Securities Law & Instruments

IN THE MATTER OF

THE SECURITIES ACT

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

AND

IN THE MATTER OF

EDWARDS SECURITIES INC., DAVIDGERALD EDWARDS,

DAVID FREDERICK JOHNSON, CLANSMAN98 INVESTMENTS INC.

and DOUGLAS G. MURDOCK

 

ORDER

(Section 127 and 127.1)

WHEREAS on August 9, 2002 the OntarioSecurities Commission (the "Commission") issued aNotice of Hearing pursuant to sections 127 and 127.1 of theSecurities Act, R.S.O. 1990 c.S.5, as amended (the "Act")in respect of Edwards Securities Inc. ("ESI"), DavidGerald Edwards ("Edwards"), David Frederick Johnson,Clansman 98 Investments Inc. and Douglas G. Murdock;

AND WHEREAS ESI and Edwards entered intoa settlement agreement with Staff of the Commission dated December13, 2002 (the "Settlement Agreement") in which theyagreed to a proposed settlement of the proceeding, subject tothe approval of the Commission;

AND UPON reviewing the Settlement Agreementand the Statement of Allegations of Staff of the Commission,and upon hearing submissions from Edwards and from counsel forStaff of the Commission;

AND WHEREAS the Commission is of theopinion that it is in the public interest to make this Order;

IT IS ORDERED THAT:

(1) the Settlement Agreement dated December13, 2002 attached to this Order is hereby approved;

(2) pursuant to clause 1 of subsection 127(1)of the Act, Edwards' registration under Ontario securitieslaw is hereby terminated;

(3) pursuant to clause 2 of subsection 127(1)of the Act, Edwards is hereby permanently prohibited fromtrading in securities, with the exception of securities heldin his own name and listed on the Toronto Stock Exchange;

(4) pursuant to clause 6 of subsection 127(1)of the Act, Edwards is hereby reprimanded by the Commission;

(5) pursuant to clause 7 of subsection 127(1)of the Act, Edwards is hereby required to resign all positionsthat he currently holds as officer or director of ESI:

(6) pursuant to clause 7 of subsection 127(1)of the Act, Edwards is hereby required to resign all positionsthat he currently holds as officer or director of any issuer;

(7) pursuant to clause 8 of subsection 127(1)of the Act, Edwards is hereby permanently prohibited frombecoming or acting as an officer or director of any issuer;

(8) pursuant to subsection 127.1(1)(b) ofthe Act, Edwards will make a payment to the Commission inthe amount of $5,000.00 in respect of a portion of the costsof Staff's investigation of this matter;

(9) pursuant to clause 1 of subsection 127(1)of the Act, ESI's registration under Ontario securities lawis hereby terminated;

(10) pursuant to clause 2 of subsection 127(1)of the Act, ESI is hereby permanently prohibited from tradingin securities; and

(11) pursuant to clause 6 of subsection 127(1)of the Act, ESI is hereby reprimanded by the Commission.

December 17, 2002.

"Robert Davis"                    "HaroldHands"

 

IN THE MATTER OF

THE SECURITIES ACT

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

AND

IN THE MATTER OF

EDWARDS SECURITIES INC., DAVIDGERALD EDWARDS,

DAVID FREDERICK JOHNSON, CLANSMAN98 INVESTMENTS INC.

and DOUGLAS G. MURDOCK

 

SETTLEMENT AGREEMENT

BETWEEN STAFF, EDWARDS SECURITIESINC. and

DAVID GERALD EDWARDS

I INTRODUCTION

1. By Notice of Hearing dated August 9, 2002,the Ontario Securities Commission announced that it proposedto hold a hearing to consider whether, pursuant to sections127 and 127.1 of the Ontario Securities Act, it is in thepublic interest for the Commission:

(a) to make an order that trading in securitiesby the respondents, or any of them, cease permanently orfor such other period as specified by the Commission;

(b) to make an order that David Gerald Edwardsand David Frederick Johnson, or either of them, resign theirpositions as officers and/or directors of the respondentEdwards Securities Inc. ("ESI") and resign theirpositions as an officer and/or director of any other issuer;

(c) to make an order that Douglas G. Murdockresign his position as an officer and/or director of therespondent Clansman 98 Investments Inc. and resign his positionsas an officer and/or director of any other issuer;

(d) to make an order that Edwards, Johnsonand Murdock, or any of them, are prohibited from becomingor acting as a director or officer of any issuer;

(e) to make an order that the respondentsor any of them be reprimanded;

(f) to make an order that the respondents,or any of them, pay the costs of Staff's investigation inrelation to this proceeding;

(g) to make an order that the respondents,or any of them, pay the costs of the proceeding incurredby or on behalf of the Commission; and

(h) to make such other order as the Commissionconsiders appropriate.

