Securities Law & Instruments
IN THE MATTER OF
THE REGISTRATION OF JACK WALL
OPPORTUNITY TO BE HEARD BY THE DIRECTOR
SECTION 26(3) OF THE SECURITIES ACT
August 23, 2007
David M. Gilkes
Manager, Registrant Regulation
For the staff of the Commission
For Jack Wall
1. Jack Wall applied to have his company, Cottler Financial Corporation (Cottler), registered as a Limited Market Dealer. The Ontario Securities Commission (OSC) received the application dated November 22, 2006 on November 29, 2006. On January 16, 2007, the OSC received an application for the registration of Jack Wall (the Applicant) in the category of trading officer and also to be the designated compliance officer, a director, and a shareholder of Cottler. A firm cannot be registered as a dealer without a designated compliance officer who must be a registered trading officer of the firm.
2. Upon receipt of the application for registration, staff conducted the standard criminal and intelligence checks on Mr. Wall. The intelligence check revealed there to be two civil legal proceedings naming Mr. Wall, and/or entities that he is connected to, as defendants.
3. Item 15 of Form 33-109F4 -- Registration Information for an Individual (Form F4) requires that an individual seeking registration disclose any current and past civil proceedings. In addition, subsection 8(b) of Form 3 -- Application for Registration as a Dealer, Adviser or Underwriter (Form 3) requires disclosure of any civil proceedings where fraud was alleged. Mr. Wall made untrue statements in the applications by failing to disclose the civil proceedings as required by Form 3 and Form F4.
4. On February 12, 2007, OSC staff informed Mr. Wall that it would recommend to the Director that the application for registration of Mr. Wall be refused. In accordance with subsection 26(3) of the Securities Act, Mr. Wall has exercised his right to an opportunity to be heard by the Director, before the Director makes a decision concerning the application.
5. The opportunity to be heard was conducted in person on June 22, 2007, at the premises of the OSC.
6. OSC staff recommended that the Applicant be refused registration on the basis that he filed a false affidavit and the nature of the allegations in the claims.
7. Counsel for staff noted that Mr. Wall filed two false affidavits with the OSC. The first under item 9 of Form 3 and the second under item 15 of Form F4. These two forms ask the same question using slightly different language. The question asks whether you, or any firm in which you were a directing mind, have ever been a defendant in a civil proceeding alleging fraud, theft, deceit, misrepresentation or similar conduct.
8. The Applicant is an officer, director and shareholder of a number of companies including: Cottler, JMS Capital Corporation (JMS), 1597318 Ontario Inc. (1597318), 1378923 Ontario Inc., and 655947 Ontario Inc. (655947).
9. OSC staff found two civil claims when conducting the standard intelligence check on the registration application. In the first claim JMS, Stephen Katmarian and Mary Vorvis (Mr. Wall's partners at JMS) were named as defendants, and in the second claim Jack Wall, Stephen Katmarian, Mary Vorvis, JMS and 655947 were named as defendants. Both claims contained allegations of fraud, misrepresentations, and negligence.
10. The Applicant serves as President of JMS and owns one-third of the company. There are two other owners, Mary Vorvis and Stephen Katmarian. JMS are the first initials of the three owners. JMS provides start-up companies with basic management services such as bookkeeping, corporate reorganizations, reporting services, corporate governance and other financial services. JMS is active in raising funds and serves as a liaison between junior companies and various accounting and legal professions.
11. In one claim the plaintiff's allegations include that JMS did not tell them that Stephen Katmarian was the subject of IDA disciplinary proceedings about his conduct with a company called Rampart Securities. The IDA found Stephen Katmarian had contravened their bylaws and banned him from registration for 15 years.
12. Counsel for staff presented the case law relating to misrepresenting or withholding information from the regulator. It is clear that non-disclosure of information has a serious bearing on the integrity of the individual applicant.
13. Counsel for the Applicant began his submissions by bringing forward two additional civil claims that should have been disclosed under item 15 of Form F4. The third claim named JMS as a defendant and the fourth claim named JMS, 1597318, Jack Wall, Stephen Katmarian and Mary Vorvis as defendants. The third claim had been settled. The fourth is still before the courts but has been amended to remove the allegations of breach of fiduciary duty, breach of trust, conspiracy and fraud.
14. Counsel for the Applicant admitted that all four claims should have been disclosed in the application for registration. However, counsel for the Applicant asserted that the omission was not intentional and that Mr. Wall did not act deliberately to hide information from the OSC.
15. The Applicant essentially put the blame on his solicitor that assisted in completing the Form F4 for not disclosing the claims under item 15. The Applicant said:
My recollection is that I didn't really focus right on the actual question itself. I think that inadvertently I just ticked it off "no" relying on the -- on my solicitor, having gotten that previous letter that he would be reviewing this and checking it over and assisting me in preparing -- correcting anything I may have answered incorrectly, ticked it off inadvertently. I realize now that that was a mistake, but that's the reason I did it and submitted it in that way to him. And they finalized the documents, it appears, and submitted them to the Exchange, and I was never advised that anything was inappropriately filled out.
