Mafia connected John Manion had accounts at PI. John was promoting stocks with Dodi Handy who bought out Manion when he went to jail.
Dodi is IR fo Xybernaut currently. Was also IR for a long list of frauds such as GENI, CYBR ect ect. To long to list
"Turning to the JOHN MANION indictment, Mr. Skwarok again pointed out that the indictment made no mention of Mr. MANION having a criminal record and did not say that he was associated with the Mafia. Moreover, he said, the indictment did not allege any wrongdoing at Pacific International."
BCSC panel hears P.I. should be praised, not punished
2004-11-05 20:44 ET - Street Wire
Also Street Wire (C-NA) National Bank of Canada (The)
by Lee M. Webb
The British Columbia Securities Commission (BCSC) hearing into allegations against National Bank's Pacific International listened as Mark Skwarok, representing director Lawrence McQuid, wrapped up his closing arguments in half-day sessions on Oct. 29 and Nov. 1.
As he continued his efforts to lay waste to the BCSC case against Mr. McQuid and Pacific International, Mr. Skwarok suggested that an unfavourable decision against his client and the Vancouver-based brokerage firm would turn the securities industry on its ear. According to Mr. Skwarok, Pacific International should be praised, not punished.
Hoisted again
Shortly after the half-day session opened on the afternoon of Oct. 29, Mr. Skwarok broached the subject of the client searches conducted by Pacific International.
According to Mr. Skwarok, much of the BCSC's evidence of alleged criminal or regulatory histories actually consisted of search results that had been obtained by Pacific International. He noted that BCSC witness Sharlene MacIntosh testified that Pacific International conducted more searches than any other Vancouver brokerage firm.
"It's ironic that if P.I. had not conducted any searches, the staff would have little basis on which to make the allegations set out in the notice," Mr. Skwarok remarked. "So, if staff were conducting a similar type of inquiry, we have another brokerage house that hadn't gone about doing searches, then staff wouldn't have a case even if that other institution had far more people with histories.
"Again, it's a situation of P.I. doing what it can to deal with potential problems, exceeding the obligations that the regulators have imposed upon them, and effectively being hoisted on their own petard."
Mr. Skwarok went on to argue that the BCSC had never issued any directive to brokerage firms suggesting that they should not open or maintain an account for a client who has a criminal or regulatory history.
"And if this commission were to suggest that that is a rule, people with -- or brokerage houses with clients that have a history, they're all to be closed, they would turn the industry on its ear because the amount of resources that would be required to be devoted to try and determine whether all accounts or any accounts had a history would be substantial," Mr. Skwarok said.
Glass houses
Mr. Skwarok said that BCSC decisions and settlement agreements make clear that there is not a general prohibition against having accounts for people with regulatory histories.
Indeed, the lawyer said that the BCSC commonly permits people who have committed serious breaches of securities laws to continue trading.
"I don't need to give a whole series of examples where the commission has allowed people to trade through a brokerage account even after serious regulatory offences have been found," Mr. Skwarok said.
"Obviously cases like Rachfall and Patterson come to mind, where those two individuals were criminally convicted in the United States and yet this commission considered it appropriate to allow them to continue to not only have their accounts at brokerage houses, but to continue being brokers," the lawyer said, a reference to former Pacific International brokers Dirk Rachfall and Michael Patterson.
"Similarly, Frank Biller, who was found by this commission to be associated with, involved with the greatest fraud British Columbia has ever seen, and despite the adverse findings against him by this commission, he was permitted to maintain his brokerage account in his own name," Mr. Skwarok added, a reference to the massive Eron Mortgage fraud.
"So, given the commission and the executive director's predilections to saying that even if you do something very bade in B.C. and that's proven beyond any doubt, that doesn't necessarily lead to a cease trade order," Mr. Skwarok went on. "In light of that attitude, with deference, it's a little difficult to understand why a more stringent test ought to somehow be applied to folk who get into trouble in the United States. And that's where most of these histories have transpired."
According to Mr. Skwarok, Mr. McQuid and Pacific International's compliance department acted reasonably when it discovered that a client had a criminal or regulatory history.
In the case of a criminal history, the account was closed. A regulatory history prompted a review of the account and a reasonable decision about whether to close the account or maintain it with heightened supervision.
