Proceedings

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IN THE MATTER OF THE SECURITIES ACT,

R.S.O. 1990, c. S.5, AS AMENDED

- and -

IN THE MATTER OF

DUNDEE SECURITIES CORPORATION

SETTLEMENT AGREEMENT

BETWEEN STAFF OF THE ONTARIO SECURITIES COMMISSION

AND DUNDEE SECURITIES CORPORATION

I.      INTRODUCTION

1.      Pursuant to section 5(1) of the "Practice Guidelines - Settlement Procedures in Matters Before the Ontario Securities Commission" of the Ontario Securities Commission Rules of Practice, Staff of the Ontario Securities Commission and Dundee Securities Corporation propose to settle the matters described further below.

II.      STATEMENT OF FACTS

Acknowledgement

2.      Staff and Dundee agree with the facts set out in Part II of the Settlement Agreement. Paragraph numbers 4(iv), 6, 7, 17-19, 21, 23, 24, 26, 28, 29, the second sentence of 30 and 33 contain matters of which Staff has obtained evidence that support these assertions, which Dundee has no knowledge of, but for the purpose of this settlement does not dispute. Although Staff have no knowledge of the facts set out at paragraphs 10(c), 12, 14, 16, 39, 40, 41, 45 and 46 for the purpose of the settlement, Staff accepts the accuracy of these facts.

A.      THE PARTIES

Dundee Securities Corporation

3.      Dundee Securities Corporation is registered as a Dealer in the categories of Broker/Investment Dealer under the Act.

Brian Peter Verbeek

4.      Brian Peter Verbeek's registration history with the Commission was as follows:

  1. from January 16, 1996 to March 10, 1997, Verbeek was registered as a salesperson with Manulife Securities International Limited, a dealer in the category of Mutual Fund Dealer;

  2. from April 8, 1997 to August 27, 1999 Verbeek was registered as a salesperson with Fortune Financial Corporation, a dealer in the category of Securities Dealer. From January 3, 1997 to August 27, 1999, Verbeek was registered as a branch manager of 38 Auriga Drive, Suite 225, Nepean, Ontario. On February 2, 1998, the branch located at 38 Auriga Drive, Suite 225 moved to 57 Auriga Drive, Suite 204, Nepean, Ontario;

  3. from August 27, 1999 to May 1, 2000, Verbeek was registered as a registered representative with Dundee. From February 18, 2000 to May 1, 2000, Verbeek was registered as a branch manager of 57 Auriga Drive, Suite 204, Nepean, Ontario; and

  4. On August 21, 2000, Verbeek was registered as a salesperson with Buckingham Securities Corporation, a dealer in the category of Securities Dealer. Lloyd Hutchinson Ebenezer Bruce was appointed supervisor for Buckingham's sub-branch located at 57 Auriga Drive, Suite 204, Nepean, Ontario, from September 5, 2000 until June 21, 2001. Verbeek's registration was subject to the following terms and conditions:

    1. For a one-year period, Bruce was required to submit, on the prescribed form, quarterly reports to the General Manager, Registration, regarding Verbeek's sales and client service activities. The first report, covering the period from initial registration to October 30, 2000, was to be submitted no later than November 15, 2000. Each subsequent report was due on the 15th day of the month following each quarter.

    2. Verbeek's activities with Buckingham were approved and supervised by Bruce, an approved officer of Buckingham. The Supervisory Report due November 21, 2000 was delivered to the Commission December 19, 2000. The Supervisory Reports due February 21, 2001 and May 21, 2001 were not submitted to the Commission.

5.      Verbeek's securities industry proficiencies included the Canadian Securities Course, the Examination based on the Manual for Registered Representatives, the Partners/Directors/Officers Qualifying Examination, the Canadian Investment Funds Course, and the Branch Managers' Examination.

Buckingham Securities Corporation

6.      By letter dated December 29, 2000, Buckingham suspended Verbeek from conducting business as a registered representative of Buckingham, pending the completion of an internal investigation and an investigation by the Ontario Securities Commission. By letter dated May 23, 2001, Verbeek was re-instated by Buckingham as a registered representative.

7.      On June 21, 2001, Verbeek was terminated for cause by Buckingham due to numerous unresolved client complaints, concerns that he was violating the terms and conditions of his registration and concerns that he was involved in questionable private placements.

