settlement on the basis of the facts agreed to as provided in Part III and consents to the making of an Order in the form attached as Schedule "A" on the basis of the facts set out in Part III.
3. This settlement agreement, including the attached Schedule "A" (collectively, the "Settlement Agreement"), will be released to the public only if and when the settlement is approved by the Commission.
4. Edwards Securities Inc. ("ESI") is a corporation incorporated under the laws of Ontario with a registered office at 240 Argyle Avenue in Ottawa. ESI was registered with the Commission as a Dealer in the category of Securities Dealer from September 15, 1988 to March 6, 2000.
5. Johnson is an individual residing in Ontario, and was at all material times the President and sole Director of ESI. Johnson was registered with the Commission as ESI's designated Trading Officer from September 15, 1988 to March 6, 2000.
6. Edwards was at all material times an officer and the owner of the majority of the shares of ESI. Edwards was registered with the Commission as a Salesperson of ESI from September 22, 1988 to March 6, 2000.
Mercristo Developments Inc.
7. Mercristo Developments Inc. is a corporation incorporated pursuant to the laws of Delaware, which traded on the OTC Bulletin Board under the symbol "MDEX". At all material times, Edwards was the President, Chief Executive Officer, Chief Financial Officer, Director and the owner of the majority of the shares of Mercristo. In 1998, Mercristo changed its name to Addison Industries Inc., which trades under the symbol "ADIS".
Clansman 98 Investments Inc. and Douglas Murdock
8. Clansman 98 Investments Inc. is a corporation incorporated under the laws of Ontario with a registered office at 3660 Hurontario Street in Mississauga. Clansman has never been registered in any capacity under the Act, and is not a reporting issuer in Ontario.
9. Douglas G. Murdock was at all material times the President, Secretary, Treasurer and sole Director of Clansman. He has never been registered in any capacity under the Act.
Trading Without a Prospectus
10. During the period between February and April, 1998 ESI, Clansman, Edwards and Murdock traded in securities, namely shares of Clansman, where such trading constituted a distribution of securities, without a receipted prospectus.
11. Clients of ESI were contacted by Edwards and offered an opportunity to invest in shares of Clansman. Clients who expressed interest in this opportunity were shown a package of documents relating to Clansman's proposed acquisition of Harding Carpet Canada Ltd., a company located in Brantford, Ontario which was then in receivership.
12. Clients wishing to invest in Clansman were informed that its shares could only be purchased in "units" of at least $12,500. Those who chose to invest were asked to execute a document titled "Expression of Interest". This document stated that ESI was acting as agent for Clansman, and that the investor would be purchasing "Class C Common Shares" of Clansman. This executed document was to be returned to ESI accompanied by a cheque representing payment in full for the requested shares.
13. As a result of these promotional activities, at least $1,412,750 was raised from at least 89 individual investors. The majority of these individual investors were clients of ESI.
Failure to Disclose Commission
14. ESI, Clansman, Edwards and Murdock failed to disclose to investors that ESI received a commission of 20% on the sale of all Clansman shares.
Failure to Disclose Interest
15. Clansman and Murdock did not employ investors' funds to acquire the business of Harding Carpets, as they originally represented. Instead, the majority of the funds raised were used to purchase shares of Mercristo, a company owned and directed by Edwards. Investors were never informed, prior to their investment in Clansman, that their funds would be employed in this way.
Failure to Supervise
16. As the designated Trading Officer of ESI, Johnson failed to adequately supervise the actions of ESI and Edwards in distributing Clansman shares.
17. On March 6, 2000, Johnson resigned his position with ESI.
18. Johnson applied to the Commission for registration as a Salesperson with Datile Securities in September of 2000, but withdrew his application for registration on March 5, 2002.
