"Mr. Elmont and Mr. Grassick, along with Gilles Corset, were also principals of
Etilon Trading Ltd. of Dublin, which held 387,000 share-purchase warrants of
TTR as of November of 1996, eight months before the first Global account was
opened. TTR shares peaked at $16.72 (U.S.) in March of 1997, fell to a low of
80 U.S. cents by March of 1999, rebounded to $10.50 (U.S.) February, 2000,
boosted in part by a $35.00 target price from bullish German tout site
Stockreporter.de."
TSX Venture Exchange (C-*TSX) - Street Wire
TSX-V member Global fined $151,000 for debit brokers
by Brent Mudry
Vancouver brokerage Global Securities has been fined a combined $151,000 for
failing to supervise three brokers whose client accounts ran up $2.31-million
in debit balances by mid-1999 trading three penny stocks and circumvented
debit controls by buy-and-sell trades in blue chip stocks. Global's $135,000
fine pushes it into No. 2 spot amid a list of six cited settlement agreements
by rival brokerages between 1997 and 2000, topped only by Yorkton Securities,
fined $150,000 in 1999 for the Timbuktu Gold fiasco at its Calgary branch.
In a decision released Thursday, Market Regulation Services, the enforcement
arm of the TSX Venture Exchange, fined Global $135,000 for its inadequate
supervision of Clint Hudjik, Steven Regoci and Erica Fearn and ordered the
brokerage to disgorge $4,330 in commissions and contribute $12,000 toward the
exchange's investigation and hearing costs. The regulator, which released the
decision a month after it was signed June 27, notes Global suffered a combined
loss of $1.7-million from the conduct of its three brokers.
These three cases pale, however, beside that of the mystery Global broker
whose client, French promoter John Duffell, also known as John Duffle, left
unpaid debits of $2.8-million during a similar time period. Market Regulation
has not cited either Global or this broker, according to a review of public
documents on the regulator's Web site.
In a fifth unrelated Global supervision case, the branch manager of Global's
Ladner, B.C., office was found guilty on March 25 of inadequately supervising
brokers Robert Semple and Robert Tassone, although Global was found innocent
after a hearing of the exchange. A penalty hearing has not yet been scheduled.
The current settlement relates to Mr. Hudjik, Mr. Regoci and Ms. Fearn. The
three brokers' unrelated violation periods generally spanned from May 1, 1997,
through Aug. 31, 1999.
Mr. Hudjik, whose offshore client accounts traded heavily in shares of Erin
Ventures on the former Alberta Stock Exchange, was fined a combined $140,000
and banned for 10 years in December, 2001, by the ASE's successor, the former
Canadian Venture Exchange.
Mr. Regoci, whose client accounts traded heavily in shares of Regeena Ventures
on the former Vancouver Stock Exchange, faces a hearing Aug. 11, along with
David Chernoff, who allegedly failed to supervise him. Mr. Regoci is now in
his 13th year at Global, starting in 1991 after an eight-year career with
Yorkton, according to registration records of the British Columbia Securities
Commission. Mr. Chernoff moved to Bolder Investment Partners in September,
1999, capping a four-year stint at Global. His industry registration at Bolder
lapsed in December, according to the BCSC.
Ms. Fearn, whose client accounts traded in shares of Quill Industries, was
fined a modest $7,000 plus $3,000 in investigation costs in a Sept. 17, 2002,
settlement negotiated by her lawyer Rod Anderson, an old hand at stock market
matters. Although Market Regulation Services, or RS in short, asserts that
Quill was listed on the VSE, exchange records indicate this is incorrect. U.S.
regulatory filings show Quill, an aptly named Texas-based ostrich promotion,
was actually listed on the U.S. OTC Bulletin Board market. The VSE stopped
handling ostrich, beaver, super rabbit and similar animal promotions years
earlier.
HUDJIK, ERIN AND THE TURKS
According to an agreed statement of facts between Global and the exchange, Mr.
Hudjik made a total of 2,419 unauthorized trades in eight client accounts
between Jan. 1, 1998, and Aug. 31, 1999. Global terminated him for cause on
Sept. 27, 1999, due to the allegations of discretionary trading.
