Gary: *ALL* ****A MUST READ BIT OF NEWS FROM UP NORTH****
Vancouver Stock Exchange -
VSE's top broker worried about SEC crackdown
Vancouver Stock Exchange VSE
Shares issued 0 1899-12-30 close $0
Wednesday Sep 22 1999
Also B.C. Securities Commission (BCSEC)
FOLLOW MY TEN COMMANDMENTS, SAYS PETER BROWN
by Brent Mudry
In a strong hint that the wave of United States prosecutions targeting OTC Bulletin
Board dealings of Vancouver brokerage firms is far from cresting, the head of the top
Vancouver Stock Exchange member firm recently sent a stern and terse in-house memo
to all his brokers. In a two-page Sept. 2 memo, Peter Brown of Canaccord Capital
warns that more bad news may be coming from regulators south of the border. "In the
past week we have fired one investment adviser and suspended another for ignoring our
rules in respect to dealing on the US. L Board market. ... Therefore, your executive
committee thought it would be useful to reiterate our concerns over trading in a market
which is fraught with problems," states Mr. Brown.
Vancouver's best known broker notes that United States Securities and Exchange
Commission is making a special study of Vancouver firms dealing in the barely-regulated
bulletin board market, and the SEC's probes have proved fruitful. "The Board of
Governors of the VSE has been informed by their president that there will be several
more charges against Canadian registrants over the next several months as a result of L
board activity," states Mr. Brown.
The memo also confirms the SEC study is particularly broad. "The British Columbia
Securities Commission, in co-operation with the SEC, has gathered all the L board
trading records of several firms to examine all the activity being undertaken by B.C.
registrants in this market," says Mr. Brown. The Canaccord chief also reveals that B.C.
brokerages are receiving "multiple requests for trading information on L board stocks"
from the SEC.
As a reminder that Canaccord is not the only firm worried about the long arm of the
SEC, Mr. Brown recounts the bulletin board troubles of three smaller rival Vancouver
brokerages. The Canaccord head states that Union Securities has been named in a civil
suit filed by the SEC alleging stock manipulation and fraud, two Pacific International
brokers have been criminally charged in the U.S. for bulletin-board dealings with an
American promoter, and Wolverton Securities has been "named as a defendant" in a
U.S. indictment for allegedly operating accounts for several U.S. and offshore
companies that engaged in illegal bulletin board dealings and money-laundering
transactions.
The Union case probably refers to that firm's $320,000 (U.S.) consent settlement last
October with the SEC in ex-broker David Gilbert's Members Services affair with
promoters Philip Sung and the late Arthur Feher. The P.I. case refers to the arrest of
Dirk Rachfall and Michael Patterson, who made their first appearance in a Brooklyn
courtroom last week for their alleged roles in a penny stock ring led by members of the
Colombo crime family and the Russian mob in 1995. It is less clear whether Mr. Brown
is strictly accurate regarding Wolverton, which was named as an alleged conduit, not a
defendant, in the recent Stockplayer.com case of ex-Stratton Oakmont brokers led by
Vincent Napolitano.
Mr. Brown has also unveiled a set of tightened rules to minimize his firm's regulatory and
economic exposure in bulletin board deals, and reminded his brokers to be wary of
contributing to any odd dealings of U.S. clients and offshore accounts. The Canaccord
head reminds his brokers of the importance of the "know your client" rule. "It is
imperative that you know the account, know how the client came by the securities and
have an understanding whether or not Canaccord's dealings with that client are assisting
promoters in circumventing U.S. regulations," he states.
Brokers are also ordered to "know the security," and reminded the onus is on them to
know if the shares they are handling would be deemed by Canadian regulators to be
part of an insider block. Canaccord's interest here is not purely altruistic. Mr. Brown
notes that in many cases, bulletin board securities are issued to promoters for their
services, and "history has shown" that transfer agents have cancelled such shares in a
number of cases and charged back the brokers as much as three years later. Canaccord
claims it will now only accept bulletin board securities that are delivered in through a
recognized investment dealer.
Mr. Brown is also banning the transfer of funds or securities by non-resident clients to
third parties. In addition, Canaccord will officially attribute no market value or loan value
to any bulletin board issue held in client accounts. As for purchase orders, all client
accounts must have sufficient cash and non-bulletin-board equity before trade execution.
Canaccord will also only allow sales from house long positions, and ban shorting of
bulletin board issues.
To keep a tight control on the reins, all bulletin board trades must be entered through
Canaccord's order management system, "other than exceptions to be made by
management." Canaccord will also officially ban "directed trades," rejecting instructions
to direct a buy or sell order to a specific brokerage firm.
On the payment front, Canaccord claims it will only accept payment for bulletin board
securities when the funds are wired into the account in advance, and no U.S. cheques
will be accepted. In the final of Mr. Brown's Ten Commandments, the Canaccord head
now decrees that he will tolerate no unusual dominance by his firm in any bulletin board
deal. "If our client's trading appears to be the major dominant factor in the trading of any
bulletin board issue we may well cease cease trading in that security and close the
account," states Mr. Brown. The exact criteria for this subjective action is not specified.
"There are so many problems that have occurred with L board trading that it is
incumbent on every salesman to take every precaution to ensure that they are meeting all
the securities regulations in both the U.S. and Canada. You must thoroughly understand
the business your clients are asking you to transact so that you do not find yourself an
unwilling participant in a manipulative or law-breaking scheme," warns Mr. Brown.
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch.com |
