R.S.O. 1990, CHAPTER S.5, AS AMENDED (the "Act")






Staff of the Ontario Securities Commission make the following allegations:

1. The Respondent Lois Doreen King was at all material times registered under the Act as a portfolio management investment counsellor with Boulder Management Inc. ("Boulder"), which was in turn registered with the Commission as a Securities Dealer, Investment Counsel and Portfolio Manager. Boulder's chief business was the management of four closely held investment funds distributed by private placement (the "Funds"), all of the subscribers to which were sophisticated, high net worth investors. King owned 51% of Boulder, and had two other partners in the business, Louise Morwick and Denise Flick. King was a director of Boulder, and, with Morwick, was primarily responsible for the portfolio management side of the business. Flick was the chief administrator of the firm.

2. The Funds managed by Boulder were intended to profit from "convertible hedging". As the people primarily responsible for Boulder's trading, King and Morwick would cause the Funds to (a) purchase convertible debentures and (b) sell short the underlying common stock for those debentures in an amount equal to the face amount of the debentures. At worst, for the Funds, this strategy would result in a profit to the Funds roughly equal to the amount paid by the debenture less the costs of borrowing the common stock sold short, since the Funds' liability (the common stock), was fully offset by their asset (the debentures), which were exercisable at the option of the Funds. However, the Funds tended to perform best in volatile or bear markets, while they did less well during bull markets.

3. Units in the funds were priced at the close of each month. Subscribers were permitted to purchase or redeem units at month-end only. The market price of the units in the Funds was determined by the value of the debentures and the value of the underlying common stock. In general, if the value of the common shares was high relative to the value of the debentures, the unit values in the Funds would drop.

4. Pricing the Funds at month end was King's responsibility. After the close of business on the last day of each month, King would get market prices for both the debentures and the common shares from a broker at Forum Capital Markets ("Forum"), one of the New York-based dealers used by Boulder. She would then input the prices in two places: Boulder's accounting system and Boulder's inventory cash management system. Morwick would check the prices in the inventory cash management system on the first day of each month, i.e. the morning after King had input the prices. Morwick did not check the prices in the accounting system (although she and Flick had at all times access to the information), and assumed that King input the same prices in each system. The unit prices of the Funds were calculated by Boulder's accounting system.

5. The market price of the common stock was easily ascertainable by Forum since the price at which shares in those issuers had traded on the various exchanges was easily ascertainable. Determining a market price for the debentures was more difficult, since these securities trade on no exchange. Accordingly, Forum would use their expertise and experience, and their knowledge of the market in convertible debentures, to provide to King their best estimate of both "bid" and "ask" prices for the debentures. After the close of business on the last day of each month, Forum would fax a handwritten "pricing sheet" to Boulder, which sheet stated the closing price for the underlying common shares, and the bid and ask price for the debentures.

6. In the normal course, Boulder used the mean between these bid and ask estimates in order to arrive at a market value for the debentures, which value was used to calculate the market value of units in the Funds. However, for illiquid securities, Boulder policy permitted King to exercise a discretion to depart from the mean in setting the market price, given the imprecise nature of the method used for determining that value. There were times when some of the debentures might have been described as "illiquid". Accordingly, on occasion, when it was believed by virtue of this illiquidity that the mean of the bid and ask prices supplied by Forum did not truly reflect the market, in setting the market price for the debentures (and, ultimately, for the price of units in the Funds), Boulder would depart slightly from the mean of the bid and ask and ascribe another value to the debentures which value Boulder reasonably and truly believed better reflected the market.

7. Many of the common shares which Boulder had sold short were traded on NASDAQ. In the fall of 1999, NASDAQ was particularly bullish. Meanwhile, the market for debentures was flooded with new issues. Accordingly, the market value of units in the Funds dropped dramatically so that they reflected large losses, which losses were unrealized in the Funds owing to the fact that the debentures were fully hedged against the underlying securities and could be held until their redemption date. In setting the month end prices for the debentures (and ultimately for the units in the Funds) in October, 1999, King departed from the mean of the bid and ask prices supplied by Forum and set the market value close to or at the ask price supplied by Forum. She did so without consulting or informing her partners or any of the subscribers to the Funds. In November, 1999, King again departed from the mean and valued the debentures close to or at the ask price supplied by Forum. Again, she did so without consulting or informing her partners or any of the Funds= subscribers. In December, 1999, King again departed from the mean, and for a number of the debentures in the portfolio, set the market value at a price above the ask price supplied by Forum. Again, she did so without consulting or informing her partners or any of the Funds' subscribers. Accordingly, in each of these three months, the value of units in the Funds was overstated. These overstatements did not reflect an appropriate exercise of the discretion described in the previous paragraph.

8. During these three months, King input the true market prices into Boulder's inventory cash management system and the incorrect prices, which departed from the mean, into the Boulder's accounting system. Accordingly, the prices which Morwick checked were accurate. The unit prices produced by Boulder's accounting system were overstated.

