R.S.O. 1990, c.S.5, AS AMENDED
IN THE MATTER OF
RICHARD JOHN SMITH
SYNLAN SECURITIES CORPORATION
AMENDED STATEMENT OF ALLEGATIONS OF STAFF
OF THE ENFORCEMENT BRANCH OF THE
ONTARIO SECURITIES COMMISSION
Staff of the Enforcement Branch of the Ontario Securities Commission ("Staff") make the following allegations:
1. Richard John Smith ("Smith") is an individual who resides at 94 Coldstream Avenue, Toronto, Ontario. He is currently employed as president and secretaryof Synlan Securities Corporation ("Synlan").
2. In the 1980s, Smith was associated with Track Investment Corporation ("Track") and Track Securities Corporation ("Track Securities"). Smith wasregistered with the Ontario Securities Commission ("the Commission") through both of these organizations.
3. On March 27, 1990, Smith once again applied to the Commission for registration as a Limited Market Dealer (Conditional) through Synlan. Smith submitteda "Uniform Application for Registration/Approval", also referred to as a "Form 4". Subsequently, Smith was registered pursuant to section 26 of the OntarioSecurities Act, R.S.O. 1990, c.S-5, as amended ("the Act").
4. In November of 1996, Smith made an application to the Commission to initiate the annual renewal of his registration. Smith's registration continued to besponsored by Synlan. During the registration process, completed on February 3, 1997, Smith failed to disclose to the Commission that on January 7, 1997, hehad been charged with a total of 55 counts of fraud over $5000, criminal breach of trust and theft over $5000, contrary to the Criminal Code of Canada, R.S.C.1985, c. C-46 ("the Criminal Code"). Based on the application for renewal submitted by Smith, his registration was renewed and expired on January 8, 1998.
5. In November of 1997, Smith again made an application to initiate the annual renewal of his registration, continuing to be sponsored by Synlan. During theregistration process, completed on February 27, 1998, Smith not only failed to disclose to the Commission that he had been charged, but he also failed to informthe Commission that on December 17, 1997, in the Ontario Court (Provincial Division), he pleaded guilty to a total of 32 counts of fraud over $5000, theft over$5000 and breach of trust, contrary to the Criminal Code. Based on the application for renewal filed by Smith, his registration was renewed with an expiry dateof January 8, 1999.
6. The aforementioned charges and criminal convictions that Smith failed to disclose concerned his involvement with Track, then registered as a Limited MarketDealer (Conditional). Smith pleaded guilty to offences involving a project known as "70 Richmond Street". In 1989 and 1990, Smith was an officer and directorof Track. Through Track, Smith was involved in the formation of a limited partnership. The acquisition of the property was a condition precedent to theclosing of the subscription. The funds raised through the subscription were to be held in trust until all conditions precedent to closing were satisfied. However,neither Track nor its nominees acquired the property and the funds raised through the subscription were not returned to the investors who sustained a loss ofapproximately $1.7 million.
7. ack was incorporated on September 21, 1984. Smith was listed as the Secretary and director of the company. On December 7, 1987, Smith registered withthe Commission as a Limited Market Dealer (Conditional), sponsored by Track, and filed a Form 4. In August of 1988, Smith once again registered with theCommission as a Limited Market Dealer (Conditional), sponsored by Track Securities, and again, filed another Form 4.
8. March 10, 1988, an officer of Track signed an offer for the purchase of a property called "70 Richmond Street East" ("the property"). The property was tobe purchased by a nominee on behalf of Track.
9. Smith and another officer of Track subsequently incorporated a Limited Partnership in order to finance the purchase. Units of the Limited Partnership wereoffered by way of a private placement, relying on an exemption to the prospectus requirements of the Act. The units were considered "securities" as defined bythe Act.
10. The terms of the private placement were described in an Offering Memorandum distributed by Smith to potential investors seeking subscriptions. TheOffering Memorandum stated that all funds invested by subscribers were to be held in trust by Track until all conditions precedent to closing were satisfied,including the purchase and acquisition of title to the property. If any of the conditions precedent to closing were not satisfied, the Offering Memorandumprovided that all subscription funds were to be returned to investors without interest or deduction.
