IN THE MATTER OF
THE SECURITIES ACT
R.S.O. 1990, C.5, AS AMENDED
- AND -
IN THE MATTER OF
ROBERT CASSELS, MURRAY HOULT POLLITT
AND POLLITT & CO. INC.
SETTLEMENT AGREEMENT BETWEEN
STAFF OF THE COMMISSION AND ROBERT CASSELS
1. By Notice of Hearing dated August 30, 2004, in respect of Robert Cassels et al., the Ontario Securities Commission announced that it proposed to hold a hearing to consider whether, pursuant to sections 127 and 127.1 of the Securities Act, R.S.O. 1990, c. S.5, as amended, (the "Act") it is in the public interest for the Commission to make orders as specified therein.
II. JOINT SETTLEMENT RECOMMENDATION
2. Staff recommend settlement of the allegations against the Respondent Robert Cassels in accordance with the terms and conditions set out below. Cassels agrees to the settlement on the basis of the facts and conclusions agreed to as provided in Part IV and consents to the making of an order against him in the form attached as Schedule "A" on the basis of the facts set out in Part IV.
3. This settlement agreement, including the attached Schedule "A" (collectively, the "Settlement Agreement") will be released to the public only if and when the Settlement Agreement is approved by the Commission.
4. Staff and Cassels agree with the facts and conclusions set out in Part IV of this Settlement Agreement.
IV. AGREED FACTS
5. Murray Hoult Pollitt ("Pollitt") is registered in Ontario under the Act as a trading officer and director, Vice-President and Secretary of Pollitt & Co. Inc. ("Pollitt & Co.") and also serves in the capacity of designated compliance officer of the firm. Pollitt holds an approximate 80% ownership interest in Pollitt & Co.
6. Pollitt & Co. Inc is registered in Ontario as a dealer in the category of broker.
7. Robert Cassels is registered in Ontario as an investment counsel and portfolio manager with the firm Cassels Investment Management Inc. ("CIM"). Cassels is an officer and director and holds an approximate 70% ownership interest in CIM. Cassels serves as CIM's Chief Compliance Officer and Ultimate Responsible Person. CIM was a client of Pollitt & Co. at the material time.
Pollitt Contacts Robert Cassels to Advise of Bought Deal
8. On November 11, 2002 at approximately 3:08 p.m. Cassels at CIM received a voicemail message from Pollitt advising of a $100 million convertible debenture bought deal financing for Agricore United and indicating that if Cassels was interested in participating in the deal he should contact Pollitt. At approximately 3:14 p.m. Cassels spoke to Pollitt and was advised of the terms of the bought deal. At the time of these communications, CIM held 69,750 shares of Agricore on behalf of various clients.
Robert Cassels Contacts His Broker about Agricore
9. Following Cassels' discussion with Pollitt, at approximately 3:26 p.m. Cassels called his registered representative (the "RR") at TD Waterhouse. During the course of this telephone discussion between Cassels and the RR, the following was stated:
Cassels: .. .I'm in a bit of a quandary and I need your guidance with respect to this. .. this is absolutely confidential because I don't know if I am suppose to know it or not.. .on Agricore United, that's AU on Toronto, um, I've got 69,750 shares I want to sell them but the reason I want to sell them is that the broker called me and told me there was a convertible issue coming.
Cassels: I haven't seen that on the wires yet and so I don't know if I'm suppose to know that and so I don't know if I'm trading on inside information.
RR: Well, was it speculation, I mean did he speculate?
Cassels: No, no, he knows.
RR: He knows for sure?
Cassels: He knows for sure and he...
RR: How does he know? And I don't want to know by the way,
Cassels: You and I are in the same position except I own shares and he called me directly to ask if I wanted to buy it
RR: Agricore, well there's news on it here, I mean 1...
Cassels: What's the news?
RR: Um, it's not today's news so...
Cassels: Okay, no that's old
RR: How could he know for sure?
Cassels: He's in the underwriting group.
RR: Well, let me see if that is public. I'll just ask around.
Cassels: Uh, no don't ask anyone...it will come out as a new release, will it come out on Dow Jones the fastest or on Reuters?
RR: Dow, Bloomberg...if you don't want to sell ahead of it then that's fine.
Cassels: Well, I don't think I'm suppose to, do you?
RR: It depends. I mean if the issue has been talked about, you know they, there were some restructuring things they were doing
RR: There was some, it looks like they acquired Saskatchewan Wheatpool and it looks like they have been doing something
Cassels: Yeah, they have
RR: There could be a public story on it already
RR: And his intention to put out some kind of income trust could be public knowledge, I don't know, I have no knowledge of it.
Cassels: No this is not an income trust this is just a convertible which is usually hard on stock prices, right?
