IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
THE CRABBE HUSON GROUP, INC.
STATEMENT OF ALLEGATIONS OF STAFF OF THE ONTARIO SECURITIES COMMISSION
Staff of the Ontario Securities Commission ("Staff") make the following allegations:
1. The Crabbe Huson Group, Inc. ("Crabbe Huson") is an investment management firm carryingon business in the United States based in Portland, Oregon, and is a registered investmentadvisor under the laws of the United States. Crabbe Huson has been carrying on businessfor 19 years and provides investment management services to a variety of clients, primarilybased in the United States. Crabbe Huson also manages pooled funds on behalf of investors.Crabbe Huson has represented to Staff that during the material times the assets under itsmanagement rose from approximately U.S. $4.1 billion to approximately U.S. $5.1 billion, including over approximately U.S. $1 billion in its family of nine mutual funds.
2. At all material times, Lytton Minerals Limited ("Lytton") was a reporting issuer within themeaning of subsection 1(1) of the Securities Act, R.S.O. 1990, c.S.5, as amended (the "Act").Lytton was a Canadian corporation engaged in the exploration and development of variousdiamond interests in the Northwest Territories. At all material times, the common shares ofLytton were listed on The Toronto Stock Exchange (the "TSE").
3. At all material times, New Indigo Resources Inc. ("New Indigo") was a corporationincorporated under the laws of Alberta. New Indigo was also engaged in diamondexploration and development in the Northwest Territories, primarily in joint ventures withLytton. New Indigo's common shares were listed on the Alberta Stock Exchange.
4. Tahera Corporation ("Tahera") is a Canadian corporation resulting from the amalgamationof Lytton and New Indigo, which amalgamation occurred on February 28, 1999. Tahera'scommon shares are listed on the TSE. Tahera is a reporting issuer within the meaning ofsubsection1(1) of the Act.
Acquisition of Lytton Common Shares by Crabbe Huson
5. In or about April 1996, Crabbe Huson commenced purchasing common shares of Lytton onbehalf of its fully managed accounts. All purchases were made through the facilities of theTSE through Canadian securities dealers.
6. By April 30, 1997, Crabbe Huson had acquired an aggregate of 9,805,900 common sharesof Lytton and on May 8, 1997, Crabbe Huson acquired an additional 1,274,000 commonshares, thereby giving Crabbe Huson control or direction over more than 10% of the thenoutstanding common shares of Lytton. Crabbe Huson has represented to Staff that all of suchshares were purchased by Crabbe Huson on behalf of its managed accounts.
7. Crabbe Huson continued to acquire common shares of Lytton on behalf of its managedaccounts, and by May 4, 1998 Crabbe Huson had acquired control or direction over anaggregate of 29,872,000 common shares of Lytton, representing approximately 25.87% ofthe then outstanding common shares of Lytton.
8. Crabbe Huson has represented to Staff that the following table sets forth the net acquisitionsor dispositions of common shares of Lytton by Crabbe Huson on behalf of the managedaccounts during the periods indicated:
THE CRABBE HUSON GROUP, INC.
Net Acquisitions (Dispositions) of Common Shares of
Lytton Minerals Limited
Net Monthly Acquisitions (Dispositions)
|% of OutstandingCommon Shares ofLytton Held by
9. During the material times, net purchases of Lytton common shares by Crabbe Husonaccounted for approximately 55% of the total volume of Lytton common shares traded onthe TSE. Lytton common shares traded on the TSE at prices ranging from a high of Cdn.$4.10 per share in or about April, 1996 to a low of Cdn. $0.42 in or about June, 1998.
10. During the material times, Crabbe Huson managed up to 68 accounts, including pooledfunds, which held Lytton common shares. All purchases of Lytton common shares byCrabbe Huson were discretionary purchases for its managed accounts. At all material times,Crabbe Huson had discretionary authority to vote the Lytton common shares held by itsmanaged accounts with the exception of eleven accounts (holding a total of 1,523,500 Lyttonshares) which reserved the power to vote securities. Crabbe Huson also had the power todispose of shares of Lytton held by accounts under its management. In respect of the 68managed accounts, no one account of Crabbe Huson owned 10% or more of the outstandingcommon shares of Lytton.
11. Crabbe Huson did not own any Lytton common shares for its own account. During thematerial times, Crabbe Huson was the general partner (with a 1.41% interest) of aninvestment partnership which owned 100,000 Lytton common shares.
