RE: ROCHE SECURITIES LIMITED and FRANCIS ROCHE

Transcription

1 BULLETIN 3216 IN THE MATTER OF DISCIPLINE PURSUANT TO BY-LAW 20 OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA RE: ROCHE SECURITIES LIMITED and FRANCIS ROCHE AMENDED SETTLEMENT AGREEMENT I. INTRODUCTION 1. The staff ("Staff") of the Investment Dealers Association of Canada (the "Association") has reviewed the conduct of Roche Securities Limited ( R.S. ) and Francis Roche ( Roche ) (collectively the Respondents ). 2. This review disclosed matters for which the District Council of the Association (the "District Council") may penalize the Respondents by imposing penalties. II. JOINT SETTLEMENT RECOMMENDATION 3. Staff and the Respondents consent and agree to the settlement of these matters by way of this Settlement Agreement in accordance with By-Law This Settlement Agreement is subject to the acceptance of the District Council, in accordance with By-Law The District Council may also impose a lesser penalty or less onerous terms than those provided in this Settlement Agreement, or, with the consent of the Respondents, it may also impose a penalty or terms more onerous than those provided by this Settlement Agreement.

2 Staff and the Respondents jointly recommend that the District Council accept this Settlement Agreement. 6. If, at any time prior to the acceptance of this Settlement Agreement, or the imposition of a lesser penalty or less onerous terms, or the imposition, with the consent of the Respondents, of a penalty or terms more onerous, by the District Council, there are new facts or issues of substantial concern in the view of Staff, Staff will be entitled to withdraw this Settlement Agreement from consideration by the District Council. III. STATEMENT OF FACTS 7. Solely for the purposes of this proceeding and of any other proceeding commenced by a securities regulator, Staff and the Respondents agree with the facts as set out in this Settlement Agreement. The Respondents 8. RS became a Member of the Association on September 30, RS commenced winding down its operations in October In December 2002, it closed its office in Edmonton, Alberta, and by March 2003 all client accounts had been moved to other Association Members. 9. At all material times, Roche was the President, Chief Executive Officer ( CEO ) and Acting Chief Financial Officer ( CFO ) of RS. Roche has been RS s Acting CFO since September Prior to that time, he had never held the position of CFO and was never responsible for financial compliance matters.

3 - 3 - Resignation Process 10. On November 25, 2002, Roche advised Association Staff that RS intended to resign from the Association. In order to resign, Association Members must comply with the requirements of Association By-law 8 ( resignation process ). 11. In November 2002, RS retained Kingston, Ross, Pasnak LLP to conduct the audit required by Association By-law 8.2. Although initially Roche made his best efforts to assist in the completion of the audit, this audit was not completed because some of the required information and documents were not or could not be located. Roche failed to maintain adequate and complete financial documents and information for RS during the audit process and failed to safeguard information maintained in RS s computer system. 12. The resignation process was also not completed because Roche removed all of RS s capital and assets before RS could fulfill the requirements of Association By-law 8. In order for a Member to resign from the Association, pursuant to Association By-law 8, the Member s auditors must provide an unqualified statement that the Member s assets are sufficient to meet all of its liabilities at the time of resignation. RS cannot fulfill this condition because all of its capital and assets have been removed (as more fully described below) notwithstanding that it continues to have at least four contingent undetermined claims (liabilities), including two claims by former clients.

4 - 4 - Removal of RS s Regulatory Capital and Assets 13. On December 2, 2002, the Association advised the Respondents that RS had been placed in Early Warning Level 2 as a result of a $ 52,000 loss to its capital position in October At that time, the Respondents were also advised that as a condition of being in Early Warning Level 2, RS could not reduce its capital in any manner without the Association s written consent and that RS was to file its Monthly Financial Reports ( MFRs ) within 10 business days of the end of each month. 15. On January 31, 2003, RS was capital deficient in the amount of $ 39,000. Although this deficiency was corrected, RS became capital deficient again on February 7, 2003, in the amount of $ 7, On February 25, 2003, Association Staff brought a Motion before the Alberta District Council, pursuant to Association By-law 20.33, and requested an interim suspension of RS. 17. Although the Alberta District Council found that RS had been capital deficient on February 7, 2003, it dismissed Association Staff s motion on the basis that there was insufficient evidence that this deficiency would likely result in financial loss to the public.

5 The Alberta District Council arrived at this conclusion after considering, inter alia, that there were only 10 client accounts remaining with RS at that time and that, as RS was a Type II introducing broker, it had no access to the securities in those client accounts. The Alberta District Council also considered that RS had, at that time, sufficient assets to meet all of its liabilities and suggested that RS continue the resignation process provided in Association By-law On March 22, 2003, RS filed its MFR with the Association for February According to its February MFR, RS s capital deficiency had increased to $ 96,000 by the end of that month. 20. In March 2003, it was revealed that Roche had made capital advances from RS to himself in January 2003 ($ 21,000) and February 2003 ($ 44,000). These advances were made without the Association s consent and in violation of Early Warning Level 2 restrictions. These advances were made notwithstanding that Roche had been advised in correspondence and in discussions with Association Staff that RS could not reduce its capital. 21. RS thereafter stopped filing MFRs with the Association notwithstanding that Roche had been advised of RS s obligation to continue filing such reports within ten business days of month s end. 22. Roche then proceeded to remove the remaining capital and assets from RS. By June 2003, RS no longer had any regulatory capital or assets.