Global confirms that Mr. Hudjik's clients' accounts showed a pattern of
purchases of shares of Erin on the former ASE that resulted in continuing
account debits. As the account debits aged to close or past 10 days after
settlement, Mr. Hudjik reaged, or "re-aged" in industry style, the debits by
making trades in blue chip stocks, postponing the liquidation of his clients'
positions in Erin.
As Erin's share price fell, the client account debits increased, but Mr.
Hudjik could not sell the Erin shares to satisfy the debits. This resulted in
him making about 888 blue chip trades to reage the debits. In the agreed
statement of facts, Global concedes this constituted an "abusive trading
practice" in Erin shares, by "unduly disturbing" the market by limiting the
required sale of Erin shares.
The debit situation was not a secret at Global. In an Oct. 16, 1998, memo, the
brokerage granted an exemption of its credit policy for five of Mr. Hudjik's
client accounts, which would be allowed to maintain debits in excess of
regular limits as long as a steady improvement in the debt-to-equity ratio was
evident. All trading in these five accounts was to be preapproved by Global's
head of trading.
At the end of October, 1998, the debits in the Hudjik client accounts reached
$692,000 with a net equity of $38,900. The next month the debits reached
$706,600, whie the net equity fell to less than $7,000. This pattern continued
until Mr. Hudjik's termination in September, 1999, when the debit reached
$851,000 and the net equity decreased to negative $703,000. The total debit
balances peaked at $1.2-million in April, 1999.
In August, 1999, Global finally stopped Mr. Hudjik's trading in his client
accounts and dismissed him soon after. His commissions on these blue chip
trades reached a total of $175,000, although all of his commissions were held
back to pay for client debits. These Erin-related accounts comprised about 65
per cent of Mr. Hudjik's total commissions.
In usual regulatory fashion, RS released no details about the identity of Mr.
Hudjik's clients. Court documents, however, fill in a few of the blanks.
Global filed suit Nov. 12, 1999, in the Supreme Court of British Columbia,
against Mr. Hudjik and three of his secretive offshore clients: Rama Capital
Corp., Sierra Finance Inc. and Plandon Cay Ltd. All three operate at P.O. Box
156 in Hibiscus Square, Pond St., in the offshore financial services village
of Grand Turk. At the time, Global president Doug Garrod confirmed to
Stockwatch that Mr. Hudjik had been recently terminated over the combined
$622,000 debit from these three clients.
In the suit, Vancouver lawyer Shayne Strukoff of Gowling, Strathy & Henderson
noted that Rama opened an account at Global in August of 1996, while Sierra
and Plandon opened accounts in April of 1997, all served by Mr. Hudjik. As of
Oct. 31, 1999, Rama's unpaid debit was $322,507, Sierra's debit was $165,374
and Plandon's debit was $124,387. Mr. Strukoff claims the three offshore
clients have refused to pay their outstanding debits. The suit did not mention
which stock or stocks the offshore trio were dabbling in, nor who the fronts
or beneficial owners of the accounts might be.
REGOCI AND REGEENA
Mr. Regoci's period of alleged violations, relating to Regeena, spanned from
June 1, 1997, through Jan. 31, 1998. The regulator noted that Global agreed to
act as a sponsor for Regeena on Sept. 30, 1996, to help it resume trading,
with Mr. Regoci serving as the principal contact.
Again, court files help fill in a few blanks to give some context. Regeena,
then directors Phillip Grocott and Dino Michopoulos, and Mr. Regoci were named
as defendants in a $95,000 options suit filed April 29, 1996, by Richard Roy,
Remey Roy and Dale Paruk, the company's former investor relations team. The
statement of claim, unproven in court, described Mr. Regoci as a large Regeena
shareholder who "functions as a director and officer" of the company.
The suit also claimed that on March 29, 1996, "the defendants advised that
they were under scrutiny from the Vancouver Stock Exchange with respect to a
private placement and an upgrade to the senior board and they had not made the
proper disclosures and did not want to." It should be noted that these various
allegations, generally denied by the various defendants, have never been
proven in court.