American lies
Mr. Skwarok argued that there is no basis for the BCSC claims that U.S. residents, particularly those with regulatory and criminal histories, "passed over" and "ignored" every other brokerage firm in North America to open accounts at Pacific International.
"The evidence indicates that those people and people of their ilk had accounts throughout Canada and the United States," Mr. Skwarok said.
For example, Mr. Skwarok said, Richard Gladstone had accounts with at least four other Canadian brokerage firms and ten U.S. securities dealers, notwithstanding his regulatory history. Similarly, JOHN MANION had accounts with at least seven U.S. brokerage firms.
The lawyer told the panel that many of Pacific International's experienced market participant clients were active in the B.C. capital markets. Mr. MANION, for example, provided investor relations services issuers listed on the Vancouver Stock Exchange (VSE).
"So, these foreigners, if I can use that language, didn't come to P.I. because of some perceived regulatory weaknesses there, but they were already in Vancouver doing other things; there's nothing mysterious about them coming," the lawyer said.
Mr. Skwarok said that the BCSC included civil complaints filed by the U.S. Securities and Exchange Commission (SEC) in its interpretation of what constituted a regulatory history.
"Complaints, of course, are like statements of claim or writs of summons," Mr. Skwarok said. "They set out unproven allegations of misconduct."
Mr. Skwarok argued that the BCSC did not tender any evidence that the allegations in the SEC complaints were true. Moreover, he said, the alleged misconduct took place outside of Pacific International and in some cases did not even involve the firm's clients.
"Misconduct by non-clients, including former clients, can't possibly constitute evidence of inadequate account supervision by P.I.'s compliance staff," Mr. Skwarok said.
In a similar vein, Mr. Skwarok argued that the four U.S. indictments that figured prominently in the BCSC case contained unproven allegations that could not be relied upon as evidence of wrongdoing.
"The point I'm trying to make here is how is it that P.I. can be damned for not knowing of misconduct where there's no evidence that the misconduct took place?" Mr. Skwarok said. "This is intellectually incomprehensible."
"With respect to the nature of the securities fraud alleged in these four indictments, there's some general observations that could be made," Mr. Skwarok later said. "The fraud in each of these indictments was primarily a function of misrepresentations made by American residents in American markets in the United States.
"Or, as has been colloquially referred to, a situation whereby Americans are telling lies to other Americans in the United States where there's no nexus in Canada with the primary misconduct being alleged."
According to Mr. Skwarok, in each of the four indictments the lying took place outside of Pacific International and it would not be possible for any brokerage to detect misconduct that is occurring elsewhere.
"And it's probably also worth mentioning that to the extent that P.I. is mentioned in these indictments, NASD (National Association of Securities Dealers) houses are invariably the prime focus as being alleged to be either the dupes or the participants in the illegal activities," Mr. Skwarok told the panel.
"Not only is P.I. not named in any of the indictments, nor any of the respondents named in the indictments, but there's no suggestion in the indictments of any impropriety that could reasonably have been detected at P.I.," the lawyer added.
Mr. Skwarok then turned to a more detailed review of the indictments, beginning with the 1997 indictment of Alexander Shindman and 17 other defendants in connection with the alleged Globus Group Inc. fraud.
Mr. Skwarok pointed out that there was only one reference in the indictment to Pacific International and that was in connection with an allegation that over a period of five months in 1996 four accounts at the firm received shares of Globus from the exercise of warrants.
"There is nothing untoward about that," Mr. Skwarok remarked.
Addressing what has certainly been a sensitive issue during the hearing, Mr. Skwarok told the panel that the Shindman indictment did not contain any references to the Mafia or organized crime.
Turning to the 1998 indictment involving David Houge, Mr. Skwarok said that the indictment does not allege that Mr. Houge had a criminal record, nor did it make any reference to organized crime.
Mr. Skwarok went on to say that, at the time, the BCSC did not feel that the commission could issue a freeze order on Mr. Houge's accounts.
