Securities Law & Instruments

IN THE MATTER OF

THE SECURITIES ACT,

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

AND

IN THE MATTER OF

ROBERT THOMISLAV ADZIJA, LARRYALLEN AYRES, DAVID ARTHUR BENDING, MARLENE BERRY, DOUGLAS CROSS,ALLAN JOSEPH DORSEY, ALLAN EIZENGA, GUY FANGEAT, RICHARD JULESFANGEAT, MICHAEL HERSEY, GEORGE EDWARD HOLMES, TODD MICHAELJOHNSTON, MICHAEL THOMAS PETER KENNELLY, JOHN DOUGLAS KIRBY,ERNEST KISS, ARTHUR KRICK, FRANK ALAN LATAM, BRIAN LAWRENCE,LUKE JOHN MCGEE, RON MASSCHAELE, JOHN NEWMAN, RANDALL NOVAK,NORMAND RIOPELLE, ROBERT LOUIS RIZZUTO AND MICHAEL VAUGHAN

 

ORDER

(Subsection 127(1) and section127.1)

WHEREAS on September 24, 1998, the OntarioSecurities Commission (the "Commission") issued aNotice of Hearing pursuant to section 127 of the SecuritiesAct, R.S.O. 1990, c. S.5, as amended (the "Act")respecting Randall Novak ("Novak") and others;

AND WHEREAS on September 24, 1998, theCommission made a Temporary Order as against Novak and others,such Temporary Order which was extended by Commission Ordersdated October 9, 1998 and February 5, 1999 (the "TemporaryOrder");

AND WHEREAS Novak entered into a SettlementAgreement executed August 2, 2002 and August 6, 2002 (the "SettlementAgreement") in which he agreed to a proposed settlementof the proceedings, subject to the approval of the Commission;

AND UPON reviewing the Settlement Agreementand the Statement of Allegations of Staff of the Commissionand upon hearing submissions from Novak and from Staff of theCommission;

AND WHEREAS the Commission is of theopinion that it is in the public interest to make this Orderpursuant to subsection 127(1) and section 127.1 of the Act;

IT IS ORDERED THAT:

1. the attached Settlement Agreement is approved;

2. pursuant to subsection 127(1), paragraph1, Novak's registration with the Commission is suspended for8 months commencing on the date of this Order;

3. pursuant to subsection 127(1), paragraph2, trading in any securities by Novak cease for 8 months commencingon the date of this Order;

4. pursuant to subsection 127(1), paragraph2, Novak must successfully complete the Canadian SecuritiesCourse in order for his registration to be reinstated followingthe suspension;

5. pursuant to subsection 127(1), paragraph6, Novak is reprimanded;

6. the Temporary Order as against Novak nolonger has any force or effect; and

7. pursuant to section 127.1, Novak will paycosts to the Commission in the amount of $2,500.

August 8, 2002.

"Robert L. Shirriff"                    "H.Lorne Morphy"

IN THE MATTER OF

THE SECURITIES ACT

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

AND

IN THE MATTER OF

ROBERT THOMISLAV ADZIJA, LARRYALLEN AYRES, DAVID ARTHUR BENDING, MARLENE BERRY, DOUGLAS CROSS,ALLAN JOSEPH DORSEY, ALLAN EIZENGA, GUY FANGEAT, RICHARD JULESFANGEAT, MICHAEL HERSEY, GEORGE EDWARD HOLMES, TODD MICHAELJOHNSTON, MICHAEL THOMAS PETER KENNELLY, JOHN DOUGLAS KIRBY,ERNEST KISS, ARTHUR KRICK, FRANK ALAN LATAM, BRIAN LAWRENCE,LUKE JOHN MCGEE, RON MASSCHAELE, JOHN NEWMAN, RANDALL NOVAK,NORMAND RIOPELLE, ROBERT LOUIS RIZZUTO, AND MICHAEL VAUGHAN

 

SETTLEMENT AGREEMENT BETWEEN

STAFF OF THE ONTARIO SECURITIESCOMMISSION

AND RANDALL NOVAK

I. INTRODUCTION

1. By Notice of Hearing dated September 24,1998 (the "Notice of Hearing"), the Ontario SecuritiesCommission (the "Commission") announced that itproposed to hold a hearing to consider, among other things:

(a) whether, pursuant to subsection 127(1)of the Securities Act, R.S.O. 1990, c. S.5 (the "Act"),it is in the public interest for the Commission to makean order that the exemptions contained in Ontario securitieslaw do not apply to the respondent Randall Novak ("Novak")permanently or for such time as the Commission may direct;and

(b) such other orders as the Commissiondeems appropriate.

