IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, C.S.5, AS AMENDED;
IN THE MATTER OF
THE STATUTORY POWERS PROCEDUREACT,
R.S.O. 1990, C.S.22, AS AMENDED;AND
IN THE MATTER OF
BETWEEN STAFF OF
THE ONTARIO SECURITIES COMMISSION
AND BARRY MAGRILL
1. Pursuant to section 5(1) of the "PracticeGuidelines -- Settlement Procedures in Matters Before theOntario Securities Commission" of the Ontario SecuritiesCommission Rules of Practice, Staff of the Ontario SecuritiesCommission and Barry Magrill ("Magrill") proposeto settle the matters described further below.
2. Solely for the purposes of this agreementand as a basis for the undertakings contained herein, Magrillacknowledges that the facts set out in Part III of this SettlementAgreement are correct.
3. Barnet Magrill Investments Ltd. ("BMI")was, at all material time, registered under Ontario securitieslaw as a securities dealer. Effective July 28, 2000, the registrationof BMI was suspended. Magrill was, at all material times,registered as an officer of BMI and was its president. Magrillis not registered currently in any capacity under Ontariosecurities law.
4. During the period from 1995 to 2000 (the"Material Time"), virtually all of BMI's businessconsisted of it acquiring stock for its own account and sellingthe stock to its clients (referred to below as "principaltrading").
5. During the Material Time over 90% of BMI'srevenue was derived from principal trading in the stock offive issuers (the "Five Issuers") referred to below.Stock of each of the Five Issuers was traded through the CanadianDealing Network ("CDN").
6. The Five Issuers are as follows:
1. Bridge-it Corporation ("Bridge-it"),
2. Curran Bay Resources Ltd. ("Curran"),
3. Interprovincial Venture Capital Corporation("Interprovincial"),
4. Windy Mountain Explorations Ltd. ("Windy"),and
5. Library Information Software Corp. ("Library").
7. In the case of the Five Issuers, BMI eitherheld stock in its inventory or exercised option agreementsto acquire the stock in the issuer immediately prior to thecommencement of principal trading in the stock with its clients.BMI acquired stock in the Five Issuers at prices significantlylower than the selling price to its clients. BMI resold thisstock to its own clients at mark-ups above the acquisitioncosts ranging from approximately 245% to 440%.
8. During the Material Time, BMI's gross revenue(i.e., revenue from the sale of stock less acquisition costs)earned from principal trading in the stock of the Five Issuerswas approximately $7.2 million.
9. In the case of each of the Five Issuers,there was no initial trading period. BMI set the initial pricecharged to its clients.
10. Particulars of the principal trading instock of the Five Issuers by BMI are set out below.
11. Bridge-it is a reporting issuer in Ontariowhose shares were added to the CDN system for trade reportingon December 18, 1997.
12. During the period from June 7, 1999 toMarch 2, 2000, BMI purchased 521,750 shares of Bridge-it ata weighted average acquisition cost of $0.28 per share.
13. BMI began its selling campaign on June24, 1999 at a price of $1.50 per share. From June 24, 1999to March 28, 2000, BMI sold 468,550 shares to its clientsat a weighted average price of $1.50, generating a gross profitof $519,610.00. The average mark-up by BMI was 436%.
14. On June 2, 2000 the Commission orderedthat trading in Bridge-it shares cease due to Bridge-it'sfailure to file its annual financial statements for the periodended December 31, 1999, as well as the failure to file itsquarterly financial statements for the period ended March31, 2000.
15. Curran is a reporting issuer in Ontario.
16. Curran's common shares were originallylisted on the Alberta Stock Exchange (the "ASE").There was a trading halt in 1998 which was changed to a suspensionon March 17, 1999. The stock was subsequently de-listed bythe ASE. It was added to the CDN system for trade reportingon March 30, 1999. Curran's Series 1 Preference shares wereadded to the CDN on April 30, 1999.
17. From April 22, 1999 to June 23, 1999,Curran issued 2,000,000 Series 1 Performance shares. FromApril 1999 to October 1999, BMI purchased 1,280,000 of theseshares of Curran at a price of $0.30 per share.
18. BMI commenced its selling campaign onMay 6, 1999 at a price of $1.40 per share. From May 6, 1999to March 23, 2000, BMI sold 1,105,300 shares to its clientsat a weighted average price of $1.62, generating a gross profitof $1,184,367.50. The average mark-up was 440%.