Cassels: Okay so anyway, I've got 69,750 to sell
RR: Okay where do you let it go
Cassels: I'm pretty aggressive in front of a convertible uh, it's currently bid about 6 bucks. I'd start right here and uh..
RR: Well I have no knowledge of this stuff, so you're talking to somebody whose ignorant.. .so you know...
Cassels: Yeah, normally if someone tells you...
RR: I don't know if they are speaking from knowledge or from recommendation or if they're just guessing.
RR: So you want me to sell it?
RR: Alright its 6 dollars bid right now and it doesn't look like it's going to go up from here.
Cassels: No it's not going up.
RR: All right well, let me come back, hopefully I can get this thing done if I can find some interest.
Cassels: Yeah.. .and I'm pretty aggressive on selling it so...
RR: And do you have a lower limit or just.. .
Cassels: I don't know what the lower limit is.. .um
RR: Alright. Okay, let me come back.
Cassels: And maybe we just have to go on the market but maybe you could get a bid for it, I don't know.
RR: Sure, I'll find out.
Cassels: Okay thanks.. .Oh will you call me on my cell...
13. At approximately 3:30 p.m. a sell ticket was issued by the RR to sell 69,750 shares of Agricore on behalf of CIM. At approximately 3:32 p.m. 3,700 shares of Agricore were sold on the market at $6.00.
14. Immediately following this conversation, Cassels called Agricore at approximately 3:36 p.m. Cassels represents to Staff that he called Agricore to ascertain whether the issue was public and that he was unable to speak to anyone at Agricore other than the receptionist.
15. Subsequent to this trade taking place, at approximately 3:34 p.m. the RR spoke with his superior about his discussion with Cassels. Immediately following this conversation, at 3:38 p.m. the RR called Cassels and left a message advising that he did not think he could go ahead and sell the stock without further clarification in respect of the information known to Cassels.
16. At approximately 3:38 p.m. while the RR was leaving the message referred to in the preceding paragraph, trading in shares of Agricore was halted by the TSX. At approximately 3:40 p.m., Agricore issued a press release announcing that it had "entered into a bought deal agreement to issue and sell to a syndicate of underwriters co-lead by Scotia Capital Inc. and National Bank Financial Inc. $100 million aggregate principal amount of 9.0% convertible unsecured subordinated debentures due November 30, 2007".
17. Shortly after the RR left Cassels the message referred to in paragraph 15 above, Cassels contacted the RR at 3:40 p.m. and advised that he agreed the stock should not be sold without further clarification. The RR then advised Cassels that "I just sold some stock and it just went halted so I think I am in big trouble here."
18. Cassels and the RR continued their conversation at 3:45 p.m. and the following was stated:
Cassels: ....my feeling is if there is any uncertainty at all, I don't want to do it, okay
Cassels: So, I want to stress that...
RR: and unfortunately I acted on it and I shouldn't have.
Cassels: I thought you were going to call back, but if, but it doesn't matter as long as the intention is not to do anything wrong and you're prepared to reverse it if there's any uncertainty, there shouldn't be any trouble.
Cassels: And I am cause I to me it's not clear and I don't want to do anything that's not clear.
RR: The question is was it material obviously the Exchange has halted it, plus
Cassels & RR: it must have been material
RR: So it was a bad call on my part.
19. The sale of the 3,700 shares which were sold prior to the halt was subsequently reversed. Further, the sale of the 3,700 shares was never booked into CIM's clients' account.
20. The market price of Agricore at the time trading was halted on November 11, 2002 was $6.00. When Agricore resumed trading on November 12, 2002 it opened at $5.90 and closed at $5.31. By the close of markets on Friday, November 15, 2002 Agricore was trading at $5.14.
21. Cassels represents to Staff that when he initially contacted his RR and had the conversation described in paragraph 9, it was not his intention at that time to place an order to sell the Agricore shares, until he ascertained whether the bought deal was public and what the market conditions were. Cassels specifically advised his RR that he needed "guidance" as he did "not know if [he] was trading on inside information". It was Cassels understanding at the end of the initial conversation that his RR was going to ascertain market conditions, including determining if there was a bid for securities, and that no sale would be effected (no lower limit having been set) unless and until the RR got back to him and until there was confirmation that the bought deal was public.
22. Cassels represents to Staff that it was not his intention to trade on material inside information. However, Cassels acknowledges that his language was unclear, susceptible to misinterpretation and that the RR could have concluded that he had placed an order to sell the Agricore shares. Cassels recognizes that he ought to have used clearer language to express his intent and indeed has an obligation as a registrant to do so.
23. Cassels has participated in the securities industry since 1988 and has been a registrant since 1989. Cassels has not previously been the subject of any investigation or proceeding by Staff and his conduct has not previously been a concern for Staff.
24. Cassels has fully co-operated with Staff during the investigation and throughout the settlement negotiations both before and after the issuance of the Notice of Hearing.
