IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990. c. S.5, as amended;
IN THE MATTER OF
THE STATUTORY POWERS PROCEDUREACT,
R.S.O. 1990, c. S.22, as amended;and
IN THE MATTER OF
SETTLEMENT AGREEMENT BETWEENSTAFF
OF THE ONTARIO SECURITIESCOMMISSION
AND MAUREEN KERBEL
1. Pursuant to section 5(1) of the "PracticeGuidelines - Settlement Procedures in Matters Before the OntarioSecurities Commission" of the Ontario Securities CommissionRules of Practice, Staff of the Ontario Securities Commissionand Maureen Kerbel ("Kerbel") propose to settlethe matters described further below.
2. Kerbel acknowledges that the facts setout in Part II of this Settlement Agreement are correct.
3. J.M. Charter Securities Corp. ("Charter")was, at all material times, registered under Ontario securitieslaw as a securities dealer. Effective May 9, 2001, the registrationof Charter was suspended. Kerbel was registered as a salespersonwith Charter from August 11, 1994 to May 21, 1996 and as adirector, trading officer and President of Charter from May21, 1996 to February 6, 2001. Kerbel is not registered currentlyin any capacity under Ontario securities law.
4. During the period from 1996 to 2000 (the"Material Time"), virtually all of Charter's businessconsisted of it acquiring stock for its own account and sellingthat stock to its clients (referred to below as "principaltrading").
5. During this same period, approximately84% of Charter's revenue was derived from principal tradingin the stock of five issuers (the "Five Issuers")referred to below. Stock of each of the Five Issuers was tradedthrough the Canadian Dealing Network ("CDN") and,in the case of stock traded after October 2, 2000, throughthe Canadian Venture Exchange ("CDNX").
6. The Five issuers are as follows:
1. Beverly Glen Capital Corp. ("Beverly");now Phonetime Inc.
2. Central Canada Foods Corp.(" Central")
3. FirstSmart Sensor Corp. ("FirstSmart");
4. GoldMint Explorations Ltd. ("GoldMint"),now Caspian Oil Tools Limited. ("Caspian");
5. Microsolve Computer Capital Inc. ("Microsolve");
7. In the case of the Five Issuers, Chartereither held stock in its inventory or options to acquire stockin each of the Five Issuers. In respect of the Five Issuers,Charter signed option agreements with various parties to acquirestock in the Five Issuers and options were exercised subsequentto the commencement of principal trading in the stock of theFive Issuers with Charter's clients.
8. Charter acquired stock in the Five Issuersat prices significantly lower than the selling price of thestock to its clients. Charter re-sold this stock to its ownclients at mark-ups above acquisition costs ranging from approximately255% to approximately 392%, which mark-ups were excessive.
9. During the Material Time, Charter's grossprofit (i.e. sale price less direct cost of sales)earned from principal trading in the stock of the Five Issuerswas approximately $8.5 million.
10. Particulars of the principal trading inthe Five Issuers by Charter are set out below.
Beverly Glen Capital Corp. ("Beverly")(now Phonetime Inc.(" Phonetime"))
11. Phonetime (formerly Beverly) is a reportingissuer in Ontario whose shares are currently traded throughthe CDNX. (Beverly changed its name to Phonetime on October28, 1999.)
12. During the period from January 2, 1998to September 24, 1998, Charter purchased 1,293,750 sharesof Beverly at an average price of $0.34 per share.
13. On November 27, 1997, Beverly was approvedfor quotation on the CDN. On or about December 3, 1997, Chartercommenced selling securities in Beverly to its clients at$1.65 per share.
14. During the Material Time, Charter soldsubstantially all of its shares to its clients at an averageprice of $1.39 per share, generating a gross profit of approximately$1.4 million. During this time, Charter accounted for approximately25% of the trading in Beverly.
15. Charter sold shares in Beverly/Phonetimeto its clients at a mark-up of approximately 309%, which mark-upwas excessive. Phonetime Inc. last traded on September 20,2002 at $0.21.
Central Canada Foods Corp. (Central)
16. Central is a reporting issuer in Ontarioand Quebec.
17. During the period from May 25, 1999 toDecember 29, 1999, Charter purchased 1,350,000 shares of Centralat an average price of $0.43 per share.
18. On March 17, 1999, Central was added tothe CDN system for reporting purposes only. On or about April14, 1999, Charter commenced selling securities in Centralto its clients at $1.40 per share.
