IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
DUNDEE SECURITIES CORPORATION
BETWEEN STAFF OF THE ONTARIOSECURITIES COMMISSION
AND DUNDEE SECURITIES CORPORATION
1. Pursuant to section 5(1) of the "PracticeGuidelines - Settlement Procedures in Matters Before the OntarioSecurities Commission" of the Ontario Securities CommissionRules of Practice, Staff of the Ontario Securities Commissionand Dundee Securities Corporation propose to settle the mattersdescribed further below.
II. STATEMENT OF FACTS
2. Staff and Dundee agree with the facts setout in Part II of the Settlement Agreement. Paragraph numbers4(iv), 6, 7, 17-19, 21, 23, 24, 26, 28, 29, the second sentenceof 30 and 33 contain matters of which Staff has obtained evidencethat support these assertions, which Dundee has no knowledgeof, but for the purpose of this settlement does not dispute.Although Staff have no knowledge of the facts set out at paragraphs10(c), 12, 14, 16, 39, 40, 41, 45 and 46 for the purpose ofthe settlement, Staff accepts the accuracy of these facts.
A. THE PARTIES
Dundee Securities Corporation
3. Dundee Securities Corporation is registeredas a Dealer in the categories of Broker/Investment Dealerunder the Act.
Brian Peter Verbeek
4. Brian Peter Verbeek's registration historywith the Commission was as follows:
i. from January 16, 1996 to March 10, 1997,Verbeek was registered as a salesperson with Manulife SecuritiesInternational Limited, a dealer in the category of MutualFund Dealer;
ii. from April 8, 1997 to August 27, 1999Verbeek was registered as a salesperson with Fortune FinancialCorporation, a dealer in the category of Securities Dealer.From January 3, 1997 to August 27, 1999, Verbeek was registeredas a branch manager of 38 Auriga Drive, Suite 225, Nepean,Ontario. On February 2, 1998, the branch located at 38 AurigaDrive, Suite 225 moved to 57 Auriga Drive, Suite 204, Nepean,Ontario;
iii. from August 27, 1999 to May 1, 2000,Verbeek was registered as a registered representative withDundee. From February 18, 2000 to May 1, 2000, Verbeek wasregistered as a branch manager of 57 Auriga Drive, Suite204, Nepean, Ontario; and
iv. On August 21, 2000, Verbeek was registeredas a salesperson with Buckingham Securities Corporation,a dealer in the category of Securities Dealer. Lloyd HutchinsonEbenezer Bruce was appointed supervisor for Buckingham'ssub-branch located at 57 Auriga Drive, Suite 204, Nepean,Ontario, from September 5, 2000 until June 21, 2001. Verbeek'sregistration was subject to the following terms and conditions:
(a) For a one-year period, Bruce was requiredto submit, on the prescribed form, quarterly reports tothe General Manager, Registration, regarding Verbeek'ssales and client service activities. The first report,covering the period from initial registration to October30, 2000, was to be submitted no later than November 15,2000. Each subsequent report was due on the 15th day ofthe month following each quarter.
(b) Verbeek's activities with Buckinghamwere approved and supervised by Bruce, an approved officerof Buckingham. The Supervisory Report due November 21,2000 was delivered to the Commission December 19, 2000.The Supervisory Reports due February 21, 2001 and May21, 2001 were not submitted to the Commission.
5. Verbeek's securities industry proficienciesincluded the Canadian Securities Course, the Examination basedon the Manual for Registered Representatives, the Partners/Directors/OfficersQualifying Examination, the Canadian Investment Funds Course,and the Branch Managers' Examination.
Buckingham Securities Corporation
6. By letter dated December 29, 2000, Buckinghamsuspended Verbeek from conducting business as a registeredrepresentative of Buckingham, pending the completion of aninternal investigation and an investigation by the OntarioSecurities Commission. By letter dated May 23, 2001, Verbeekwas re-instated by Buckingham as a registered representative.
7. On June 21, 2001, Verbeek was terminatedfor cause by Buckingham due to numerous unresolved clientcomplaints, concerns that he was violating the terms and conditionsof his registration and concerns that he was involved in questionableprivate placements.