Fortune Financial Corporation

8.      Prior to August 30, 1999, Fortune Financial Management Inc. and its two operating regulatory subsidiaries, Fortune Investment Corporation, then an OSC registrant mutual fund dealer, and Fortune Financial Corporation, a securities dealer registered with the Montreal Exchange (collectively, the "Fortune Companies") were experiencing serious financial and regulatory problems. The Commission had imposed terms and conditions on Fortune Investment Corporation. Fortune had applied for, but been refused, IDA membership.

B.      Dundee's Acquisition of Assets of the Fortune Companies

9.      On August 30, 1999, Dundee acquired selected assets of the Fortune Companies. The acquisition included the client assets of the Fortune Companies.

10.      As a condition of obtaining regulatory approvals for the acquisition:

  1. Dundee was required by its regulators to bulk transfer all clients and remaining sales representatives of the Fortune Companies to the appropriate Dundee entity in order to ensure a seamless transition process for the Fortune clients;

  2. a regulatory escrow comprising monies and Dundee shares was established in order to satisfy client claims in respect of acts or omissions of Fortune dealers relating to accounts of clients;

  3. the Fortune Companies were required to undertake through Deloitte & Touche a negative confirmation of client accounts approximately concurrent with the closing date of the transaction (August 30, 1999), for 100% of the client accounts of the Fortune Companies, including Verbeek clients and clients of other Fortune sales representatives who had CCPC shares in their clients' self-directed RSP accounts.

11.      At the time of the completion of the transaction, as a result of issues with respect to operational and compliance policies and procedures of the Fortune Companies known to Dundee through the due diligence undertaken by and on behalf of Dundee, Dundee sought and obtained limited regulatory relief from the IDA for the implementation of required operational and compliance changes to ensure compliance with industry standards in respect of the client accounts and sales representatives of the Fortune Companies acquired by Dundee.

12.      As a result of the acquisition, approximately $2.7 billion in client assets under administration and 208 sales representatives of the Fortune Companies were subject to the bulk transfer to Dundee. In addition, 240 sales representatives of the Fortune Companies were subject to the bulk transfer to Dundee Private Investors Inc.

C.      Registered Saving Plan Qualified Investments in Shares of Canadian Controlled Private Corporations

13.      Shares of Canadian Controlled Private Corporations ("CCPCs") can constitute a qualified investment for registered retirement savings plans ("RRSPs") and similar types of registered plans (LIRA, RRIF, LIF). The qualifications of a company as a CCPC are prescribed by tax laws and regulations.

14.      At the time of the Dundee transaction (August 30, 1999), approximately 47 Fortune Company sales representatives had client self-directed RSP accounts which contained security positions consisting of CCPC shares, which on closing of the acquisition, were subject to the bulk transfer of accounts from Fortune to Dundee.

15.      Included in this bulk transfer of accounts, were approximately $3.8 million of CCPC shares in 149 of Verbeek's client accounts.

16.      Dundee's due diligence of the Fortune Companies at the time of the Dundee transaction did not reveal in the Fortune Companies' files any evidence of any client complaint or other issues regarding Verbeek. The negative confirmation process referred to in paragraph 10(c) above did not result in any complaints or issues arising with respect to either Verbeek or Verbeek client accounts which held CCPC shares or in respect of the other 46 Fortune Companies sales representatives who had client self-directed RSP accounts which contained security positions consisting of CCPC shares.

D.      The Scheme Involving Brian Verbeek

17.      From approximately August of 1998 to June 2001, advertisements were placed by the scheme's promoters in newspapers throughout Ontario, Quebec and other provinces to attract clients. The advertisements offered "fast financial assistance" to persons wishing access to funds in their locked-in RRSPs. In some cases, Verbeek's office number was provided as the contact in the advertisement. In other cases, clients were referred to Verbeek.

18.      The clients purchased shares of CCPCs using monies located in their locked-in RRSPs. The clients concurrently obtained a loan from the scheme's promoters representing a portion of the purchase price of the CCPC shares, varying from approximately 60% to 80%. The remaining portion, varying from approximately 20% to 40% was charged as an "administration fee" by the promoters of the scheme.

19.      Verbeek, or clerical staff under his supervision, met directly with some clients. They explained that they would assist these individuals in accessing their funds held in their locked-in RRSPs. Verbeek, or clerical staff under Verbeek's supervision, advised these investors that the funds located in their locked-in RRSPs would be used to purchase shares of CCPCs that were purported to be qualified investments for locked-in RRSPs. In a few cases, Verbeek, or clerical staff under his supervision, met with the clients, explaining the loans and filling out the various documents. In other cases, Verbeek simply processed the documentation.

