IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
Hearing: April 13, 2000
Panel: John A. Geller, QC - Vice-Chair
John F. Howard, QC - Commissioner
M. Theresa McLeod - Commissioner
Counsel: Melanie Sopinka - For the Staff of the Ontario Securities Commission
Mikael Prydz - In person
DECISION AND REASONS
Mr. Prydz was the respondent in previous proceedings before the Commission. Those proceedings were settled pursuant to a settlement agreement (the "Settlement Agreement") dated January 31, 2000. In the Settlement Agreement, Mr. Prydz acknowledged that he had sold securities to investors which, in the circumstances, could only be sold pursuant to a prospectus, and that no such prospectus had been filed with the Commission as required by the Securities Act (the "Act"). He also acknowledged that, in order to sell such securities to those investors, he was required to be registered with the Commission pursuant to the Act, and that, for a portion of the relevant time, he was not so registered. Further, he acknowledged that the business venture pursued by one of the issuers whose securities had been sold by him had failed, that all of the invested money had been lost, and that he had falsely represented to investors to whom he had sold the securities that the issuer was still viable when he knew that the money invested in the issuer had been lost.
In the Settlement Agreement, Mr. Prydz agreed, inter alia, that if the Settlement Agreement was approved by the Commission, he would not make any statement that was inconsistent with the Settlement Agreement.
The Settlement Agreement was approved an order of the Commission (the "Order") dated February 8, 2000. The Order recited, inter alia, that:
a) Mr. Prydz had undertaken that he would never re-apply to the Commission for registration in any capacity;
b) Mr. Prydz had undertaken to send a letter to investors, to be approved by staff of the Commission ("Staff"), within 10 days of the date of the Order; and
c) Mr. Prydz had undertaken to remove within ten days of the date of the Order all language from the website of his then current employer which referred to his involvement in the investment industry.
In the Order, the Commission, in addition to approving the Settlement Agreement, ordered that:
1. pursuant to clause 127(1) 2 of the Act, Mr. Prydz was prohibited from trading in securities for a period of five years from February 8, 2000; and
2. pursuant to clause 127(1) 6 of the Act, Mr. Prydz was reprimanded.
Letters to Investors
Following the making of the Order, Mr. Prydz submitted to Staff lists of the investors to whom he said that he had sold the investments in question. He also submitted to Staff a draft of a letter (the "Draft Letter") to be written by him, and mailed by Staff, to those investors.
Staff revised the Draft Letter to delete certain statements to which it objected, and forwarded to Mr. Prydz copies of the revision for signature by him and returned to Staff, for mailing by Staff to the investors in question. In its covering letter Staff urged Mr. Prydz to carefully compare the names of the investors to whom the revised letters were addressed with Mr. Prydz's investor lists and advise Staff immediately if there were any names missing. Mr. Prydz signed the letters which he had received from Staff, and returned them to Staff. He did not advise Staff of the names of any additional investors to whom the letter should be sent. The letters signed by Mr. Prydz were sent by Staff to the investors to whom they were addressed.
Mr. Prydz sent another letter, dated February 28, 2000, (the "Second Letter") to investors, including three investors whose names he had not supplied to Staff and to whom, accordingly, the original letter was not being sent. In the Second Letter, Mr. Prydz stated, inter alia, the following.
a) That he had been told that funds were now in the escrow attorney's account ready to be disbursed to Richard Halinda (the trustee acting on behalf of the investors) that, once the negotiations had been finalized, funds should be wired to Mr. Halinda's account and, at that time, Mr. Halinda would make all necessary preparations to have funds returned to all investors. Statements to a similar effect had been contained in the draft letter submitted by Mr. Prydz to Staff, and Staff had required the deletion of those statements. In our view, this statement contradicted the statement in the Settlement Agreement with respect to the loss of the money invested in one of the issuers involved.
b) That it was the position of the Commission that shares had not been issued "in accordance to their guidelines" and that, although Mr. Prydz did have a limited market registration when initial funds were being raised, he later gave that up as he was working solely on the project and had a "mandated contract" to do so. In our view, this statement gives the false impression that although the Commission took the position that Mr. Prydz had not complied with the Act, he did not agree with that position, and thus contradicted the statements in the Settlement Agreement in which Mr. Prydz acknowledged that he had not complied with the Act.
c) That "the OSC wishes me to send a letter to all the investors so that they are aware of all this. So along with this letter, you will also receive an other (sic) letter from me in the near future which will contain the OSC verbage (sic)".
In our view, the statements in a) and b) above breached Mr. Prydz's undertaking in the Settlement Agreement that he would not make any statement inconsistent with the Settlement Agreement. In addition, for Mr. Prydz to have sent the Second Letter at all was inconsistent with his obligations under the Settlement Agreement, and evidenced, at the very least, a lack of appreciation by him of the importance of his complying with, and fulfilling, his obligations under, the Settlement Agreement, and, more probably, a lack of concern on his part as to whether or not he did comply. The statement in c) above is, in our view, especially offensive. It is clear from this language that it was Mr. Prydz's intention that the Second Letter be received by investors before the letter which he had agreed in the Settlement Agreement to write. The language in the second letter was, in or view, a clear invitation to investors to ignore the letter which he had agreed to write in order that they would be informed of what had really happened.
Mr. Prydz's failure to supply the names of some investors to Staff evidenced, in our view, a similar lack of concern about complying with Mr. Prydz's obligations to the Commission, undertaken by him in the Settlement Agreement.
On March 10, 2000 Staff wrote to Mr. Prydz reminding him of his undertaking in the Settlement Agreement to remove language from the website of his employer which referred to his involvement in the investment industry and advising him that Staff had discovered that the offending language remained on the website. On March 18, 2000, the material remained on the website. At some point after March 18, 2000, Mr. Prydz ceased to be employed by the company involved, and the language was removed from the website.