(In the Matter of an Opportunity to be Heard by the Director under Subsection 26(3) of the Securities Act and in the Matter of Jack Wall (2007) (transcript) p.35)
16. Counsel for the Applicant presented a letter from Mr. Wall's solicitor that enclosed an Form F4 from August 2005 that Mr. Wall had partially completed. In the letter, the solicitor indicated that he would check the form for completeness but noted that Mr. Wall was to "complete it as accurately as possible". (Counsel for Jack Wall, Application Brief, tab 17)
17. The Director asked the Applicant about the August 2005 Form F4 and why it had not been submitted to the OSC at that time. The Applicant noted that the 2005 application for registration was going to be filed on behalf of the three partners. He then became aware of other situations that were going on. One of the "other situations" was the IDA decision relating to Stephen Katmarian and his 15-year ban from registration. Mr. Wall was now filing as the sole owner of Cottler.
18. Counsel for the Applicant also examined in detail the nature of the four claims. He asserted that the claims did not have merit and should not be used as a basis to refuse the registration of Mr. Wall.
19. The Applicant said in his testimony that he was winding down JMS and has had no further dealings with Stephen Katmarian or Mary Vorvis. However, did not provide any evidence of that wind down.
20. In relation to the case law presented by counsel for staff, counsel for the Applicant tried to differentiate them from the situation involving Mr. Wall. In particular, counsel for the Applicant noted that, in each of the cases, there was some activity in addition to non-disclosure that was being examined by the decision maker. At the very least there was a pattern of non-disclosure in these cases.
Suitability for Registration
21. As noted in numerous decisions by the Ontario Securities Commission, other securities commissions and the courts, registration is a privilege and not a right. As a result, the role of OSC staff in determining whether an individual is suitable for registration is a particularly important component of its mandate to protect investors. This point was made by the Ontario Securities Commission in the Jan Michalik decision:
In pursuing the purposes of the Act, including protecting the investing public, the Commission is required to have regard to certain fundamental principles, such as the requirements to maintain high standards of fitness and business conduct to ensure honest and reputable conduct by registrants. Registrants have a very important function in the capital markets and they are also in a position where they may potentially harm the public. Regulating conduct of registrants is a matter of public interest.
(Re Jan Michalik, (2007), 30 OSCB 6659)
22. The high standard referred to in Jan Michalik is the fit and proper standard for registration. This standard is based on three well established criteria that have been identified by the OSC:
The [Registrant Regulation] section administers a registration system which is intended to ensure that all Applicants under the Securities Act and the Commodity Futures Act meet appropriate standards of integrity, competence and financial soundness ...
(Ontario Securities Commission, Annual Report 1991)
23. OSC staff look at the honesty and the character of the applicant when analyzing integrity. In particular, staff examines the applicant's dealings with clients, compliance with Ontario securities law and other applicable laws, and the use of prudent business practices.
24. OSC staff must base its analysis on the information submitted through the Form 3 and the Form F4 and other information obtained from internal sources. OSC staff naturally base their recommendation on the past activities of the applicant, as recognized by the Ontario Securities Commission in the Mithras Management Ltd.:
... so we must, of necessity, look to past conduct as a guide to what we believe a person's future conduct might reasonably be expected to be; we are not prescient, after all.
(Re Mithras Management Ltd., (1990) 13 OSCB 1600)
25. Counsel for the Applicant argued that the Director should not rely solely on the allegations made in the four claims to refuse registration. It is not the role of the Director to determine the merits of matters before other decision makers and it is noted that at the time of the opportunity to be heard three of the four claims were still proceeding before the courts. However, allegations of fraud and misrepresentation must be taken seriously. That there were four such claims is a cause for concern.
26. According to his Form F4, the Applicant has run his own businesses since 1986. The nature of the businesses would mean that he has had many legal dealings, for example, one business deals primarily in real estate. I find it unusual that a business person would not turn his attention to the details of an application for registration.
27. While the Applicant said he relied on his solicitor for completing the Form F4 properly, the correspondence from his lawyer clearly indicates that Mr. Wall was to fill it out accurately and the lawyer would follow-up on missing information. In the end, it is the Applicant that attests that the content of the document is true.
28. The evidence shows that the four claims have not been dormant and the Applicant did not assert that he was not aware of the claims.
29. Counsel for the Applicant argued that the non-disclosure was not intentional and there was no pattern of not disclosing information. Reviewing the Form F4 that was completed in August 2005, there were no civil proceedings disclosed under item 15, although there were two civil claims alleging fraud at that time. The Form 3 filed with the OSC to register Cottler in November 2006, did not disclose any civil proceedings although there were four civil claims at this time. In January 2007, the Applicant filed an Form F4 that did not disclose any of the four claims. After OSC staff notified the Applicant that two claims had been found, he did not reveal the other two claims until the time of the opportunity to be heard. A copy of the August 2005 Form 3 for the proposed dealer was not submitted in evidence but I believe it can be assumed that it did not disclose any civil proceedings.
30. It does not matter whether the Applicant intended to deceive the OSC, he did not disclose required information on three and possibly four forms.
31. Mr. Wall's past activities have a bearing on whether he is suitable for registration. While there has been no finding in three of the claims, the fact that there were four claims that all dealt with his business dealings with clients causes some concern.
32. Combined with the fact that the Applicant did not disclose this information has clearly demonstrated a lack of integrity on his part. The fact that he does not accept the responsibility for the accuracy of the information provided and assertion that he did not really focus on the question brings his business judgement into question.
33. I find that the Applicant has not demonstrated the high standards of integrity required of a professional in the securities industry. Therefore, I refuse to grant the registration of Jack Wall.
August 23, 2007
"David M. Gilkes"