The current agreed statement of facts notes that Regeena shares traded in the
range of 80 cents up to a high of $1.10 between June 1, 1997, and Oct. 27,
1997, then gradually fell by Dec. 22, 1997, to a low of 50 cents. During the
relevant period, 14 client accounts handled by Mr. Regoci traded in Regeena
shares and fell into debit positions. As of June, 1997, these account debits
reached $248,000. Although Regeena shares rebounded to 79 cents by Jan. 31,
1998, the total debits in these 13 accounts reached $508,000.
Mr. Regoci's clients were busy. According to the document, during the relevant
period his client and personal trading was dominant. Over this period, the
Regoci accounts bought almost 2.7 million shares of Regeena, or 49.4 per cent
of the total market and 91.5 per cent of Global's total buying volume. Over
this same period, the Regoci accounts sold 2.34 million shares, or 43.3 per
cent of the total market and 85.5 per cent of Global's total selling.
The Regoci accounts bought on 102 upticks, almost 38 per cent of the total
market upticks and 96 per cent of Global's upticks. The Regoci client accounts
also accounted for 24 high close trades, 50 per cent of the market total in
the final half-hour of trading and 100 per cent of Global's high closes. These
high closes took place on almost 15 per cent of the total trading days. Over
all, the Regoci accounts traded 2.4 million shares, 45 per cent of the market
total, in the final 90 minutes of trading on the various days. According to
both Global and the exchange, this "did not represent random market activity."
Much of this Regoci trading represented 113 debit trades, shuffling positions
betwen various Regoci accounts. Most of these trades were either crosses or
buy and sell orders executed immediately after one another. "The timing of
thee buy and sell orders for the Regeena debit trades evidence that the trades
were co-ordinated for the purpose of matching orders to specific buyers and
sellers," states the agreed statement of facts. The total volume of these
Regoci debit trades was almost 2.38 million shares, or 44 per cent of all
market trading during the relevant period.
As with Mr. Hudjik, Mr. Regoci also used blue chip trades to bypass debit
controls. Mr. Regoci made a total of 21 buy and 21 sell trades of six senior
stocks, immediately or simultaneously selling after buying.
FEARN AND THE OSTRICHES
The third broker, Ms. Fearn, engaged in much lower debit massaging. The
exchange notes that on Sept. 29, 1997, Ms. Fearn opened an account for an
American resident, who traded between October, 1997, and October, 1998. The
unidentified client accumulated a position in Quill, largely without paying
for the stock. Again, as the stock price fell, the debit position increased.
The exchange notes that "unbeknownst to Global," Ms. Fearn recommended her
American client do turnaround trades in blue chip stocks to temporarily
satisfy debit regulations.
By the end of September, 1998, the total debit reached $45,000. The agreed
statement offers no details of how much Quill trading was done, how big the
position was, or who the client was.
According to U.S. regulatory filings, Quill's biggest shareholders in this
period were Philip Lacerte, of Dallas, Tex., with one million shares, and
Perkins International, a postbox account in the secretive offshore haven of
the Turks and Caicos Islands, with 1.5 million shares. There is no suggestion
that either traded at Global or any other Vancouver brokerage.
Quill was awakening from slumber when the mystery U.S. client opened its
account with Ms. Fearn at the end of September, 1997. The company had no
operations between March, 1995, and June, 1997, when it did a reverse takeover
of a public shell. The private vend-in company, Quill Industries Inc., was in
the business of breeding, raising and harvesting ostriches. It later expanded
into ostrich eggs as well.
THE BIGGEST DEBIT
The consent settlement documents confirm that Global's board minutes during
the relevant period addressed concerns about client debit levels and brokers'
reserve accounts, including those of Mr. Hudjik, Mr. Regoci and Ms. Fearn. The
broker summary sheets, presented at monthly meetings, showed cumulative debits
for every broker and the capital required to carry their debits.
The debits positions in the client accounts of these three brokers
consistently increased from January, 1998, to May, 1999. The total debits for
the Regoci, Hudjik and Fearn client accounts rose from $1.42-million in
January, 1998, to $2.31-million in May, 1999, an increase of $866,000, or 62
per cent. The capital required by the brokerage for this same period rose from
$165,000 to $987,000, or almost 600 per cent.