20.      Dundee was not aware that Verbeek was facilitating the loans. Dundee had no knowledge of the loans.

21.      Verbeek processed over 670 transactions, in excess of $17 million through Fortune, Dundee and Buckingham. Verbeek processed some of these transactions while not registered.

22.      Many of these individuals were low-income earners.

23.      Generally, these clients contacted Verbeek because they were in financial difficulty and needed to access the funds located in their locked-in RRSPs.

E.      Verbeek's Involvement with Messrs. Petrement and Rolland

24.      Sometime in 1998, Verbeek became involved in these transactions with Messrs. Petrement and Rolland. Verbeek's role, while a registrant, was to explain and process the transactions.

25.      Verbeek, through Dundee, facilitated the purchase of shares from the following companies:

Company Name Province of
Incorporation

Activity
#
Clients
$
Amount
From To
1. Atlas Mckenzie Inc. Ontario Sept-99 Apr-00 5 64,600
2. Data Safenet Inc. Ontario Sept-99 Apr-00 42 968,800
3. Distribution Perilandaise Inc. Quebec Sept-99 Apr-00 3 180,667
4. Eau-Necessaire Inc. Quebec Sept-99 Apr-00 13 298,625
5. Eurontario Inc. Ontario Sept-99 Apr-00 13 384,200
6. LMN Techno-Soft Inc. Quebec Sept-99 Apr-00 37 995,700
7. NAV et LOGI-CIEL Inc. Quebec Sept-99 Apr-00 11 442,700
Total 124 $3,335,292

26.      In most cases, the identity of the company that the clients purchased shares from was only disclosed after the purchase was made.

27.      In total, Verbeek processed approximately 124 transactions through Dundee for a value of approximately $3.3 million. The shares were deposited into the clients' locked-in RRSPs.

F.      Verbeek's Involvement with Mr. Jean Tremblay

28.      Sometime in late 1999, Verbeek became involved with Mr. Jean Tremblay, the President of Financiere Telco Inc., and CFM Consultant Financement Multiple ("CFM").

29.      Advertisements were placed in a number of newspapers in Ontario to attract clients. The phone number of CFM, located in Montreal, was listed as a contact. Clients called the office of CFM in Montreal, Quebec. A telephone response form was completed. Subsequently, individuals hired by CFM were sent to meet with the clients to complete documentation necessary to process the purchase of CCPC shares. The documentation was then sent to Verbeek's office. Verbeek's name appears as the "registered representative" on all documentation. Verbeek did not meet with the clients but simply processed the necessary documentation.

30.      Once again, the clients purchased shares of CCPCs using monies located in their locked-in RRSPs. The clients then obtained a loan from the scheme's promoters representing a portion of the purchase prices of the CCPC shares, varying from approximately 60% to 80%.

31.      Verbeek, through Dundee, facilitated the purchase of shares from the following companies:

Company Name Province of
Incorporation

Activity
#
Clients
$
Amount
From To
1. Inter Technologie Inc. Quebec Dec-99 Apr-00 32 800,075
2. Intermax Technologie Inc. Quebec Dec-99 Apr-00 48 1,294,950
3. Via Net Tech Inc. CL-B Quebec Dec-99 Apr-00 46 1,113,125
Total 126 3,208,150


32.      In most cases, the identity of the company that the clients purchased shares from was only disclosed after the purchase was made.

33.      These transactions may be subject to taxation since the CCPC shares were used as collateral for the loans. The Canada Customs and Revenue Agency is in the process of identifying and notifying the clients whose "investment" has now become subject to taxation.

34.      In total, Verbeek processed approximately 126 transactions through Dundee in an amount of approximately $3.2 million.

G.      The Dundee Period (September 1, 1999 to May 1, 2000)

35.      During the Dundee Period, Verbeek was registered with Dundee as a registered representative and, from February 18, 2000 to May 1, 2000, as a branch manager. As the branch manager of the Nepean, Ontario office, Verbeek was supervised by Dundee's head office, as required by IDA policies.

36.      During the Dundee Period, while Verbeek was registered as a registered representative with Dundee, Verbeek processed approximately 255 New Client Application Forms ("NCAFs") and facilitated the purchase of CCPC shares in locked-in RRSPs in an amount of approximately $6.8 million. In total, Verbeek processed approximately 250 transactions (some clients were involved in more than one transaction).