2. By Temporary Order dated September 24,1998, the Commission ordered that trading in securities byNovak cease immediately except for trades in mutual fund securitiesand trades for his personal account (the "Temporary Order").The Temporary Order was extended by Commission Orders datedOctober 9, 1998 and February 4, 1999.

II. JOINT SETTLEMENT RECOMMENDATION

3. Staff of the Commission ("Staff")agrees to recommend settlement of the proceeding respectingNovak initiated by the Notice of Hearing in accordance withthe terms and conditions set out below. Novak consents tothe making of an order against him in the form attached asSchedule "A" based on the facts set out in PartIII of this Settlement Agreement.

III. STATEMENT OF FACTS

Acknowledgement

4. Solely for the purposes of this proceeding,and of any other proceeding commenced by a securities regulatoryagency, Staff and Novak agree with the facts set out in paragraphs5 through 18 of this Settlement Agreement.

Facts

5. Saxton Investment Ltd. ("Saxton")was incorporated on January 13, 1995. The respondent AllanEizenga ("Eizenga") was Saxton's registered director.Saxton and Eizenga established numerous offering corporations,as listed below (the "Offering Corporations").

The Saxton Trading Corp.
The Saxton Export Corp.
The Saxton Export (II) Corp.
The Saxton Export (III) Corp.
The Saxton Export (IV) Corp.
The Saxton Export (V) Corp.
The Saxton Export (VI) Corp.
The Saxton Export (VII) Corp.
The Saxton Export (VIII) Corp.
The Saxton Export (IX) Corp.
The Saxton Export (X) Corp.
The Saxton Export (XI) Corp.
The Saxton Export (XII) Corp.
The Saxton Export (XIII) Corp.
The Saxton Export (XIV) Corp.
The Saxton Export (XV) Corp.
The Saxton Export (XVI) Corp.
The Saxton Export (XVII) Corp.
The Saxton Export (XVIII) Corp.
The Saxton Export (XIX) Corp.
The Saxton Export (XX) Corp.
The Saxton Export (XXI) Corp.
The Saxton Export (XXII) Corp.
The Saxton Export (XXIII) Corp.
The Saxton Export (XXIV) Corp.
The Saxton Export (XXV) Corp.
The Saxton Export (XXVI) Corp.
The Saxton Export (XXVII) Corp.
The Saxton Export (XXVIII) Corp.
The Saxton Export (XXIX) Corp.
The Saxton Export (XXX) Corp.
The Saxton Export (XXXI) Corp.
The Saxton Export (XXXII) Corp.
The Saxton Export (XXXIII) Corp.
The Saxton Export (XXXIV) Corp.
The Saxton Export (XXXV) Corp.
The Saxton Export (XXXVI) Corp.
The Saxton Export (XXXVII) Corp.
The Saxton Export (XXXVIII) Corp.

6. Saxton and the Offering Corporations representedto the public that they were investing in businesses in Cubaand other Caribbean companies.

7. On or about October 7, 1998, the Courtappointed KPMG Inc. ("KPMG") as the custodian ofSaxton's assets. In early 1999, KPMG reported that the OfferingCorporations had raised approximately $37 million from investors.All funds invested in the Offering Corporations had been transferredto Saxton. At that time, KPMG held the view that the valueof the Saxton assets, at its highest (as reported by relatedcompanies), was approximately $5.5 million.

8. Novak became registered with the Commissionunder the Act to sell mutual fund securities and limited marketproducts in July 1994.

9. Between July 1996 and May 1998, Novak soldto Ontario investors securities of one or more of the OfferingCorporations (the "Saxton Securities"). Novak soldthe Saxton Securities to 33 Ontario investors for a totalamount sold of approximately $1,030,000.

10. All of the Offering Corporations wereincorporated pursuant to the laws of Ontario. Novak's salesof the Saxton Securities constituted trades in securitiesof an issuer that had not been previously issued.

11. None of the Offering Corporations fileda prospectus with the Commission. By selling the Saxton Securitiesto his clients, Novak traded in securities, which trades weredistributions, without a prospectus being filed or receiptedby the Commission and with no available exemption from theprospectus requirements of Ontario securities law.

12. Novak failed to provide his clients withaccess to substantially the same information concerning theSaxton Securities that a prospectus filed under the Act wouldprovide. None of his clients received an Offering Memorandumprior to purchasing the Saxton Securities. The only documentationprovided to clients by Novak was vague promotional materialprepared by Saxton.

13. Novak failed to inform his sponsoringfirm that he was selling the Saxton Securities.

14. Novak failed to adequately assess thesuitability of his clients' investments in the Saxton Securities.Among other things, he did not have a sufficient understandingof the Saxton products to evaluate effectively the risk tohis clients in purchasing the Saxton Securities.