12. The portfolio manager of Crabbe Huson who was responsible for the acquisitions of Lyttoncommon shares, and the compliance officer of Crabbe Huson who was responsible forpreparing monthly position reports in respect of Crabbe Huson's holdings in a number ofcompanies, including Lytton, were each aware of the following:
(i) by May, 1997, accounts managed by Crabbe Huson held more than 10% of the thenoutstanding common shares of Lytton; and
(ii) by January 1998, accounts managed by Crabbe Huson held more than 20% of thethen outstanding common shares of Lytton.
Crabbe Huson has represented to Staff that neither the portfolio manager nor the complianceofficer of Crabbe Huson referred to above was aware of the requirements of Ontariosecurities law applicable to such acquisitions of Lytton common shares.
Crabbe Huson Announcement on June 23, 1998
13. On or about June 23, 1998, Crabbe Huson publicly announced (the "Announcement") thatas a result of open market purchases made for a number of managed investment accountsover a period of months, it had acquired control or direction over 29,872,000 common sharesof Lytton. Crabbe Huson stated in its press release dated June 23, 1998 that the purchaseswere made for investment purposes. By this date, Crabbe Huson's holdings representedapproximately 25.87% of the then outstanding common shares of Lytton.
14. On or about June 23, 1998, Crabbe Huson filed a report of acquisition under section 101 ofthe Act.
15. On or about June 23, 1998, Crabbe Huson also filed a report as an insider of a reportingissuer under section 107 of the Act, and continued thereafter to file reports under section 107of the Act.
16. Crabbe Huson has represented to Staff that during the material times it was unaware of theearly warning reporting provisions and take-over bid provisions contained in Part XX of theAct, and the insider reporting provisions contained in Part XXI of the Act. Further, CrabbeHuson has represented to Staff that the firm did not take steps to inquire as to therequirements of Ontario securities law applicable to Crabbe Huson's acquisitions of Lyttoncommon shares until shortly before it made the Announcement.
Events Subsequent to Crabbe Huson's Announcement
17. Crabbe Huson has not purchased shares in Lytton since the Announcement. The holdingsby Crabbe Huson decreased from an amount representing approximately 25.87% of the thenoutstanding common shares of Lytton to a level of approximately 23.9%, as a result of thewithdrawal of Lytton common shares from the control of Crabbe Huson by certain of itsclients, and not as a result of trading by Crabbe Huson in Lytton's common shares.
18. Crabbe Huson's holdings were further reduced to a level of approximately 15.9% of theoutstanding common shares in Tahera as a result of the amalgamation of Lytton and NewIndigo on or about February 28, 1999. Since February, 1999, an aggregate of 5,591,000common shares of Tahera have been sold on behalf of the managed accounts either at thediscretion of Crabbe Huson or as a result of the withdrawal of Tahera common shares fromthe control or direction of Crabbe Huson.
Conduct Contrary to the Public Interest
19. The conduct of Crabbe Huson was contrary to the public interest by reason of the following:
(i) certain acquisitions of Lytton common shares made by Crabbe Huson in and afterOctober 1997 each constituted a take-over bid within the meaning of Part XX of theAct, and were made in contravention of the applicable requirements of Part XX ofthe Act;
(ii) Crabbe Huson failed to issue and file a news release and failed to file a report asrequired under subsection 101(1) of the Act when it had acquired power to exercisecontrol or direction over 10% or more of the outstanding common shares of Lytton.(As outlined above, Crabbe Huson issued a press release and filed a report on June23, 1998 once it had acquired control or direction over approximately 25.87% of thethen outstanding common shares of Lytton.);
(iii) Crabbe Huson failed to issue and file a news release and failed to file a report inrespect of each additional 2% holding in Lytton common shares over which it hadacquired power to exercise control or direction as required under subsection 101(2)ofthe Act;
(iv) Crabbe Huson further failed to comply with the trading moratorium rules providedfor in subsection 101(3) of the Act; and
(v) Crabbe Huson, as an insider of a reporting issuer, failed to file the reports requiredby section 107 of the Act. (As outlined above, Crabbe Huson filed an insider reportunder section 107 of the Act on or about June 23, 1998, and thereafter reportedtrading activity in accordance with section 107 of the Act.)
20. Such additional allegations as counsel may advise and the Commission may permit.
DATED at Toronto this 22nd day of July, 1999.