Settlement Agreement: In the Matter of Mikael Prydz
R.S.O. 1990, c. S.5, AS AMENDED
AND
IN THE MATTER OF
MIKAEL PRYDZ
SETTLEMENT AGREEMENT
I INTRODUCTION
1. By Notice of Hearing dated January 31, 2000, (the "Notice of Hearing"), theOntario Securities Commission (the "Commission") announced that it proposedto hold a hearing to consider whether, pursuant to section 127 of the SecuritiesAct, R.S.O. 1990, c. S.5, as amended, (the "Act"), in the opinion of theCommission it is in the public interest for the Commission:
a. to make an order that Mikael Prydz cease trading in securities,permanently or for such time as the Commission may direct;
b. to make an order that Mikael Prydz be reprimanded; and/or
c. to make such other order as the Commission may deem appropriate;
II JOINT SETTLEMENT RECOMMENDATION
2. The Staff of the Commission ("Staff") agree to recommend the settlement of theproceedings initiated in respect of Mikael Prydz ("Prydz") by the Notice ofHearing in accordance with the terms and conditions set out below. Prydzagrees to the settlement on the basis of the facts agreed to as set out below andconsents to the making of an order against him in the form attached as Schedule"A" on the basis of those facts.
3. This settlement agreement, including the attached Schedule "A", will be releasedto the public only if and when the settlement is approved by the Commission.
III STATEMENT OF FACTS
(i) Acknowledgement
4. Staff, and Prydz agree with the facts set out in this Part III.
(ii) Factual Background
5. Prydz is an individual who resides in Waterloo, Ontario. From May 7, 1992 toDecember 22, 1992 and from January 18, 1993 to July 1, 1996 Prydz wasregistered with the Commission to sell mutual fund securities and limited marketproducts. Prydz' registration was terminated on July 1, 1996 and since that datehe has not been registered in any capacity with the Commission.
Sale of Shares of 1149932 Ontario Inc.
6. Between November 1, 1995 and February 28, 1998, Prydz sold to Ontarioinvestors securities of 1149932 Ontario Inc., ("114") a corporation organizedpursuant to the laws of Ontario.
7. The sale of shares of 114 constituted trades in securities of an issuer that hadnot been previously issued.
8. 114 did not file a prospectus with the Commission and was never issued areceipt for a prospectus by the Commission.
9. Although the distribution of shares of 114 purportedly relied on the "seed capital"exemption from the prospectus requirements of the Act found in paragraph72(1)(p), the requirements of this exemption were not satisfied. None of theother exemptions from the prospectus requirements in Ontario securities lawwas available for the distribution of shares of 114.
10. None of the exemptions from the registration requirements in Ontario securitieslaw was available for the sale of shares of 114.
11. From May 7, 1992 until July 1, 1996, Prydz was registered with the Commissionto sell mutual fund securities and limited market products and was sponsored bya mutual fund and limited market dealer. As Prydz was engaging in the businessof trading in securities, he was a "market intermediary" as defined in section 204of the Regulation to the Act. Prydz required his licence with the Commission tosell limited market products to sell securities which relied upon the "seed capital"exemption from the prospectus requirements of the Act.
12. On August 31, 1995, Prydz registered as a sole proprietorship a business by thename of "Prydz Portfolio Management". At all material times, Prydz has beenthe only individual affiliated with Prydz Portfolio Management. Prydz PortfolioManagement has never been registered with the Commission in any category ofregistration.
13. Prydz solicited investors to invest in 114 using Prydz Portfolio Management as avehicle. Many of the investors who were solicited by Prydz to invest in 114 werealso his clients at the mutual fund dealer which sponsored his registration.Prydz sent monthly statements to his clients both on the stationery used by hissponsor and on Prydz Portfolio Management stationery. The Prydz PortfolioManagement statements incorporated holdings of his clients in mutual fundswhich had been purchased through his sponsor and investments such as 114which Prydz had sold to his clients.
14. By using the business name of Prydz Portfolio Management, Prydz falselyrepresented to investors that he was registered with the Commission and heldthe qualifications to engage in portfolio management.
15. After July 1, 1996 when Prydz' registration with the Commission was terminated,he continued to hold himself out as engaging in the business of trading insecurities through Prydz Portfolio Management. Therefore, Prydz continued tofall within the definition of "market intermediary" in section 204 of the Regulationto the Act and was required to be registered with the Commission to sell limitedmarket products in order to rely on the seed capital exemption from theprospectus requirements of the Act. Prydz was not registered in this categoryafter July 1, 1996 and therefore sold securities without registration.
Sale of Shares of Investors Retirement Holdings Inc.
16. Between July 1, 1998 and November 13, 1998, Prydz sold to Ontario investorssecurities of Investors Retirement Holdings Inc. ("IRHI"), a corporation organizedpursuant to the laws of Ontario.
17. IRHI was incorporated on February 6, 1997 and Prydz, at all material times, wasthe sole officer and director of IRHI. The sales of shares of IRHI constitutedtrades in securities of an issuer that had not been previously issued.
18. IRHI did not file a prospectus with the Commission and was never issued areceipt for a prospectus by the Commission.
19. Although the distribution of shares of IRHI purportedly relied on the "seedcapital" exemption from the prospectus requirements of the Act found inparagraph 72(1)(p), the requirements of this exemption were not satisfied. Noneof the other exemptions from the prospectus requirements in Ontario securitieslaw was available for the distribution of shares of IRHI.
20. None of the exemptions from the registration requirements in Ontario securitieslaw was available for the sale of shares of IRHI.
