IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
STATEMENT OF ALLEGATIONS OF STAFF OF
THE ENFORCEMENT BRANCH OF THE ONTARIO SECURITIES COMMISSION
Staff of the Ontario Securities Commission ("Staff") make the following allegations:
1. Mikael Prydz ("Prydz") is an individual who resides in Waterloo, Ontario. From May 7,1992 to December 22, 1992 and from January 18, 1993 to July 1, 1996 Prydz wasregistered with the Ontario Securities Commission (the "Commission") to sell mutual fundsecurities. Prydz' registration was terminated on July 1, 1996 and since that date he hasnot been registered in any capacity with the Commission.
Sale of Shares of 1149932 Ontario Inc.
2. Between November 1, 1995 and February 28, 1998, Prydz sold to Ontario investorssecurities of 1149932 Ontario Inc., ("114") a corporation organized pursuant to the lawsof Ontario.
3. The sale of shares of 114 constituted trades in securities of an issuer that had not beenpreviously issued.
4. 114 did not file a prospectus with the Commission and was never issued a receipt for aprospectus by the Commission.
5. Although the distribution of shares of 114 purportedly relied on the "seed capital"exemption from the prospectus requirements of the Act found in paragraph 72(1)(p), therequirements of this exemption were not satisfied. None of the other exemptions from theprospectus requirements in Ontario securities law was available for the distribution ofshares of 114.
6. None of the exemptions from the registration requirements in Ontario securities law wasavailable for the sale of shares of 114.
7. From May 7, 1992 until July 1, 1996, Prydz was registered with the Commission to sellmutual fund securities and was sponsored by a mutual fund dealer. As Prydz was engagingin the business of trading in securities, he was a "market intermediary" as defined insection 204 of the Regulation to the Act. To sell securities which relied upon the "seedcapital" exemption from the prospectus requirements of the Act, Prydz was required to beregistered with the Commission to sell limited market products. Prydz has never beenregistered in this category and therefore was selling securities outside of his category ofregistration.
8. On August 31, 1995, Prydz registered as a sole proprietorship a business by the name of"Prydz Portfolio Management". At all material times, Prydz has been the only individualaffiliated with Prydz Portfolio Management. Prydz Portfolio Management has never beenregistered with the Commission in any category of registration.
9. Prydz solicited investors to invest in 114 using Prydz Portfolio Management as a vehicle.Many of the investors who were solicited by Prydz to invest in 114 were also his clientsat the mutual fund dealer which sponsored his registration. Prydz sent monthly statementsto his clients both on the stationery used by his sponsor and on Prydz PortfolioManagement stationery. The Prydz Portfolio Management statements incorporatedholdings of his clients in mutual funds which had been purchased through his sponsor andinvestments such as 114 which Prydz had sold to his clients.
10. By using the business name of Prydz Portfolio Management, Prydz falsely represented toinvestors that he was registered with the Commission and held the qualifications to engagein portfolio management.
11. After July 1, 1996 when Prydz' registration to sell mutual fund securities was terminated,he continued to hold himself out as engaging in the business of trading in securities throughPrydz Portfolio Management. Therefore, Prydz continued to fall within the definition of"market intermediary" in section 204 of the Regulation to the Act and was required to beregistered with the Commission to sell limited market products in order to rely on the seedcapital exemption from the prospectus requirements of the Act. Prydz was neverregistered in this category and therefore sold securities without registration.
Sale of Shares of Investors Retirement Holdings Inc.
12. Between July 1, 1998 and November 13, 1998, Prydz sold to Ontario investors securitiesof Investors Retirement Holdings Inc. ("IRHI"), a corporation organized pursuant to thelaws of Ontario.
13. IRHI was incorporated on February 6, 1997 and Prydz, at all material times, was the soleofficer and director of IRHI. The sales of shares of IRHI constituted trades in securitiesof an issuer that had not been previously issued.
14. IRHI did not file a prospectus with the Commission and was never issued a receipt for aprospectus by the Commission.
15. Although the distribution of shares of IRHI purportedly relied on the "seed capital"exemption from the prospectus requirements of the Act found in paragraph 72(1)(p), therequirements of this exemption were not satisfied. None of the other exemptions from theprospectus requirements in Ontario securities law was available for the distribution ofshares of IRHI.
16. None of the exemptions from the registration requirements in Ontario securities law wasavailable for the sale of shares of IRHI.
17. Prydz continued to hold himself out as engaging in the business of trading in securitiesthrough Prydz Portfolio Management at the time he sold shares of IRHI to investors.Therefore, Prydz continued to be a "market intermediary" and required a licence to selllimited market products in order to rely on the "seed capital" exemption from theprospectus requirements of the Act. Prydz was never registered in this category.
18. In selling securities to investors, Prydz made a number of misrepresentations and omittedpertinent information as follows:
a. Prydz failed to disclose to investors purchasing shares of 114 that he was receivinga commission for the sale;
b. After the business venture pursued by 114 had failed and all of the invested moneyhad been lost, Prydz falsely represented to investors to whom he had sold theinvestment that 114 was still viable when Prydz knew that the money invested in114 had been lost; and
c. Prydz guaranteed that at maturity an investment in IRHI would guarantee a returnof principal plus thirty two percent interest;
19. Prydz sold speculative securities of 114 and IRHI to unsophisticated investors and failedto assess the suitability of the investment to the needs of the investors.
Conduct Contrary to the Public Interest
20. Prydz acted contrary to the public interest by:
a. trading in securities outside of his category of registration with the Commissionwhile registered to sell mutual fund securities;
b. trading in securities without being registered with the Commission and with noavailable exemption from the registration requirements of Ontario securities law;
c. trading in securities which constituted a distribution without a prospectus being filedor receipted by the Commission and with no available exemption from the prospectusrequirements of Ontario securities law;
d. acting as an adviser in the category of portfolio manager without being registeredwith the Commission;
e. holding himself out as being in the business of trading in securities as Prydz PortfolioManagement when he was not registered in any capacity with the Commission;
f. failing to adequately assess the suitability of investments in 114 and IRHI forinvestors;
g. guaranteeing returns on investments in IRHI with the intention of effecting a tradein contravention of subsection 38(2) of the Act; and
h. making misrepresentations to investors.
21. Such other allegations as Staff may make and the Commission may permit.
DATED at Toronto this 31st day of January, 2000.