"So, it was staff's view that the regulators couldn't and wouldn't do anything with respect to Houge's account with respect to the information that was available," Mr. Skwarok said. "But despite the advice from commission staff that in their view they couldn't get enough information to get a regulatory freeze order from the commission, P.I. indicated that it would voluntarily do something to the same effect, and that is to put a hold on the accounts of Houge."
According to Mr. Skwarok, that was not a head-in-the-sand approach, it was doing more than the regulators were capable of doing.
Turning to the JOHN MANION indictment, Mr. Skwarok again pointed out that the indictment made no mention of Mr. MANION having a criminal record and did not say that he was associated with the Mafia. Moreover, he said, the indictment did not allege any wrongdoing at Pacific International.
"Certainly P.I.'s staff, based on a review of what happened at P.I., couldn't possibly have been able to determine that some American folk were receiving undisclosed bribes, kickbacks and were making lies about the stock," Mr. Skwarok said.
Mr. Skwarok moved on to the 1999 indictment of Phil Abramo and Phil Gurian, remarking that since this matter was the subject of such a high degree of discussion by the BCSC, his analysis would be broken into two sections. The first section of his analysis was just a general overview of the indictment.
"Again, this fraudulent conduct, assuming it ever, in fact, was proven, which it hasn't been, was alleged to have occurred outside of P.I. and could not possibly have been observed by P.I.'s compliance staff in reviewing any documents that came its way," Mr. Skwarok told the panel.
"None of the defendants in the Abramo/Gurian indictment were ever clients of P.I. or authorized on any P.I. accounts," Mr. Skwarok said. "Now, I suppose one could quibble with that and say that there is evidence that Abramo was Metzer and there was an account in Metzer's name, but certainly the allegations in the indictment make no reference to the Metzer account."
Mr. Skwarok acknowledged that it turned out that Pacific International broker Jean Claude Hauchecorne had taken instructions on the Ubiquity account from Mr. Gurian, but he did it without the firm's compliance staff knowing anything about it.
He also said that it appeared that Mr. Abramo may have given instructions on the Metzer account, but the indictment did not contain allegations regarding transactions in that account.
"Now, the indictment, of course, alleges that Abramo was a captain of a Mafia family that we have all learned to pronounce is the DeCavalcante family and that he had a hidden interest over the operations of that NASD dealer called Sovereign Equity," Mr. Skwarok said. "There is no allegation in the indictment, nor suggestion, nor can it be inferred from any of the allegations that there was any Mafia infiltration, control, influence or any other association with P.I."
According to Mr. Skwarok, there was nothing unusual about the trading of SC&T International shares, which figured in the allegedly fraudulent conduct, in Pacific International's Ubiquity account, particularly given the relatively low volume that was traded through the firm.
"Mr. McQuid swore, and it wasn't taken issue with, that compliance staff could not have detected or prevented the fraudulent activity alleged in the indictment," Mr. Skwarok said. "Again, primarily lies by folk in the United States to other Americans."
The Oct. 29 session came to an end as Mr. Skwarok finished his general analysis of the Abramo/Gurian indictment, advising the panel that he would provide a more detailed analysis of the affair after the weekend break.
When the hearing reconvened on Nov. 1, picked up his review of the indictments, turning to the June 18, 1999, indictment of Philippe Hababou, who was charged with money laundering.
Once again, Mr. Skwarok pointed out that the indictment did not allege that Mr. Hababou had a criminal record, nor did it make any reference to organized crime.
"The basis of this, like the other indictments, are lies being made in a foreign country where there is no extrinsic evidence that's discernible by P.I.," Mr. Skwarok said.
No Mafia folk
"The next heading is one, of course, which I have touched on on a number of occasions and I am going to devote a little bit of time specifically to it, and that is the fact that P.I. did not have criminal or Mafia connections," Mr. Skwarok told the panel. "The whole thrust of staff's argument really, if you take out some of the technical arguments, which are demonstrably wrong, has to do with some connections with these types of folk."
According to Mr. Skwarok, the essence of the BCSC argument was that since Mr. McQuid suspected that individuals involved in the New York hotel incident with broker Mr. Hauchecorne were tied to organized crime, he ought to have been alerted to the fact that many other non-resident clients trading on the OTC Bulletin Board were criminals or members of the Mafia.
