IN THE MATTER OF
GLENDALE SECURITIES INC.
1. By Notice of Hearing dated June 16, 1995, (the "Notice of Hearing") the Ontario Securities Commission (the "Commission") announced that it proposed tohold a hearing to consider:
a. whether it is in the public interest to order, pursuant to clause 1 of section 127(1) of the Securities Act, R.S.O. 1990, c. S.5, as amended (the "Act"), that theregistrations granted to Glendale Securities Inc. ("Glendale") and Louis Shefsky ("Shefsky") under Ontario securities law be suspended or restricted for suchperiod as is specified in the order or be terminated, or that terms and conditions be imposed on the registrations; and
b. whether it is in the public interest to order, pursuant to clause 3 of section 127(1) of the Act, that any exemptions contained in Ontario securities law do notapply to Shefsky permanently or for such period as is specified in the order.
II. JOINT SETTLEMENT RECOMMENDATION
2. The Staff of the Commission ("Staff") agree to recommend the settlement of the proceeding initiated in respect of Glendale and Shefsky by the Notice ofHearing in accordance with the terms and conditions set out hereinafter. Glendale and Shefsky agree to the settlement on the basis of the facts agreed to ashereinafter provided.
3. The Staff, Glendale and Shefsky agree that only if, as and when the settlement is approved by the Commission, this Settlement Agreement and Schedule "A"attached hereto (the "Settlement Agreement") will be released to the public.
III. STATEMENT OF FACTS
4. For the purpose of this proceeding only, Glendale, through Joseph Fuda ("Fuda"), makes oath and states that the facts set out in Part III of this SettlementAgreement are true, to the extent that they are directly aware of them and, to the extent that they do not have direct knowledge, they are not inconsistent withtheir understanding.
5. For the purpose of this proceeding only, Shefsky makes oath and states that the facts set out in Part III of this Settlement Agreement are true, to the extentthat he is directly aware of them and, to the extent that he does not have direct knowledge, they are not inconsistent with his understanding.
6. Staff acknowledge that the facts contained in Part III of this Settlement Agreement are consistent with its investigation.
7. Glendale is registered as a securities dealer pursuant to section 25 of the Act and has been so registered since prior to 1990.
8. At all material times, Shefsky was a registered representative, shareholder and director of Glendale.
C. Selby Green International Inc. ("Selby Green")
9. Prior to January 15, 1993, Derry-Gold Resources Inc. ("Derry-Gold") was a reporting issuer as defined by the Act. On January 15, 1993, Derry-Goldcompleted the acquisition of Selby Green Information Services Ltd. and changed its name to Selby Green International Inc. Selby Green has been a reportingissuer as defined by the Act since January 15, 1993.
10. At all material times Westall Parr ("Parr") was the controlling shareholder, a director and the president of Selby Green.
11. Glendale entered into option agreements to purchase 1,176,500 Selby Green shares from three persons associated with Parr (the "Parr Associates"). Theseagreements were initially dated February 15, 1993, and re-dated March 2, 1993, when they were signed. The option price for the shares was between 15 and 20per share.
12. The Parr Associates had accounts at Glendale. Shefsky was the salesperson at Glendale responsible for the accounts of the Parr Associates but, as they were"house accounts", no sales commission was paid to Shefsky in connection with transactions in these accounts. Parr and two of the Parr Associates also hadaccounts at another registered dealer (the "Other Dealer").
13. Between January 28, 1993, and March 10, 1993, there were only ten trades in the securities of Selby Green. These trades had the effect of increasing theprice of the securities from 5 to 60 per share. There were no other trades in securities of Selby Green quoted on the Canadian Dealer Network Inc. ("CDN")during that period.
14. With respect to these ten trades in Selby Green shares, all sell orders and six of the purchase orders were placed by Parr through his own account and theaccounts of two of the Parr Associates at the Other Dealer. In placing these orders, Parr was in possession of a note in Shefsky's handwriting regarding making amarket.
15. Of the four purchase orders which were not placed by Parr, three purchase orders were placed by persons connected with Shefsky.
16. The effect of these ten trades was to create a false appearance of public trading and a false appearance with respect to the market price of Selby Greenshares. This enabled Glendale to sell Selby Green shares to its clients at artificially high prices.