19. Curran Series 1 Preference shares lasttraded on June 13, 2000 at a price of $1.40 per share. Thelast transaction was a cross of 1,000 shares owned by BMI
20. Interprovincial is a reporting issuerin Ontario.
21. Interprovincial was added to the CDN fortrade reporting on October 17, 1996. It was approved for quotationon January 8, 1997.
22. On October 2, 1996, when BMI began purchasingshares of Interprovincial there were 29.6 million shares ofInterprovincial outstanding.
23. In total BMI purchased 5,694,231 sharesat a weighted average acquisition cost of $0.11 per share.
24. BMI commenced its selling campaign onNovember 4, 1996 at a price of $0.35 per share. From November4, 1996 to December 22, 1999, BMI sold 6,702,924 shares toits clients at a weighted average price of $0.58 per sharegenerating a gross profit of $2,756,025.15. The average mark-upwas 427%.
25. The current price of Interprovincial is$0.02 per share. The last trade was a trade of 2,200 sharesfrom Scotia McLeod Inc. to W.D. Latimer & Co. Ltd. onMay 26, 2000.
26. Windy is a reporting issuer in Ontario.
27. Windy Class B Preferred shares were addedto the CDN for trade reporting on June 20, 1995. The commonshares traded on the ASE.
28. As at June 2, 1995, there were 1,038,518Class B Preferred shares outstanding. BMI purchased a totalof 984,431 or 95% of the total shares issued at a weightedaverage acquisition cost of $0.38 per share.
29. BMI commenced its selling campaign onAugust 25, 1995 at $0.70 per share. During the period fromJune 1995 to December 1995, the common shares traded on theASE at a low of $0.12 and a high of $0.26 with a total volumeof 61,000 shares. From August 1995 to December 1996 the pricerange at which BMI sold the Class B Preferred shares to itsclients was $0.70 to $1.55. From June 30, 1995 to February11, 1998, BMI sold 1,122,250 shares to its clients at a weightedaverage price of $1.31. In total BMI generated a gross profitof $985,980.00. the average mark-up was 245%.
30. The current price of Windy Class B Preferredshares is $0.05. The last trade of a board lot was April 28,1999 at $0.05 per share. The last reported trade was on December13, 1999 at $0.05 per share.
31. Library is a reporting issuer in Ontario.
32. Library Class A shares were added to theCDN for trade reporting on November 27, 1997. Library didnot apply for quotation at that time. It subsequently appliedfor quotation, but that application was denied on December14, 1999.
33. As at November 4, 1997, there were a totalof 9,708,000 Class A shares outstanding. From November 12,1997 to November 17, 1999, BMI purchased a total of 2,133,000shares at an average acquisition cost of $0.30 per share.
34. BMI commenced its selling campaign onNovember 27, 1997 at a price of $1.00 per share. From November27, 1997 to January 17, 2000, BMI sold 1,954,450 shares toits clients at a weighted average price of $1.34, generatinga gross profit of $1,796,621.40. The average mark-up was 347%.
Conduct Contrary to the Public Interest
35. In engaging in the trading described above,at the specified mark-ups, BMI failed to deal fairly, honestlyand in good faith with its clients, in breach of the requirementsset out in Ontario securities law, in particular, subsections2.1(1) and (2) of the Rule 31-505, failed to act in the bestinterests of its clients and acted contrary to the publicinterest. Magrill, in his position as president of BMI duringthe Material Time, authorized, permitted or acquiesced inthe contraventions by BMI, described above, and acted contraryto the public interest.
IV. POSITION OF MAGRILL: MITIGATING FACTORS
36. The following are mitigating factors tobe considered in relating to the settlement agreement herein:
a) Between 1995 and 1999 Magrill took stepsto change the focus of BMI's business activity from principaltrading to agency trading and to have BMI meet the membershiprequirements of the Investment Dealers Association of Canada,but was not successful in his efforts;
b) In July, 2000 Magrill had BMI apply tothe Commission pursuant to section 27 of the Act to surrenderits registration voluntarily. In doing so BMI consentedto the suspension of its registration in accordance withOSC Rule 33-501;
c) Magrill voluntarily undertook to windup the operations of BMI in accordance with terms and conditionsimposed by the Director on consent and to have BMI's clientaccounts transferred to a member of the Investment DealersAssociation to ensure the orderly winding-up of BMI's operations.In September, 2000, the Commission received a comfort letterfrom BMI's auditor confirming that BMI's financial obligationsto its clients had been discharged. Since the winding upof BMI, Magrill has not been employed in the securitiesindustry.