IV TERMS OF SETTLEMENT
19. Johnson agrees to the following terms of settlement:
(a) pursuant to clause 6 of subsection 127(1) of the Act, Johnson will be reprimanded by the Commission;
(b) pursuant to clause 8 of subsection 127(1) of the Act, Johnson will be permanently prohibited from becoming or acting as an officer and/or director of any registrant, effective the date of the Order of the Commission approving this proposed settlement agreement;
(c) pursuant to subsection 1 of section 127.1 of the Act, Johnson will make a payment of $5000.00 towards the costs of Commission Staff's investigation of this matter;
(d) Johnson undertakes never to act in or apply for registration in a supervisory or compliance capacity under Ontario securities law;
(e) Johnson undertakes not to apply for registration in any capacity under Ontario securities law for a period of one year, effective the date of the Order of the Commission approving this proposed settlement agreement; and
(f) Johnson undertakes that, if he ever applies for registration under Ontario securities law in the future, he will consent to the imposition of a term and condition on his registration requiring quarterly supervision reports to be completed by his employer and submitted to the Commission for a period of two years following the date of any acceptance of his application.
V STAFF COMMITMENT
20. If this Settlement Agreement is approved by the Commission, Staff will not initiate any complaint to the Commission or request the Commission to hold a hearing or issue any order in respect of any conduct or alleged conduct of the respondents in relation to the facts set out in Part III of this Settlement Agreement.
VI PROCEDURE FOR APPROVAL OF SETTLEMENT
21. The approval of the settlement as set out in the Settlement Agreement shall be sought at a public hearing before the Commission scheduled for such date as is agreed to by Staff and Johnson in accordance with the procedures described herein and such further procedures as may be agreed upon between Staff and Johnson.
22. If this Settlement Agreement is approved by the Commission, it will constitute the entirety of the evidence to be submitted respecting Johnson in this matter and Johnson agrees to waive any right to a full hearing and appeal of this matter under the Act.
23. If this Settlement Agreement is approved by the Commission, the parties to this Settlement Agreement will not make any statement that is inconsistent with this Settlement Agreement.
24. If, for any reason whatsoever, this settlement is not approved by the Commission, or the Order set forth in Schedule "A" is not made by the Commission:
(a) each of Staff and Johnson will be entitled to proceed to a hearing of the allegations in the Notice of Hearing and related Statement of Allegations unaffected by the Settlement Agreement or the settlement;
(b) the terms of the Settlement Agreement will not be raised in any other proceeding or disclosed to any person except with the written consent of Staff and Johnson or as may be otherwise required by law; and
(c) Johnson further agrees that he will not raise in any proceeding the Settlement Agreement or the negotiation or process of approval thereof as a basis for any attack on the Commission's jurisdiction, alleged bias, appearance of bias, alleged unfairness or any other challenge that may otherwise be available.
25. If, prior to the approval of this Settlement Agreement by the Commission, there are new facts or issues of substantial concern, in the view of Staff, regarding the facts set out in Part III of this Settlement Agreement, Staff will be at liberty to withdraw from this Settlement Agreement. Notice of such intention will be provided to Johnson in writing. In the event of such notice being given, the provisions of paragraph 24 in this part will apply as if this Settlement Agreement had not been approved.
VII DISCLOSURE OF AGREEMENT
26. Staff or Johnson may refer to any part or all of this Settlement Agreement in the course of the hearing convened to consider this agreement. Otherwise, this Settlement Agreement and its terms will be treated as confidential by all parties to the Settlement Agreement until approved by the Commission, and forever if, for any reason whatsoever, this settlement is not approved by the Commission.
27. Any obligation as to confidentiality shall terminate upon the approval of this Settlement Agreement by the Commission.
VIII EXECUTION OF SETTLEMENT AGREEMENT
28. This Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement and a facsimile copy of any signature shall be as effective as an original signature.
DATED this 6th day of November, 2002
|_______________||"David Frederick Johnson"|
David Frederick Johnson
DATED this 12th day of November, 2002
STAFF OF THE ONTARIO
(Per) "Michael Watson"
Director, Enforcement Branch