17. Commencing March 12, 1993, Glendale began to sell Selby Green securities to its clients at 70 per share and later at increasingly higher prices. By May,1993, the price had increased to $1.00 per share and ultimately the price rose to a high of $1.40 per share. During this period in the market for Selby Greenshares, Glendale was the primary seller. By May 31, 1993, Glendale had sold 1,266,124 Selby Green shares to clients, resulting in a gross profit of approximately$750,000.
18. There was no business reason relating to the affairs of Selby Green that would justify the increase in price from 5 to 60 in the first ten trades, nor the furtherincrease in price to $1.40 after Glendale began to sell securities of Selby Green.
19. Throughout the time that Glendale was selling Selby Green shares to its clients, Parr was continuing to "make a market" in securities of Selby Green throughaccounts of two of the Parr Associates at the Other Dealer. These accounts purchased shares of Selby Green that were offered for sale on the market by otherdealers in order to prevent these sales from depressing the price of Selby Green shares while Glendale continued to sell Selby Green shares to its clients.
20. When Parr and the Parr Associates failed to pay their accounts at the Other Dealer, the registered representative for these accounts stopped making themarket in securities of Selby Green. When this occurred, Shefsky called the registered representative and asked the reasons and was advised that "I quit being amarket maker because I was not getting paid for the debits in the account". Shefsky then promised to arrange for the accounts to be paid. The accounts werethen paid by the account holders.
21. Ultimately Glendale purchased from the accounts of the Parr Associates that had been used by Parr to make the market, all Selby Green securities that theyhad purchased pursuant to their market making activities.
Sworn before me at the City of GLENDALE SECURITIES INC.Toronto, in the Municipality of per:Metropolitan Toronto this 24th day of January, 1997.
A Commissioner for taking "Louis Shefsky"
IV. THE POSITIONS OF GLENDALE AND SHEFSKY
22. Fuda at all material times was the President, shareholder and Chief Executive Officer of Glendale. Fuda is the directing mind of Glendale. Shefsky is not thedirecting mind of Glendale.
23. Fuda, at no time until after the investigation by Commission Staff had commenced, knew of any allegation, fact or circumstance relating in any way to thealleged improper conduct of Shefsky or anyone else.
24. Fuda and Shefsky believed that the business intentions of Selby Green constituted an important opportunity for Glendale's clients.
25. When the allegations of the Commission were brought to Fuda's attention, Shefsky was required to withdraw from the business and premises of Glendale(while continuing to receive his salary) pending the disposition of the Notice of Hearing, an arrangement that has continued to date.
26. Shefsky has been registered as a salesperson from 1980 to 1988 and then from 1990 to the present. He has not previously been required to appear before theCommission concerning his registration.
V. CONDUCT CONTRARY TO THE PUBLIC INTEREST
27. Staff state that the conduct of Glendale and Shefsky was contrary to the public interest in that Glendale and Shefsky directed or caused the trading in sharesof Selby Green to be manipulated for the purpose of creating a false or misleading appearance of active public trading in Selby Green securities and for thepurpose of creating a false or misleading appearance with respect to the market price of securities of Selby Green and, by so doing, they enabled Glendale to sellsecurities of Selby Green to its clients at an artificially high price.
VI. TERMS OF SETTLEMENT
28. Glendale agrees to the following terms of settlement:
a. Pursuant to clause 4 of section 127(1) of the Act, Glendale will submit to a review of Glendale's practices and procedures with respect to the acquisition ofsecurities for resale to its clients and will institute such changes as are recommended in the report of the reviewer. The reviewer will be a person acceptable toStaff and Glendale and, failing agreement, a person appointed by Tom Allen, Q.C., from lists of acceptable persons submitted by Staff and Glendale providedthat:
i Mr. Allen shall not be responsible for the competence and proficiency of the person appointed or for the conduct, adequacy and conclusions of the review;
ii Glendale shall indemnify Mr. Allen for any claims that might be made against him arising from any appointment made by him or from the conduct, adequacyand conclusions of the review;
iii Glendale agrees to pay Mr. Allen's fees and disbursements for his services in making the appointment and the reviewer's fees and disbursements in connectionwith the review.
b. Pursuant to clause 6 of section 127(1) of the Act, Glendale will be reprimanded by the Commission.
c. On or before the date that this Settlement Agreement is approved by the Commission, Glendale will pay $100,000 to the Minister of Finance as a contributiontowards the costs of the investigation.