15. Novak received commissions of approximately$50,000 on the sales described in paragraph 9 above. He waspromised by Saxton, and expected to receive, on-going trailerfees on such sales.

16. Novak's conduct was contrary to Ontariosecurities law and the public interest.

17. Novak informs Staff that:

(a) prior to selling the Saxton Securities,he met with the respondent Luke McGee ("McGee").McGee was part of the Saxton management and a lawyer bytraining. McGee represented to Novak that the investmentproducts offered by Saxton were exempt from the prospectusand registration requirements under the Act;

(b) he believed Saxton operated a legitimate,profitable business. In this regard, Novak relied on therepresentations of McGee and other Saxton principals concerningthe nature and financial stability of Saxton's businessand the nature and quality of the investment products offeredby Saxton. Novak, however, never reviewed any Saxton financialstatements and never made inquiries of any one independentof Saxton; and

(c) he invested approximately $41,000 inthe Saxton Securities.

18. Novak co-operated with the Commission'sinvestigation respecting the sale of Saxton Securities.

IV. TERMS OF SETTLEMENT

19. Novak agrees to the following terms ofsettlement:

(a) the making of an order:

(i) approving this settlement;

(ii) suspending Novak's registration withthe Commission for eight months;

(iii) that trading in any securities byNovak cease for eight months;

(iv) that Novak must successfully completethe Canadian Securities Course in order for his registrationto be reinstated following the suspension;

(v) reprimanding Novak;

(vi) that the Temporary Order no longerhas any force or effect; and

(vii) that Novak will pay costs to theCommission in the amount of $2,500.

V. STAFF COMMITMENT

20. If this settlement is approved by theCommission, Staff will not initiate any other proceeding underthe Act against Novak in relation to the facts set out inPart III of this Settlement Agreement.

VI. APPROVAL OF SETTLEMENT

21. Approval of the settlement set out inthis Settlement Agreement shall be sought at the public hearingof the Commission scheduled for August 8, 2002, or such otherdate as may be agreed to by Staff and Novak (the "SettlementHearing"). Novak will attend in person at the SettlementHearing.

22. Counsel for Staff or Novak may refer toany part, or all, of this Settlement Agreement at the SettlementHearing. Staff and Novak agree that this Settlement Agreementwill constitute the entirety of the evidence to be submittedat the Settlement Hearing.

23. If this settlement is approved by theCommission, Novak agrees to waive his rights to a full hearing,judicial review or appeal of the matter under the Act.

24. Staff and Novak agree that if this settlementis approved by the Commission, they will not make any publicstatement inconsistent with this Settlement Agreement.

25. If, for any reason whatsoever, this settlementis not approved by the Commission, or an order in the formattached as Schedule "A" is not made by the Commission:

(a) this Settlement Agreement and its terms,including all discussions and negotiations between Staffand Novak leading up to its presentation at the SettlementHearing, shall be without prejudice to Staff and Novak;

(b) Staff and Novak shall be entitled toall available proceedings, remedies and challenges, includingproceeding to a hearing of the allegations in the Noticeof Hearing and Statement of Allegations of Staff, unaffectedby this Agreement or the settlement discussions/negotiations;

(c) the terms of this Settlement Agreementwill not be referred to in any subsequent proceeding, ordisclosed to any person, except with the written consentof Staff and Novak or as may be required by law; and

(d) Novak agrees that he will not, in anyproceeding, refer to or rely upon this Settlement Agreement,the settlement discussions/negotiations or the process ofapproval of this Settlement Agreement as the basis for anyattack on the Commission's jurisdiction, alleged bias orappearance of bias, alleged unfairness or any other remediesor challenges that may otherwise be available.

VII. DISCLOSURE OF SETTLEMENT AGREEMENT

26. Except as permitted under paragraph 22above, this Settlement Agreement and its terms will be treatedas confidential by Staff and Novak until approved by the Commission,and forever, if for any reason whatsoever this settlementis not approved by the Commission, except with the consentof Staff and Novak, or as may be required by law.

27. Any obligations of confidentiality shallterminate upon approval of this settlement by the Commission.

VIII. EXECUTION OF SETTLEMENT AGREEMENT

28. This Settlement Agreement may be signedin one or more counterparts which together shall constitutea binding agreement.

29. A facsimile copy of any signature shallbe as effective as an original signature.

August 2, 2002.

"Randall Novak"
Randall Novak

August 6, 2002.

"Michael Watson"
Staff of the Ontario Securities Commission
Per: Michael Watson