IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED
- and -
IN THE MATTER OF
ROBERT THOMISLAV ADZIJA, LARRY ALLEN AYRES, DAVID ARTHUR
BENDING, MARLENE BERRY, DOUGLAS CROSS, ALLAN JOSEPH DORSEY,
ALLAN EIZENGA, GUY FANGEAT, RICHARD JULES FANGEAT, MICHAEL
HERSEY, GEORGE EDWARD HOLMES, TODD MICHAEL JOHNSTON, MICHAEL
THOMAS PETER KENNELLY, JOHN DOUGLAS KIRBY, ERNEST KISS,
ARTHUR KRICK, FRANK ALAN LATAM, BRIAN LAWRENCE, LUKE JOHN
MCGEE, RON MASSCHAELE, JOHN NEWMAN, RANDALL NOVAK, NORMAND
RIOPELLE, ROBERT LOUIS RIZZUTO, AND MICHAEL VAUGHAN
SETTLEMENT AGREEMENT BETWEEN STAFF OF THE
ONTARIO SECURITIES COMMISSION
AND GEORGE EDWARD HOLMES
1. By Notice of Hearing dated September 24, 1998 (the "Notice of Hearing"), the Ontario Securities Commission (the "Commission") announced that it proposed to hold a hearing to consider, among other things:
(a) whether, pursuant to subsection 127(1) of the Securities Act, R.S.O. 1990, c. S.5 (the "Act"), it is in the public interest for the Commission to make an order that the exemptions contained in Ontario securities law do not apply to the respondent George Edward Holmes permanently or for such time as the Commission may direct; and
(b) such other orders as the Commission deems appropriate.
2. By Temporary Order dated September 24, 1998, the Commission ordered that trading in securities by Mr. Holmes cease immediately except for trades in mutual fund securities and trades for his personal account (the "Temporary Order"). The Temporary Order was extended by Commission Orders dated October 9, 1998 and February 5, 1999.
II. JOINT SETTLEMENT RECOMMENDATION
3. Staff of the Commission ("Staff") agrees to recommend settlement of the proceeding respecting Mr. Holmes initiated by the Notice of Hearing in accordance with the terms and conditions set out below. Mr. Holmes consents to the making of an order against him in the form attached as Schedule "A" based on the facts set out in Part III of this Settlement Agreement.
III. STATEMENT OF FACTS
4. Solely for the purposes of this proceeding, and of any other proceeding commenced by a securities regulatory agency, Staff and Mr. Holmes agree with the facts set out in paragraphs 5 through 17 of this Settlement Agreement.
5. Saxton Investment Ltd. ("Saxton") was incorporated on January 13, 1995. The respondent Allan Eizenga ("Eizenga") was Saxton's registered director. Saxton and Eizenga established numerous offering corporations, as listed below (the "Offering Corporations").
The Saxton Trading Corp.
The Saxton Export Corp.
The Saxton Export (II) Corp.
The Saxton Export (III) Corp.
The Saxton Export (IV) Corp.
The Saxton Export (V) Corp.
The Saxton Export (VI) Corp.
The Saxton Export (VII) Corp.
The Saxton Export (VIII) Corp.
The Saxton Export (IX) Corp.
The Saxton Export (X) Corp.
The Saxton Export (XI) Corp.
The Saxton Export (XII) Corp.
The Saxton Export (XIII) Corp.
The Saxton Export (XIV) Corp.
The Saxton Export (XV) Corp.
The Saxton Export (XVI) Corp.
The Saxton Export (XVII) Corp.
The Saxton Export (XVIII) Corp.
The Saxton Export (XIX) Corp.
The Saxton Export (XX) Corp.
The Saxton Export (XXI) Corp.
The Saxton Export (XXII) Corp.
The Saxton Export (XXIII) Corp.
The Saxton Export (XXIV) Corp.
The Saxton Export (XXV) Corp.
The Saxton Export (XXVI) Corp.
