NOTICE OF HEARING. Unofficial English Translation INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA IN THE MATTER OF: THE RULES OF THE

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1 Unofficial English Translation INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA IN THE MATTER OF: THE RULES OF THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA AND THE UNIVERSAL MARKET INTEGRITY RULES AND JEAN-FRANÇOIS LEMAY NOTICE OF HEARING TAKE NOTICE that, pursuant to Universal Market Integrity Rule (UMIR) Policy 10.8 (Practice and Procedure), Part 9 (Conduct of Hearing) of the Investment Industry Regulatory Organization of Canada (IIROC), and pursuant to UMIR 2.2(2)(b) and UMIR Policy 2.2 and UMIR 3.1(1) and Policy 3.1 and UMIR 6.2, of Schedule A.1 to Transition Rule No. 1, a hearing will be held before a hearing panel of IIROC (the Hearing Panel) on April 11 and 12, 2012 at Centre Mont-Royal, 2200 Mansfield Street, Montréal, Québec, Mansfield 2 Room at 10:00 a.m., or as soon thereafter as the hearing can be heard. THE PURPOSE OF THE HEARING is to determine whether Jean-François Lemay (the Respondent) contravened the following Requirements of UMIR, by reason of the allegations set out in the Statement of Allegations appended as Appendix A hereto: (i) He entered orders or executed transactions on the Toronto Venture Exchange (TSX-V) and on a quotation and trade reporting system (Overthe-Counter Bulletin Board OTCBB) when he knew, or ought reasonably to have known, that the entry of such orders or the execution of the transactions would create, or could reasonably be expected to create, a false or misleading appearance of trading activity with respect to the security, contrary to UMIR 2.2(2)(a), to Policy 2.2, with which he is required to comply pursuant to UMIR Page 1 of 12

2 AND TAKE FURTHER NOTICE that, if the Hearing Panel finds that the Respondent has contravened the Requirements above, the Hearing Panel may impose one or more of the following orders under UMIR Policy 10.5: 1. a reprimand; 2. a fine not to exceed the greater of: (a) (b) $1,000,000 per contravention of a Requirement; and an amount equal to triple the financial benefit which accrued to the person as a result of committing each contravention. 3. a restriction, suspension or revocation of access to the marketplace for such period and upon such terms and conditions, if any, considered appropriate; and 4. any other remedy determined to be appropriate under the circumstances. AND TAKE FURTHER NOTICE that, under UMIR Policy 10.7, the Hearing Panel may assess the expenses incurred by IIROC Staff as a result of the investigation and proceedings resulting in the order. AND TAKE FURTHER NOTICE that the Respondent has the right to appear and be heard at the hearing. Under Part 9.1 of UMIR Policy 10.8, the Respondent is required to serve a Reply. If the Respondent fails to serve a Reply, or to attend or participate at the hearing, the Hearing Panel may proceed with the hearing on the matter on the date and at the time and place set out in this Notice of Hearing without further notice to the Respondent and in his absence, and the Hearing Panel may accept the facts alleged or conclusions drawn in the Statement of Allegations and the Hearing Panel may impose any one or more of the penalties or remedies authorized by UMIR and assess expenses as authorized by UMIR. Page 2 of 12

3 SIGNED at Montréal, this 9 th day of February, CARMEN CRÉPIN CARMEN CRÉPIN VICE-PRESIDENT, QUÉBEC INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA 5 Place Ville Marie, Suite 1550 Montréal, Québec H3B 2G2 To: Jean-François Lemay 21 du Voltigeur Street Blainville, Québec J7C 5P4 Page 3 of 12

4 APPENDIX A INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA IN THE MATTER OF: THE RULES OF THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA AND THE UNIVERSAL MARKET INTEGRITY RULES AND JEAN-FRANÇOIS LEMAY STATEMENT OF ALLEGATIONS I. REQUIREMENTS CONTRAVENED 1. Between April 28 and October 31, 2008, Jean-François Lemay (the Respondent) contravened the following Universal Market Integrity Rules (UMIR): (i) He entered orders or executed transactions on the Toronto Venture Exchange (TSX-V) and on a quotation and trade reporting system (Over-the-Counter Bulletin Board OTCBB) when he knew, or ought reasonably to have known, that the entry of such orders or the execution of the transactions would create, or could reasonably be expected to create, a false or misleading appearance of trading activity with respect to the security, contrary to UMIR 2.2(2)(a), to Policy 2.2, with which he is required to comply pursuant to UMIR Appendix B sets out the text of the relevant Requirements; Page 4 of 12

