You leave just when things begin to get interesting:
a - News Release
BCSC in the matter of National Bank's Pacific Int'l
National Bank of Canada
NA
Shares issued 188,728,712
2001-07-10 close $28.7
Tuesday Jul 10 2001
News Release
See B.C. Securities Commission (BCSEC) News Release
Mr. Steve Wilson reports
In the matter of Pacific International Securities Inc. and in the matter of Max
Meier, Lawrence Hugh Mcquid, Jean-Paul Phillipe Bachellerie, Robert Hebert
Blades, Germain Carriere, John Todd Eymann, Alberto John Quattrociocchi,
Martin J. Reynolds and Theresa Mary Sheenan.
Notice of hearing under Section 161
1. Take notice that a hearing will be held at the 12th floor hearing room, 701 West
Georgia St., Vancouver, B.C., to give the respondents an opportunity to be
heard, before the British Columbia Securities Commission determines whether it is
in the public interest to make the following orders:
1.1 the respondents' respective registrations be restricted, or that conditions be
imposed on the respondents as registrants, pursuant to Section 161(1)(f) of the
Securities Act, RSBC 1996, c. 418;
1.2 the directors resign any position they hold as a director or officer of any issuer,
and that they be prohibited from becoming or acting as a director or officer of any
issuer, pursuant to Section 161(1)(d) of the act;
1.3 the respondents pay an administrative penalty, pursuant to Section 162 of the
act;
1.4 the respondents pay prescribed fees or charges for the costs of or related to
the hearing, pursuant to Section 174 of the act; and
1.5 such further and other orders as the commission may deem appropriate in the
circumstances.
2. And take notice that the executive director will ask the commission to consider
the following facts and allegations in makings its determinations.
The parties
3. Pacific International Securities Inc. is a company incorporated under the laws of
British Columbia, with its head office in Vancouver, B.C. It was incorporated as
D.J. Hall and Company Inc. on June 12, 1981. It changed its name to Pacific
International on Sept. 6, 1983. It was registered under the act as a broker from
Oct. 23, 1981, to Dec. 31, 1999, and has been an investment dealer since Jan. 1,
2000. It has been a member of the Vancouver Stock Exchange, now the
Canadian Venture Exchange, since October, 1981, and a member of the
Investment Dealers Association of Canada (the IDA) since June, 1987.
4. Mr. Meier co-founded Pacific International. He has been a director from
August, 1983, until the present. He was president and chief executive officer from
August, 1983, until in or about May, 2001, and chairman and chief executive
officer from May, 2001. As such, he has overseen Pacific International's overall
management since August, 1983.
5. Mr. McQuid joined Pacific International in October, 1985. From January,
1986, until July, 1997, he was its chief financial officer and was, at all times
material to this notice, the designated compliance officer of Pacific International
under Sections 47 and 65 of the Securities Rules, B.C. Reg. 194/97 and the
predecessor sections. From July, 1997, until in or about May, 2001, he was chief
operating officer. He was senior vice-president from January, 1986, until in or
about May, 2001. He has been senior vice-president, administration, from in or
about May, 2001. He has been a director of Pacific International from January,
1986, until the present.
6. Mr. Bachellerie joined Pacific International in September, 1995. He has been a
director from July, 1997, to the present. He was a vice-president and chief
financial officer from July, 1997, until in or about May, 2001. From in or about
May, 2001, he has been president and chief operating officer of Pacific
International.
7. Mr. Blades joined Pacific International in June, 1987. He has been a
vice-president from October, 1990, until the present, and a director of Pacific
International from April, 1992, until the present.
8. Mr. Carriere has been a director of Pacific International from May, 1998, until
the present. He is the president and chief operating officer of National Bank
Financial Ltd., which holds an equity interest in Pacific International.
9. Mr. Eymann co-founded Pacific International. He has been a director from
April, 1984, until the present. He was the executive vice-president of Pacific
International from April, 1984, until in or about May, 2001. From May, 2001, he
has been vice-chairman of Pacific International.