19. During the Material Time, Charter soldsubstantially all of its shares to its clients at an averageprice of $1.63 per share, generating a gross profit of approximately$2 million. During this time, Charter accounted for approximately47% of the trading in Central.
20. Charter sold Central shares to its clientsat a mark-up of approximately 279%, which mark-up was excessive.Central last traded on July 22, 2002 at $0.04 per share.
FirstSmart Sensor Corp. (FirstSmart)
21. FirstSmart is a reporting issuer in Ontariowhose trades are now reported to the Canadian Unlisted Board.
22. During the period from July 31, 1998 toAugust 24, 2000, Charter purchased 3,580,065 shares of FirstSmartat an average price of $0.25 per share.
23. On June 18, 1998, FirstSmart commencedreporting its trades to CDN. On or about June 25, 1998, Chartercommenced selling securities in FirstSmart to its clientsat $0.80 per share.
24. During the Material Time, Charter soldsubstantially all of its shares to its clients at an averageprice of $1.23 per share, generating a gross profit of approximately$3.2 million. During this time, Charter accounted for approximately55% of the trading in FirstSmart.
25. Charter sold FirstSmart shares to itsclients at an average mark-up of 392%, which mark-up was excessive.FirstSmart's last reported trade to the CUB was on January4, 2001 at $0.10 per share.
GoldMint Explorations Ltd.(GoldMint) (nowCaspian Oil Tools Limited (Caspian))
26. Caspian Oil Tools Limited ("Caspian")(formerly known as GoldMint Explorations Ltd. ("GoldMint")until November 2, 1998, and as Axcension Capital Corp. (AAxcension)until July 5, 1999) is a reporting issuer in Ontario. Duringthe Material Time, trades of its shares were reported throughthe CDN. On March 14, 2001 the Commission ordered pursuantto subsection 127(8) of the Act that trading in securitiesin Caspian cease by reason of the failure by Caspian to fileinterim statements for the nine month period ended December31, 2000. This Order was extended by the Commission on March26, 2001 and remains in effect. Caspian is a reporting issuerin Ontario whose shares were listed on the CDN but which arepresently cease traded for failure to file annual and interimfinancial statements.
27. During the period from July 31, 1996 toJune 30, 1998, Charter purchased 1,100,000 shares of GoldMintat $0.22 per share.
28. On July 26, 1996, GoldMint was approvedfor quotation on the CDN. On or about August 1996, Charter'scommenced selling securities in GoldMint to its clients at$1.20 per share.
29. During the Material Time, Charter soldsubstantially all of its shares to its clients at an averageprice of $0.91 per share, generating a gross profit of approximately$0.6 million. During this time, Charter accounted for approximately19% of the reported trading of GoldMint.
30. Charter sold GoldMint shares to its ownclients at a mark-up of approximately 313%, which mark-upwas excessive. GoldMint last traded on the CDN on February2, 1999, as Axcension, at a price of $0.05 per share. It hasnot traded since that date.
Microsolve Computer Capital Inc. ("Microsolve")(nowHomebank Technologies Inc. ("Homebank"))
31. Homebank (formerly Microsolve) is a reportingissuer in Ontario whose shares trade on CDNX.
32. During the period from August 2, 1998to January 2, 1999, Charter purchased 1,190,000 shares ofMicrosolve at an average price of $0.44 per share.
33. On July 6, 1998, Microsolve was approvedfor quotation on the CDN. On or about July 7, 1998, Chartercommenced selling securities in Microsolve to its clientsat $0.80.
34. During the Material Time, Charter soldsubstantially all of its shares to its clients at an averageprice of $1.56 per share, generating a gross profit of approximately$1.2 million. During this time, Charter accounted for approximately39% of the trading in Microsolve/Homebank.
35. Charter sold Microsolve/Homebank sharesto its clients at an average mark-up of 255%, which mark-upwas excessive. Homebank last traded on September 19, 2002at $0.10 per share.
Conduct Contrary to Public Interest
36. In engaging in the conduct described above,Kerbel failed to deal fairly, honestly and in good faith withthe clients of Charter, in breach of the requirements setout in Ontario securities law, and in particular, subsections2.1(1) and (2) of Rule 31-505, and failed to act in the bestinterests of Charter's clients. Kerbel, in her position asdirector, President and trading officer of Charter duringthe Material Time, authorized, permitted or acquiesced inthe contraventions by Charter, as described above, and actedcontrary to the public interest.