The Global settlement documents show that Mr. Regoci's client accounts
consistently repeated as the third to fourth highest account debits at Global,
Mr. Hudjik was close behind in fourth to fifth, and Ms. Fearn trailed at
seventh to eighth. This begs the question of who was in the top two spots.
Again, court documents fill in a few blanks.
Global filed a massive $2.8-million debit suit in August, 2000. In a statement
of claim filed in the Supreme Court of British Columbia, Global claims French
stock promoter Mr. Duffell left unpaid debits of $316,000 to $970,000 in four
offshore accounts opened from July of 1997 to March of 1998. All the accounts
were then at least 18 months overdue.
The named defendants include Mr. Duffell, Jennifer Le Scouezec of France, also
known as Jennifer Duffell, believed to be his daughter, Universal Alternatives
Ltd. and ARS Una Est Ltd., both of London, Aragon Consolidated Ltd. of Dublin,
Arcadia Trading Inc., which operates from a postbox in the offshore enclave of
Nassau, Bahamas, Simon Peter Elmont of Dublin and Nicholas John Dewe, based on
the tiny island of Sark in the Channel Islands. In the suit, Vancouver lawyer
Shayne Strukoff of Gowling Strathy & Henderson claims that at all material
times, Mr. Duffell was the controlling mind and alter ego of all four offshore
companies.
The allegations have not yet been proven in court. The suit notes that Global
opened one account for Universal Alternatives on July 25, 1997, and one
account for ARS Una Est on Dec. 3, 1997. Both companies share the same address
at 186 Hammersmith Road in London. A week later, the brokerage opened two
accounts for Aragon Consolidated on Dec. 10, 1997, with a written guarantee
from Mr. Elmont signed a day earlier. Both Aragon and Mr. Elmont share the
same address at 85 Upper Drumcondra in Dublin.
Global also opened two accounts for Nassau-based Arcadia Trading on March 6,
1998, which Mr. Dewe of Sark guaranteed three days earlier. The suit claims
that as a result of trading in unspecified securities, ARS Una had an unpaid
debit of $640,312 (U.S.), converted to $970,073, as of Jan. 21, 1999, and
Aragon Consolidated had an unpaid debit of $539,679 (U.S.), converted to
$817,613. Global claims Mr. Elmont is indebted for the full Aragon debt. At
the same date, Universal Alternatives had an unpaid debit of $468,345 (U.S.),
converted to $709,543, while Arcadia had an unpaid debit of $208,514 (U.S.),
converted to $315,898. Global claims Mr. Dewe is indebted for the full Arcadia
debt.
Global seeks judgments of $2.81-million against Mr. Duffell and his daughter,
$970,074 against ARS Una, $817,613 against Aragon and guarantor Mr. Elmont,
$709,543 against Universal and $315,898 against Arcadia and guarantor Mr.
Dewe. While Mr. Duffell and Mr. Dewe have kept lower profiles in the penny
stock world, Mr. Elmont participated in at least two companies around the time
the Global accounts were opened: Unisat Inc. and TTR Inc., (since renamed TTR
Technologies Inc.), which both traded on the OTC Bulletin Board.
Mr. Elmont and James William Grassick appeared as shareholders of Ankerton
Trade, which was disclosed as a shareholder of Unisat in September of 1998.
Unisat acquired Emerview International Ltd., a Dublin-based telephone calling
card company, in March of 1999, and itself was the subject of a reverse
takeover by Blagman Media International Inc. in August of 1999. Unisat shares
peaked at $7 (U.S.) in July of 1998 and last traded at 40 U.S. cents on Aug.
13, 1999.
Mr. Elmont and Mr. Grassick, along with Gilles Corset, were also principals of
Etilon Trading Ltd. of Dublin, which held 387,000 share-purchase warrants of
TTR as of November of 1996, eight months before the first Global account was
opened. TTR shares peaked at $16.72 (U.S.) in March of 1997, fell to a low of
80 U.S. cents by March of 1999, rebounded to $10.50 (U.S.) February, 2000,
boosted in part by a $35.00 target price from bullish German tout site
Stockreporter.de.
This matter remains before the courts and no regulatory action is known to be
involved.
bmudry@stockwatch.com
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