10. Mr. Quattrociocchi was a vice-president of Pacific International from June,
1991, until September, 1998, a director from April, 1992, until the present and a
senior vice-president from September, 1998, until in or about May, 2001,
overseeing the sales and research portfolios at Pacific International. From in or
about May, 2001, he has been executive vice-president of Pacific International.
11. Mr. Reynolds was the chairman and a director of Pacific International from
June, 1994. He resigned as chairman in October, 1998, and as a director in
March, 1999.
12. Ms. Sheehan was a registered representative since February, 1991, at Pacific
International. She has been a director of Pacific International from August, 1993,
until the present, and a vice-president from August, 1997, until the present.
Pacific International's business
13. In 1993, Pacific International's commissions from accounts trading in securities
listed or quoted in the United States totalled approximately $2.3-million
(approximately 14 per cent of total commission revenue). By Dec. 31, 1999, its
commissions from this activity increased to $19.2-million annually (approximately
67 per cent of its total commission revenue), 82 per cent of which was generated
by only 15 out of Pacific International's 85 registered representatives, and 80 per
cent of which came from non-resident accounts. This increase indicates that the
respondents had a business strategy to encourage the development of this
business.
14. From July 1, 1995, until at least Dec. 31, 1999, certain clients of Pacific
International, most of which were not resident in Canada, operated U.S. dollar
accounts, which traded securities listed or quoted in the U.S.
15. The accounts include accounts mentioned in indictments issued in the United
States, as well as a sample of accounts at Pacific International generating the
largest commission revenue in the period from Jan. 1, 1999, to June 30, 1999.
The sample was chosen from 368 accounts on the basis that accounts generating
the largest revenue are the most active, would have the greatest effect on Pacific
International's revenues and should have attracted the most compliance attention.
Indictments, complaints and investigations
16. On March 28, 1997, May 21, 1998, June 15, 1999, and June 18, 1999, the
United States Department of Justice filed indictments naming clients of Pacific
International, citing their trading through certain of the accounts, and alleging
breaches of American securities laws.
17. During the material time, the United States Securities and Exchange
Commission named accounts or clients of Pacific International in civil complaints.
18. On July 11, 1998, the Vancouver Stock Exchange issued a citation against
J.C. Hauchecorne, a registered representative of Pacific International, involving
activity related to the indictments.
19. Pacific International knew or ought to have known of some or all of the
indictments, the complaints, the citation, and some or all of the behaviour which
led to them. This information ought to have led Pacific International to conduct
internal reviews of the trading in U.S. markets and account opening activities and
to address the compliance deficiencies which those reviews should have revealed.
This did not happen and the compliance deficiencies continued.
Account activity
20. Throughout the material time, certain of the accounts displayed activities and
characteristics that would have caused a reasonable registrant to investigate the
owners and operations of the accounts, because each activity, alone or in
combination, is potentially a symptom of illegal conduct or conduct contrary to the
public interest, including money laundering and share manipulation.
20.1 Some accounts were owned or operated by non-residents and residents of
Canada who were experienced market participants, such as insiders, control
persons, promoters or persons engaged in investor relations activities. Others
were persons registered or formerly registered to trade in securities in the United
States or elsewhere. The trading of foreign stocks in British Columbia by
non-residents should have prompted Pacific International to question the
motivation of those clients.
20.2 Some accounts were owned, operated by or associated with persons with
criminal or regulatory histories. Particulars of certain individuals with criminal or
regulatory histories who owned, operated or were associated with accounts at
Pacific International include the following.
Randolph Beimel
May, 1997: Fined $150,000 and barred from NASD.
Gerald Burns
May, 1988 - December, 1991: In prison on fraud conviction related to sale of
unregistered securities.
September, 1997: SEC complaint (together with Angel Lorie) regarding
defrauding Spanish citizens.
October, 1998: Barred in Florida from acting as officer or director of any public
issuer, a $100,000 civil penalty, and disgorgement of $2.7-million.
June, 1999: SEC barred Mr. Burns from participation in any offering of a penny
stock.
Subsequently implicated in Cambridge International Bank and Trust Company
matter.
