IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5
IN THE MATTER OF
STATEMENT OF ALLEGATIONS OF STAFF OF THE ONTARIO SECURITIES COMMISSION
Staff of the Ontario Securities Commission (the "Commission") make the followingallegations:
Corporations and Individuals
Evans Health Group Limited
1. Evans Health Group Limited ("Evans") was, at all material times, a corporation amalgamatedpursuant to the laws of Ontario on December 31, 1992. Evans is, and was at all materialtimes, a reporting issuer as defined in section 1 of the Securities Act, R.S.O. 1990, c. S.5 (the"Act"). Evans was previously known as Canadian Neuromed Clinics Limited.
2. At all material times, shares of Evans traded on the Canadian Dealing Network Inc.
Toreal Holdings Limited
3. Toreal Holdings Limited ("Toreal") is a private corporation organized pursuant to the lawsof Ontario. Toreal carried on no active business. At all material times, Toreal existedprimarily to hold shares of Evans.
4. Toreal was wholly owned by 1976 Gerald Shefsky Family Trust ("76 Shefsky Trust"). FromAugust 2, 1990, the trustees of 76 Shefsky Trust were Stephen Shefsky and Linda Shefsky-David. In July of 1993, Martin Shefsky was appointed a trustee. In August of 1993, LindaShefsky-David and Stephen Shefsky resigned, and Mitzi Blackman and Dolly Vienna wereappointed as trustees. On December 3, 1993, Dolly Vienna resigned as a trustee. Thebeneficiaries of 76 Shefsky Trust were Gerald Shefsky, his children and their issue.
The Equican Partnership
5. The Equican Partnership ("Equican") was, at all material times, a partnership of EquicanInvestments Inc. and Toreal.
6. Equican Investments Inc. was wholly owned by Gerald Shefsky in trust for 76 Shefsky Trust.
Canequity Investments Inc.
7. Canequity Investments Inc. ("Canequity") is a private corporation organized pursuant to thelaws of Ontario.
8. From September 4, 1986 to September 26, 1988, the respondent Martin Shefsky wasregistered with the Commission as a salesman, pursuant to the Act.
Allegations against Toreal Holdings Limited ("Toreal")
Toreal's Failure to File Necessary Documents re Canequity Transaction
9. As at December 15, 1992, Evans owed the sum of $275,000 to Canequity. On or aboutMarch 5, 1993, and effective December 15, 1992, the directors of Evans resolved to issue onemillion shares to Canequity in satisfaction of this debt.
10. Effective December 16, 1992, Canequity assigned the $275,000 receivable to Toreal. As aresult, the one million shares of Evans were issued to Toreal instead of Canequity.
11. As a result of its acquisition of 1,000,000 shares of Evans, Toreal became obliged, bysubsection 101(1) of the Act, to issue and file forthwith a press release containing informationprescribed by the Regulation to the Act, and to file a report containing the same information.Toreal did neither.
12. As the result of its subsequent acquisitions of shares of Evans, Toreal became obliged to issueand file press releases, and to file reports, pursuant to subsection 101(2) of the Act. Torealdid not comply with this obligation.
Toreal's Insider Trading - FoxMeyer Options
13. On August 25, 1993, Evans granted to FoxMeyer Corporation ("FoxMeyer") options topurchase up to five million shares of Evans at $1.50 per share. The options were to expireon December 31, 1993.
14. This grant of options constituted a material fact with respect to Evans. This fact wassubstantially disclosed by Evans in a news release on August 27, 1993.
15. Toreal engaged in several purchases and sales of shares of Evans from August 25 to August27, 1993. Each such transaction was completed at a time when Toreal was a company in aspecial relationship with Evans, Toreal had knowledge of the grant of options to FoxMeyerand before that information had been generally disclosed. Each such transaction wastherefore prohibited by subsection 76(1) of the Act.
