IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
MICHAEL GOSELIN, IRVINE DYCK
DONALD McCRORY and ROGER CHIASSON
WHEREAS on November 9, 2001, 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 Goselin ("Goselin") and others;
AND WHEREAS Goselin entered into a SettlementAgreement executed on November 15 and 18, 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 counsel for Goselin and fromStaff of the Commission;
AND WHEREAS the Commission is of theopinion that it is in the public interest to make this Orderpursuant to subsection 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 Goselin cease for twenty yearscommencing on the date of this Order with the exception thatafter three years from the date of this Order, Goselin ispermitted to trade securities through a registered dealerfor the account of his registered retirement savings plan(as defined in the Income Tax Act (Canada));
3. pursuant to subsection 127(1), paragraph8, Goselin is prohibited from becoming or acting as an officeror director of a reporting issuer for twenty years; and
4. pursuant to subsection 127(1), paragraph6, Goselin is reprimanded.
November 18, 2002.
"Howard Wetston" "RobertDavis"
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
MICHAEL GOSELIN, IRVINE DYCK,
DONALD McCRORY and ROGER CHIASSON
SETTLEMENT AGREEMENT BETWEENSTAFF OF THE
ONTARIO SECURITIES COMMISSIONAND MICHAEL GOSELIN
1. By Notice of Hearing dated November 9,2001 (the "Notice of Hearing"), the Ontario SecuritiesCommission (the "Commission") announced that itproposed to hold a hearing to consider, among other things,whether pursuant to subsection 127(1) and section 127.1 ofthe Securities Act, R.S.O. 1990, c. S.5 (the "Act"),it is in the public interest for the Commission to make anorder:
(a) that trading in any securities by therespondent Michael Goselin ("Goselin") cease permanentlyor for such time as the Commission may direct;
(b) prohibiting Goselin from becoming oracting as a director or officer of any issuer permanentlyor for such period as specified by the Commission;
(c) reprimanding Goselin;
(d) requiring Goselin to pay the costs ofthe Commission's investigation and the hearing; and
(e) such other terms and conditions as theCommission may deem appropriate.
II. JOINT SETTLEMENT RECOMMENDATION
2. Staff of the Commission ("Staff")agrees to recommend settlement of the proceeding respectingGoselin initiated by the Notice of Hearing in accordance withthe terms and conditions set out below. Goselin 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
3. Solely for the purposes of this proceeding,and of any other proceeding commenced by a securities regulatoryagency, Staff and Goselin agree with the facts set out inparagraphs 4 through 23 of this Settlement Agreement.
(i) Goselin's Registration
4. Goselin became registered with the Commissionas a mutual funds representative in May 1988. From April 1989,Goselin was registered to sell mutual funds and limited marketproducts. During the material time, Triple A Financial ServicesInc. ("Triple A") sponsored Goselin's registration.Goselin has not been registered since December 2, 2001. Priorto becoming registered, Goselin was a bank manager for severalyears.
5. During the time that Triple A sponsoredGoselin, Roderick Alton ("Alton") was Triple A'sPresident and a director.
(ii) The North George Capital Limited Partnerships
6. In the mid-nineteen nineties, Alton andMichael Magee ("Magee") formed several limited partnerships.North George Capital Limited Partnership was formed on September8, 1995 pursuant to the laws of Ontario. North George CapitalII Limited Partnership, North George Capital III Limited Partnership,North George Capital IV Limited Partnership and North GeorgeCapital V Limited Partnership (collectively with North GeorgeCapital Limited Partnership, the "North George LimitedPartnerships" or the "Partnerships") were formedon August 16, 1996.
7. The general partner of the North GeorgeLimited Partnerships was North George Capital Management Limited("North George Management"). North George Managementwas a private corporation owned equally by Alton and Magee.
(iii) The Distribution of Units of theNorth George Limited Partnerships
8. The North George Limited Partnerships raisedfunds by offering investors/subscribers the opportunity topurchase units in one or more of the Partnerships. Each subscriberbecame a limited partner of the Partnership(s) in which heor she invested.
9. The North George Limited Partnerships initiallypromised a rate of return of over 120%, 60% to investors withthe possibility of a bonus. Through the sale of units, theNorth George Limited Partnerships raised approximately US$4.4million. Such sales did not go through Triple A or any otherregistered dealer.
10. The distribution of the North George LimitedPartnerships securities contravened section 53 of the Act.None of the North George Limited Partnerships filed a preliminaryprospectus or prospectus with the Commission.
11. The North George Limited Partnershipsprepared Offering Memoranda, according to which the Partnershipsrelied on the seed capital prospectus exemption containedin paragraph 72(1)(p) of the Act. Neither this, nor any other,prospectus exemption under the Act was available to the Partnerships.