5 II. SUMMARY 3. Respondent, on fourteen (14) occasions, entered on the TSX-V, and on three (3) occasions entered on the OTCBB, purchase and sale orders knowing that identical purchase and sale orders had been simultaneously entered, for the benefit of the same person, thereby creating fictitious trades for the purchase and sale of these securities; 4. During the relevant period, Respondent worked as a full-service representative for Union Securities Ltd. (Union Securities), an IIROC-regulated firm; 5. All the orders at issue were entered on the TSX-V, an Exchange regulated pursuant to UMIR, or on the OTCBB, a quotation and trade reporting system also regulated pursuant to UMIR; III. REGISTRATION BACKGROUND OF RESPONDENT 6. Respondent was registered as a full-service representative since July 13, 1995 with the Investment Dealers Association of Canada (IDA) and, since June 1, 2008, with the Investment Industry Regulatory Organization of Canada (IIROC); 7. On or about March 5, 1999, Respondent was sanctioned by the Bourse de Montréal with respect to the sale of share subscription warrants to unqualified investors; 8. Since January 2009, Respondent is no longer an IIROC registrant following his termination by Union Securities; IV. FACTS 9. Union Securities is a Participant within the meaning of UMIR; Page 5 of 12

6 10. Client A was a full-service representative between 1987 and 2003; 11. During the relevant period, A was a client of Union Securities and Respondent was his investment advisor; 12. Throughout the relevant period, the Swiss bank of Rahn & Bodmer Banquier Zurich (R&B) had an omnibus account with Union Securities; 13. During this period, Respondent was also one of the representatives of Union Securities who could receive transaction orders from R&B; 14. Union Securities did not know the identity of R&B s clients, which was hidden behind acronyms or pseudonyms; 15. Bozo was a pseudonym used by Client A for an R&B client account; 16. Throughout the relevant period, Respondent knew that Client A was the actual person behind the Bozo account at R&B; 17. Between April 28 and October 31, 2008, although Respondent knew that Clients A and Bozo were one and the same person, he simultaneously sent purchase and sale orders which were identical or nearly identical on seventeen (17) occasions to the TSX-V and OTCBB; 18. Respondent thereby created an appearance of trading activity in the securities in question, although there was no change in beneficial ownership pursuant to these transactions; Page 6 of 12

7 19. Respondent therefore engaged directly in manipulative and deceptive activities which were reasonably likely to create a false or misleading appearance of trading activity in the securities transacted; V. CONCLUSION 20. Respondent actively participated in manipulative and deceptive activities referred to as a wash trade on seventeen (17) occasions, contrary to UMIR 2.2(2)(a), Policy 2.2 and UMIR FEBRUARY 9 TH, INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA 5 Place Ville-Marie, Suite 1550 Montréal, Québec H3B 2G2 Page 7 of 12

8 APPENDIX B EXCERPTS FROM THE UNIVERSAL MARKET INTEGRITY RULES PART 2 ABUSIVE TRADING 2.2 Manipulative and Deceptive Activities (1) A Participant or Access Person shall not, directly or indirectly, engage in or participate in the use of any manipulative or deceptive method, act or practice in connection with any order or trade on a marketplace if the Participant or Access Person knows or ought reasonably to know the nature of the method, act or practice. (2) A Participant or Access Person shall not, directly or indirectly, enter an order or execute a trade on a marketplace if the Participant or Access Person knows or ought reasonably to know that the entry of the order or the execution of the trade will create or could reasonably be expected to create: (a) a false or misleading appearance of trading activity in or interest in the purchase or sale of the security; or (b) an artificial ask price, bid price or sale price for the security or a related security. (3) For greater certainty, the entry of an order or the execution of a trade on a marketplace by a person in accordance with the Market Maker Obligations shall not be considered a violation of subsection (1) or (2) provided such order or trade complies with applicable Marketplace Rules and the order or trade was required to fulfill applicable Market Maker Obligations. Page 8 of 12