II JOINT SETTLEMENT RECOMMENDATION

2. Staff of the Commission agree to recommendsettlement of the proceedings initiated in respect of therespondents by the Notice of Hearing in accordance with theterms and conditions set out below. Edwards and ESI agreeto the settlement on the basis of the facts agreed to as providedin Part III and consent to the making of an Order in the formattached as Schedule "A" on the basis of the factsset out in Part III.

3. This settlement agreement, including theattached Schedule "A" (collectively, the "SettlementAgreement"), will be released to the public only if andwhen the settlement is approved by the Commission.

III FACTS

4. ESI is a corporation incorporated underthe laws of Ontario with a registered office at 240 ArgyleAvenue in Ottawa. ESI was registered with the Commission asa Dealer in the category of Securities Dealer from September15, 1988 to March 6, 2000.

5. Johnson is an individual residing in Ontario,and was at all material times the President and sole Directorof ESI. Johnson was registered with the Commission as ESI'sdesignated Trading Officer from September 15, 1988 to March6, 2000.

6. Edwards was at all material times an officerand the owner of the majority of the shares of ESI. Edwardswas registered with the Commission as a Salesperson of ESIfrom September 22, 1988 to March 6, 2000.

Mercristo Developments Inc.

7. Mercristo Developments Inc. is a corporationincorporated pursuant to the laws of Delaware, which tradedon the OTC Bulletin Board under the symbol "MDEX".At all material times, Edwards was the President, Chief ExecutiveOfficer, Chief Financial Officer, Director and the owner ofthe majority of the shares of Mercristo. In 1998, Mercristochanged its name to Addison Industries Inc., which tradesunder the symbol "ADIS".

Clansman 98 Investments Inc. and DouglasMurdock

8. Clansman 98 Investments Inc. is a corporationincorporated under the laws of Ontario with a registered officeat 3660 Hurontario Street in Mississauga. Clansman has neverbeen registered in any capacity under the Act, and is nota reporting issuer in Ontario.

9. Douglas G. Murdock was at all materialtimes the President, Secretary, Treasurer and sole Directorof Clansman. He has never been registered in any capacityunder the Act.

Trading Without a Prospectus

10. During the period between February andApril, 1998 ESI, Clansman, Edwards and Murdock traded in securities,namely shares of Clansman, where such trading constituteda distribution of securities, without a receipted prospectus.

11. Clients of ESI were contacted by Edwardsand offered an opportunity to invest in shares of Clansman.Clients who expressed interest in this opportunity were showna package of documents relating to Clansman's proposed acquisitionof Harding Carpet Canada Ltd., a company located in Brantford,Ontario which was then in receivership.

12. Clients wishing to invest in Clansmanwere informed that its shares could only be purchased in "units"of at least $12,500. Those who chose to invest were askedto execute a document titled "Expression of Interest".This document stated that ESI was acting as agent for Clansman,and that the investor would be purchasing "Class C CommonShares" of Clansman. This executed document was to bereturned to ESI accompanied by a cheque representing paymentin full for the requested shares.

13. As a result of these promotional activities,at least $1,412,750 was raised from at least 89 individualinvestors. The majority of these individual investors wereclients of ESI.

Failure to Disclose Commission

14. ESI, Clansman, Edwards and Murdock failedto disclose to investors that ESI received a commission of20% on the sale of all Clansman shares.

Failure to Disclose Interest

15. Clansman and Murdock did not employ investors'funds to acquire the business of Harding Carpets, as theyoriginally represented. Instead, the majority of the fundsraised were used to purchase shares of Mercristo, a companyowned and directed by Edwards. Investors were never informed,prior to their investment in Clansman, that their funds wouldbe employed in this way.

Closure of ESI

16. On March 6, 2000, Johnson resigned fromESI. With the departure of its Designated Trading Officer,ESI's registration under Ontario securities law was suspended.Edwards' registration under Ontario securities law was thereforesuspended as of the same date.

Edwards' Bankruptcy

17. Edwards made a voluntary assignment inbankruptcy on April 10, 2001 and was granted an automaticdischarge on January 11, 2002.