Fortune Financial Corporation
8. Prior to August 30, 1999, Fortune FinancialManagement Inc. and its two operating regulatory subsidiaries,Fortune Investment Corporation, then an OSC registrant mutualfund dealer, and Fortune Financial Corporation, a securitiesdealer registered with the Montreal Exchange (collectively,the "Fortune Companies") were experiencing seriousfinancial and regulatory problems. The Commission had imposedterms and conditions on Fortune Investment Corporation. Fortunehad applied for, but been refused, IDA membership.
B. Dundee's Acquisition of Assets of theFortune Companies
9. On August 30, 1999, Dundee acquired selectedassets of the Fortune Companies. The acquisition includedthe client assets of the Fortune Companies.
10. As a condition of obtaining regulatoryapprovals for the acquisition:
(a) Dundee was required by its regulatorsto bulk transfer all clients and remaining sales representativesof the Fortune Companies to the appropriate Dundee entityin order to ensure a seamless transition process for theFortune clients;
(b) a regulatory escrow comprising moniesand Dundee shares was established in order to satisfy clientclaims in respect of acts or omissions of Fortune dealersrelating to accounts of clients;
(c) the Fortune Companies were requiredto undertake through Deloitte & Touche a negative confirmationof client accounts approximately concurrent with the closingdate of the transaction (August 30, 1999), for 100% of theclient accounts of the Fortune Companies, including Verbeekclients and clients of other Fortune sales representativeswho had CCPC shares in their clients' self-directed RSPaccounts.
11. At the time of the completion of the transaction,as a result of issues with respect to operational and compliancepolicies and procedures of the Fortune Companies known toDundee through the due diligence undertaken by and on behalfof Dundee, Dundee sought and obtained limited regulatory relieffrom the IDA for the implementation of required operationaland compliance changes to ensure compliance with industrystandards in respect of the client accounts and sales representativesof the Fortune Companies acquired by Dundee.
12. As a result of the acquisition, approximately$2.7 billion in client assets under administration and 208sales representatives of the Fortune Companies were subjectto the bulk transfer to Dundee. In addition, 240 sales representativesof the Fortune Companies were subject to the bulk transferto Dundee Private Investors Inc.
C. Registered Saving Plan Qualified Investmentsin Shares of Canadian Controlled Private Corporations
13. Shares of Canadian Controlled PrivateCorporations ("CCPCs") can constitute a qualifiedinvestment for registered retirement savings plans ("RRSPs")and similar types of registered plans (LIRA, RRIF, LIF). Thequalifications of a company as a CCPC are prescribed by taxlaws and regulations.
14. At the time of the Dundee transaction(August 30, 1999), approximately 47 Fortune Company salesrepresentatives had client self-directed RSP accounts whichcontained security positions consisting of CCPC shares, whichon closing of the acquisition, were subject to the bulk transferof accounts from Fortune to Dundee.
15. Included in this bulk transfer of accounts,were approximately $3.8 million of CCPC shares in 149 of Verbeek'sclient accounts.
16. Dundee's due diligence of the FortuneCompanies at the time of the Dundee transaction did not revealin the Fortune Companies' files any evidence of any clientcomplaint or other issues regarding Verbeek. The negativeconfirmation process referred to in paragraph 10(c) abovedid not result in any complaints or issues arising with respectto either Verbeek or Verbeek client accounts which held CCPCshares or in respect of the other 46 Fortune Companies salesrepresentatives who had client self-directed RSP accountswhich contained security positions consisting of CCPC shares.
D. The Scheme Involving Brian Verbeek
17. From approximately August of 1998 to June2001, advertisements were placed by the scheme's promotersin newspapers throughout Ontario, Quebec and other provincesto attract clients. The advertisements offered "fastfinancial assistance" to persons wishing access to fundsin their locked-in RRSPs. In some cases, Verbeek's officenumber was provided as the contact in the advertisement. Inother cases, clients were referred to Verbeek.
18. The clients purchased shares of CCPCsusing monies located in their locked-in RRSPs. The clientsconcurrently obtained a loan from the scheme's promoters representinga portion of the purchase price of the CCPC shares, varyingfrom approximately 60% to 80%. The remaining portion, varyingfrom approximately 20% to 40% was charged as an "administrationfee" by the promoters of the scheme.