9. In January 2000, the Funds' auditors, PricewaterhouseCoopers ("PWC") began their annual audit of the Funds. As part of their work, PWC sought to confirm the market value of the various securities held by the Funds. To King's knowledge, PWC wished to get a copy of the December 1999 pricing sheet from Forum. King knew that Forum's December 1999 pricing sheet would not conform with the values she had attributed to the debentures held by the Funds. King telephoned Tracy Evert, the broker with whom she dealt at Forum, and told her that PWC wanted the December 1999 pricing sheet to be sent directly to PWC from Forum. King told Evert that she had a copy of it in hand and that she would fax it to Evert so that Evert could fax it to PWC. Evert agreed with this procedure. She waited for King to fax the pricing sheet to her and then had her assistant fax it directly to PWC. However, the pricing sheet which King sent to Evert, and which was forwarded to PWC, had been altered by King before she faxed it to Evert. King altered the sheet so that it would reflect the prices she had ascribed to the debentures, which was not reflective of the value ascribed by Forum or by the market. Evert was not told by King that her pricing sheet had been altered, nor, apparently, did she or her assistant notice that it had been altered. Evert sent the altered sheet on to PWC unaware that it was intended by King to mislead PWC.

10. In addition to checking the prices from Forum, PWC approached another dealer in the United States in order to confirm that Forum's estimates of the market values of the debentures in December 1999 were accurate. It became apparent from the market prices supplied by this second dealer that the numbers on Forum's December 1999 pricing sheet did not properly reflect the market.

11. On February 9, 2000, King overheard representatives from PWC discussing the discrepancies between the market prices supplied by Forum and the second dealer. At that time she realized that her deception had been or would be discovered. King immediately wrote a note for her two partners which reads as follows:

February 9, 2000

Denise and Louise,

- see attached letters. Please send out as soon as possible.

- Sept 30 Pricing - OK - you might want the auditors to check it.

- Need to revalue Oct, Nov, Dec/99 for all funds

*- watch MMGR/AES conversions

I'm so sorry. I really panicked. I don't know how I'm going to live with myself. I may decide not to.


12. The note's reference to "attached letters" was a reference to letters written by King to the subscribers in the Funds explaining the overstatement. There were three such letters, which together applied to all of the Funds. The letters are dated February 11, 2000 and are essentially identical. Their text reads as follows:

I deeply regret to inform you that the preliminary December 31, 1999 net asset values of [the Funds] have been overstated by approximately 20%.

The overstatement has resulted from an error in judgement in the marking to market of unrealized losses in the portfolio since October 1, 1999. The unprecedented surge in NASDAQ over the past three months has caused convertible premiums on most positions in the Boulder portfolios to contract sharply. The unrealized losses have also been impacted by the large number of new convertible offerings, which results in the "older" convertible issues becoming less attractive to potential buyers (and hence cheaper). Compounding these two effects is the natural leverage in the portfolio where a 1 point change per $100 par debenture across all of the fund's positions impacts the bottom line by approximately 10%. Despite the increase in the unrealized losses during the past few months, I truly believe that any future sharp reversal in NASDAQ will result in the fund recouping these unrealized losses.

I take full responsibility for the under-valuation of these unrealized losses and am resigning from Boulder effective immediately. I want to state that no other employee or partner of Boulder was aware of the extent of these losses and there were no unauthorized trades.

You have my deepest apology. I will regret my poor judgement forever.

13. King left the note and the letters for her partners Morwick and Flick. She then left the office. Morwick and Flick immediately informed the auditors and the largest investor in the Funds, and then sent the letters described and quoted in the previous paragraph to all the Funds' subscribers, subsequently calling each of them to explain the situation. The Funds' largest subscriber conducted extensive due diligence on the books and records of Boulder in an effort to understand the depth of the problem created by King. PWC engaged in the same kind of investigation.

14. It was discovered that the Funds had been overvalued in the manner described by King in her note and letters. No other problems were discovered by the investigations into these matters. PWC was retained by Boulder to determine whether any subscribers to the funds had paid too much for units in the Funds, or been paid too little on redemptions, on the basis of the overstated unit prices. PWC determined that 14 purchasers of units in the funds paid too much for their units. Those investors either accepted compensation in the form of more units in the Funds, or rescinded their purchases. These rescissions cost Boulder $479,888. Four investors were paid too much on redemptions of their units. Boulder has been unable to recover all of this money, of which $144,774 is still outstanding. Boulder has had to bear this loss. Boulder also incurred substantial professional and other costs as a result of King's actions, totalling $143,732. In total, Boulder's losses as a result of the overstatement of the units of the Funds was $768,394. In addition, after King's misconduct was revealed, the value of Boulder's goodwill, the number of clients and the amount of funds under management by Boulder all decreased significantly.

15. King owned units in the Funds. These were redeemed by Boulder in order to cover some of the losses described in the previous paragraph. Through this redemption, Boulder retained $393,666 and, by way of settlement agreement, the remainder, $60,000, was paid to King. King also sold her 51% interest in Boulder to her two former partners for 1 dollar. As a result, King was released by Boulder from any liability arising from the overstatement of the value of the units in the Funds.

16. The sale of her interest in Boulder at this price, and the redemption of her units in the Funds, represented a large financial loss for King. King estimates her losses as a result of her misconduct at approximately $800,000.00.

17. In the course of the investigation of this matter, King was interviewed by Staff. She co-operated with Staff's investigation. She admitted her misconduct and expressed deep remorse for it. She instructed her counsel at the earliest stage to engage Staff in settlement discussions of this matter.

18. Such additional allegations as Staff may make and as the Commission may permit.

February 12, 2001.