12. Effectively, the Partnerships were oneissuer. Among other things, such Partnerships raised fundsbased on virtually identical Offering Memoranda and co-mingledinvestors' funds to be used for a common purpose. The NorthGeorge Limited Partnerships represented five tranches of thesame investment program. Several Partnerships were formedas an attempt to circumvent the seed capital exemption requirementthat sales be made to no more than 25 purchasers.
13. Only the Offering Memorandum of NorthGeorge Capital IV Limited Partnership was filed with the Commission.Only North George Capital IV Limited Partnership filed reports(Form 20's) as required under the Act.
14. The North George Limited Partnershipsgenerated little income. Any "interest" paid tosubscribers came largely out of other subscribers' capital.A small number of investors redeemed successfully their investment.Most investors lost a significant portion of their investment.
(iv) The Distribution of Lionaird CapitalCorp. Promissory Notes
15. In May 1997, Lionaird Capital Corp. ("Lionaird")was incorporated pursuant to the laws of Ontario. Lionairdwas a private corporation the shares of which were held byAlton, Magee and others in trust for an unnamed party. Altonwas the President, Chief Operating Officer and a directorof Lionaird. Magee was Lionaird's Vice-President and a director.Kenneth Gill ("Gill") also was an officer and adirector.
16. Lionaird raised monies through the saleof promissory notes to investors. Through the purchase ofpromissory notes by investors, Lionaird raised in excess of$3.4 million. Such sales did not go through Triple A or anyother registered dealer.
17. The distribution of Lionaird promissorynotes contravened section 53 of the Act. Lionaird did notfile a preliminary prospectus or a prospectus with the Commission.On September 12, 1997, Lionaird filed with the Commissionan Offering Memorandum dated July 25, 1997. The Lionaird OfferingMemorandum related to a purported private placement of 12%secured redeemable promissory notes. Such notes were describedin the Offering Memorandum as having a five year term andpaying interest of 12% per year with a potential bonus paymentof up to 12% to investors (the overall rate of return generatedto be significantly higher).
18. According to its Offering Memorandum,Lionaird relied on the private placement and seed capitalprospectus exemptions contained in paragraphs 72(1)(d) and(p) of the Act. Neither these, nor any other, prospectus exemptionsunder the Act were available to Lionaird.
19. Most of the investors in Lionaird lostall, or substantially all, of their investment.
(v) Goselin's Conduct
20. Between August 1995 and February 1998,Goselin sold approximately US$1.5 million worth of units inthe North George Limited Partnerships to 52 Ontario investorsand approximately $570,000 worth of Lionaird promissory notesto 19 investors. Many of Goselin's clients were retired oron the cusp of retirement. Many investors had been clientsof Goselin for several years and trusted him implicitly.
21. Goselin participated in illegal distributionsof a security and engaged in other conduct contrary to Ontariosecurities law and the public interest by:
(a) failing to deal fairly and in the bestinterests of his clients.
When Goselin started to sell the North GeorgeLimited Partnerships units to his clients, he had been registeredfor seven years. Goselin failed to conduct the appropriatedue diligence concerning the nature and quality of the Partnershipsand Lionaird investments and the requirements of Ontariosecurities law relating to their distributions.
Goselin made inquiries only of the principalsof the Partnerships and Lionaird, individuals who were inan obvious conflict position. For the most part, Goselintook their representations at face value notwithstandingdiscrepancies in the Offering Memoranda, a lack of crediblesupporting documentation and a logical inconsistency betweena "no risk" investment and high rates of return.
Goselin sold the North George Limited Partnershipsand Lionaird investments without fully understanding thenature of the investments and how they worked.
The Offering Memoranda prepared by the Partnershipsand Lionaird contained inconsistent statements and did notprovide a clear or logical explanation as to how the investmentworked and why it was able to generate significant ratesof return (in excess of 120% (60% to investors) in the caseof the Partnerships). He did not provide to certain investorsa copy of the Offering Memorandum prior to their purchase.Further, Goselin made statements to his clients which weredirectly contradicted in the Offering Memoranda.
Goselin failed to review adequately thefinancial statements of the Partnerships, which indicatedthat the "interest" being paid to investors wastaken largely from other investors' capital;
(b) representing to his clients:
(i) that the North George Limited Partnershipsand Lionaird investments were safe and that an investors'principal was 100% guaranteed notwithstanding, among otherthings, that the Offering Memoranda stated that the securitieswere speculative and the Lionaird Offering Memorandumstated that each note was secured against the assets ofthe company.