The Saxton Export (XXVII) Corp.
The Saxton Export (XXVIII) Corp.
The Saxton Export (XXIX) Corp.
The Saxton Export (XXX) Corp.
The Saxton Export (XXXI) Corp.
The Saxton Export (XXXII) Corp.
The Saxton Export (XXXIII) Corp.
The Saxton Export (XXXIV) Corp.
The Saxton Export (XXXV) Corp.
The Saxton Export (XXXVI) Corp.
The Saxton Export (XXXVII) Corp.
The Saxton Export (XXXVIII) Corp.
6. Saxton and the Offering Corporations represented to the public that they were investing in businesses in Cuba and other Caribbean companies.
7. On or about October 7, 1998, the Court appointed KPMG Inc. ("KPMG") as the custodian of Saxton's assets. In early 1999, KPMG reported that the Offering Corporations had raised approximately $37 million from investors. All funds invested in the Offering Corporations had been transferred to Saxton. At that time, KPMG held the view that the value of the Saxton assets, at its highest (as reported by related companies), was approximately $5.5 million.
8. Mr. Holmes became registered with the Commission under the Act to sell mutual fund securities and limited market products in December 1987.
9. Between January 1997 and June 1998, Mr. Holmes sold to Ontario investors securities of one or more of the Offering Corporations (the "Saxton Securities"). Mr. Holmes sold approximately $984,000 worth of the Saxton Securities to 17 Ontario investors. He received commissions of approximately $49,000 on such sales.
10. The Offering Corporations were incorporated pursuant to the laws of Ontario. Mr. Holmes' sales of the Saxton Securities constituted trades in securities of an issuer that had not been previously issued.
11. None of the Offering Corporations filed a preliminary prospectus or prospectus with the Commission. By selling the Saxton Securities to his clients, Mr. Holmes traded in securities, which trades were distributions, without a preliminary prospectus or prospectus being filed or receipted by the Commission and with no available exemption from the prospectus requirements of Ontario securities law.
12. Mr. Holmes did not provide his clients with access to substantially the same information concerning the Saxton Securities that a prospectus filed under the Act would provide. None of his clients received an Offering Memorandum prior to purchasing the Saxton Securities. The only documentation provided to clients by Mr. Holmes was promotional material prepared by Saxton.
13. Mr. Holmes never reviewed any Saxton financial statements or documentation (beyond the Saxton promotional literature). He did not make inquiries of his sponsor, or anyone independent of Saxton, concerning the legitimacy and quality of the investment products, Saxton's compliance with securities law or the registration requirements for selling the Saxton Securities.
14. Mr. Holmes failed to assess adequately the suitability of his clients' investments in the Saxton Securities. Among other things, he did not have a sufficient understanding of the investment products to evaluate effectively the risk to his clients in purchasing such Securities.
15. Mr. Holmes acknowledges that he ought to have obtained the consent of his sponsoring firm prior to selling the Saxton Securities.
16. Mr. Holmes' selling of the Saxton Securities was contrary to Ontario securities law and the public interest.
17. Mr. Holmes co-operated with the Commission's investigation respecting the sale of the Saxton Securities.
IV. THE POSITION OF MR. HOLMES
18. Mr. Holmes represents to Staff that:
(a) prior to selling the Saxton Securities, he visited Saxton's head office in Burlington five or six times and was satisfied that it was a legitimate business;
(b) prior to selling the Saxton Securities, he was assured by a Saxton lawyer and a Saxton accountant that he required no additional licensing and that the investments complied with Ontario securities law;
(c) he invested $100,000 in the Saxton Securities, 50% of which was invested prior to selling the Securities to his clients;
(d) he continues to keep his clients who purchased the Saxton Securities updated with all information he receives concerning Saxton and existing management concerns;
(e) since 1998, Mr. Holmes has exceeded the minimum provincial requirements for continuing education credits relating to the mutual fund industry;
(f) he is 63 years old and now suffers from spasmodic dysphonia, a neurological condition which affects his speech. This has negatively impacted his business over the last four years; and
(g) he regrets his sale of the Saxton Securities and the impact these sales had on his clients.