19. Verbeek, or clerical staff under his supervision,met directly with some clients. They explained that they wouldassist these individuals in accessing their funds held intheir locked-in RRSPs. Verbeek, or clerical staff under Verbeek'ssupervision, advised these investors that the funds locatedin their locked-in RRSPs would be used to purchase sharesof CCPCs that were purported to be qualified investments forlocked-in RRSPs. In a few cases, Verbeek, or clerical staffunder his supervision, met with the clients, explaining theloans and filling out the various documents. In other cases,Verbeek simply processed the documentation.
20. Dundee was not aware that Verbeek wasfacilitating the loans. Dundee had no knowledge of the loans.
21. Verbeek processed over 670 transactions,in excess of $17 million through Fortune, Dundee and Buckingham.Verbeek processed some of these transactions while not registered.
22. Many of these individuals were low-incomeearners.
23. Generally, these clients contacted Verbeekbecause they were in financial difficulty and needed to accessthe funds located in their locked-in RRSPs.
E. Verbeek's Involvement with Messrs. Petrementand Rolland
24. Sometime in 1998, Verbeek became involvedin these transactions with Messrs. Petrement and Rolland.Verbeek's role, while a registrant, was to explain and processthe transactions.
25. Verbeek, through Dundee, facilitated thepurchase of shares from the following companies:
Atlas Mckenzie Inc.
Data Safenet Inc.
Distribution Perilandaise Inc.
LMN Techno-Soft Inc.
NAV et LOGI-CIEL Inc.
26. In most cases, the identity of the companythat the clients purchased shares from was only disclosedafter the purchase was made.
27. In total, Verbeek processed approximately124 transactions through Dundee for a value of approximately$3.3 million. The shares were deposited into the clients'locked-in RRSPs.
F. Verbeek's Involvement with Mr. Jean Tremblay
28. Sometime in late 1999, Verbeek becameinvolved with Mr. Jean Tremblay, the President of FinanciereTelco Inc., and CFM Consultant Financement Multiple ("CFM").
29. Advertisements were placed in a numberof newspapers in Ontario to attract clients. The phone numberof CFM, located in Montreal, was listed as a contact. Clientscalled the office of CFM in Montreal, Quebec. A telephoneresponse form was completed. Subsequently, individuals hiredby CFM were sent to meet with the clients to complete documentationnecessary to process the purchase of CCPC shares. The documentationwas then sent to Verbeek's office. Verbeek's name appearsas the "registered representative" on all documentation.Verbeek did not meet with the clients but simply processedthe necessary documentation.
30. Once again, the clients purchased sharesof CCPCs using monies located in their locked-in RRSPs. Theclients then obtained a loan from the scheme's promoters representinga portion of the purchase prices of the CCPC shares, varyingfrom approximately 60% to 80%.
31. Verbeek, through Dundee, facilitated thepurchase of shares from the following companies:
Inter Technologie Inc.
Intermax Technologie Inc.
Via Net Tech Inc. CL-B
32. In most cases, the identity of the companythat the clients purchased shares from was only disclosedafter the purchase was made.
33. These transactions may be subject to taxationsince the CCPC shares were used as collateral for the loans.The Canada Customs and Revenue Agency is in the process ofidentifying and notifying the clients whose "investment"has now become subject to taxation.
34. In total, Verbeek processed approximately126 transactions through Dundee in an amount of approximately$3.2 million.
G. The Dundee Period (September 1, 1999 toMay 1, 2000)
35. During the Dundee Period, Verbeek wasregistered with Dundee as a registered representative and,from February 18, 2000 to May 1, 2000, as a branch manager.As the branch manager of the Nepean, Ontario office,Verbeek was supervised by Dundee's head office, as requiredby IDA policies.
36. During the Dundee Period, while Verbeekwas registered as a registered representative with Dundee,Verbeek processed approximately 255 New Client ApplicationForms ("NCAFs") and facilitated the purchase ofCCPC shares in locked-in RRSPs in an amount of approximately$6.8 million. In total, Verbeek processed approximately250 transactions (some clients were involved in more thanone transaction).