37.      Verbeek presented Dundee with the appropriate documentation to process these transactions in the clients' locked-in RRSPs account for CCPC shares. The documentation consisted of the following:

  1. instructions from, and executed by, the client to Dundee instructing the purchase of CCPC shares, and certifying that the CCPC was a duly registered company, not a venture capital company, was owned and controlled by residents of Canada, certifying the current fair market value of the shares of the company, and stating that the investor had been advised of the income aspects of the investment in question by qualified counsellors;

  2. a document from, and executed by, the client to Dundee instructing the purchase and referencing the client's agreement to purchase the CCPC shares and the client's stockholder's agreement with the CCPCs;

  3. a letter of indemnity, signed by the client, containing the client's acknowledgements:

    1. of the risks involved in holding CCPC shares in a locked-in RRSP;

    2. that neither Verbeek nor Dundee had completed any due diligence regarding the investment merits of the company; and,

    3. of the risk in investing in shares of a company whose shares were not publicly traded;

  4. a Certificate executed by a Chartered Accountant, certifying that the shares of the CCPC were a qualified investment in a locked-in RRSP;

  5. a further Certificate of a Chartered Accountant, confirming the shares constituted an admissible investment into a locked-in RRSP and confirming the fair market value of the shares;

  6. a Certificate for a specific number of shares in the CCPC;

  7. in some instances, a letter of compliance, executed by the client, acknowledging that the client had sought and obtained independent financial, investment, tax and legal advice, acknowledging the suitability of the transaction in respect of the client's personal investment objectives, and acknowledging that it was the client's sole responsibility to ensure that the transaction was a qualified investment for the client's locked-in RRSP.

38.      On November 19, 1999 the Commission issued an Investor Alert titled "OSC Warns Against RRSP Scams", warning the public to "exercise extreme caution when considering whether to cash in money held in a Registered Plan in order to pay for shares in a company that offers to turn around and loan (or refund) some of the money back to the investor". The Investor Alert did not reference specific companies or persons involved in such a scam.

39.      In late November 1999, the Senior Vice-President of Compliance of Dundee attended on Verbeek at his office in Nepean, Ontario for the purpose of addressing with Verbeek a number of concerns Dundee had at that time with Verbeek. During the meeting, the Senior Vice-President of Compliance provided Verbeek with a copy of the Investor Alert. Verbeek assured the Senior Vice-President of Compliance that he was not involved in any loan arrangements with clients and that he was not receiving any commission for these types of transactions occuring in his clients' accounts.

40.      Up to May 1, 2000, Dundee did not receive any client complaints or client communications evidencing concern with these transactions, whether these had occurred during the Fortune Company time period, or subsequently at Dundee.

41.      Dundee did not solicit purchases of shares in CCPCs, nor was it aware of any such solicitation being made on its behalf, nor the opening of accounts for this purpose. Advertisements placed in newspapers by Messrs. Petrement and Rolland or Jean Tremblay were not sponsored or paid for by Dundee, nor did Dundee's name or appear on such advertisements.

42.      Dundee did not charge a commission for processing the purchase of CCPC shares for monies in a locked-in RRSP. In some instances the client was charged a service fee.

43.      Dundee failed to adequately supervise these Verbeek accounts and Verbeek's actions in relation to these accounts given the following:

  1. Verbeek was the branch manager and the only registered representative located at 57 Auriga Drive, Suite 204, Nepean, Ontario;

  2. Through Dundee, Verbeek processed approximately 255 NCAFs for a total of approximately $6.8 million;

  3. Many of the NCAFs submitted to Dundee by Verbeek should have resulted in Dundee making further inquiries of the suitability of the proposed transactions;

  4. Dundee compliance had returned to Verbeek NCAFs to address compliance concerns regarding documentation completeness, client objectives, and changed client objectives initialled purportedly by the client. The timeliness of Verbeek's responses to these concerns was a subject of the late November 1999 meeting between the Senior Vice-President of Compliance and Verbeek and the subject of a December 17, 1999 Memorandum from Dundee Compliance to Verbeek. Verbeek failed to correct or return the forms to Dundee head office in a timely manner;

  5. Dundee did not adequately address compliance issues arising from the proposed inclusion of a "high risk" security in a client's self-directed RSP; and,

  6. In November of 1999, the Senior Vice-President of Compliance attended Verbeek's office and provided him with a copy of an Alert issued by the Ontario Securities Commission dated November 19, 1999 regarding "OSC Warns Against RRSP Scams". Despite the fact that Verbeek denied any knowledge of any loans, Dundee did not adequately follow-up with concerns regarding Verbeek's involvement in these transactions.

