News Release

Released: 06/20/01 Contact: Andrew Poon
NR 01-27 (604) 899-6880 or
(BC only) 1-800-373-6393

Vancouver -- The B.C. Securities Commission has decided not to sanction two Vancouver brokers in connection with conduct that led to a stock manipulation in the United States.

In April 2000, Dirk Alan Rachfall and Michael Kevin Patterson pleaded guilty to one count of securities fraud in the U.S. They were imprisoned for five months and fined over $130,000US each. They are now free on supervised release.

"Considering the consequences that Rachfall and Patterson have suffered as a result of their conduct, we think it unlikely that they would pose a threat to the market were they to rejoin the securities industry,” the commission panel said. “If anything, their experiences should make them unusually vigilant. We hope so.”

In 1997, the two brokers, then employed by Pacific International Securities Inc., were facing losses of up to $300,000 each for stock bought on margin for clients who had defaulted. The pair sought buyers for the stocks with the key stock being Orlando Supercard, Inc., which traded on the NASD OTC Bulletin Board.

They found David Houge, a Pacific International client, who they knew as a stock promoter. Houge was willing to buy the stock, but only if he could acquire essentially all of Orlando’s public float. Rachfall and Patterson then made a co-ordinated effort with other Vancouver brokers so that enough of the stock could be offered to Houge to complete the deal. On this basis, Houge bought the Orlando stock at a price sufficient to cover the brokers' losses.

Houge later used his control of the public float to manipulate the price of Orlando’s stock.

The commission found that Rachfall and Patterson knew there was a “high probability” that Houge was acquiring the Orlando stock to carry out a manipulation and that they deliberately failed to make appropriate inquiries of Houge. However, the commission also found that they did not know of Houge’s reputation as a stock manipulator, and did not know Houge’s actual intentions.

The commission noted that although Rachfall and Patterson had put their own financial interests ahead of the market, they paid dearly for their error. In addition to the penalties imposed on them in the United States, they have been banned from securities markets in British Columbia since July 1999.

The panel said that the two had long careers in the securities industry with previously unblemished records, and that they did not plan or profit from the manipulation. The purpose of orders made under the Securities Act is to protect the public interest, not to punish or exact retribution, said the panel.

Commission staff was seeking orders banning the two from the markets for 20 years and imposing administrative penalties of $50,000 each.

The B.C. Securities Commission is the independent provincial government agency responsible for regulating trading in securities and exchange contracts within the province. Copies of the decision can be viewed in the documents database of the commission’s website www.bcsc.bc.ca or by contacting Media Relations Officer Andrew Poon at 899-6880.