INVESTMENT DEALERS ASSOCIATION OF CANADA

Transcription

1 INVESTMENT DEALERS ASSOCIATION OF CANADA IN THE MATTER OF: THE BY-LAWS OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA AND HARALAMBOS PANDELIDIS NOTICE OF HEARING TAKE NOTICE that pursuant to Part 10 of By-law 20 of the Investment Dealers Association of Canada ( the Association ), a hearing will be held before a hearing panel ( the Hearing Panel ) on February 8 th & 9th, 2005, at the Association office located at Suite 2300, th Avenue S.W., Calgary, Alberta, at 10:00 a.m., or as soon thereafter as the hearing can be heard. TAKE FURTHER NOTICE that pursuant to Rule 6.2 of the Association Rules of Practice and Procedure, that the hearing shall be designated on the: The Standard Track The Complex Track THE PURPOSE OF THE HEARING is to determine whether Haralambos Pandelidis ( the Respondent ) has committed the following contraventions that are alleged by the Association: Count 1 The Respondent used discretion with respect to trades in the accounts of the client, S.J. without the prior written authorization of the client and without approval of the member firm, contrary to Association Regulation and Count 2 The Respondent engaged in the improper practice known as Bucketing, whereby he provided confirmation of a transaction when in fact no trade had been executed, in the account of the

2 - 2 - client, S.J., which conduct is unbecoming a registrant and detrimental to the public, contrary to Association By-law Count 3 The Respondent made offers of compensate for account losses to the client, S.J., on at least five (5) separate occasions, in breach of Standard C of the Conduct and Practices Handbook, which conduct is unbecoming a registrant and detrimental to the public, contrary to Association By-law Count 4 The Respondent engaged in personal financial dealings with the client, S.J. without disclosing those dealings to the Member firm, in breach of Standard C of the Conduct and Practices Handbook, which conduct is unbecoming a registrant and detrimental to the public, contrary to Association By-law Count 5 The Respondent made a representation to his client, S.J., that a particular security would be listed on an exchange, or quoted on a quotation and trade reporting system, and publicly traded on a particular date, in breach of the provisions of the Alberta Securities Act and Standard D of the Conduct and Practices Handbook, which conduct is unbecoming a registrant and detrimental to the public, contrary to Association By-law Count 6 The Respondent participated in the distribution of securities when the securities were not approved for distribution in Alberta and, further, he conducted off-book transactions involving the securities without the approval of the Member firm, in breach of the provisions of the Alberta Securities Act and Standards C and D of the Conduct and Practices Handbook, which conduct is unbecoming a registrant and detrimental to the public, contrary to Association By-law PARTICULARS TAKE FURTHER NOTICE that the following is a summary of the facts alleged and to be relied upon by the Association at the hearing: 1. By letters dated November 30, 2001, April 3 and April 18, 2002, S.J., T.F., and J.F. alleged that the Respondent had engaged in misconduct in the handling of their accounts, including discretionary and/or unauthorized trading and offers of compensation for account losses, during a period of time that the Respondent was employed in the Calgary office of Yorkton Securities Inc. ( Yorkton ).

3 The Respondent was, at all material times, an employee of Yorkton and a resident of the City of Calgary, in the Province of Alberta. 3. The Respondent s registration history is set out below: Registration Issue Date Registration Termination Date Employer Registration Category July 28, 1997 December 4, 1997 Rogers and Partners Securities Inc. Registered Representative December 5, 1997 January 29, 2000 Yorkton Securities Inc. Registered Representative February 16, 2000 July 27, 2001 Yorkton Securities Inc. Registered Representative 4. By correspondence dated February 7 and April 30, 2002, the Respondent was advised of the Association s investigation into his conduct, on the basis of the complaints referenced in paragraph 1, herein. S.J. ACCOUNTS and INVESTMENT ACTIVITY: 5. At all relevant times, S.J. was a fairly sophisticated investor. He had substantial financial assets and good investment knowledge. S.J. transferred his accounts from another Yorkton broker to the Respondent in late 1998 or early Prior to opening accounts at Yorkton, S.J. had held accounts with Goepel McDermid ( GM ) investing in equities. At the time of the account transfers, from GM to Yorkton, one of S.J. s GM accounts held only speculative securities. 7. The initial New Client Application Forms ( NCAF ) and subsequent NCAF updates completed by the Respondent for S.J. s accounts, provided for Investment Objectives of 100% Venture Situations and Risk Factors of 100% High or not indicated. 8. S.J. suffered losses in his accounts maintained with the Respondent. While his Canadian accounts reflected a profit of approximately $621,000, his US dollar accounts lost over $750,000 in US funds. These losses largely related to trading in the speculative security, Entertainment Boulevard ( E.B. ). DISCRETIONARY TRADING (Regulation and ) 9. The Respondent has admitted that he exercised discretion in respect to one specific trade in an account of S.J. The Respondent also acknowledged that he would regularly obtain directions from S.J. to purchase certain securities within pre-arranged price/share ranges and up to a set dollar amount per transaction. S.J. was complacent to the Respondent s exercise of trading discretion in respect of his accounts 10. S.J. s accounts were not approved as discretionary accounts by Yorkton and the Respondent was not approved to manage discretionary accounts.