H.      Subsequent to the Dundee Period

44.      On May 1, 2000, Verbeek resigned from Dundee Securities.

45.      Subsequent to Verbeek's resignation, Dundee received a few client complaints, which Dundee communicated to the IDA. As a result, the Investment Dealers Association sent Verbeek a warning letter and various conditions were attached to Verbeek's registration throughout the time he was registered with Buckingham.

46.      Subsequent to May 1, 2000, Dundee has reviewed its policies and procedures regarding the purchases of CCPC shares in clients' self-directed RSP accounts to address this type of scheme.

III.      CONDUCT CONTRARY TO THE PUBLIC INTEREST

47.      By engaging in the conduct described above, Dundee failed to adequately supervise these Verbeek accounts and Verbeek's actions in relation to these accounts, contrary to the public interest and contrary to section 3.1 of Ontario Securities Commission Rule 31-505, which requires a dealer to supervise each of its registered salespersons in accordance with Ontario securities law.

IV.      COOPERATION OF DUNDEE

48.      Dundee has fully cooperated with Staff of the Commission during the course of its investigation.

V.      TERMS OF SETTLEMENT

49.      Dundee agrees to the following terms of settlement:

  1. From the date of consent by the Executive Director to this settlement agreement, Dundee undertakes to review its current compliance function in respect of the issues identified in this Settlement Agreement, and within two months of the consent by the Executive Director to this settlement agreement, report to PricewaterhouseCoopers with respect to any required policies and procedures and an implementation plan, such plan to be approved by Staff of the Commission;

  2. Dundee undertakes to pay to the Commission the sum of $150,000 in respect of the costs of the investigation in relation to Dundee, such payment to be made within seven days of consent by the Executive Director to this settlement agreement.

50.      Dundee agrees that they will not, in any proceeding, refer to or rely upon this Settlement Agreement, the settlement discussions/negotiations or the process of obtaining the Executive Director's consent to this Settlement Agreement as the basis for any attack on the Commission's jurisdiction, alleged bias or appearance of bias, alleged unfairness or any other remedies or challenges that may otherwise be available.

VI.      STAFF COMMITMENT

51.      If this settlement receives the consent of the Executive Director, Staff will not initiate any other proceeding under the Act against Dundee in relation to the facts set out in Part II of this Settlement Agreement unless Dundee fails to honour the undertaking contained in paragraphs 49 and 50 of this Settlement Agreement, Staff reserves the right to refer to this Settlement Agreement in any further proceeding.

VII.      APPROVAL OF SETTLEMENT

52.      If, for any reason whatsoever, the Executive Director does not consent to this settlement:

  1. this Settlement Agreement and its terms including all discussions and negotiations between Staff and Dundee leading up to the execution of this Settlement Agreement, shall be without prejudice to Staff and Dundee;

  2. Staff and Dundee shall be entitled to all available proceedings, remedies and challenges, including proceeding to a hearing of these matters before the Commission, unaffected by this Settlement Agreement or the settlement discussions/negotiations; and,

  3. the terms of this Settlement Agreement will not be referred to in any subsequent proceeding, or disclosed to any person except with the written consent of Staff and Dundee or as may be required by law.

VIII.      DISCLOSURE OF AGREEMENT

53.      This Settlement Agreement and its terms will be treated as confidential by Staff and Dundee until consented to by the Executive Director, and forever, if for any reason whatsoever this settlement is not consented to by the Executive Director, except with the written consent of Staff and Dundee, or as may be required by law.

54.      Any obligations of confidentiality attaching to this Settlement Agreement shall terminate upon the Executive Director's consent to this settlement.

55.      Staff and Dundee agree that if the Executive Director does consent to this settlement, they will not make any public statement inconsistent with this Settlement Agreement.

IX.      EXECUTION OF SETTLEMENT AGREEMENT

56.      This Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement.

57.      A facsimile copy of any signature shall be as effective as an original signature.


DATED this "8th" day of "August" , 2003.
____________________
Witness


__"Don Charter"_____
Dundee Securities Corporation


DATED this "8th" day of "August" , 2003.

Staff of the Ontario Securities Commission

Per:

__"Michael Watson"__
Michael Watson
Director, Enforcement Branch

I hereby consent to the settlement of this matter on the terms contained in this Settlement Agreement.

DATED this "8th" day of "August" , 2003.

Ontario Securities Commission

__"Charles Macfarlane"__
Charles Macfarlane
Executive Director