21. Prydz continued to hold himself out as engaging in the business of trading insecurities through Prydz Portfolio Management at the time he sold shares ofIRHI to investors. Therefore, Prydz continued to be a "market intermediary" andrequired a licence to sell limited market products in order to rely on the "seedcapital" exemption from the prospectus requirements of the Act. Prydz was notregistered in this category when he sold shares of IRHI.
Other Misconduct
22. In selling securities to investors, Prydz made a number of misrepresentationsand omitted pertinent information as follows:
a. Prydz failed to disclose to investors purchasing shares of 114 thathe was receiving a commission for the sale;
b. After the business venture pursued by 114 had failed and all of theinvested money had been lost, Prydz falsely represented toinvestors to whom he had sold the investment that 114 was stillviable when Prydz knew that the money invested in 114 had beenlost; and
c. Prydz guaranteed that at maturity an investment in IRHI wouldguarantee a return of principal plus thirty two percent interest;
23. Prydz sold speculative securities of 114 and IRHI to unsophisticated investorsand failed to assess the suitability of the investment to the needs of theinvestors.
24. Prydz's conduct as set out in paragraphs 6 through 23 was contrary to the publicinterest.
IV POSITION OF THE RESPONDENT
25. Prydz mistakenly relied upon the representations of the promoters of 114 that hedid not require registration to sell shares of 114.
26. Prydz advised the investors to whom he sold shares of 114 that he was nolonger registered to sell mutual funds but was instead focussing on the sale ofshares of 114.
27. When Prydz discovered that the funds invested in 114 had been lost includinghis own funds, he was told by the promoters that the investment was intact.Prydz ought to have known that this information was false.
28. Prydz told investors to whom he sold shares of IRHI that they should get advicebefore making a decision as to whether or not to invest in IRHI.
V TERMS OF SETTLEMENT
29. Prydz agrees to the following terms of settlement:
a. pursuant to clause 2 of subsection 127(1) of the Act, Prydz will beprohibited from trading in securities for a period of five years from thedate of the Commission's Order;
b. pursuant to clause 6 of subsection 127(1) of the Act, Prydz will bereprimanded;
c. Prydz undertakes that he will never reapply to the Commission forregistration in any capacity;
d. Prydz will send a letter within 10 days from the date of the Commission'sOrder in a form to be approved by Staff of the Commission to each of theinvestors to whom he sold securities as outlined in paragraphs 6 and 16above. The letter will identify his terms of settlement with theCommission, the status of the investor's investment and will contain arecommendation that the investor seek professional advice with respect tothat investment; and
e. Prydz undertakes to remove within 10 days of the Commission's Order alllanguage from the website of his current employer which refers to hisinvolvement in the investment industry.
VI STAFF COMMITMENT
30. If this Settlement Agreement is approved by the Commission, Staff will notinitiate any complaint to the Commission or request the Commission to hold ahearing or issue any order in respect of any conduct or alleged conduct of Prydzin relation to the facts set out in Part III of this Settlement Agreement.
VII PROCEDURE FOR APPROVAL OF SETTLEMENT
31. The approval of the settlement as set out in the Settlement Agreement shall besought at a public hearing before the Commission scheduled for such date as isagreed to by Staff and Prydz in accordance with the procedures describedherein and such further procedures as may be agreed upon between Prydz andStaff.
32. If this Settlement Agreement is approved by the Commission, it will constitute theentirety of the evidence to be submitted respecting Prydz in this matter andPrydz agrees to waive his right to a full hearing and appeal of this matter underthe Act.
33. If this Settlement Agreement is approved by the Commission, neither of theparties to this Settlement Agreement will make any statement that is inconsistentwith this Settlement Agreement.
34. If, for any reason whatsoever, this settlement is not approved by theCommission, or the order set forth in Schedule "A" is not made by theCommission:
a. each of Staff and Prydz will be entitled to proceed to a hearing of theallegations 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 otherproceeding or disclosed to any person except with the written consent ofPrydz and Staff or as may be otherwise required by law; and
c. Prydz further agrees that he will not raise in any proceeding theSettlement Agreement or the negotiation or process of approval thereofas a basis for any attack on the Commission's jurisdiction, alleged bias,appearance of bias, alleged unfairness or any other challenge that mayotherwise be available.
35. If, prior to the approval of this Settlement Agreement by the Commission, thereare new facts or issues of substantial concern, in the view of Staff, regarding thefacts set out in Part III of this Settlement Agreement, Staff will be at liberty towithdraw from this Settlement Agreement. Notice of such intention will beprovided to Prydz in writing. In the event of such notice being given, theprovisions of paragraph 34 in this part will apply as if this Settlement Agreementhad not been approved in accordance with the procedures set out herein.
VIII DISCLOSURE OF SETTLEMENT AGREEMENT
36. The terms of the Settlement Agreement will be treated as confidential by bothparties hereto until approved by the Commission and forever if for any reasonwhatsoever, the Settlement Agreement is not approved by the Commission.
37. Any obligation as to confidentiality shall terminate upon the approval of thisSettlement Agreement by the Commission.
IX EXECUTION OF SETTLEMENT AGREEMENT
38. This Settlement Agreement may be signed in one or more counterparts whichshall constitute a binding agreement and a facsimile copy of any signature shallbe as effective as an original signature.
DATED this 31st day of January, 2000.
SIGNED IN THE PRESENCE OF:
"Mikael Prydz""Michael Watson"
Director of Enforcement on Behalf of Staff of the Ontario Securities Commission