ALBERTA SECURITIES COMMISSION ( Commission ) IN THE MATTER OF the Securities Act R.S.A. 2000, c. S-4 ( Act ) - and -

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1 E/00237 ALBERTA SECURITIES COMMISSION ( Commission IN THE MATTER OF the Securities Act R.S.A. 2000, c. S-4 ( Act - and - DONALD STUART WALLACE, SUMMIT SECURITIES INC., ROBERT JAMES WARREN SHORE, SUMMIT AURUM FINANCIAL GROUP INC. and BRIAN ANDREW DAVIS SETTLEMENT AGREEMENT AND UNDERTAKING BY SUMMIT SECURITIES INC., ROBERT JAMES WARREN SHORE, SUMMIT AURUM FINANCIAL GROUP INC. and BRIAN ANDREW DAVIS Introduction 1 The staff of the Commission ( Staff conducted an investigation into allegations that Summit Securities Inc. ( Summit, Summit Aurum Financial Group Inc. ( SAFGI, Robert James Warren Shore ( Shore and Brian Andrew Davis ( Davis - hereinafter referred to collectively as the Respondents and this reference specifically excludes Donald Stuart Wallace - breached the requirements of the Act and the rules made pursuant to the Act ( Rules. The investigation also examined whether the Respondents acted contrary to the public interest. 2 The investigation confirmed and Summit and SAFGI acknowledge that they breached section 30 of the Rules and that each of them acted contrary to the public interest, as further detailed below. The investigation also confirmed and Shore and Davis acknowledge that each of them acted contrary to the public interest, also further detailed below. 3 The Respondents agreement to the within facts and acknowledgment of the consequences of those facts is done so only for the purpose of settling and resolving this proceeding with the Commission and any admissions made (2003 ABSECCOM SAU-# v1

2 - 2 - herein are not made and are not intended by the Respondents to be used as admissions in any other proceedings, whether commenced by the Commission or other parties. Agreed Facts 4 Donald Stuart Wallace ( Wallace is an individual residing in Calgary, Alberta. He was registered with the Executive Director of the Commission ( Executive Director as a mutual fund salesman from October 6, 1972 to April 19, 2001, except for a five year period between 1980 and Between June 28, 1988, and May 6, 1999, Wallace was registered with the Executive Director as a mutual fund salesman and acted as the Alberta trading officer for Achievement Ventures Ltd. ( AVL. AVL is an Alberta corporation, owned and operated by Wallace and his wife, and was registered as a mutual fund dealer with the Executive Director during this period. Wallace conducted a large mutual fund business through AVL for many years. 6 On or about May 6, 1999, Summit, a mutual fund dealer with its head office in Manitoba, bought AVL s mutual fund business and became registered as a mutual fund dealer with the Executive Director. During the period May 6, 1999 until December 31, 1999 ( the Summit Period, Wallace was registered as a mutual fund salesman with Summit and acted as Summit s branch manager and Alberta trading officer. 7 Shore is an individual who resides in Winnipeg, Manitoba. During the Summit Period, Shore was registered with the Executive Director as the president (trading of Summit and was responsible for supervision of Wallace. 8 On January 5, 2000, Summit and another Manitoba mutual fund dealer, Aurum Securities Ltd. ( Aurum amalgamated to form a new mutual fund dealer which continued doing business under the name, SAFGI. 9 After the amalgamation, from January 5, 2000 until April 19, 2001 ( the SAFGI Period, Wallace was registered as a mutual fund salesman with SAFGI and acted as SAFGI s branch manager and Alberta trading officer. 10 Davis is an individual who resides in Winnipeg, Manitoba. During the SAFGI Period, Davis was employed by SAFGI as its senior vice-president and chief operating officer, and was responsible for supervision of Wallace. Davis has not been registered with the Executive Director in any capacity since May 6, (2003 ABSECCOM SAU-# v1