4 The Respondent engaged in discretionary trading in respect of S.J. s accounts without proper approvals, which was conduct in breach of Regulation and BUCKETING (By-law 29.1) UMDA Cross-trade at $5.00 per share 12. The Respondent recommended the purchase of shares of Uncommon Media Group ( UMDA ) to S.J. s accounts and represented to S.J. that he had pre-sold the stock to other individuals. 13. By letter of May 18, 2001, addressed to S.J., the Respondent indicated that 553,772 shares of UMDA had been sold from S.J. s account at $5.00 US per share (the crosstrade ). 14. The actual value for UMDA shares as of the month-end May 2001 was $1.50 US, as shown on S.J. s monthly account statements. 15. The Respondent provided a second letter to S.J., dated June 28, 2001, confirming the cross-trade of UMDA. 16. The actual value for UMDA shares as of the month-end June 2001 was $1.50 US, as shown on S.J. s monthly account statements. 17. Upon S.J. s request for proof of the cross-trade, the Respondent provided S.J. with copies of undated sell tickets showing that various quantities of unidentified securities had been sold from S.J. s accounts at $5.00 US per share. These were false trade tickets. 18. The cross-trade of shares of UMDA as proposed by the Respondent, or otherwise, was not completed. 19. The Respondent s proposal to cross-trade the UMDA shares was for the purpose of compensating S.J. for account losses relating to trading in the security, E.B. 20. The Respondent has admitted that Yorkton was unaware of the representations he made to S.J. regarding the cross-trade of the UMDA shares. 21. The Respondent knowingly provided S.J. with false and/or misleading information in respect of the cross-trade of UMDA. 22. The Respondent issued false and/or misleading communications to a client in respect of a trade in securities, specifically he provided written confirmation of a transaction where no trade had been executed, in breach of Standard B, of the Conduct and Practices Handbook ( CPH ), which conduct is unbecoming a registrant, contrary to Association By-law 29.1.

5 - 5 - OFFER TO COMPENSATE FOR TRADING LOSSES (By-law 29.1) UMDA (i) 500,000 UMDA Shares 23. The Respondent promised to gift UMDA stock to S.J., which representation was confirmed by letter to S.J. of May 30, This letter set out the Respondent s pledge of 500,000 free trading shares of UMDA, in the event that funds from the $5.00 US cross were not in S.J. s account by May 31, S.J. has confirmed the Respondent s promise to gift the UMDA shares. 24. A Statutory Declaration dated June 5, 2001, was executed before S.J. s lawyer, setting out a covenant by the Respondent to transfer 500,000 shares of UMDA to an S.J account for the sum of $10.00 and such further and other previous consideration between the parties. 25. The Respondent s promise to gift UMDA shares to S.J. was an attempt to compensate S.J. for trading account losses. (ii) 25,000 UMDA Shares (R.D.) 26. By letter of June 6, 2001, the Respondent represented that a share certificate had been produced in the name of R.D. (S.J. s daughter) for 25,000 shares of UMDA. 27. Further, by this letter, the Respondent represented that the 25,000 shares of UMDA had been sold for $5.00 US per share and that the proceeds from the sale would be credited to the account as soon as possible. 28. The Respondent s representation to gift shares of and subsequently trade the UMDA shares was compensation for Red Hat Inc. losses in the approximate amount of $45,000 US, sustained by S.J. (iii) 670,000 UMDA Shares 29. By written notation dated June 22, 200[1], the Respondent gave an undertaking to S.J. that he would give S.J. 670,000 shares of UMDA. 29. Specifically, the Respondent represented that 560,000 shares of UMDA were to be gifted and the remaining 110,000 shares provided in the form of options to S.J. on or before July 10, 20 [2001]. (iv) 1.25 MIL UMDA Shares (Robe Investments Inc.) 30. By Letter Agreement, dated July 18, 2001, the Respondent acknowledged that he was S.J. s broker and that S.J. had incurred significant trading losses. Further, by the Letter Agreement the Respondent represented that he wished to compensate S.J. for account