37. Verbeek presented Dundee with the appropriatedocumentation to process these transactions in the clients'locked-in RRSPs account for CCPC shares. The documentationconsisted of the following:
(a) instructions from, and executed by,the client to Dundee instructing the purchase of CCPC shares,and certifying that the CCPC was a duly registered company,not a venture capital company, was owned and controlledby residents of Canada, certifying the current fair marketvalue of the shares of the company, and stating that theinvestor had been advised of the income aspects of the investmentin question by qualified counsellors;
(b) a document from, and executed by, theclient to Dundee instructing the purchase and referencingthe client's agreement to purchase the CCPC shares and theclient's stockholder's agreement with the CCPCs;
(c) a letter of indemnity, signed by theclient, containing the client's acknowledgements:
(i) of the risks involved in holding CCPCshares in a locked-in RRSP;
(ii) that neither Verbeek nor Dundee hadcompleted any due diligence regarding the investment meritsof the company; and,
(iii) of the risk in investing in sharesof a company whose shares were not publicly traded;
(d) a Certificate executed by a CharteredAccountant, certifying that the shares of the CCPC werea qualified investment in a locked-in RRSP;
(e) a further Certificate of a CharteredAccountant, confirming the shares constituted an admissibleinvestment into a locked-in RRSP and confirming the fairmarket value of the shares;
(f) a Certificate for a specific numberof shares in the CCPC;
(g) in some instances, a letter of compliance,executed by the client, acknowledging that the client hadsought and obtained independent financial, investment, taxand legal advice, acknowledging the suitability of the transactionin respect of the client's personal investment objectives,and acknowledging that it was the client's sole responsibilityto ensure that the transaction was a qualified investmentfor the client's locked-in RRSP.
38. On November 19, 1999 the Commission issuedan Investor Alert titled "OSC Warns Against RRSP Scams",warning the public to "exercise extreme caution whenconsidering whether to cash in money held in a RegisteredPlan in order to pay for shares in a company that offers toturn around and loan (or refund) some of the money back tothe investor". The Investor Alert did not reference specificcompanies or persons involved in such a scam.
39. In late November 1999, the Senior Vice-Presidentof Compliance of Dundee attended on Verbeek at his officein Nepean, Ontario for the purpose of addressing with Verbeeka number of concerns Dundee had at that time with Verbeek.During the meeting, the Senior Vice-President of Complianceprovided Verbeek with a copy of the Investor Alert. Verbeekassured the Senior Vice-President of Compliance that he wasnot involved in any loan arrangements with clients and thathe was not receiving any commission for these types of transactionsoccuring in his clients' accounts.
40. Up to May 1, 2000, Dundee did not receiveany client complaints or client communications evidencingconcern with these transactions, whether these hadoccurred during the Fortune Company time period, or subsequentlyat Dundee.
41. Dundee did not solicit purchases of sharesin CCPCs, nor was it aware of any such solicitation beingmade on its behalf, nor the opening of accounts for this purpose.Advertisements placed in newspapers by Messrs. Petrement andRolland or Jean Tremblay were not sponsored or paid for byDundee, nor did Dundee's name or appear on such advertisements.
42. Dundee did not charge a commission forprocessing the purchase of CCPC shares for monies in a locked-inRRSP. In some instances the client was charged a service fee.
43. Dundee failed to adequately supervisethese Verbeek accounts and Verbeek's actions in relation tothese accounts given the following:
i. Verbeek was the branch manager and theonly registered representative located at 57 Auriga Drive,Suite 204, Nepean, Ontario;
ii. Through Dundee, Verbeek processed approximately255 NCAFs for a total of approximately $6.8 million;
iii. Many of the NCAFs submitted to Dundeeby Verbeek should have resulted in Dundee making furtherinquiries of the suitability of the proposed transactions;
iv. Dundee compliance had returned to VerbeekNCAFs to address compliance concerns regarding documentationcompleteness, client objectives, and changed client objectivesinitialled purportedly by the client. The timeliness ofVerbeek's responses to these concerns was a subject of thelate November 1999 meeting between the Senior Vice-Presidentof Compliance and Verbeek and the subject of a December17, 1999 Memorandum from Dundee Compliance to Verbeek. Verbeekfailed to correct or return the forms to Dundee head officein a timely manner;
v. Dundee did not adequately address complianceissues arising from the proposed inclusion of a "highrisk" security in a client's self-directed RSP; and,
vi. In November of 1999, the Senior Vice-Presidentof Compliance attended Verbeek's office and provided himwith a copy of an Alert issued by the Ontario SecuritiesCommission dated November 19, 1999 regarding "OSC WarnsAgainst RRSP Scams". Despite the fact that Verbeekdenied any knowledge of any loans, Dundee did not adequatelyfollow-up with concerns regarding Verbeek's involvementin these transactions.