Jimmy Ray Carter
August, 1992: Fined $300,000 and barred from NASD for selling shares that
were neither registered or exempt from registration. Also charged unfair prices to
customers.
Anthony Elgindy
1997: NASD suspension for one year and $30,000 fine.
1998: Registration revoked by NASD for failure to pay monies in previously
executed settlement agreement.
Joseph Garofalo
Violations of antifraud provisions of U.S. Securities and Exchange Act.
May, 1993: Permanent injunction resulting from an SEC complaint.
Richard Gladstone
July, 1991: Fined $150,000 by the NASD and barred from any association with
any member of NASD.
Brokerage firm (Morgan Gladstone) expelled from NASD.
Paul Harary
1990: Convicted of criminal fraud.
David Hesterman
May, 1998: Criminal indictment filed for securities fraud.
1984: Conviction for securities fraud.
Steven Keyser
November, 1987: Permanent injunction and disgorgement order pursuant to an
SEC complaint.
Ms. Lorie
September, 1997: SEC action banning Ms. Lorie from participating in penny
stock offerings and from associating with any broker, dealer, investment adviser or
investment company.
Salvatore Mazzeo
October, 1997: Plead guilty to attempted enterprise corruption.
Todd Moore
May, 1997: SEC complaint regarding Members Service Corporation.
Maurice Rind
August, 1990: SEC complaint regarding securities fraud in connection with
collapse of ZZZZ Best Company.
1976: Sentenced to 18 months in prison and fined $10,000 for conspiracy to
violate federal securities laws, mail fraud and other violations.
Shalom Weiss
Indicted in April, 1998, on racketeering and money laundering charges. Convicted
in November, 1999. Sentenced to consecutive prison sentences totalling 845
years and restitution of over $100-million.
20.3 Some accounts were cash accounts and ran significant debit balances.
20.4 Some accounts consistently received in, or transferred out, or both, by
physical or electronic delivery, large blocks of stocks traded on the NASD OTC
Bulletin Board.
20.5 Sale proceeds from some accounts were frequently distributed to third
parties.
20.6 Some clients frequently paid significant fees so that they could receive cash
from sales before the settlement date.
20.7 Cash was transferred in and out of some accounts with little or no intervening
trading activity between the receipt and transfer of cash.
Pacific International's failure to screen its clients
21. Pacific International failed to fulfill the requirements of various rules and
statutes to ensure it had proper client information as follows.
21.1 Client verification procedures in the accounts frequently did not satisfy the
requirements of the Proceeds of Crime (Money Laundering) Act, SC 1991, c. 26,
P-24.5, and the Proceeds of Crime (Money Laundering) Regulations SOR
93-75.
21.2 Some account opening documents lacked certain information, such as proper
client identification or other essential facts.
21.3 Trading and other activity occurred in some accounts before a designated
partner, director or officer approved the opening of the account, as required by
CDNX Rule F.1.01.3 (formerly VSE Rule F.1.01.c) and IDA Regulation 1300.2.
22. Clients received into their accounts securities that were ostensibly issued under
American registration exemptions and then disposed of those securities into U.S.
markets. Pacific International failed to make reasonable inquiries to determine
whether its clients were not illegally distributing those securities.
Demands for production
23. Pacific International received numerous requests during the material time for
production of information from commission staff and the Vancouver Stock
Exchange relating to the accounts.
The respondents' failure to take action
24.1 Pacific International's compliance and operations staff identified and
documented some or all of the activity, the screening deficiencies and the
distributions. In addition, the respondents knew, or ought to have known, of the
indictments, the complaints, the demands and that the Vancouver Stock Exchange
was investigating certain of the accounts and the owners of those accounts.
24.2 Given the increasing financial importance of trading by its clients in securities
listed or quoted in the U.S. to Pacific International's business during the material
time, and the active nature of the accounts, the respondents knew or ought to have
known of the activity and should have taken steps to make inquiries whether the
accounts were being used for illegal or abusive trading.
24.3 Despite this, no or inadequate steps were taken by the respondents or any of
them to make the necessary inquiries.