Mr. Skwarok said that no evidence had been tendered during the hearing to demonstrate that the people who assaulted Mr. Hauchecorne were members of organized crime, much less members of the Mafia.
"The only evidence in this regard is the testimony of Hauchecorne in earlier proceedings, including his statement that he was accosted by 'Italian-looking' people, whatever that could possibly mean," Mr. Skwarok said. "And it's a phrase that's been thrown about by staff frequently, Italian-looking people.
"I'm not trying to play a race card here. I am suggesting that it is a meaningless statement.
"One pictures a roomful of Leonardo de Caprios, what is that supposed to mean? A roomful of Sophia Lorens? What is that supposed to mean?
"Now, Mr. McQuid did testify that he believed the assailants might have been Mafia, and that's undoubtedly a function of the fact that he's an ex-police officer. But the fact that he believed they may have been certainly isn't evidence that they were.
"It's to be recalled that at the time when Hauchecorne is telling Mr. McQuid about these horrible events in New York, there weren't in existence any media reports suggesting that any of these assailants were Mafia folk, and certainly weren't any police reports out there suggesting they were Mafia folk."
As Mr. Skwarok moved further into his argument that there was no evidence of any Mafia connections to Pacific International, he managed to work a bit a of lawyerly humour into his discussion of Jorg Schneeberger, a Pacific International client who was believed to have charged about $400,000 in connection with $1.7-million wired out of the Ubiquity account. There was reportedly some concern that Mr. Schneeberger may have been involved in illegal activities.
"So, they have concerns that there was something untoward with Schneeberger, and there may well have been if Schneeberger was charging a 25-per-cent commission, though I wouldn't want to suggest that anyone that charges a 25-per-cent recovery fee is engaged in organized crime because that would say some pretty unpleasant things about a substantial number of lawyers in town," Mr. Skwarok quipped. "But in any event, the fee wasn't charged."
According to Mr. Skwarok, there was no evidence that Mr. Hauchecorne's clients were criminals or members of the Mafia and there was no evidence that Pacific International's non-resident clients were criminals or members of the Mafia.
Mr. Skwarok said that Dean Holley, who had been hired to prepare a report on Pacific International's operations in the summer of 1999, had not discovered any Mafia connections to the firm.
"Anyway, Holley testified, and he's the fellow that had gone through P.I.'s accounts with a fine-toothed comb, that apart from unproven allegations made in the indictments, he found no evidence whatsoever that P.I. or any of its accounts were connected to, or controlled by, the Mafia," Mr. Skwarok said.
According to Mr. Skwarok, the BCSC appeared to argue that a BusinessWeek article should have alerted the respondents that the Mafia had infiltrated Pacific International's accounts.
"What a bunch of nonsense," Mr. Skwarok said. "What a bunch of conjured-up mud smearing that is."
After challenging many of the BCSC's claims regarding money laundering, noting that it was not demonstrated or even alleged that any money laundering occurred at Pacific International, and claims about the risks of OTC trading, Mr. Skwarok turned to what he described as "the most dramatic event in this whole hearing, and that is the sequence of events related to Mr. Hauchecorne and the hotel incident."
High drama
The dramatic events involving Mr. Hauchecorne and the New York hotel incident did indeed figure prominently in the BCSC case. Mr. Skwarok, however, provided a remarkably different perspective on the drama.
Providing some background, Mr. Skwarok told the panel that Mr. Hauchecorne's clients, including the Ubiquity account, moved from Yorkton Securities to Pacific International in 1995 when the broker joined the firm.
In April of 1996, Pacific International sent three wires totalling $.17-million to a Ubiquity bank account in Hong Kong. The wires were authorized in writing by Obifema Pindling and the signature on the wiring instructions was verified with the signature on file.
On April 15, 1996, Mr. Gurian contacted Mr. McQuid, telling him that he had been giving instructions on the account and claiming that there had been some type of discretionary trading or unauthorized transaction in the account. Mr. McQuid told Mr. Gurian that since he was not authorized on the account, he was not entitled to receive any information regarding the transactions.
Mr. McQuid subsequently contacted Mr. Hauchecorne who acknowledged that Mr. Gurian had given instructions on the account, but those instructions were always verified with Mr. Pindling, the authorized signatory. Mr. McQuid told Mr. Hauchecorne not to take any more instructions from Mr. Gurian unless he was authorized on the account.