V. TERMS OF SETTLEMENT
37. Magrill agrees to the following termsof settlement:
a) Magrill undertakes not to apply for registrationin any capacity for a period of two years from the dateof consent by the Executive Director to this settlementagreement;
b) Magrill undertakes not to act as an officeror director of a registrant or an officer or director ofany issuer in Ontario which has an interest directly orindirectly in any registrant for a period of five yearsfrom the date of consent by the Executive Director to thissettlement agreement;
c) Magrill undertakes not to purchase orsell securities for a period of two years from the dateof consent by the Executive Director to this settlementagreement, with the exception that he be permitted to purchaseor sell securities:
(i) in personal accounts in his and/orhis spouse's name in which he or his spouse, alone ortogether, has or have the total beneficial interest; and
(ii) in registered retirement savingsplans in which he or his spouse has the sole beneficialinterest;
d) Magrill undertakes reasonably to cooperatewith the Commission and its Staff in any investigation byStaff relating to matters concerning other persons; and
e) Magrill acknowledges that the Directorretains discretion to consider his suitability for registrationpursuant to section 26 of the Act in the event that Magrillseeks to apply for registration in any capacity under theAct following the two year period referred to in clause(a) above. In the event of such an application, Magrillagrees that he will not oppose the imposition of reasonableterms on his registration, including terms of supervisionand reporting requirements, should the director, in exercisinghis or her discretion, deem appropriate the imposition ofsuch terms in considering Magrill's suitability for registration.
38. Magrill agrees that he will not, in anyproceeding, refer to or rely upon this Settlement Agreement,settlement discussions/negotiations or the process of obtainingthe Executive Director's consent to this Settlement Agreementas the basis for any attack on the Commission's jurisdiction,alleged bias or appearance of bias, alleged unfairness orany other remedies or challenges that may otherwise be available.
VI. STAFF COMMITMENT
39. If this settlement receives the consentof the Executive Director, Staff will not initiate any otherproceedings under the Act against Magrill in relation to thefacts set out in Part III of this Settlement Agreement.
40. If this settlement receives the consentof the Executive Director, and at any subsequent time Magrillfails to honour the terms contained in Part V of this SettlementAgreement, Staff may initiate proceedings against Magrillin relation to the facts set out in Part III herein and/orrefer to this Settlement Agreement in any future proceeding.
VII. APPROVAL OF SETTLEMENT
41. If, for any reason whatsoever, the ExecutiveDirector does not consent to this settlement:
a) this Settlement Agreement and its terms,including all discussions and negotiations between Staffand Magrill leading up to the execution of this SettlementAgreement, shall be without prejudice to Staff and Magrill;
b) Staff and Magrill shall be entitled toall available proceedings, remedies and challenges, includingproceedings to a hearing of these matters before the Commission,unaffected by this Settlement Agreement or the settlementdiscussions/negotiations; and
c) The terms of this Settlement Agreementwill not be referred to in any subsequent proceeding, ordisclosed to any person, except with the written consentof Staff and Magrill or as may be required by law.
VII. DISCLOSURE OF SETTLEMENT AGREEMENT
42. This Settlement Agreement and its termswill be treated as confidential by Staff and Magrill untilconsented to by the Executive Director, and forever, if forany reason whatsoever this settlement is not consented toby the Executive Director, except with the consent of Staffand Magrill, or as may be required by law.
43. Any obligation of confidentiality shallterminate upon receiving the Executive Director's consentto this settlement.
44. Staff and Magrill agree that if the ExecutiveDirector does consent to this settlement, they will not makeany public statement inconsistent with this Settlement Agreement.
IX. EXECUTION OF SETTLEMENT AGREEMENT
45. This Settlement Agreement may be signedin one or more counterparts which together shall constitutea binding agreement.
46. A facsimile signature of any signatureshall be effective as an original signature.
June 27, 2003.
July 8, 2003.
I hereby consent to the settlement of this matteron the terms contained in this Settlement Agreement.
July 9, 2003.