Goselin continued to assure clients thattheir principal invested in Lionaird was 100% guaranteedeven in the face of a company memorandum which explicitlystated that the notes were not guaranteed. Goselin toldcertain clients that their principal was insured;
(ii) that the North George Limited Partnershipsinvestment product was like a GIC;
(iii) that all his or her funds couldbe retrieved on 30 days' (90 days' for Lionaird) noticenotwithstanding, among other things, that the Lionairdnotes matured in five years and were only redeemable bythe company;
(iv) that the minimum investment was largerthan enumerated in the Offering Memoranda;
(v) that the Commission had approved forsale the investments; and
(vi) that the government had declaredLionaird as RRSP-eligible.
(c) recommending that investors borrow funds,or mortgage their homes, to invest in the North George LimitedPartnerships and/or Lionaird;
(d) selling Lionaird notes to investorsnotwithstanding that the North George Limited Partnershipswere facing difficulties and were failing to pay the promisedreturn, particularly given that the principals and generalinvestment strategy were the same for both investments;and
(e) recommending and selling investmentsunsuitable for his clients. Goselin advised clients to transferand redeem conservative investments to invest in the Partnershipsand Lionaird. In at least two cases, Goselin paid the redemptionfee. Certain elderly clients invested virtually all of theirretirement savings/RRSP monies in the North George LimitedPartnerships and/or Lionaird on the advice of Goselin.
Many of Goselin's clients were financiallyand emotionally devastated by the loss of their savings.Several of his clients' health suffered because of theirresulting anxiety and stress.
22. By selling units in the North George LimitedPartnerships and promissory notes of Lionaird to clients,Goselin earned commissions and trailer fees (ie monthly orquarterly payments on each client's investment) of approximately$378,600. The Offering Memoranda stated that no commissionswere payable.
23. In 1997, Goselin's wife invested US$50,000in the North George Limited Partnerships.
IV. GOSELIN'S POSITION
24. Goselin represents to Staff that in connectionwith his sales of units in the North George Limited Partnershipsand Lionaird promissory notes:
(a) he trusted Alton and relied on Alton'srepresentations and assurances that higher rates of returnswere possible, that the principal was guaranteed and thatthe investment was liquid;
(b) he believed that the investments wereliquid and guaranteed as to the principal; and
(c) he believed that the investments compliedwith Ontario securities law.
V. TERMS OF SETTLEMENT
25. Goselin agrees to the following termsof settlement:
(a) the making of an order:
(i) approving this settlement;
(ii) that trading in any securities byGoselin cease for twenty years with the exception that,after three years from the date of the approval of thissettlement, Goselin is permitted to trade securities througha registered dealer for the account of his registeredretirement savings plan (as defined in the Income TaxAct (Canada));
(iii) that Goselin is prohibited frombecoming or acting as an officer or director of a reportingissuer for twenty years; and
(iv) reprimanding Goselin.
VI. STAFF COMMITMENT
26. If this settlement is approved by theCommission, Staff will not initiate any other proceeding underthe Act against Goselin in relation to the facts set out inPart III of this Settlement Agreement.
VII. APPROVAL OF SETTLEMENT
27. Approval of the settlement set out inthis Settlement Agreement shall be sought at the public hearingof the Commission scheduled for November 18, 2002 or suchother date as may be agreed to by Staff and Goselin (the "SettlementHearing"). Goselin will attend in person at the SettlementHearing.
28. Counsel for Staff or Goselin may referto any part, or all, of this Settlement Agreement at the SettlementHearing. Staff and Goselin agree that this Settlement Agreementwill constitute the entirety of the evidence to be submittedat the Settlement Hearing.
29. If this settlement is approved by theCommission, Goselin agrees to waive his rights to a full hearing,judicial review or appeal of the matter under the Act.
30. Staff and Goselin agree that if this settlementis approved by the Commission, they will not make any publicstatement inconsistent with this Settlement Agreement.
31. 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 Goselin leading up to its presentation at the SettlementHearing, shall be without prejudice to Staff and Goselin;
(b) Staff and Goselin 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 Goselin or as may be required by law; and
(d) Goselin 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.
VIII. DISCLOSURE OF SETTLEMENT AGREEMENT
32. Except as permitted under paragraph 28above, this Settlement Agreement and its terms will be treatedas confidential by Staff and Goselin until approved by theCommission, and forever, if for any reason whatsoever thissettlement is not approved by the Commission, except withthe consent of Staff and Goselin, or as may be required bylaw.
33. Any obligations of confidentiality shallterminate upon approval of this settlement by the Commission.
IX. EXECUTION OF SETTLEMENT AGREEMENT
34. This Settlement Agreement may be signedin one or more counterparts which together shall constitutea binding agreement.
35. A facsimile copy of any signature shallbe as effective as an original signature.
November 15, 2002.
November 18, 2002.