Conduct Contrary to the Public Interest
25. Cassels conduct in failing to use clear and unambiguous instructions in communications with his RR constituted a breach of his obligation as a market participant under the Act to adhere to and act in accordance with high standards of responsible business conduct and was contrary to the public interest.
V. TERMS OF SETTLEMENT
26. Cassels agrees to the following terms of settlement:
(a) pursuant to clause 1 of subsection 127(1) of the Act, the registration granted to Cassels under the Act will be suspended for a period of 30 days effective from the date of the order of the Commission approving the Settlement Agreement;
(b) pursuant to clause 127(2) of the Act, Cassels is required to successfully complete the Canadian Securities Institute's Conduct and Practices Handbook Course within one year of the date of the order of the Commission approving the Settlement Agreement;
(c) pursuant to clause 6 of subsection 127(1) of the Act, Cassels will be reprimanded by the Commission;
(d) pursuant to section 127.1 of the Act, Cassels agrees to make payment by certified cheque to the Commission in the amount of $6,000 in respect of a portion of the costs of the investigation and proceeding in relation to this matter; and
(e) Cassels agrees to attend, in person, the hearing before the Commission on November 17, 2004, or such other date as may be agreed to by the parties for the scheduling of the hearing to consider the Settlement Agreement.
VI. STAFF COMMITMENT
27. If this Settlement Agreement is approved by the Commission, Staff will not initiate any other proceeding under the Act against Cassels in relation to the facts set out in Part IV of this Settlement Agreement, subject to the provisions of paragraphs 32 and 33 below.
VII. PROCEDURE FOR APPROVAL OF SETTLEMENT
28. Approval of this Settlement Agreement shall be sought at a public hearing of the Commission scheduled for November 17 2004 (the "Settlement Hearing") or such date as may be agreed to by Staff and Cassels.
29. Staff or Cassels may refer to any part, or all, of the Settlement Agreement at the Settlement Hearing. Staff and Cassels agree that the Settlement Agreement will constitute the entirety of the evidence to be submitted at the Settlement Hearing, unless the parties agree that further evidence should be submitted at the Settlement Hearing.
30. If the Settlement Agreement is approved by the Commission, Cassels agrees to waive his right to a full hearing, judicial review or appeal of the matter under the Act.
31. Staff and Cassels agree and undertake that if the Settlement Agreement is approved by the Commission, he will not make any statement inconsistent with this Settlement Agreement.
32. If Cassels fails to honour the agreement contained in paragraph 31 of this Settlement Agreement, Staff reserve the right to bring proceedings under Ontario securities law against Cassels based on the facts set out in Part IV of this Settlement Agreement, as well as the breach of the Settlement Agreement.
33. If the Settlement Agreement is approved by the Commission, and at any subsequent time Cassels fails to honour any of the Terms of Settlement set out in Part V herein, Staff reserve the right to bring proceedings under Ontario securities law against Cassels based on the facts set out in Part IV of the Settlement Agreement, as well as the breach of the Settlement Agreement.
34. Whether or not the Settlement Agreement is approved by the Commission, Cassels agrees that he will not, in any proceeding, refer to or rely upon the Settlement Agreement or the settlement negotiations as the basis of any attack on the Commission's jurisdiction, alleged bias or appearance of bias, alleged unfairness or any other remedies or challenges that may otherwise be available.
35. If, for any reason whatsoever, the Settlement Agreement is not approved by the Commission, or an order in the form attached as Schedule "A" is not made by the Commission;
(a) the Settlement Agreement and its terms, including all settlement negotiations between Staff and Cassels leading up to its presentation at the Settlement Hearing, shall be without prejudice to Staff and Cassels;
(b) Staff and Cassels shall be entitled to all available proceedings, remedies and challenges, including proceeding to a hearing on the merits of the allegations in the Notice of Hearing and Statement of Allegations of Staff, unaffected by the Settlement Agreement or the settlement negotiations; and
(c) the terms of the Settlement Agreement will not be referred to in any subsequent proceeding, or disclosed to any person except with the written consent of Staff and Cassels, or as may be required by law.
VIII. DISCLOSURE OF SETTLEMENT AGREEMENT
36. The Settlement Agreement and its terms will be treated as confidential by Staff and Cassels until approved by the Commission, and forever if, for any reason whatsoever, the Settlement Agreement is not approved by the Commission, except with the written consent of Staff and Cassels, or as may be required by law.
37. Any obligations of confidentiality shall terminate upon approval of the Settlement Agreement by the Commission.
IX. EXECUTION OF SETTLEMENT AGREEMENT
38. The Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement.
39. A facsimile copy of any signature shall be as effective as an original signature.
Signed in the presence of:
November 12, 2004.
Signed in the presence of:
November 11, 2004"