OSC - IN THE MATTER OF YBM MAGNEX INTERNATIONAL LTD.
TORONTO, May 13 /CNW/ -
IN THE MATTER OF
YBM Magnex International Ltd.
The Ontario Securities Commission today issued a Temporary Cease Trade Order in the securities of YBM Magnex International Ltd. A copy of the Order is attached.
The Commission has also dismissed an application by YBM requesting a 45 day extension to file and mail to shareholders its financial statements for the year ended December 31, 1997.
Reference: Larry Waite
Director of Enforcement
(416) 593-8156
IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c.S.5, as amended
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YBM MAGNEX INTERNATIONAL INC.
TEMPORARY CEASE TRADING ORDER
(Sections 127(1) & (5))
WHEREAS IT APPEARS to the Ontario Securities Commission (the
''Commission'') that:
1. YBM Magnex International Inc. (''YBM'') is a reporting issuer in
Ontario, and has been for more than 12 months. Its shares are listed and posted for trading on The Toronto Stock Exchange (''TSE'').
2. On May 13, 1998 at 10:53 a.m. the TSE announced a halt in the trading of YBM securities pending an announcement by YBM. This halt was imposed in consultation with and at the urging of Staff of the Commission.
3. After the close of trading on May 8, 1998 YBM issued a press release (the ''release'') announcing that it had applied to, inter alia, the Commission seeking a 45-day extension to file and mail to its shareholders its financial statements for the year ended December 31, 1997. This was due to a possibility that YBM would not receive an audit opinion on its 1997 financial statements from its auditors, Deloitte & Touche LLP (''Deloitte''), in time to meet the required filing and mailing deadline of May 20, 1998.
4. In the release, the explanation given for the delay in receiving an
audit opinion from Deloitte is that Deloitte, as part of concluding its audit, has requested the Board of Directors (the ''Board'') of YBM to conduct an independent review of certain aspects of the company's business and operations in Eastern Europe. No further information was disclosed by YBM respecting why Deloitte requested this review.
5. In the release YBM announced that the Board, through an independent committee, is in the process of concluding an extensive review and that YBM has been advised that as a result of the review to date no matters have arisen respecting the company's business and operations that would be likely to have a material adverse effect upon the company's continuing operations or reported financial position.
6. In the release YBM stated that the review will be similar to the
extensive procedures performed at the request of securities regulators in connection with its common share offering in 1997. Those procedures were conducted by Deloitte as part of a re-audit of the company's 1996 financial statements. No independent review was requested by Deloitte in connection with the 1996 re-audit.
7. In the application filed with the Commission on May 8, 1998 YBM
advised that on April 20, 1998, subsequent to the completion of virtually all of the substantive portion of the Company's 1997 audit, Deloitte requested (the ''request'') that YBM perform an in-depth independent investigation to confirm the identity of certain parties to certain transactions involving YBM and generally to confirm the veracity of certain transactions underlying YBM's business. The application also indicates that Deloitte would not likely be in a position to finalize the audit of the 1997 financial statements unless and
until this investigation is completed and all other matters are resolved to Deloitte's satisfaction. The application indicates that the independent committee of the Board has retained international experts to perform the investigation which is being conducted in Hungary and Russia. No further information was disclosed in the application respecting the parties or the transactions which form the basis of Deloitte's request.
8. At approximately 9:00 p.m. on May 12, 1998, following repeated
requests by Staff of the Commission, a copy of the Deloitte request of April 20, 1998 and related correspondence was provided to Staff of the Commission. In the request, Deloitte advises YBM that as a result of the information received throughout the conduct of the 1997 audit, they are extremely concerned with respect to certain 1997 contracts, entities and individuals involved with YBM which in their view require an in-depth forensic investigation performed by outside counsel and individuals who are experienced with forensic work. Deloitte specifically requested that this investigation exclude the involvement of company management. Deloitte further advised that upon completion of that investigation, it would need to make a determination: (i) whether it is willing to continue to be associated with YBM; (ii) whether it will be able to issue an audit opinion on YBM's 1997 financial statements; and (iii) whether it will continue to be associated with YBM's 1996 financial statements.
9. In a letter dated April 24, 1998 from Deloitte to a member of the
Board, Deloitte provided further particulars respecting the transactions and parties thereto which were identified in the request.
10. In a further letter dated April 28, 1998, from Deloitte to a member of the Board, Deloitte expressed concern over the fact that YBM released its first quarter earnings given the fact that the concerns that Deloitte identified have not been resolved and may impact on first quarter earnings. Deloitte also confirmed that it discussed with YBM the question of whether there is a need to disclose to the public and the Commission that the audit of YBM's 1997 financial statements has been suspended pending the completion of the investigation.
11. In a further letter dated May 8, 1998 from Deloitte to the Chairman of the Board, Deloitte advises that it is extremely concerned by YBM's disclosure of the first quarter results and its failure to disclose that the audit has been suspended until the investigation into the validity of certain significant transactions is completed which may impact the first quarter earnings. Deloitte also confirms that the concerns they have raised were first brought to the attention of YBM's audit committee on March 23, 1998. Deloitte further advises that any reports provided by the forensic investigators must provide them with competent auditable evidence and a detailed description of the investigation. Lastly, Deloitte advises that the information that they
previously provided indicates that one or more illegal acts may have occurred which may have a material impact on the 1997 financial statements.
12. In addition to the Deloitte correspondence, counsel to YBM provided to Staff a letter from the Chairman of the Board to Deloitte dated May 12, 1998 responding to the Deloitte correspondence. In particular it is noted that the reason why no disclosure of the Deloitte concerns was made prior to May 8, 1998 was that none of the matters raised were supported by underlying facts or appropriate confirmation. The letter also acknowledges that YBM was advised by
Staff that YBM's application for an extension to file the financial statements is unlikely to be granted which is likely to result in a cessation of trading in YBM common stock. Lastly the letter indicates that the independent committee investigation has so far uncovered no wrongdoing or criminal activity.
13. Staff was also provided with correspondence dated May 10, 1998 from counsel retained by the audit committee of YBM indicating that their preliminary conclusions based on their investigation do not support Deloitte's concerns. No report was provided to Staff from the outside international experts retained to perform the investigation.
14. On May 13, 1998 Staff was advised by Deloitte that it was unlikely that they would be able to issue an audit opinion by May 20, 1998, the deadline under the Act. Deloitte confirmed that they had not received a final investigation report which, as noted in the correspondence, would have to be audited by Deloitte before they could determine (i) whether it is willing to continue to be associated with YBM; (ii) whether it will be able to issue an audit opinion on YBM's 1997 financial statements; and (iii) whether it will continue to be associated with YBM's 1996 financial statements.
15. On May 13, 1998 Staff was advised by counsel to YBM that agents of the Federal Bureau of Investigations had attended today at YBM headquarters in Pennsylvania to talk to YBM executives in connection with an investigation.
16. On May 13, 1998 the Commission dismissed YBM's application to extend the time to file the 1997 audited financial statements.
17. As of the time of this order no additional disclosure has been made by YBM.
THE COMMISSION is of the opinion it is in the public interest to make an order pursuant to section 127(1)2 of the Act.
AND THE COMMISSION is of the opinion that the length of time required to conclude a hearing could be prejudicial to the public interest.
IT IS THEREFORE ORDERED pursuant to sections 127(1)2 and (5) of the Act that trading in any securities of YBM immediately cease for a period of fifteen days from the date of this order unless extended by order of the Commission.
DATED at Toronto this 13th day of May, 1998.
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For further information: Larry Waite, Director of Enforcement,
(416) 593-8156 |