V. TERMS OF SETTLEMENT
19. Mr. Holmes agrees to the following terms of settlement:
(a) the making of an order:
(i) approving this settlement;
(ii) suspending Mr. Holmes' registration with the Commission for eleven months;
(iii) that trading in any securities by Mr. Holmes cease for eleven months;
(iv) that Mr. Holmes must successfully complete the Canadian Securities Course in order for his registration to be reinstated following the suspension;
(v) reprimanding Mr. Holmes;
(vi) that the Temporary Order no longer has any force or effect; and
(vii) that Mr. Holmes will pay costs to the Commission in the amount of $1,700.00.
VI. STAFF COMMITMENT
20. If this settlement is approved by the Commission, Staff will not initiate any other proceeding under the Act against Mr. Holmes in relation to the facts set out in Part III of this Settlement Agreement.
VII. APPROVAL OF SETTLEMENT
21. Approval of the settlement set out in this Settlement Agreement shall be sought at the public hearing of the Commission scheduled for December 19, 2002, or such other date as may be agreed to by Staff and Mr. Holmes (the "Settlement Hearing"). Mr. Holmes will attend in person at the Settlement Hearing.
22. Counsel for Staff or Mr. Holmes may refer to any part, or all, of this Settlement Agreement at the Settlement Hearing. Staff and Mr. Holmes agree that this Settlement Agreement will constitute the entirety of the evidence to be submitted at the Settlement Hearing.
23. If this settlement is approved by the Commission, Mr. Holmes agrees to waive his rights to a full hearing, judicial review or appeal of the matter under the Act.
24. Staff and Mr. Holmes agree that if this settlement is approved by the Commission, they will not make any public statement inconsistent with this Settlement Agreement.
25. If, for any reason whatsoever, this settlement is not approved by the Commission, or an order in the form attached as Schedule "A" is not made by the Commission:
(a) this Settlement Agreement and its terms, including all discussions and negotiations between Staff and Mr. Holmes leading up to its presentation at the Settlement Hearing, shall be without prejudice to Staff and Mr. Holmes;
(b) Staff and Mr. Holmes shall be entitled to all available proceedings, remedies and challenges, including proceeding to a hearing of the allegations in the Notice of Hearing and Statement of Allegations of Staff, unaffected by this Agreement or the settlement discussions/negotiations;
(c) the terms of this Settlement Agreement will not be referred to in any subsequent proceeding, or disclosed to any person, except with the written consent of Staff and Mr. Holmes or as may be required by law; and
(d) Mr. Holmes agrees that he will not, in any proceeding, refer to or rely upon this Settlement Agreement, the settlement discussions/negotiations or the process of approval of this Settlement Agreement as the basis for any attack on the Commission's jurisdiction, alleged bias or appearance of bias, alleged unfairness or any other remedies or challenges that may otherwise be available.
VIII. DISCLOSURE OF SETTLEMENT AGREEMENT
26. Except as permitted under paragraph 22 above, this Settlement Agreement and its terms will be treated as confidential by Staff and Mr. Holmes until approved by the Commission, and forever, if for any reason whatsoever this settlement is not approved by the Commission, except with the consent of Staff and Mr. Holmes, or as may be required by law.
27. Any obligations of confidentiality shall terminate upon approval of this settlement by the Commission.
IX. EXECUTION OF SETTLEMENT AGREEMENT
28. This Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement.
29. A facsimile copy of any signature shall be as effective as an original signature.
DATED this 6th day of December, 2002
|_______________||"George Edward Holmes"|
George Edward Holmes
DATED this 13th day of December, 2002
STAFF OF THE ONTARIO
(Per) "Michael Watson"
Director, Enforcement Branch