American registration
25. Given the nature and extent of its U.S. business, Pacific International ought, as
set out in VSE Notice to Members No. 18/94 and IDA Bulletin No. 2537, to
have been registered to trade in the United States as a broker dealer pursuant to
both federal and state law or either of them, and would then have been subject to
the requirements of American law in trading on behalf of its clients, including being
a member of the NASD.
26. By not seeking registration and joining the NASD, Pacific International
avoided the scrutiny of the NASD and avoided complying with the rules and
requirements of the NASD, which could have assisted it in its gatekeeper and
compliance functions.
Breaches of the act and rules
27. The respondents breached the following provisions of the act, the rules and
SRO requirements.
27.1 Pacific International failed to learn and the directors failed to cause it to learn
the essential facts about Pacific International's clients holding accounts, including
especially, but not exclusively, their identity, reputation, and reasons for retaining
Pacific International, when the respondents knew, or ought to have known,
information that caused, or ought to have caused, doubt whether certain of Pacific
International's clients were of good business or financial reputation, contrary to
Section 48 of the rules or Section 43 of B.C. Reg. 270/86, VSE Rules F.1.04,
F.1.01, VSE By-law 5.01(2) and IDA Regulation 1300.1(a).
27.2 The information the respondents knew or ought to have known included:
27.2.1 the activity;
27.2.2 the distributions;
27.2.3 the indictments, the complaints and the demands;
27.2.4 the screening deficiencies;
27.2.5 the issuance of the VSE citation against J.C. Hauchecorne; and,
27.2.6 the reviews conducted by its compliance and operations staff.
27.3 The respondents failed to establish and apply written prudent business
procedures for dealing with clients, particularly those holding accounts, including
supervising the registered representatives or the investment advisers employed by
Pacific International, in compliance with the act and the regulations, contrary to s.
44 of the rules and Section 40 of B.C. Reg. 270/86, VSE Rule F.2.01 and IDA
Regulation 1300.1(b).
Conduct contrary to the public interest
28. The respondents acted contrary to the public interest by:
28.1 failing to establish and apply adequate procedures to identify, investigate, halt
and prevent, where appropriate, the activity, screening deficiencies and the
American dispositions;
28.2 failing to supervise properly or at all the conduct of its investment advisers
and registered representatives;
28.3 failing to ensure that it was not assisting its clients to dispose of restricted
securities into American securities markets; and
28.4 failing to become a member of the NASD for better scrutiny of its U.S.
business.
29. The directors failed to fulfill their obligations under the act and rules or to
exercise the care, diligence and skill of a reasonably prudent person, contrary to
Sections 118 and 135 of the Company Act, RSBC 1996, c. 62.
30. The directors failed to ensure that Pacific International's conduct, business and
affairs complied with all applicable laws, regulations, rules and bylaws.
31. The respondents failed to fulfill their roles as gatekeepers in the securities
industry.
Executive committee and senior officer responsibility
32. All of the individual respondents except for Ms. Sheehan were members of
the executive committee of the board of directors and bore added responsibility
for the conduct of Pacific International's business and its management, including
ensuring that Pacific International's compliance procedures were adequate, were
in place and were followed.
33. Mr. McQuid, as the senior officer most directly responsible for compliance at
Pacific International in the material time, and Mr. Meier, as the senior officer he
reported to, were more particularly responsible for compliance procedures at
Pacific International.
Notice
34. Take notice that the commission will hold a hearing to provide the respondents
with an opportunity to be represented by counsel, lead evidence and submit
representations. The respondents or their counsel are requested to advise the
commission of their intention to answer this notice of hearing before the
commission by contacting the secretary of the commission.
35. And take notice that the respondents or their counsel are required to attend at
the 12th Floor, 701 West Georgia St., Vancouver, B.C., on Sept. 19, 2001, at
10 a.m., if they wish to be heard before the commission fixes a date for the
hearing.
36. And take notice that determinations may be made in this matter if the
respondents or their counsel do not appear at the set date hearing or the hearing.
(c) Copyright 2001 Canjex Publishing Ltd. canada-stockwatch.com |