9 POLICY 2.2 MANIPULATIVE AND DECEPTIVE ACTIVITIES Part 1 Manipulative or Deceptive Method, Act or Practice There are a number of activities which, by their very nature, will be considered to be a manipulative or deceptive method, act or practice. For the purpose of subsection (1) of Rule 2.2 and without limiting the generality that subsection, the following activities when undertaken on a marketplace constitute a manipulative or deceptive method, act or practice: (a) making a fictitious trade; (b) effecting a trade in a security which involves no change in the beneficial or economic ownership; (c) effecting trades by a single interest or group with the intent of limiting the supply of a security for settlement of trades made by other persons except at prices and on terms arbitrarily dictated by such interest or group; and (d) purchasing a security with the intention of making a sale of the same or a different number of units of the security or a related security on a marketplace at a price which is below the price of the last sale of a standard trading unit of such security displayed in a consolidated market display. If persons know or ought reasonably to know that they are engaging or participating in these or similar types of activities those persons will be in breach of subsection (1) of Rule 2.2 irrespective of whether such method, act or practice results in a false or misleading appearance of trading activity or interest in the purchase or sale of a security or an artificial ask price, bid price or sale price for a security or a related security. Part 2 False or Misleading Appearance of Trading Activity or Artificial Price For the purposes of subsection (2) of Rule 2.2 and without limiting the generality of that subsection, if any of the following activities are undertaken on a marketplace and create or could reasonably be expected to create a false or misleading appearance of trading activity or interest in the purchase or sale of a security or an artificial ask price, bid price or sale price, the entry of the order or the execution of the trade shall constitute a violation of subsection (2) of Rule 2.2: (a) entering an order or orders for the purchase of a security with the knowledge that an order or orders of substantially the same size, at substantially the same time and at substantially the same price for the sale Page 9 of 12

10 of that security, has been or will be entered by or for the same or different persons; (b) entering an order or orders for the sale of a security with the knowledge that an order or orders of substantially the same size, at substantially the same time and at substantially the same price for the purchase of that security, has been or will be entered; (c) making purchases of, or offers to purchase, a security at successively higher prices or in a pattern generally of successively higher prices; (d) making sales of or offers to sell a security at successively lower prices or in a pattern generally of successively lower prices; (e) (f) entering an order or orders for the purchase or sale of a security to: (i) (ii) establish a predetermined sale price, ask price or bid price, effect a high or low closing sale price, ask price or bid price, or (iii) maintain the sale price, ask price or bid price within a predetermined range; entering an order or a series of orders for a security that are not intended to be executed; (g) entering an order for the purchase of a security without, at the time of entering the order, having the ability or the reasonable expectation to make the payment that would be required to settle any trade that would result from the execution of the order; (h) entering an order for the sale of a security without, at the time of entering the order, having the reasonable expectation of settling any trade that would result from the execution of the order; and (i) effecting a trade in a security, other than an internal cross, between accounts under the direction or control of the same person. If persons know or ought reasonably to know that they are engaging or participating in these or similar types of activities those persons will be in breach of subsection (2) of Rule 2.2 irrespective of whether such activity results in a false or misleading appearance of trading activity or interest in the purchase or sale of a security or an artificial ask price, bid price or sale price for a security or a related security. PART 10 COMPLIANCE 10.4 Extension of Restrictions Page 10 of 12

11 (1) A related entity of a Participant and a director, officer, partner or employee of the Participant or a related entity of the Participant shall: (a) comply with the provisions of UMIR and any Policies with respect to just and equitable principles of trade, manipulative and deceptive activities, short sales and frontrunning as if references to Participant in Rules 2.1, 2.2, 2.3, 3.1 and 4.1 included reference to such person; and (b) in respect of the failure to comply with the provisions of UMIR and the Policies referred to in clause (a), be subject to the practice and procedures and to penalties and remedies set out in this Part. (2) A related entity of an Access Person and a director, officer, partner or employee of the Access Person or a related entity of the Access Person shall in respect of trading on a marketplace on behalf of the Access Person or related entity of the Access Person: (a) comply with the provisions of UMIR and any Policies with respect to just and equitable principles of trade, manipulative and deceptive activities and short sales as if references to Access Person in Rules 2.1, and 3.1 included reference to such person; and (b) in respect of the failure to comply with the provisions of UMIR and the Policies referred to in clause (a), be subject to the practice and procedures and to the penalties and remedies set out in this Part. (3) If, in the opinion of a Market Regulator, a particular person to whom UMIR applies, including any particular person to whom UMIR has been extended in accordance with subsection (1) and (2), has organized their business and affairs for the purpose of avoiding the application of any provision of UMIR, the Market Regulator may designate any person involved in such business and affairs as a person acting in conjunction with the particular person. (4) Upon a Market Regulator making a designation in accordance with subsection (3), the Market Regulator shall provide notice of such designation to: (a) the particular person; (b) the designated person; (c) each Market Regulator; and (d) each applicable securities regulatory authority. Page 11 of 12

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