H. Subsequent to the Dundee Period
44. On May 1, 2000, Verbeek resigned fromDundee Securities.
45. Subsequent to Verbeek's resignation, Dundeereceived a few client complaints, which Dundee communicatedto the IDA. As a result, the Investment Dealers Associationsent Verbeek a warning letter and various conditions wereattached to Verbeek's registration throughout the time hewas registered with Buckingham.
46. Subsequent to May 1, 2000, Dundee hasreviewed its policies and procedures regarding the purchasesof CCPC shares in clients' self-directed RSP accounts to addressthis type of scheme.
III. CONDUCT CONTRARY TO THE PUBLIC INTEREST
47. By engaging in the conduct described above,Dundee failed to adequately supervise these Verbeek accountsand Verbeek's actions in relation to these accounts, contraryto the public interest and contrary to section 3.1 of OntarioSecurities Commission Rule 31-505, which requires a dealerto supervise each of its registered salespersons in accordancewith Ontario securities law.
IV. COOPERATION OF DUNDEE
48. Dundee has fully cooperated with Staffof the Commission during the course of its investigation.
V. TERMS OF SETTLEMENT
49. Dundee agrees to the following terms ofsettlement:
(a) From the date of consent by the ExecutiveDirector to this settlement agreement, Dundee undertakesto review its current compliance function in respect ofthe issues identified in this Settlement Agreement, andwithin two months of the consent by the Executive Directorto this settlement agreement, report to PricewaterhouseCooperswith respect to any required policies and procedures andan implementation plan, such plan to be approved by Staffof the Commission;
(b) Dundee undertakes to pay to the Commissionthe sum of $150,000 in respect of the costs of the investigationin relation to Dundee, such payment to be made within sevendays of consent by the Executive Director to this settlementagreement.
50. Dundee agrees that they will not, in anyproceeding, refer to or rely upon this Settlement Agreement,the settlement discussions/negotiations or the process ofobtaining the Executive Director's consent to this SettlementAgreement as the basis for any attack on the Commission'sjurisdiction, alleged bias or appearance of bias, allegedunfairness or any other remedies or challenges that may otherwisebe available.
VI. STAFF COMMITMENT
51. If this settlement receives the consentof the Executive Director, Staff will not initiate any otherproceeding under the Act against Dundee in relation to thefacts set out in Part II of this Settlement Agreement unlessDundee fails to honour the undertaking contained in paragraphs49 and 50 of this Settlement Agreement, Staff reserves theright to refer to this Settlement Agreement in any furtherproceeding.
VII. APPROVAL OF SETTLEMENT
52. If, for any reason whatsoever, the ExecutiveDirector does not consent to this settlement:
(a) this Settlement Agreement and its termsincluding all discussions and negotiations between Staffand Dundee leading up to the execution of this SettlementAgreement, shall be without prejudice to Staff and Dundee;
(b) Staff and Dundee shall be entitled toall available proceedings, remedies and challenges, includingproceeding 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 Dundee or as may be required by law.
VIII. DISCLOSURE OF AGREEMENT
53. This Settlement Agreement and its termswill be treated as confidential by Staff and Dundee untilconsented to by the Executive Director, and forever, if forany reason whatsoever this settlement is not consented toby the Executive Director, except with the written consentof Staff and Dundee, or as may be required by law.
54. Any obligations of confidentiality attachingto this Settlement Agreement shall terminate upon the ExecutiveDirector's consent to this settlement.
55. Staff and Dundee 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
56. This Settlement Agreement may be signedin one or more counterparts which together shall constitutea binding agreement.
57. A facsimile copy of any signature shallbe as effective as an original signature.