3 On or about April 19, 2001, SAFGI suspended Wallace after receiving some initial client complaints about him. Following the suspension of Wallace, SAFGI received more than fifty further client complaints. 12 During the period from May 6, 1999 to April 19, 2001, with respect to some clients, Wallace had: 12.1 recommended unsuitable investments to clients and as a result of these unsuitable investments, some clients incurred losses which, while not precisely established, totalled in excess of $1,000,000; 12.2 failed to disclose material risks of those unsuitable investments to clients; 12.3 inappropriately recommended that clients incur debt to fund those unsuitable investments; and 12.4 conducted discretionary trades when he was not registered to do so. 13 Summit and SAFGI acknowledge that each acted contrary to section 30 of the Rules and the public interest by failing to adequately supervise Wallace with respect to the foregoing conduct. 14 Shore acknowledges that he acted contrary to the public interest by not properly supervising Wallace during the period from May 6, 1999 through December 31, Davis acknowledges that he acted contrary to the public interest by not properly supervising Wallace during the period from January 5, 2000 through April 19, Other Agreed Facts Relevant to Sanction 16 In April 2001, after receiving client complaints, SAFGI reviewed some of Wallace s files and reported the allegations of unsuitable recommendations and unauthorized discretionary trading to the Executive Director. 17 Since September 2001, SAFGI has not operated as a mutual fund dealer and has not been registered with the Executive Director since May 6, None of the Respondents have previously been the subject of any other complaints, investigations or sanctions. 19 The Respondents have cooperated fully with Staff in its investigation. (2003 ABSECCOM SAU-# v1

4 Complaints of losses by some of Wallace s clients have been resolved and any outstanding complaints are being judicially determined. Sanction 21 Based on the facts and admissions made herein, the Respondents agree to the following: 21.1 pursuant to section 199 of the Act SAFGI shall pay an administrative penalty in the amount of $50,000 on account of Summit s failure to supervise Wallace during the Summit Period; 21.2 pursuant to section 199 of the Act SAFGI shall pay an administrative penalty in the amount of $50,000 on account of SAFGI s failure to supervise Wallace during the SAFGI Period; 21.3 pursuant to section 202 of the Act, SAFGI shall pay costs in the amount of $35,000; 21.4 pursuant to section 202 of the Act, Shore shall pay costs in the amount of $15,000; 21.5 Shore undertakes to the Commission not to assume any supervisory role in the securities industry in Alberta for six months from the date of this Settlement Agreement and Undertaking pursuant to section 202 of the Act, Davis shall pay costs in the amount of $15,000; and 21.7 Davis undertakes to the Commission not to assume any supervisory role in the securities industry in Alberta for six months from the date of this Settlement Agreement and Undertaking. Administration 22 The Respondents agree to waive any right existing under the Act, or otherwise, to a hearing, review, judicial review or appeal of the matters referred to herein. 23 The Respondents acknowledge that the Settlement Agreement and Undertaking may be referred to in any future proceedings under the Act. 24 The Settlement Agreement and Undertaking resolves all matters involving the Respondents concerning the matters stated above and Staff will take no further (2003 ABSECCOM SAU-# v1

5 - 5 - steps, including the initiation of any proceedings before the Commission, against or regarding the Respondents arising from this matter. 25 This Settlement Agreement can be executed in counterpart by each of the parties hereto. Dated at Calgary, Alberta SUMMIT AURUM FINANCIAL GROUP INC. Per: Original Signed By this 20th day of February, 2004 Per: Original Signed By Secretary Tim Pryor Signed by Robert James Shore. at Winnipeg, MB, this 9 day of February, 2004, in the presence of: C. Sebastian PRINT NAME. Original Signed By ROBERT JAMES WARREN SHORE Original Signed By. SIGNATURE Signed by Brian Andrew Davis at Alberta, this day of, 2004, in the presence of: Valdine Doering PRINT NAME Original Signed By BRIAN ANDREW DAVIS Original Signed By SIGNATURE ALBERTA SECURITIES COMMISSION DATED at Calgary, Alberta this 24th day of February, Original Signed By John P. Petch Director, Enforcement (2003 ABSECCOM SAU-# v1