Toreal's Insider Trading - FoxMeyer Escrow Agreement
16. On or about March 4, 1994, FoxMeyer entered into an escrow agreement with Evans,pursuant to which FoxMeyer agreed to purchase 1,000,000 shares of Evans. The existenceof this agreement, which was a material change with respect to Evans, was first generallydisclosed on or about March 24, 1994.
17. In the period between March 4 and March 24, 1994, Toreal completed approximately 15transactions in shares of Evans. Each of these transactions was completed by Toreal at a timewhen it had knowledge of the escrow agreement. Toreal therefore breached subsection 76(1)of the Act by completing each transaction.
18. Further, on April 5, 1994, Toreal (through its counsel) represented to the Commission thatit had made no trades in shares of Evans between March 4 and March 24, 1994.
Toreal's Ongoing Failure to File Insider Reports
19. In the period between May 31, 1993 and June 30, 1994, Toreal engaged in approximately 220transactions and journal entries in shares of Evans. Throughout this time period, Toreal wasan "insider" of Evans and was obligated to file the reports required by subsection 107(2) ofthe Act.
20. Toreal filed only one such report during that time period, which report was dated December10, 1993, and related to the acquisition of 482,925 shares and 1,000,000 units of Evans.
Toreal's Failure to File a Prospectus and Obtain a Receipt
21. Throughout the period between May 31, 1993 and June 30, 1994, Toreal held a sufficientnumber of shares of Evans to affect materially the control of Evans. Accordingly, each saleby Toreal of shares of Evans during that period was a "distribution" as that term is definedin subsection 1(1) of the Act.
22. Toreal did not file a prospectus and obtain a receipt therefor in respect of any of thedistributions which occurred during that time period. Accordingly, Toreal breached section53 in respect of each such transaction.
Allegations against Equican
23. At some time prior to April 3, 1989, Equican acquired 525,000 shares of Evans, and therebybecame an insider of Evans. Equican filed the report required by subsection 107(1) of theAct.
24. On or about October 4, 1990, Equican acquired a further 375,000 shares of Evans, toincrease its holdings to 900,000 shares. Equican filed the report required by subsection107(2) of the Act.
25. In late 1993 and early 1994 Equican engaged in several transactions in shares of Evans.Equican was required by subsection 107(2) of the Act to file reports reflecting thosetransactions. It failed to file those reports.
Allegations against Martin Shefsky
Martin Shefsky's Control of Toreal
26. At all material times, Martin Shefsky was the sole director and president of Toreal, and, fromJuly of 1993, was a trustee of 76 Shefsky Family Trust, the owner of Toreal. Toreal wasunder his direction and control. Further or in the alternative, Martin Shefsky caused,permitted or acquiesced in each of the actions or omissions of Toreal described above.
Martin Shesky's Control of Equican
27. At all material times, Equican was under the direction and control of Martin Shefsky. Furtheror in the alternative, Martin Shefsky caused, permitted or acquiesced in each of the actionsor omissions of Equican described above.
Martin Shefsky's Acquisition of 100,000 Shares of Evans
28. In late 1993, Martin Shefsky was the owner of all of the issued and outstanding shares ofMartin's Health and Safety Limited ("Martin's"). On or about December 1, 1993, MartinShefsky entered into an agreement with Evans, pursuant to which Evans acquired fromMartin Shefsky all of his shares of Martin's. In exchange, Evans issued 100,000 shares ofitself to Martin Shefsky.
29. On or about January 12, 1994, Martin Shefsky filed with the Commission a report (datedJanuary 7, 1994) pursuant to subsection 107(1) of the Act. In that report, Martin Shefskymisstated the number of shares of Evans which he held.
30. In the alternative, at some time between December 1, 1993 and January 7, 1994, MartinShefsky engaged in one or more transactions in shares of Evans, as a result of which hereduced his holdings from 100,000 shares to 90,000 shares. In that event, Martin Shefskyfailed to file reports in respect of those transactions, which reports were required bysubsection 107(2) of the Act.
31. Such other allegations as counsel advises and the Commission permits.