6 - 6 - losses with a gift of 1.25 million shares of UMDA, held in an account of the U.S. company, Robe Investments Inc. ( Robe ), located in the Turks and Caicos. 31. The Respondent represented that he would transfer the 1.25 million shares of UMDA, held in the Robe account, to S.J. at an aggregate value of $10.00, as compensation for S.J. s trading losses. 32. The actual value for UMDA shares as of the month-end July 2001 was $1.50 US, as shown on S.J. s monthly account statements. 33. S.J. s lawyer drafted the Letter Agreement of July 18, 2001, and the Respondent executed the agreement at S.J. s lawyer s office. 34. The Respondent and S.J. travelled to the Turks and Caicos and, as agreed, the Respondent purportedly transferred ownership of the shares of UMDA held in the Robe account to S.J S.J. believed that the transfer of UMDA shares had occurred. However, subsequently, he was unable to exercise a right of ownership by selling the shares, as the 1.25 million UMDA shares held in Robe were pledged to other individuals and therefore restricted. 36. S.J. never received any negotiable shares of UMDA from the Respondent. 37. The Respondent has admitted that he created the letters representing the gift of shares of UMDA to S.J. as confirmation of his intention to compensate S.J. for the substantial losses he had incurred with trading in EB. 38. The Respondent has admitted that Yorkton was unaware of the representations he made to S.J. regarding gifts of UMDA shares for the purpose of compensation, or otherwise. (v) Global IT 39. By notation dated June 23, 2001, the Respondent gave an undertaking that he would gift 200,000 shares of Global IT to S.J. 40. S.J. confirmed that the Respondent promised to gift shares of Global IT to him and, also, that the Respondent promised him additional Global IT shares at a reduced price. 41. To the knowledge of Association Staff, Global was never traded on an exchange or overthe-counter bulletin board. Summary 42. On at least five (5) occasions the Respondent offered to compensate S.J. for losses sustained as a result of trading activity in S.J. s accounts, in breach of Standard B and C of the CPH, which conduct is unbecoming a registrant and detrimental to the public, contrary to Association By-law 29.1.

7 - 7 - PERSONAL FINANCIAL DEALINGS / COMPENSATION FOR TRADING LOSSES (By-law 29.1) 43. The Respondent provided S.J. with two (2) personal cheques, each in the amount of $15,000; dated September 12, 2000 and November 22, 2000, respectively. These monies were paid by the Respondent to S.J. as compensation for account losses or other basis of personal financial dealing. 44. The Respondent did not receive Yorkton s approval to provide the two (2) $15,000 cheques to S.J. as compensation, or otherwise. 45. By providing personal funds as compensation to S.J., or otherwise, the Respondent acted in breach of Standard C, of the CPH, which conduct is unbecoming a registrant, contrary to Association By-law REPRESENTING A SECURITY TO BE LISTED ON EXCHANGE (By-law 29.1) 46. By the letter dated May 31, 2001, the Respondent confirmed his representation to S.J. that the security, Kirscher Entertainment (KE), would trade on the US OTC market on June 1, 2001, on or before 9:00 am. Further, the letter specified that S.J. would be gifted KE shares which would then be sold with proceeds in the amount of $900,000 to be given to S.J. This transaction did not occur. 47. To the knowledge of Association Staff, KE, was never traded on an exchange or overthe-counter bulletin board. 48. By representing that KE would be listed on the U.S. OTC market on June 1, 2001, with the intent to affect a trade in the security on behalf of and to the benefit of S.J., the Respondent acted in violation of the provisions of the Alberta Securities Act and Standard D, of the CPH, which is conduct unbecoming a registrant and detrimental to the public contrary to Association By-law C. J.F. and T.F. ACCOUNTS and INVESTMENT ACTIVITY 49. J.F. and T.F. opened separate investment accounts with the Respondent at Yorkton on February 2 and June 13, 2001, respectively. The NCAFs for each account indicated Investment Objectives as 100% Venture Situations and Risk Factors as 100% High.

