IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
JAMES H. TING, FRANK E. HOLMES, CHUCK C. H. TAM, DOUGLAS A. C. DAVIS and KENNETH C. SMITH
Staff of the Ontario Securities Commission ("Staff") make the following allegations:
1. Semi-Tech Corporation ("Semi-Tech") is an Ontario reporting issuer listed on the TorontoStock Exchange.
2. Each of the respondents James H. Ting, Frank E. Holmes and Chuck C. H. Tam is an officerand director of Semi-Tech. The respondents Douglas A. C. Davis and Kenneth C. Smith areboth directors of Semi-Tech.
3. Semi-Tech owns approximately 50% of The Singer Company N.V. ("Singer"), whichrepresents approximately 90% of the assets of Semi-Tech. Singer is one of the world'slargest manufacturers and distributors of consumer sewing machines with annual revenuesin excess of one billion dollars. Singer is listed on the New York Stock Exchange("NYSE").
4. Singer owns approximately 80% of G. M. Pfaff AG ("Pfaff"), a German companyinvolved in the same line of business as Singer. Pfaff is listed on the Frankfurt StockExchange.
Temporary Cease Trading Order Pursuant to Subsection 127(5) of the Securities Act
5. On September 22, 1999, the Commission made an order (the "Temporary Cease TradingOrder") pursuant to subsection 127(5) of the Securities Act, R.S.O. 1990, c. S.5 (the "Act")prohibiting the respondents from trading in any securities of Semi-Tech, Singer or Pfaff untiltwo full business days following receipt by the Commission of such filings as Semi-Tech isrequired to make pursuant to Ontario securities law or until further order of the Commission.
Grounds for Making and Continuing the Temporary Cease Trading Order
6. On July 30, 1999, the Board of Directors of Semi-Tech adopted a resolution approving thefiling of a voluntary petition for relief from its creditors pursuant to Chapter 11 of Title 11of the United States Code in the United States Bankruptcy Court for the Southern Districtof New York.
7. Semi-Tech was required to file its annual audited financial statements for its financial yearending March 31, 1999 on or before August 18, 1999, in accordance with subsection 78(1)of the Act. Semi-Tech's annual audited financial statements consist essentially of theconsolidation of the financial statements of Singer and of Semi-Tech (Global) CompanyLimited, of which Semi-Tech owns approximately 40%.
8. On August 17, 1999, Semi-Tech applied pursuant to paragraph 80(b)(iii) of the Act for anextension to file its annual audited financial statements. This application was not granted.Semi-Tech did not file its annual audited financial statements on August 18, 1999 and has notfiled these financial statements as of the date of this Statement of Allegations. Further, Semi-Tech has also since failed to comply with its interim filing obligations in respect of itsquarterly financial statements, contrary to paragraph 77(1)(b) of the Act.
9. On September 6, 1999, Pfaff commenced insolvency proceedings in Germany seeking relieffrom its creditors.
10. On September 7, 1999, Semi-Tech filed a voluntary petition for relief from its creditorspursuant to Chapter 11 of Title 11 of the United States Code in the United States BankruptcyCourt for the Southern District of New York.
11. Also on September 7, 1999, Singer announced that the completion of the audit of its 1998financial statements would be delayed for an indefinite period of time. Singer stated thatthe auditors had suspended their work on the audit and that the determination as to whetheror not the audit would be completed could not be made at that time. There is thereforecurrently no assurance that the audit of Singer will ever be completed. Semi-Tech statedthat it was therefore unable to commit to a time frame for the filing of its (consolidated)annual audited financial statements.
12. Singer's auditors have raised questions about a significant acquisition of certain Russianassets by Singer. It has been reported in the media that Singer "made a $50 milliondeposit for the acquisition of certain Russian assets, a substantial portion of which is yetto be recovered". Allegations of money laundering have also been raised in the media inrespect of this Russian acquisition. Singer has retained outside counsel to conduct a formalinvestigation into the nature and extent of any relationships that may exist between thevendor and certain parties related to Singer.
13. On September 12, 1999, Singer filed a voluntary petition for relief from its creditors pursuantto Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Courtfor the Southern District of New York.
14. As set out above, Semi-Tech is in arrears of its annual and interim filing obligations,contrary to the relevant provisions of the Act. Further, Semi-Tech has not released anyfinancial information since the announcements concerning the aforementioned insolvencyproceedings and the suspension of Singer's audit.
15. Singer has released its unaudited results for its year ended January 2, 1999 and its first andsecond quarters ended March 31 and June 30, 1999. Upon the release of the quarterlyresults on September 7, 1999, Singer announced that there will probably be adjustmentsto its year-end results which could affect future periods but did specify the magnitude ofthese adjustments. Semi-Tech Global has released its annual audited results.
16. Due to the failure of Semi-Tech to comply with its annual and interim filing obligationsas proscribed by the Act, as well as Semi-Tech's failure to otherwise publicly disclose anymaterial information in respect of the affairs of Semi-Tech, Singer and Pfaff, it isimpossible to estimate the magnitude of any adjustments that may have to be made to theconsolidated financial statements of Semi-Tech.
17. The directors and officers of Semi-Tech are in possession of, or have access to, materialinformation about the affairs of Semi-Tech including but not limited to:(i) the reason forthe suspension of Singer's audit; (ii) the facts surrounding the Russian transaction; and (iii)the nature and extent of the adjustments that may have to be made to the financialstatements of Singer and Pfaff, which in turn will necessitate adjustments to theconsolidated financial statements of Semi-Tech.
Conduct Prejudicial to the Public Interest
18.It would be prejudicial to the public interest to allow the directors and officers of Semi-Tech to trade in securities of Semi-Tech or its publicly traded subsidiaries, Singer andPfaff, until proper disclosure in accordance with Ontario securities law has been made bySemi-Tech of all material information relating to the affairs of these companies.
Order Requested by Staff
19. It is therefore in the public interest for the Commission to order that the respondents ceasetrading in securities of Semi-Tech, Singer or Pfaff until such time as Semi-Tech hascomplied with its continuous disclosure obligations under Ontario securities law.
20. Such further and other allegations as Staff may advise and the Commission may permit.
DATED at Toronto, this 23rd day of September, 1999.