11. Many the investors who subscribed to the offering borrowed funds from the Canadian Imperial Bank of Commerce ("CIBC") in order to finance theirsubscription. Between March 31, 1989 and November 3, 1989, the CIBC advanced to Track's trust account approximately $1.175 million dollars in the form ofbank drafts. Similarly, other financial institutions also forwarded approximately $150,000 in bank drafts on behalf of investors to the Track trust account. Thesefunds were to be held "in trust" as required by the terms of the Offering Memorandum of March 20, 1989 and the Depository Agreement. However, despitethese terms, Track issued a number of cheques drawn on the account, depleting the funds held in trust. All cheques were signed by Smith and another officer ofTrack.
12. Track never acquired title to the property and any claims to it were lost on December 29, 1989 when Track defaulted on the payment of a deposit.
13. Between December 19, 1989 and January 24, 1990, Smith and another officer of Track continued to sell units in the Limited Partnership, despite having lostall claim to the property. On March 27, 1990 and April 5, 1990, an officer of Track corresponded with each investor and sent them unit certificates, falselyrepresenting the perfection of the Limited Partnership.
14. Track eventually stopped issuing any communications with the investors. None of the funds were returned to the subscribers. The total loss sustained by theinvestors was $1,785,890; in particular, 22 "seed placement" investors lost $1.1 million and 9 "private placement" investors lost $685,890.
15. On February 28, 1990, Smith resigned from Track.
16. Synlan was incorporated on February 28, 1990 and Smith was listed as the President and Secretary. On March 27, 1990, Smith registered with theCommission as a Limited Market Dealer (Conditional), and filed a Form 4. Since that time, Smith has continued to be registered with the Commission as aLimited Market Dealer (Conditional) through Synlan, his sponsoring corporation.
17. As an officer of Synlan, Smith has certified seven Form 4's for four salespeople employed by Synlan, when they registered with the Commission.
iii) The Civil Action, Commission Hearing and Criminal Convictions
18. In the early 1990s, a number of investors of Track launched a civil action against Track, Smith and other officers. On November 23, 1992, a Motion forSummary Judgment was issued against Track and another officer of Track for $1.8 million. A settlement was reached with Smith for $240,000. It was agreedthat Smith would pay the amount in installments. Since that time, Smith has failed to pay any of the settlement.
19. Subsequently, Track was investigated by the Staff of the Commission, culminating in a Commission hearing on March 9, 1994. At the hearing, no oneappeared for Track. The Commission duly found that the action was in the public interest and made an order cancelling Track's registration as a Limited MarketDealer (Conditional).
20. The Metropolitan Toronto Police Fraud Squad also investigated this matter. On January 7, 1997, Smith and an officer of Track were arrested and chargedwith 53 counts of theft over, 1 count of breach of trust and 1 count of fraud over, contrary to the Criminal Code.
21. On December 17, 1997, Smith and an officer of Track appeared in Ontario Court (Provincial Division) and pleaded guilty to 21 counts of theft over, 10counts of fraud over and 1 count of breach of trust. On the same date, they were both ordered to serve a conditional sentence of 2 years less a day on everycount, to be served concurrently, followed by a term of probation for 3 years.
IV. CURRENT ACTIVITIES OF SYNLAN AND SMITH
22. On June 4, 1998, during a voluntary interview with Staff, Smith stated that he was currently involved in an offering of units of a Limited Partnership of whichhe was the general partner. The Limited Partnership involved residential housing units that were to be constructed in Arizona, in the United States. Smithinformed Staff that 10 investors had subscribed for units and that Smith had received a total of US $320,000. According to Smith, he had deposited the funds ina "Synlan" account at the Toronto Dominion Bank located at 2 St. Clair Avenue East, Toronto, Ontario on the understanding that the monies are not to bedisbursed until the deal closes in December of 1998.
23. Smith also informed Staff that he had been involved in other Limited Partnership ventures in the past on similar terms.
V. CONDUCT CONTRARY TO THE PUBLIC INTEREST
24. Smith, as a registrant in Ontario, failed in his duty to inform the Commission of material changes in the information as originally disclosed in the Form 4,when renewing his application for registration, as sponsored by Synlan. Smith failed to inform the Commission on two separate occasions, namely, that he hadbeen charged and convicted of a number of criminal offences involving securities transactions.
25. By reason of the foregoing, Staff alleges that it is in the public interest for the Commission to order that:
i) Smith's registration be cancelled, or alternatively, restricted for such period as may be specified by the Commission; and/or
ii) the exemptions contained in Ontario securities law do not apply to Smith permanently, or alternatively, for such period as may be specified by theCommission.
26. Such further and other allegations as Staff may advise and the Commission may permit.
DATED at Toronto this 8th day of June, 1998.