6 No client accounts were put at risk or suffered any losses as a result of the removal of RS s capital and assets. Failure to Pay Membership Fees, Fines and Levies 24. When RS was served with the Notice of Hearing and Particulars in this proceeding, it owed the Association $ 28, for annual membership fees, fines and levies. The following invoices had been sent to RS that had not been paid: Invoice # Invoice Date Amount Outstanding Balance Reason for Payment C /28/ , , Annual Fees 2002/2003 D /01/ , , Annual Fees 2002/2003 IN /21/ Jan/03 Continuing Education Fines IN /27/ Late Filing Fees for Nov/02 MFR IN /27/ Feb/03 Continuing Education Fines IN /25/2003 1, , Late Filing Fees for Jan/03 MFR 25. RS also owed the Association a total of $ for two levies one of which had been owing since June 4, Since being served with the Notice of Hearing and Particulars, Roche has paid all outstanding annual membership fees, fines and levies owed to the Association by RS.

7 - 7 - IV. CONTRAVENTIONS 27. RS has violated Association By-law 16.4 by failing to file MFRs with the Association for the months of March, April, May, June, July, August and September RS has violated Association By-law 30.5(b) by failing to file its MFR for February 2003 with the Association within 10 business days of the end of that month. 29. RS has violated Association By-law 3.3 by failing to pay its annual membership fees to the Association within the time prescribed by that By-law. 30. Roche has engaged in conduct unbecoming or detrimental to the public interest, contrary to Association By-law 29.1, by: (a) failing to maintain proper financial books and records for RS; and (b) removing all of RS s capital and assets in contravention of Early Warning Level 2 restrictions and directions from Association Staff, thereby undermining the safeguards provided by the resignation process. V. ADMISSION OF CONTRAVENTIONS AND FUTURE COMPLIANCE 31. The Respondents admit to contravening the By-laws of the Association set out in Section IV of this Settlement Agreement. The Respondents acknowledge their responsibility to comply with the By-laws, Regulations, Rulings and Policies of the Association.

8 - 8 - VI. PENALTIES 32. The Respondents and Staff hereby agree to the penalties and terms described in this Section. 33. RS shall be expelled from the Association on the effective date of the Settlement Agreement. 34. Roche shall pay a fine to the Association in the amount of $ 20, Roche shall be prohibited from being a Partner, Director or Officer of any Association Member for a period of two years and shall be prohibited from holding the position of CFO with any Association Member or being responsible for financial compliance matters for a period of five years. VII. ASSOCIATION COSTS 36. The Respondents shall pay the Association's costs of this proceeding in the amount of $ 7,500.00, payable to the Association on the effective date of the Settlement Agreement. VIII. EFFECTIVE DATE 37. This Settlement Agreement shall become effective and binding upon the Respondents and Staff in accordance with its terms as of the date of:

9 - 9 - (a) (b) (c) its acceptance; or the imposition of a lesser penalty or less onerous terms; or the imposition, with the consent of the Respondents, of a penalty or terms more onerous, by the District Council. IX. WAIVER 38. If this Settlement Agreement becomes effective and binding, the Respondents hereby waive their right to a hearing under the Association By-laws in respect of the matters described herein and further waive any right of appeal or review which may be available under such By-laws or any applicable legislation. X. STAFF COMMITMENT 39. If this Settlement Agreement becomes effective and binding, Staff will not proceed with disciplinary proceedings against the Respondents herein in relation to the facts set out in Section III of the Settlement Agreement. XI. PUBLIC NOTICE OF DISCIPLINE PENALTY 40. If this Settlement Agreement becomes effective and binding: (a) the Respondents shall be deemed to have been penalized by the District Council for the purpose of giving written notice to the public thereof by publication in an Association Bulletin and by delivery of the notice to the media, the securities regulators and such other persons, organizations or corporations, as required by Association By-laws and any applicable Securities Commission requirements; and

10 (b) the Settlement Agreement and the Association Bulletin shall remain on file and shall be disclosed to members of the public upon request. XII. EFFECT OF REJECTION OF SETTLEMENT AGREEMENT 41. If the District Council rejects this Settlement Agreement: (a) the provisions of By-Laws to 20.24, inclusive, shall apply, provided that no member of the District Council rejecting this Settlement Agreement shall participate in any hearing conducted by the District Council with respect to the same matters which are the subject of the Settlement Agreement; and (b) the negotiations relating thereto shall be without prejudice and may not be used as evidence or referred to in any hearing. AGREED TO by the Respondents, in the City of Toronto, in the Province of Ontario, this 2 nd day of November, 2003 illegible WITNESS Francis Roche ROCHE SECURITIES LTD. Per: Francis Roche, CEO, President Francis Roche FRANCIS ROCHE

11 AGREED TO by Staff at the City of Toronto, in the Province of Ontario, this 5 th day of November 2003 Nina Genova WITNESS Ricardo Codina RICARDO CODINA Enforcement Counsel ACCEPTED by the Alberta District Council of the Investment Dealers Association of Canada, at the City of Calgary, in the Province of Alberta, this 30th day of October INVESTMENT DEALERS ASSOCIATION OF CANADA (ALBERTA DISTRICT COUNCIL) Per: Gail Harding Per: Kathleen Jost Per: Ruby Wallis