Decisions
JOHN TERRANCE PYPER [Hearing]
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BCSECCOM #:
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Document Type:
Hearing
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Published Date:
2000-03-31
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Effective Date:
2000-03-24
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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 JOHN TERRANCE PYPER
HEARING
PANEL: ADRIENNE R. WANSTALL1 MEMBER
1Adrienne Wanstall was unable to continue the hearing after December 15, 1999. No discussions about this hearing were held between Ms. Wanstall and the other panel members after December 15, 1999
JOHN K. GRAF MEMBER
ROY WARES MEMBER
DATES OF HEARING: DECEMBER 13-15, 1999
JANUARY 11-13, 17-19 and 21, 2000
DATE OF FINDINGS: MARCH 24, 2000
APPEARING: PATRICK D. ROBITAILLE FOR COMMISSION STAFF
JOHN T. PYPER FOR HIMSELF
TERRY J. PYPER WITH HIS FATHER
GERDA C. PYPER AND HIS MOTHER
FINDINGS OF THE COMMISSION
1. INTRODUCTION
This is a hearing under Section 161 of the Securities Act, R.S.B.C. 1996 c. 418, at which Commission staff sought orders against John Terrance Pyper for alleged contraventions of section 128 of the Act. The allegations are contained in a notice of hearing dated June 24, 1999 and are that “Pyper contravened section 128 of the Act as he used information which he obtained through his position with a portfolio manager for his own benefit or advantage”.
In the notice of hearing, the Executive Director asks the Commission to consider whether it is in the public interest:
- 1.1 to make an order under section 161(1)(c) of the Securities Act, R.S.B.C. 1996, c. 418 (the “Act”) that any or all of the exemptions described in sections 44 to 47, 74, 75, 98 or 99 of the Act do not apply to Pyper for a specified period of time;
1.2 to make an order under section 161(1)(f) of the Act that should Pyper seek registration under the Act, conditions be imposed upon his registration;
1.3 to make an order under section 162 of the Act that Pyper pay an administrative penalty;
1.4 to make an order under section 174 of the Act that Pyper pay the prescribed fees or charges for the costs of or related to the Hearing; and
1.5 to make any other orders as the Commission may deem appropriate in the circumstances…
At the outset of the hearing it was agreed by the parties that if we found that Pyper contravened the Act, the hearing would be reconvened to hear submissions on what orders should be made.
2. BACKGROUND
Pyper graduated from the University of British Columbia in 1996, with a Bachelor of Commerce degree. During the course of his studies, he was selected from a large group of applicants to join an elite group of seven students to participate in the UBC Portfolio Management Foundation program. Students in this program are asked to manage the investment of a significant sum of money (currently in excess of $2 million) belonging to the Portfolio Management Foundation. Senior members of the business community, largely investment professionals, monitor their activities and are mentors. Other business executives act as mock clients. The principal objective of the program is to train the students in the field of portfolio management.
In the course of the program, students also work in the offices of investment management firms, generally full time during their summer vacations, but also part time during the school term. While in the program, Pyper worked at three firms, one being Deans Knight Capital Management Ltd.
Wayne Deans, one of the two founding members of the Vancouver based firm, Deans Knight, has been active in the UBC Portfolio Management Foundation program since its inception in 1986. As a result of Deans meeting Pyper while he was in the program, Deans offered Pyper summer employment at Deans Knight in 1994. This led to Pyper being hired full time by Deans Knight in 1996. Deans Knight was, at the time, and is today, registered under the Act as a portfolio manager. Pyper has never been registered under the Act in any capacity.
Soon after he commenced full time employment at Deans Knight, Pyper enrolled in the Chartered Financial Analyst (“CFA”) program sponsored by the Association for Investment Management and Research (“AIMR”). AIMR is an international organization that offers programs to educate and examine investment managers. It also develops standards of professional conduct for its members. A CFA designation is well recognized in the industry and most investment professionals obtain such a designation. Deans does not have a CFA designation, he believes his hands on experience compensated for the formal studies, however, Doug Knight, Deans’ partner, does have a CFA designation.
Included in the CFA course material is an extensive review of a code of ethics that investment professionals are expected to follow. Pyper completed this section of the CFA program early in his tenure at Deans Knight.
While Pyper worked at Deans Knight, the firm managed investment portfolios for high net worth individuals and for institutional clients such as pension funds and mutual funds. They were also an investment manager for a so-called “wrap” program operated by Scotia McLeod Inc., an investment dealer. These investment portfolios are referred to in these findings as “the Deans Knight accounts”.