On May 23, 1996, Mr. Gurian contacted Mr. McQuid again, this time alleging that Mr. Hauchecorne had stolen $1.7-million from the Ubiquity account.
Mr. McQuid testified that he did not believe Mr. Gurian in light of the fact, among other things, that his story had changed from one about unauthorized trading to one of theft.
On May 25, Mr. Hauchecorne was assaulted and threatened in his room at the Drake Hotel in New York by four men, including Mr. Gurian and a man who was subsequently identified as Mr. Abramo. They accused him of stealing the $1.7-million.
Mr. Hauchecorne did not bother telling anyone at Pacific International about the incident until a month later when he was interviewed by lawyers hired by the brokerage firm after a Calgary law firm had sent a letter demanding the return of the $1.7-million.
In early August, Mr. McQuid met with the RCMP in Calgary and provided them with a binder of information relating to the incident and the wire transfers.
He also informed senior VSE officials in August of the allegedly unauthorized transfers and the New York hotel incident. According to Mr. Skwarok, Mr. McQuid was advised not to do anything else.
Mr. Skwarok told the panel that when Pacific International received instructions to transfer out the Ubiquity and related accounts, Mr. McQuid went to some effort to persuade other brokerage firms that they did not really want to have those accounts.
"So, it's not Mr. McQuid just going after the money," Mr. Skwarok said, a reference to the BCSC claim that Pacific International was more interested in recovering the $1.7-million than in dealing with the problems. "He is recognizing that there are real problems here. He doesn't want the account, but he doesn't want anybody else to have it either."
Mr. McQuid did work diligently to recover the $1.7-million and, in fact, he did succeed in recovering the full amount by March of 1997.
"In light of everything that Mr. McQuid did with the Ubiquity accounts, including freezing them, including Hauchecorne's supervision, letting the account owner know what's going on, dealing with the police, taking the initiative with the Adler Coleman bankruptcy receiver, doing all of those things, in my respectful submission, coupled with the searches and projects that were undertaken after the second BusinessWeek article, shows that P.I. acted responsively and responsibly, in my submission," Mr. Skwarok said.
"They were not putting their head in the sand," he told the panel. "They weren't ostriches and it certainly was not a case of hear no evil, see no evil, speak no evil."
Praise, not punishment
Coming to the end of his closing submissions, Mr. Skwarok said that the allegations made by the BCSC, with the exception of very narrow and technical breaches of securities regulations, were unfounded and Pacific International did not act contrary to the public interest.
"Now, the evidence, forget about the innuendo, forget about the media articles, forget about the sensationalism, the hard fact evidence in this case is that P.I. took aggressive and decisive steps to deal with problems that could negatively impact on its reputation," Mr. Skwarok said.
"In my respectful submission, P.I. should have been praised by the executive director, rather than having it subjected to these inordinately long and expensive proceedings," Mr. Skwarok told the panel.
"P.I.'s compliance department was and is unusually competent," Mr. Skwarok said. "Much was said during this hearing about the skill and diligence of P.I.'s staff, but special consideration has to be afforded by this tribunal, in my submission, to the firm's two most senior compliance officers, Mr. Thomas and, first and foremost, Mr. McQuid, who has had to bear the burden of all of this."
Mr. Skwarok told the panel that it was impossible to envision anyone with a greater grasp of compliance issues than Mr. McQuid.
"The commission must, it is submitted, firmly and assertively rule that any of staff's suggestions of moral turpitude or misconduct are completely groundless," Mr. Skwarok said. "And it is submitted that it would be an error for the panel to rule that he was in any way unsuitable to serve as a director or officer of a registrant or to run a compliance department. Rather, he should be congratulated for his activities."
With that, Mr. Skwarok completed his closing arguments.
Stockwatch's coverage of the hearing will continue.
Comments regarding this article may be sent to lwebb@stockwatch.com.
(More information regarding the closing arguments is available in Stockwatch articles dated Oct. 19, 20, 21, 22, 25, 26, 27 and 28; and Nov. 1, 2 and 4, 2004.) |
