Decisions
EXCEL ASSET MANAGEMENT INC., et. al. [Decision]
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BCSECCOM #:
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Document Type:
Decision
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Published Date:
2000-03-24
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Effective Date:
2000-03-20
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Details:
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IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, c. 418
AND
IN THE MATTER OF EXCEL ASSET MANAGEMENT INC., EXCELL ASSET MANAGEMENT INC., EXCEL FUNDING INC., EXCEL INTERNATIONAL INVESTMENT CORP., DIOMONDMARK INVESTMENTS LIMITED, GARY STANHISER, DEL KNOWLTON AND LINDA KNOWLTON
AND
IN THE MATTER OF THE LOMA TRUST
HEARING
PANEL: ADRIENNE R. WANSTALL MEMBER
ROY WARES MEMBER
DIANE K. WOLCH MEMBER
DATE OF HEARING: SEPTEMBER 8, 1999
DATE OF DECISION: MARCH 20, 2000
APPEARING: PATRICK ROBITAILLE FOR COMMISSION STAFF
H. RODERICK ANDERSON FOR DEL KNOWLTON
AND LINDA KNOWLTON
DECISION OF THE COMMISSION
We released our findings in this matter on April 28, 1999. On September 8, we reconvened to hear submissions with respect to orders to be made by the Commission under sections 161 and 162 of the Securities Act, R.S.B.C. 1996, c. 418. This decision should be read in conjunction with our findings of April 28.
Excell Asset Management Inc. was incorporated by Gary Stanhiser as the vehicle for an investment scheme carried out in British Columbia and California. The company actually carried on its business under the name of Excel Asset Management Inc. Client representatives of Excel Asset, including Linda Knowlton and Del Knowlton (“Knowlton”), raised money from clients, which would then be pooled in accounts at Canaccord Capital Corporation in the name of Stanhiser, Knowlton or one of the Excel companies (Excel Funding Inc., Excel International Investment Corp. or Diomondmark Investments Limited). In only a handful of cases did a single client actually invest $97,000 or more. Once sufficient funds had accumulated, one of the Excel companies, the Loma Trust or Stanhiser purchased shares of a company pursuant to a previously negotiated private placement. The shares were then allocated to the clients in the records of Excel Asset. In a very few cases, the clients actually took delivery of their shares.
These distributions were purported to be made under the “$97,000” exemptions from the registration and prospectus requirements of the Act, which require that the aggregate acquisition cost to the purchaser is not less than $97,000. We found that those exemptions were not available in respect of the distributions, and that all of the Respondents had carried out acts, solicitations, conduct or negotiations in furtherance of the distributions. Consequently, we found that all of the Respondents had traded in securities without being registered, contrary to section 34(1) of the Act, and distributed securities without filing and obtaining a receipt for a prospectus, contrary to section 61(1) of the Act. We also found that, through his participation in the distribution of securities through the Excel investment scheme, Stanhiser perpetrated a fraud on persons in British Columbia, contrary to section 57 of the Act.
At the hearing on September 8, Commission staff provided us with a report prepared by Arthur Anderson respecting the financial activities of Excel Asset. Excel raised $14,173,758 from its clients. Those clients got back cash of $1,591,508 and shares valued (at cost) at $2,164,243, which meant that Excel raised a net amount of $10,418,007.
Excel Asset paid a total of $1,069,033 of those funds, net of cash receipts, to the various individuals associated with Excel Asset. Of this amount, $771,748 was paid to Stanhiser and his two children, while $98,186 was paid to the Knowltons and their daughter. The Knowltons submit that they received this money not as remuneration for their services to Excel but in respect of an investment in one of the private placements. They allege that the shares from that private placement had been loaned to them by a trust established by Linda Knowlton’s family, of which Linda Knowlton was the trustee. However, the Knowltons have no documentation respecting this loan transaction.
Excel Asset orchestrated 22 private placements totalling $12,804,500. Clients of Excel are still owed shares valued, at cost, at $8,802,194. The majority of these shares are held by a firm of trustees in the Channel Islands and it is unclear at this time who has control over those shares. Their value has declined greatly from the time the private placements were made and it is unclear whether the clients will ever be able to get back the remainder of their money or their shares.
The Excel Companies
Excel Asset (and Excell Asset), Excel Funding, Excel International and Diomondmark, as well as the Loma Trust, were the primary vehicles through which the distributions were made. It was through their accounts at Canaccord that the clients’ money was funneled to the companies issuing the shares and the newly issued shares funneled back, in unfortunately very few instances, to the clients. It was through these entities that Stanhiser was able to carry out the fraud that we have found he committed.
We consider it to be in the public interest to order under section 161(1)(c) of the Act that the exemptions described in sections 44 to 47, 74, 75, 98 or 99 of the Act do not apply to Excel Asset, Excell Asset, Excel Funding, Excel International, Diomondmark and the Loma Trust.
Linda and Del Knowlton
Several of the clients that testified at the original hearing had known the Knowltons for many years and characterized them as honest, straightforward and upright. Letters from clients provided to us at the hearing on September 8, 1999, further support this characterization and one of them suggests that the Knowltons, like the clients of Excel Asset, were victims of Stanhiser’s fraud.
Though they received some funds during the period in question, the origin of which are unclear, it appears that the Knowltons did not benefit financially to any great extent, if at all, from their involvement with Excel Asset. Though they own their own home, it is mortgaged and they have outstanding credit card debt as well as a line of credit for $75,000, which they allege was run up to meet their living expenses during the time of their involvement with Excel Asset.