III. POSITION OF KERBEL
37. Kerbel represents to Staff the followingmitigating factors to be considered in relation to the settlementagreement herein:
(a) Kerbel took steps in 2000 to changethe focus of the business activity of Charter from principaltrading to agency trading and to ensure that Charter wouldmeet the membership requirements of the Investment DealersAssociation of Canada, but was not successful in her efforts;
(b) In the latter part of 2000, when itbecame apparent to Kerbel that she could not effect thechanges referred to in paragraph 37(a) above, she undertookefforts from November 2000 to approximately mid April 2001to complete the transfer of securities owned by clientsto brokerage firms to ensure the orderly and voluntary windup of the operations of Charter.
IV. TERMS OF SETTLEMENT
38. Kerbel agrees to the following terms ofsettlement:
(a) Kerbel undertakes not to apply for registrationin any capacity for a period of two years from the dateof consent by the Executive Director of this settlementagreement;
(b) Kerbel undertakes not to act as an officeror director of a registrant or an officer or director ofany issuer in Ontario which has an interest directly orindirectly in any registrant for a period of five yearsfrom the date of consent by the Executive Director of thissettlement agreement;
(c) Kerbel undertakes not to purchase orsell securities for a period of two years from the dateof consent by the Executive Director of this settlementagreement, with the exception that she be permitted to purchaseor sell securities:
(i) in personal accounts in her name inwhich she has the sole beneficial interest; and
(ii) in registered retirement savingsplans in which she has sole beneficial interest;
(d) Kerbel undertakes to cooperate withthe Commission and its Staff with any investigation by Staffrelating to matters concerning other persons; and
(e) Kerbel acknowledges that the Directorretains discretion to consider her suitability for registrationpursuant to section 26 of the Act in the event that Kerbelseeks to apply for registration in any capacity under theAct, following the two year period referred to in clause(a) above. In the event of such application, Kerbel agreesthat she will not oppose the imposition of terms to herregistration, including terms of supervision and reportingrequirements should the Director, in exercising his or herdiscretion, deem appropriate the imposition of such termsin considering Kerbel suitability for registration.
39. Kerbel agrees that she will not, in anyproceeding, refer to or rely upon this Settlement Agreement,the settlement discussions/negotiations or the process ofobtaining the Executive Director's consent to this SettlementAgreement as the basis for any attack on the Commission'sjurisdiction, alleged bias or appearance of bias, allegedunfairness or any other remedies or challenges that may otherwisebe available.
V. STAFF COMMITMENT
40. If this settlement receives the consentof the Executive Director, Staff will not initiate any otherproceeding under the Act against Kerbel in relation to thefacts set out in Part II of this Settlement Agreement.
41. If this settlement receives the consentof the Executive Director, and at any subsequent time Kerbelfails to honour the terms contained in Part IV of this SettlementAgreement, Staff may initiate proceedings against Kerbel inrelation to facts set out in Part II herein and/or refer tothis Settlement Agreement in any future proceeding.
VI. APPROVAL OF SETTLEMENT
42. If, for any reason whatsoever, the ExecutiveDirector does not consent to this settlement:
(a) this Settlement Agreement and its terms,including all discussions and negotiations between Staffand Kerbel leading up to the execution of this SettlementAgreement, shall be without prejudice to Staff and Kerbel;
(b) Staff and Kerbel shall be entitled toall available proceedings, remedies and challenges, includingproceeding to a hearing of these matters before the Commission,unaffected by this Settlement Agreement or the settlementdiscussions/negotiations; and
(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 Kerbel or as may be required by law.
VII. DISCLOSURE OF SETTLEMENT AGREEMENT
43. This Settlement Agreement and its termswill be treated as confidential by Staff and Kerbel untilconsented to by the Executive Director, and forever, if forany reason whatsoever this settlement is not consented toby the Executive Director, except with the consent of Staffand Kerbel, or as may be required by law.
44. Any obligation of confidentiality shallterminate upon receiving the Executive Director's consentto this settlement.
45. Staff and Kerbel agree that if the ExecutiveDirector does consent to this settlement, they will not makeany public statement inconsistent with this Settlement Agreement.
VIII. EXECUTION OF SETTLEMENT AGREEMENT
46. This Settlement Agreement may be signedin one or more counterparts which together shall constitutebinding agreement.
47. A facsimile signature of any signatureshall be effective as an original signature.
November 21, 2002.
I hereby consent to the settlement of this matteron the terms contained in this Settlement Agreement.
November 29, 2002.