Arguments of the Parties
Ms. Sopinka, on behalf of Staff, submitted to us that the conduct of Prydz in failing to comply with his obligations under the Settlement Agreement was contrary to the public interest, and that his communication with the investors in the Second Letter had demonstrated a complete disregard and disrespect for the Commission's process.
She argued that the public interest warranted at the very least a further cease trade order equal in length to the original cease trade order, and commencing on the expiry of the original cease trade order, February 8, 2005. She also requested that we make an order that Mr. Prydz resign any positions he holds as an officer and director of any issuer, pursuant to clause 127(1)7 of the Act, and that we make an order prohibiting Mr. Prydz from becoming an officer or director of an issuer for a period of at least 5 years from the date on which we make such order, pursuant to clause 127(1) 8 of the Act. She argued that the original cease trade order clearly did not have the requisite impact on Mr. Prydz to restrain his improper conduct, and that Mr. Prydz had been an officer of his previous employer. She stated that Mr. Prydz was, and he may continue to be, an officer of Investors Retirement Holdings Inc., one of the issuers which had been the subject of the first proceeding.
In response to Staff's argument, Mr. Prydz stated that there was "really not much that I can say because I agree with all the information that you've received today". He stated that his intention wasn't to show disrespect and that most of the people that were involved in the investments through him were family, relatives and close friends. Mr. Prydz gave no satisfactory explanation as to why he had sent the Second Letter to investors, why he had not advised Staff of the names of three investors, and why he had not caused the offending language to be removed from his employer's website in accordance with the Settlement Agreement. He said that he had lost his income and was currently looking at another field to get into, that his life had changed significantly, and that he was selling his house and trying to move forward.
We find, on the basis of the evidence submitted, that Mr. Prydz knowingly and intentionally failed to honour the Settlement Agreement which he had entered into voluntarily in order to settle the previous proceedings. This is no light matter.
Mr. Prydz showed, in our view, as he had done in the sale of securities without a prospectus and without registration in the proceedings settled by the Settlement Agreement, a disregard for the securities laws of this province.
Mr. Prydz said that it was not his intention to show disrespect for the Commission. It may not have been his intention, but failing to comply with the terms of the Settlement Agreement did, in fact, show disrespect for the Commission.
However, whether or not Mr. Prydz showed disrespect for the Commission is not the real question, which is whether Mr. Prydz's actions have been such as to require us to impose sanctions under subsection 127(1) of the Act in order to protect the public interest.
In our view, intentional breaches by a respondent party to a settlement agreement, which has been approved by a Commission order, of that party's undertakings in the settlement agreement (which undertakings must be assumed to have been bargained for by Staff as necessary, in its view, for the protection of the public interest) is itself an action contrary to the public interest and shows a lack of regard by the party for his or her obligations under Ontario securities law sufficient to warrant an inquiry as to what, if any, additional sanctions should be imposed by the Commission in order to protect investors in, and the capital markets of, Ontario.
The sanctions which the Commission is entitled to impose under subsection 127(1) of the Act are not intended to punish a respondent, but rather are intended to protect investors in, and the integrity of the capital markets of, this province. (See: Gordon Capital v. Ontario Securities Commission (1991), 14 O.S.C.B. 2713 at 2723 (Divisional Court); In the Matter of Mithras Management Ltd. et al. (1988), 11 O.S.C.B. 1600 at 1610; In the Matter of Gregory McGroarty et al. (1990), 13 O.S.C.B. 3887 at 3934. Sanctions should be imposed under subsection 127(1) where the evidence establishes that there is a reasonable likelihood that the improper conduct of the respondent may continue unless the Commission moves to prevent a recurrence. (See: Mithras; In the Matter of Gordon Capital Corporation and David Bond (1990), 13 O.S.C.B. 2035.) In most cases, as in this one, the only evidence which we can have as to what a respondent is likely to do in the future is what the respondent has done in the past. (See: Mithras.)
In this case, Mr. Prydz not only breached his undertakings made in the Settlement Agreement, he did so in three different respects, showing, in our view, that he considered the Settlement Agreement as no more than a means of getting rid of the settled proceedings, with no real intention of being bound by the Settlement Agreement. In our view, such conduct exacerbates the breaches of the Act admitted by Mr. Prydz in the Settlement Agreement, and shows that Mr. Prydz continues to have little regard for the securities laws of this province. In our view, the public interest clearly requires that Mr. Prydz be removed from the capital markets of this province for a very substantial period of time in order to protect those markets and investors in this province.
We also bear in mind that, in deciding what sanctions are appropriate, we should take into account general deterrence, ie: what is necessary to restrain conduct by others that is likely to be prejudicial to the public interest in having capital markets that are fair and efficient. (See: In the Matter of Linden Dornford (1998), 21 O.S.C.B. 7345 at 7351.) As we have said, breach by a respondent of obligations voluntarily incurred in a settlement agreement is no light matter, and should be discouraged.
Accordingly, we make the following orders pursuant to subsection 127(1) of the Act;
1. under clause 2, that Mr. Prydz is prohibited from trading in securities for an additional period of 10 years from February 8, 2005;
2. under clause 7, that Mr. Prydz shall resign all positions that he holds as a director or officer of an issuer;
3. under clause 8, that Mr. Prydz is prohibited from becoming or acting as a director or officer of any issuer during the period from the date of this decision until February 8, 2015; and
4. under clause 6, an order that Mr. Prydz is again reprimanded.
May 9, 2000
"J. A. Geller," "J. F. Howard" "Theresa McLeod"