IV TERMS OF SETTLEMENT

18. Edwards and ESI agree to the followingterms of settlement:

(a) pursuant to clause 1 of subsection 127(1)of the Act, Edwards' registration under Ontario Securitieslaw will be terminated, effective the date of the Orderof the Commission approving this proposed settlement agreement;

(b) pursuant to clause 2 of subsection 127(1)of the Act, Edwards will be permanently prohibited fromtrading in securities, with the exception that he will bepermitted to trade in securities listed on the Toronto StockExchange for his own account, effective the date of theOrder of the Commission approving this proposed settlementagreement;

(c) pursuant to clause 6 of subsection 127(1)of the Act, Edwards will be reprimanded by the Commission;

(d) pursuant to clause 7 of subsection 127(1)of the Act, Edwards will be required to resign all positionsthat he currently holds as officer or director of ESI, effectivethe date of the Order of the Commission approving this proposedsettlement agreement;

(e) pursuant to clause 7 of subsection 127(1)of the Act, Edwards will be required to resign all positionsthat he currently holds as officer or director of an issuer,effective the date of the Order of the Commission approvingthis proposed settlement agreement;

(f) pursuant to clause 8 of subsection 127(1)of the Act, Edwards will be permanently prohibited frombecoming or acting as an officer or director of any issuer,effective the date of the Order of the Commission approvingthis proposed settlement agreement;

(g) pursuant to subsection 1 of section127.1 of the Act, Edwards will make a payment of $5000.00towards the costs of Commission Staff's investigation ofthis matter.

(h) Edwards undertakes never to re-applyfor registration under Ontario securities law;

(i) pursuant to clause 1 of subsection 127(1)of the Act, ESI's registration under Ontario Securitieslaw will be terminated, effective the date of the Orderof the Commission approving this proposed settlement agreement;

(j) pursuant to clause 2 of subsection 127(1)of the Act, ESI will be permanently prohibited from tradingin securities, effective the date of the Order of the Commissionapproving this proposed settlement agreement;

(k) pursuant to clause 6 of subsection 127(1)of the Act, ESI will be reprimanded by the Commission; and

(l) ESI undertakes never to re-apply forregistration under Ontario securities law.

V STAFF COMMITMENT

19. If this Settlement Agreement is approvedby the Commission, Staff will not initiate any complaint tothe Commission or request the Commission to hold a hearingor issue any order in respect of any conduct or alleged conductof the respondents in relation to the facts set out in PartIII of this Settlement Agreement.

VI PROCEDURE FOR APPROVAL OF SETTLEMENT

20. The approval of the settlement as setout in the Settlement Agreement shall be sought at a publichearing before the Commission scheduled for such date as isagreed to by Staff and Edwards and ESI in accordance withthe procedures described herein and such further proceduresas may be agreed upon between Staff and Edwards and ESI.

21. If this Settlement Agreement is approvedby the Commission, it will constitute the entirety of theevidence to be submitted respecting Edwards and ESI in thismatter and Edwards and ESI agree to waive any right to a fullhearing and appeal of this matter under the Act.

22. If this Settlement Agreement is approvedby the Commission, the parties to this Settlement Agreementwill not make any statement that is inconsistent with thisSettlement Agreement.

23. If, for any reason whatsoever, this settlementis not approved by the Commission, or the Order set forthin Schedule "A" is not made by the Commission:

(a) each of Staff and Edwards and ESI willbe entitled to proceed to a hearing of the allegations inthe Notice of Hearing and related Statement of Allegationsunaffected by the Settlement Agreement or the settlement;

(b) the terms of the Settlement Agreementwill not be raised in any other proceeding or disclosedto any person except with the written consent of Staff andEdwards and ESI or as may be otherwise required by law;and

(c) Edwards and ESI further agree that theywill not raise in any proceeding the Settlement Agreementor the negotiation or process of approval thereof as a basisfor any attack on the Commission's jurisdiction, allegedbias, appearance of bias, alleged unfairness or any otherchallenge that may otherwise be available.

24. If, prior to the approval of this SettlementAgreement by the Commission, there are new facts or issuesof substantial concern, in the view of Staff, regarding thefacts set out in Part III of this Settlement Agreement, Staffwill be at liberty to withdraw from this Settlement Agreement.Notice of such intention will be provided to Edwards and/orESI in writing, and any cheques provided to Staff by Edwardsand/or ESI representing payment of investigation costs willbe returned. In the event of such notice being given, theprovisions of paragraph 23 in this part will apply as if thisSettlement Agreement had not been approved.

VII DISCLOSURE OF AGREEMENT

25. Staff or Edwards or ESI may refer to anypart or all of this Settlement Agreement in the course ofthe hearing convened to consider this agreement. Otherwise,this Settlement Agreement and its terms will be treated asconfidential by all parties to the Settlement Agreement untilapproved by the Commission, and forever if, for any reasonwhatsoever, this settlement is not approved by the Commission.

26. Any obligation as to confidentiality shallterminate upon the approval of this Settlement Agreement bythe Commission.

VIII EXECUTION OF SETTLEMENT AGREEMENT

27. This Settlement Agreement may be signedin one or more counterparts which together shall constitutea binding agreement and a facsimile copy of any signatureshall be as effective as an original signature.

December 11, 2002.

"David Gerald Edwards"
David Gerald Edwards

December 11, 2002.

"David Gerald Edwards"
Edwards Securities Inc.
Per: David Gerald Edwards

December 13, 2002.

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