8 - 8 - SELLING SECURITIES WITHOUT ENSURING COMPLIANCE WITH THE ALBERTA SECURITIES ACT (By-law 29.1) 50. The Respondent recommended, T.F., that he participate in a private placement offering by Global IT. T.F. and his brother, J.F., borrowed funds to participate in the Global IT private placement. 51. J.F. executed a subscription agreement agreeing to purchase 39,200 shares of Global IT for the sum of $19,600 US. J.F. was not provided with an Offering Memorandum for the Global IT private placement. 52. Global was not a reporting issuer in Alberta at the time that the shares were purchased by J.F. Further, an exemption to filing requirements had not been applied for pursuant to the provisions of the Alberta Securities Act nor was an Offering Memorandum filed which would have allowed the Respondent to participate in the distribution of Global IT shares in Alberta. 53. The Respondent confirmed that he did not receive approval from Yorkton to engage in outside business activities with Global IT, in particular the distribution of Global IT shares pursuant to the private placement. 54. The Respondent participated in the distribution of Global IT shares when the securities were not approved for distribution in Alberta and, further, he conducted off-book transactions involving Global IT shares without the approval of Yorkton, in breach of Standard C and D of the CPH, which conduct is unbecoming a registrant and detrimental to the public, contrary to By-law GENERAL PROCEDURAL MATTERS TAKE FURTHER NOTICE that the hearing and related proceedings shall be subject to the Association s Rules of Practice and Procedure. TAKE FURTHER NOTICE that pursuant to Rule 13.1, the Respondent is entitled to attend and be heard, be represented by counsel or an agent, call, examine and cross-examine witnesses, and make submissions to the Hearing Panel at the hearing. RESPONSE TO NOTICE OF HEARING TAKE FURTHER NOTICE that the Respondent must serve upon the Association a Response to the Notice of Hearing in accordance with Rule 7 within twenty (20) days (for a Standard Track disciplinary proceeding) or within thirty (30) days (for a Complex Track disciplinary proceeding) from the effective date of service of the Notice of Hearing. FAILURE TO RESPOND OR ATTEND HEARING

9 - 9 - TAKE FURTHER NOTICE that if the Respondent fails to serve a Response or attend the hearing, the Hearing Panel may, pursuant to Rules 7.2 and 13.5: (a) proceed with the hearing as set out in the Notice of Hearing, without further notice to the Respondent; (b) accept as proven the facts and contraventions alleged by the Association in the Notice of Hearing; and (c) order penalties and costs against the Respondent pursuant to By-law 20.33, and PENALTIES & COSTS TAKE FURTHER NOTICE that if the Hearing Panel concludes that the Respondent did commit any or all of the contraventions alleged by the Association in the Notice of Hearing, the Hearing Panel may, pursuant to By-law and By-law 20.34, impose any one or more of the following penalties: Where the Respondent is/was an Approved Person: (a) (b) a reprimand; a fine not exceeding the greater of: (i) $1,000,000 per contravention; and (ii) an amount equal to three times the profit made or loss avoided by such Approved Person by reason of the contravention. (c) (d) (e) (f) (g) (h) (i) suspension of approval for any period of time and upon any conditions or terms; terms and conditions of continued approval; prohibition of approval in any capacity for any period of time; termination of the rights and privileges of approval; revocation of approval; a permanent bar from approval with the Association; or any other fit remedy or penalty.

10 Where the Respondent is/was a Member firm: (a) (b) a reprimand; a fine not exceeding the greater of: (i) $5,000,000 per contravention; and (ii) an amount equal to three times the profit made or loss avoided by the Member by reason of the contravention; (c) suspension of the rights and privileges of the Member (and such suspension may include a direction to the Member to cease dealing with the public) for any period of time and upon any conditions or terms; (d) (e) (f) (g) terms and conditions of continued Membership; termination of the rights and privileges of Membership; expulsion of the Member from membership in the Association; or any other fit remedy or penalty. TAKE FURTHER NOTICE that if the Hearing Panel concludes that the Respondent did commit any or all of the contraventions alleged by the Association in the Notice of Hearing, the Hearing Panel may pursuant to By-law assess and order any investigation and prosecution costs determined to be appropriate and reasonable in the circumstances. DATED at Vancouver, this day of November, WARREN FUNT INVESTMENT DEALERS ASSOCIATION OF CANADA SUITE 1325, 650 WEST GEORGIA STREET VANCOUVER, BC. V6B 4N9 VICE-PRESIDENT, WESTERN CANADA, MEMBER REGULATION