Securities Law & Instruments

IN THE MATTER OF THE SECURITIESACT,

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 Michael Thomas Peter Kennelly ("Kennelly")and others;

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

AND WHEREAS Kennelly entered into a SettlementAgreement executed October 3 and 8, 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 Cross 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), paragraph2, trading in any securities by Kennelly cease for eight yearscommencing on the date of this Order except that, after twoyears, Kennelly may trade securities for the account of hisregistered retirement savings plan (as defined in the IncomeTax Act (Canada));

3. pursuant to subsection 127(1), paragraph8, Kennelly is prohibited from becoming or acting as a directoror officer of any issuer for eight years commencing on thedate of this Order;

4. pursuant to subsection 127(1), paragraph6, Kennelly is reprimanded;

5. the Temporary Order as against Kennellyno longer has any force or effect; and

6. pursuant to section 127.1, Kennelly willpay costs to the Commission in the amount of $2,500.

October 9, 2002.

"H. Lorne Morphy"                    "RobertL. Shirriff"

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 MICHAEL THOMAS PETER KENNELLY

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 Michael Thomas PeterKennelly ("Kennelly") permanently or for suchtime 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 byKennelly cease immediately except for trades in mutual fundsecurities and trades for his personal account (the "TemporaryOrder"). The Temporary Order was extended by CommissionOrders dated October 9, 1998 and February 4, 1999.

II. JOINT SETTLEMENT RECOMMENDATION

3. Staff of the Commission ("Staff")agrees to recommend settlement of the proceeding respectingKennelly initiated by the Notice of Hearing in accordancewith the terms and conditions set out below. Kennelly consentsto the making of an order against him in the form attachedas Schedule "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 Kennelly agree with the facts set out inparagraphs 5 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. Kennelly became registered with the Commissionunder the Act to sell mutual fund securities and limited marketproducts in late July 1993. Kennelly has not been registeredwith the Commission since mid-October 1998.

9. Between 1996 and 1998, Kennelly sold toOntario investors securities of one or more of the OfferingCorporations (the "Saxton Securities"). Kennellysold the Saxton Securities to approximately 48 Ontario investorsfor a total amount sold of approximately $2,500,000.

10. The Offering Corporations were incorporatedpursuant to the laws of Ontario. Kennelly's sales of the SaxtonSecurities constituted trades in securities of an issuer thathad not been previously issued.

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

12. Kennelly failed to provide his clientswith access to substantially the same information concerningthe Saxton Securities that a prospectus filed under the Actwould provide. Kennelly never reviewed an Offering Memorandumor financial statements respecting the Saxton Securities.None of Kennelly's clients received an Offering Memorandumprior to purchasing the Saxton Securities. The only documentationprovided to clients by Kennelly was vague promotional materialprepared by Saxton.

13. Kennelly misrepresented to his clientsthe nature and the quality of the Saxton Securities. Kennellytold certain clients that they were purchasing a "GIC"from Saxton. Kennelly misrepresented to certain clients thatup to $60,000 invested in Saxton was protected by depositinsurance.

14. Kennelly failed to inform his sponsoringfirm that he was selling the Saxton Securities.

15. Kennelly failed to adequately assess thesuitability of his clients' investments in the Saxton Securities.Kennelly actively solicited certain clients to move moneyout of secure investments into Saxton. One elderly clientwas advised by Kennelly to move money out of a bank term investmentto purchase Saxton Securities. Another client invested $800,000in Saxton Securities from her late husband's $1 million lifeinsurance.

16. Kennelly told certain clients that hehad personally invested in Saxton. This was not true. Kennellyinforms Staff that his wife purchased approximately $20,000worth of the Saxton Securities.

17. Kennelly received commissions of approximately$125,000 on the sales described in paragraph 9 above.

18. Kennelly's conduct in selling the SaxtonSecurities was contrary to Ontario securities law and thepublic interest.

IV. TERMS OF SETTLEMENT

19. Kennelly agrees to the following termsof settlement:

(a) the making of an order:

(i) approving this settlement;

(ii) that trading in any securities byKennelly cease for eight years with the exception that,after two years from the date of the approval of thissettlement, Kennelly is permitted to trade securitiesfor the account of his registered retirement savings plan(as defined in the Income Tax Act (Canada));

(iii) that Kennelly is prohibited frombecoming or acting as a director or officer of any issuerfor eight years;

(iv) reprimanding Kennelly;

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

(vi) that Kennelly will pay costs to theCommission in the amount of $2,500;

(b) Kennelly will undertake to the Commissionthat he will not apply to the Commission for registrationfor eight years; and

(c) within one year prior to applying tothe Commission for registration, Kennelly will successfullycomplete the Canadian Securities Course and Conduct andPractices Handbook Course.

V. STAFF COMMITMENT

20. If this settlement is approved by theCommission, Staff will not initiate any other proceeding underthe Act against Kennelly in relation to the facts set outin Part 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 October 9, 2002, or such otherdate as may be agreed to by Staff and Kennelly (the "SettlementHearing"). Kennelly will attend in person at the SettlementHearing.

22. Counsel for Staff or Kennelly may referto any part, or all, of this Settlement Agreement at the SettlementHearing. Staff and Kennelly 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, Kennelly agrees to waive his rights to a fullhearing, judicial review or appeal of the matter under theAct.

24. Staff and Kennelly agree that if thissettlement is approved by the Commission, they will not makeany public statement 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 Kennelly leading up to its presentation at the SettlementHearing, shall be without prejudice to Staff and Kennelly;

(b) Staff and Kennelly shall be entitledto all 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 Kennelly or as may be required by law; and

(d) Kennelly agrees that he will not, inany proceeding, 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 Kennelly until approved by theCommission, and forever, if for any reason whatsoever thissettlement is not approved by the Commission, except withthe consent of Staff and Kennelly, or as may be required bylaw.

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.

October 3, 2002.

"Michael Thomas Peter Kennelly"
Michael Thomas Peter Kennelly

October 8, 2002.

"Michael Watson"
Staff of the Ontario Securities Commission
(Per) Michael Watson

 

SCHEDULE "A"

 

IN THE MATTER OF THE SECURITIESACT,

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 Michael Thomas Peter Kennelly ("Kennelly")and others;

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

AND WHEREAS Kennelly entered into a SettlementAgreement dated • (the "Settlement Agreement")in which he agreed to a proposed settlement of 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 Cross 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), paragraph2, trading in any securities by Kennelly cease for eight yearscommencing on the date of this Order except that, after twoyears, Kennelly may trade securities for the account of hisregistered retirement savings plan (as defined in the IncomeTax Act (Canada));

3. pursuant to subsection 127(1), paragraph8, Kennelly is prohibited from becoming or acting as a directoror officer of any issuer for eight years commencing on thedate of this Order;

4. pursuant to subsection 127(1), paragraph6, Kennelly is reprimanded;

5. the Temporary Order as against Kennellyno longer has any force or effect; and

6. pursuant to section 127.1, Kennelly willpay costs to the Commission in the amount of $2,500.

October 9, 2002.

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