Be that as it may, the Knowltons chose to become client representatives of Excel Asset and, by doing so, participated in the distribution of securities to the Excel clients. It was their responsibility to discover, and comply with, the securities regulatory requirements arising from these distributions. As well, the trust placed in them by the clients they brought into Excel Asset, largely their own family and friends, doubtless made it easier for them to promote the Excel investments.
Linda Knowlton was an enthusiastic client representative for Excel Asset and had over 100 clients. Immediately prior to the beginning of the original hearing, Linda Knowlton signed an agreed statement of facts, which obviated the need for Commission staff to call specific evidence related to her at the hearing.
Accordingly, we consider it to be in the public interest to order:
1. under section 161(1)(c) of the Act, that the exemptions described in sections 44 to 47, 74, 75, 98 or 99 of the Act do not apply to Linda Knowlton, except for trades conducted for her own account through a registrant under the Act, for a period of five years;
2. under section 161(1)(d)(ii) of the Act, that Linda Knowlton is prohibited from becoming or acting as a director or officer of any issuer for a period of five years;
3. under section 161(1)(d)(iii) of the Act, that Linda Knowlton is prohibited from engaging in investor relation activities for a period of five years;
4. under section 162 of the Act, that Linda Knowlton pay an administrative penalty in the amount of $5,000; and
5. under section 174 of the Act that Linda Knowlton pay 5% of the prescribed fees or charges for the costs of or related to the hearing incurred by, or on behalf of, the Commission and the Executive Director.
Knowlton performed a myriad of roles within the Excel group. Like his wife, he was an enthusiastic client representative with over 100 clients. He drafted investor relations material for one of the companies making the private placements. He prepared the Investors Updates that were regularly mailed to the clients of Excel Asset. He evaluated companies that were seeking funds and made investment recommendations to Stanhiser. He was responsible for administrative duties in Excel Asset’s Vancouver office when Stanhiser was not there. He had signing authority for Excel Asset’s bank account during much of the period from 1995 to 1997.
Knowlton opened an account at Canaccord over which he eventually gave Stanhiser full authority. This account, like those of the Excel companies, was used as a vehicle for the distributions. We found that Knowlton would have had the wisdom and prudence not only to keep track of what Stanhiser was doing through his account, but to recognize the true nature of the Excel investment scheme.
Accordingly, we consider it to be in the public interest to order:
1. under section 161(1)(c) of the Act, that the exemptions described in sections 44 to 47, 74, 75, 98 or 99 do not apply to Knowlton for a period of ten years;
2. under section 161(1)(d)(ii) of the Act, that Knowlton is prohibited from becoming or acting as a director or officer of any issuer for a period of ten years;
3. under section 161(1)(d)(iii) of the Act, that Knowlton is prohibited from engaging in investor relation activities for a period of ten years;
4. under section 162 of the Act, that Knowlton pay an administrative penalty in the amount of $20,000; and
5. under section 174 of the Act that Knowlton pay 20% of the prescribed fees or charges for the costs of or related to the hearing incurred by, or on behalf of, the Commission and the Executive Director.
Gary Stanhiser
Gary Stanhiser was the mastermind of the Excel investment scheme, through which he perpetrated a serious fraud on investors in British Columbia. He orchestrated the incorporation of the Excel companies and was president, secretary and sole director of Excel Asset. Though he was not an officer or director of any of the remaining three companies, as protector of the trusts that owned them, he had effective control over their affairs.
Stanhiser also established the procedures under which the distributions were made. When he was in Vancouver, he administered the Excel Asset office there. He recruited both Del and Linda Knowlton and gave instructions to the client representatives. He coordinated the investor seminars and provided the closing, and in many cases, welcoming remarks; he also had individual conversations with the clients present. He approved the Investors Updates before they were mailed to clients. He attempted to characterize the money invested by clients as loans to the Excel companies rather than as investments in the companies making the private placements.
Stanhiser reviewed the investment recommendations made by Knowlton and decided in which private placements clients should invest. He negotiated the terms of those private placements with the issuing companies. In one private placement, he was the actual purchaser of the shares. He introduced the accounts of the Excel companies to Canaccord. Through others, he gave trading instructions on the Diomondmark and Excel Funding accounts. He had full authority over Knowlton’s account and gave instructions on that account as well. He authorized the transfer of shares between accounts. In effect, Stanhiser had final say over which shares were purchased and to whom those shares were ultimately delivered. The vast majority of those shares were never delivered to the clients of Excel Asset, but remained under Stanhiser’s control.
Accordingly, we consider it to be in the public interest to order:
1. under section 161(1)(c) of the Act, that the exemptions described in sections 44 to 47, 74, 75, 98 or 99 of the Act do not apply to Stanhiser for the rest of his life;
2. under section 161(1)(d)(ii) of the Act, that Stanhiser is prohibited from becoming or acting as a director or officer of any issuer for the rest of his life;
3. under section 161(1)(d)(iii) of the Act, that Stanhiser is prohibited from engaging in investor relations activities for the rest of his life;
4. under section 162 of the Act, that Stanhiser pay an administrative penalty of $100,000; and
5. under section 174 of the Act, that Stanhiser pay 75% of the prescribed fees or charges for the costs of or related to the hearing incurred by, or on behalf of, the Commission and the Executive Director.
We direct Commission staff to file an application for costs with the Commission on or before April 7, 2000.
DATED March 20, 2000.
FOR THE COMMISSION
Adrienne R. Wanstall Roy Wares
Member Member
Diane K. Wolch
Member