Proceedings

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IN THE MATTER OF
THE SECURITIES ACT

R.S.O. 1990, c. S. 5, AS AMENDED  

AND

IN THE MATTER OF Thomas Hinke

Hearing: April 12 and May 1, 2006  
Panel: Susan Wolburgh Jenah
Suresh Thakrar
- Vice Chair (Chair of the Panel)
- Commissioner
Counsel: Anne Sonnen
Michael Bennett
Ursel Callender

Allan Morrison
- On behalf of Staff of the
- Ontario Securities Commission


- On behalf of Thomas Hinke

ORAL DECISION AND REASONS

The following text has been prepared for purposes of publication in the Ontario Securities Commission Bulletin and is based on excerpts of the transcript of the hearing. The excerpts have been edited and supplemented and the text has been approved by the chair of the panel for the purpose of providing a public record of the decision.

[1] This proceeding related to the Securities Act (the Act) and the matter of Mr. Thomas Hinke. By way of background, there was a notice of hearing dated March 6, 2006, pursuant to which the Commission announced that it would hold a hearing on April 12, 2006 to consider whether it was in the public interest to make an order against Mr. Thomas Hinke for his failure to file the required insider trading reports.

[2] There was an agreed statement of facts which was filed with the Commission, and it referred to Mr. Hinke's failure to comply with all of the terms of a previous settlement agreement that had been entered into with the Executive Director of the Commission, which had also involved a failure to file insider trading reports for a prior period of time.

[3] The delinquent reports in both instances related to trades in shares of Thermal Energy International Inc., or TEI, of which Mr. Hinke was an officer, director, and insider.

[4] At the material time, Mr. Hinke held 16.1 percent of the outstanding shares of TEI, as set out in paragraph 6 of the settlement agreement which was filed with us today.

[5] On the return date of the hearing, April 12, 2006, the Panel, based on the agreed statement of facts between Staff and the Respondent, found that Mr. Hinke had failed to file the required insider reports during the period April 11, 2005 to January 3, 2006. Based on the agreed statement of facts, which were uncontested before us, we found that Mr. Hinke had breached Ontario securities law and had acted in a manner which was contrary to the public interest. That concluded the liability phase of the hearing.

[6] The sanctions which had initially been sought by Staff in this matter were not the subject of agreement between the parties. The Panel therefore determined that it was appropriate to put over the sanctions phase of the proceeding to May 1, 2006 .

[7] This morning the parties presented the Panel with a settlement agreement, which contained, among other things, additional facts relating to the sanctions hearing and the agreed terms of settlement as between the parties.

[8] Having considered the settlement agreement, having heard the submissions of the parties, and having considered the relevant authorities which were provided to us by Staff in their book of authorities, and in particular the cases of Re: Riley, Re: Cheung, Re: Meridian Resources Inc., and Re: Popovic, the Panel has determined that it is in the public interest to approve the settlement agreement, as modified to reflect the results of the Commission's deliberations this morning, and the order.

[9] In making this determination, the Panel was guided by the purposes and principles of the Act, which set out the Commission’s mandate and the principles that the Commission should consider in the administration and enforcement of the Act.

[10] In exercising our public-interest jurisdiction, we are guided by the words of the Commission in the case of Re: Mithras Management Ltd.

[11] In that case, the Commission Panel said as follows:

We are here to restrain, as best we can, future conduct that is likely to be prejudicial to the public interest in having capital markets that are both fair and efficient. In so doing, 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.

[12] We also considered that the appropriate sanctions should be determined by taking into account the specific circumstances of this case.

[13] In determining the nature and duration of appropriate sanctions, the Commission will generally consider a number of factors, including: the seriousness of the allegations; the Respondent's experience in the marketplace; the level of the Respondent's activity in the marketplace; whether or not there has been recognition of the seriousness of the impropriety; whether or not the sanctions imposed will deter not only those involved in the case being considered, but also others from engaging in similar abuses of the capital markets; any mitigating factors; and the remorse of the particular Respondent. Those then are the general factors that the Commission will consider in a sanction proceeding.

[14] In addition, we were guided by the Supreme Court of Canada's statement of the principle that the Commission, in determining appropriate sanctions, should consider general deterrence. The Supreme Court said as follows in the case of Re: Cartaway Resources Corp.:

It is reasonable to view general deterrence as an appropriate, and perhaps necessary, consideration in making orders that are both protective and preventive.

[15] In other words, a penalty that is meant to generally deter is designed by its very nature to discourage or hinder like behaviour in others.

[16] This case involved a failure to file insider reports. We are mindful of the fact that the filing of insider reports serves a very important purpose in our securities regulatory regime. They are designed to foster fair and efficient capital markets and to protect public confidence in our markets.

[17] The filing of insider reports is underscored by principles of disclosure and transparency with respect to trading by insiders.

[18] The failure to file insider reports in this case requires that the Commission send an appropriate message to market participants generally and to this particular Respondent that chronic delinquent filings will not be tolerated.

[19] The failure to file insider reports is regarded as a serious breach of the Act.

[20] We further note that in this case the Respondent had breached a previous agreement with the Executive Director, which also involved a failure to file insider reports.

[21] The breach of the previous agreement in these circumstances was a relevant factor particularly when coupled with subsequent breaches of the same nature. We determined that the sanctions to be imposed in this case should be adequate and proportional to the conduct in issue and the circumstances.

[22] The Panel has therefore determined that it is in the public interest to make the following order that:

(a) the settlement agreement dated May 1, 2006 , entered into between Staff and the Respondent, is approved;

(b) pursuant to clause 2 of Subsection 127(1) of the Act, trading by Thomas Hinke shall cease,

(i) in securities of TEI, for a six-month period commencing from the date of his last trade in TEI, that being February 15, 2006 ; and

(ii) in securities of all other reporting issuers in which Mr. Hinke holds in excess of 5 per cent of any class of securities, or for which he is deemed an insider pursuant to the Act, for one year from the date of the order;

(c) the Panel hereby reprimands Mr. Hinke for his conduct in this matter;

(d) pursuant to clause 9 of paragraph 127(1), Mr. Hinke shall pay an administrative penalty of $32,000, to be allocated by the Commission to or for the benefit of third parties under Section 3.4(2)(b) of the Act; and

(e) pursuant to Section 127.1 of the Act, that Mr. Hinke shall pay $5,000 in costs.

[23] We also refer to recitals contained in the order, which provide that Mr. Hinke has agreed to provide a copy of this order to any registrant with whom he may deal for the coming year from the date of this order.

[24] Mr. Hinke has further undertaken in his recitals to the order that he agrees to take a relevant corporate governance course prior to becoming an insider, as defined in the Act, or an officer or director of a reporting issuer.

[25] These proceedings are concluded.

Approved by the chair of the panel on May 12, 2006 .

“Susan Wolburgh Jenah”