29. Shefsky agrees to the following terms of settlement:
a. Pursuant to clause 1 of section 127(1) of the Act, Shefsky's registration will be suspended for a period of three years provided that upon making applicationfor reinstatement of his registration, Shefsky must satisfy the Director that the requirements of sections 26 and 28 of the Act are met but that the facts containedin this Settlement Agreement will not be grounds for refusing to reinstate Shefsky's registration.
30. Glendale and Shefsky hereby consent to an order of the Commission incorporating the terms of settlement in the form annexed hereto as Schedule "A".
VII. STAFF COMMITMENT
31. If this Settlement Agreement is approved by the Commission, Staff will not initiate any complaint to the Commission or request the Commission to hold ahearing or issue any order or initiate any other proceeding or prosecution in respect of any conduct or alleged conduct of Glendale and Shefsky in relation to thefacts set out in Part III of this Settlement Agreement.
IX. PROCEDURE FOR APPROVAL OF THE SETTLEMENT
32. The approval of the Settlement as set out in the Settlement Agreement shall be sought at a public hearing before the Commission on a date agreed amongStaff, Glendale and Shefsky, which shall be before February 17, 1997, in accordance with the procedures described herein and such further procedures whichmay be agreed upon among Staff, Glendale and Shefsky.
33. Staff, Glendale and Shefsky agree that if the Settlement Agreement is approved by the Commission, it will constitute the entirety of the evidence to besubmitted respecting Glendale and Shefsky in this matter and Glendale and Shefsky agree to waive their rights to a full hearing and appeal of this matter underthe Act.
34. Staff, Glendale and Shefsky agree that if the Settlement Agreement is approved by the Commission, they will not make statements that are inconsistent withthe Settlement Agreement.
35. If, for any reason whatsoever, the Settlement Agreement is not approved by the Commission, or the order set forth in Schedule "A" is not made by theCommission:
a. Staff, Glendale and Shefsky will each be entitled to proceed to a hearing of the allegations in the Notice of Hearing and related Statement of Allegationsunaffected by the Settlement Agreement or the settlement negotiations;
b. The terms of the Settlement Agreement will not be raised in any other proceeding or disclosed to any person except with the written consent of Staff, Glendaleand Shefsky or as may be otherwise required by law; and
c. Glendale and Shefsky further agree that they will not raise in any proceeding the Settlement Agreement or the negotiation or process of approval thereof as abasis for any attack on the Commission's jurisdiction, alleged bias or appearance of bias, alleged unfairness or any other challenge that may otherwise beavailable.
36. If, prior to the approval of this Settlement Agreement by the Commission, there are new facts or issues of substantial concern, in the view of Staff, regardingthe facts set out in Part III of the Settlement Agreement, Staff, Glendale and Shefsky will each be at liberty to withdraw from the Settlement Agreement. Noticeof such intention will be provided to the others in writing. In the event of such notice being given, the provisions of the preceding paragraph in this Part willapply as if the Settlement Agreement had not been approved in accordance with the procedures set out herein.
X. DISCLOSURE OF SETTLEMENT AGREEMENT
37. The terms of the Settlement Agreement will be treated as confidential by all parties hereto until approved by the Commission and forever if for any reasonwhatsoever, the Settlement Agreement is not approved by the Commission.
38. Any obligation as to confidentiality shall terminate upon the approval of this Settlement Agreement by the Commission.
XI. EXECUTION OF SETTLEMENT AGREEMENT
39. This Settlement Agreement may be signed in one or more counterparts which shall constitute a binding agreement and a facsimile copy of any signature shallbe as effective as an original signature.
January 24th, 1997.
SIGNED IN THE PRESENCE OF:
GLENDALE SECURITIES INC.
per: Joseph Fuda
ON BEHALF OF STAFF OF THE
ONTARIO SECURITIES COMMISSION