The wrap program operated similar to a mutual fund, except that the wrap clients held investments directly, rather than holding units in a mutual fund that held the same stocks. Deans Knight determined the actual investments to be made by each client and did so in a manner that attempted to ensure that the wrap clients held the same stocks, and in the same proportions, as the other Deans Knight clients who gave the firm a similar mandate. This was termed the “model portfolio”.
Deans Knight’s equity investments tended to be in smaller, “growth” companies, rather than large, mature companies. One of the attributes of their equity investment style was that they were generally a “buy/hold” type of investor, not one that trades positions regularly. Their fixed income investments were generally in the high yield area of the market.
Pyper’s principal duties at Deans Knight were those of an equity investment analyst. It was his job to review equity investment opportunities for the firm and to make investment recommendations to Deans, who held exclusive responsibility at Deans Knight for all equity investments. He was also expected to monitor existing investments and make any recommendations he felt appropriate. Doug Knight was exclusively responsible for fixed income investments. In consequence, Pyper reported to and took instructions from Deans. Pyper also was responsible for the administration of the wrap program, which involved ensuring that the investments in the wrap accounts were reasonably well synchronized with the model portfolio.
Over time, Deans developed sufficient confidence in Pyper to permit him to give brokers instructions to execute securities trades on behalf of the firm. The decision to buy and sell securities always remained with Deans, but giving instructions to brokers for execution of the decisions frequently devolved to Pyper, at Deans’ discretion. Deans also regularly instructed brokers to make trades on behalf of the firm. Deans alone determined which brokers were to be allocated his firm’s equity trading business.
A relatively short time after Pyper joined Deans Knight, additional staff members were hired and, prior to the time most relevant to this hearing, being April and May, 1997, Jamie McKeough joined the staff, as did Sonia Gawlick. Additional support staff was also brought on board. Gawlick remains in the employ of Deans Knight. McKeough is employed elsewhere in the investment management industry.
Pyper and McKeough were both equity analysts, but they specialized in different sectors of the equity markets. Pyper concentrated on resource stocks, with McKeough taking other areas in the equity universe. While this was not a hard and fast allocation, in practice it evolved because the two analysts had different interests.
To facilitate communication, Deans, Pyper and McKeough worked at a single trading station comprised of three desks.
Gawlik concentrated primarily on the firm’s fixed income business but, a short while after her employment commenced, she was trained by Pyper to assist in administration of the wrap program. Her principal duties were to run the necessary computer programs that would enable her to advise Pyper of the names and quantities of stocks that were required to be bought or sold for the wrap accounts, in order to keep them in balance with the model portfolio.
Pyper had the authority to buy and sell securities for the wrap accounts, where they did not involve making new investment decisions, but instead involved rebalancing the wrap accounts to merely maintain the status quo. Rebalancing transactions also did not typically involve large amounts of securities. Ordinarily, Pyper would approve the wrap account trades and authorize Gawlick to execute them through brokers. Pyper would sometimes, however, execute the trades with the brokers himself. Trades for the wrap accounts were usually made through Scotia McLeod, since the program was sponsored and marketed by them. There were occasions, however, when Deans felt that more effective execution of the trades could be made by use of another broker, and that was done.
In 1994, Pyper opened a personal trading account at Scotia Discount Brokers Inc., the discount brokerage arm of Scotia McLeod Inc. In early April, 1997, Pyper applied to Scotia Discount for, and received, permission to conduct short sales in this account.
Short sales involve borrowing shares from a dealer and selling them, in the hopes that the price will decline. This allows the shares to be repurchased at a later time, at a lower price, thereby replacing the borrowed shares and earning a profit. The actual trades involved are the same as so-called “long” transactions with which most people are familiar, but the order is reversed. The most significant difference between short sale and long transactions, however, is that, because the short seller is selling something they do not own, the potential for loss is substantial. In the case of a long transaction, an investor’s loss is limited to the amount of their investment. Such is not the case with a short sale as the price of the stock could, theoretically, rise to an infinite price before the short seller could repurchase it. Short selling is regarded as a legitimate investment strategy, albeit one that is highly risky if the market does not share the short seller’s view.
Both Pyper and Deans testified that, in late 1996 and early 1997, the business climate for junior gold mining exploration stocks that formed a significant part of the Deans Knight portfolios, and for which Pyper had analytical responsibility, was deteriorating. This culminated in the March, 1997 through May, 1997 period, when a massive fraud involving Bre-X Minerals Ltd. was uncovered. Investors suffered losses on their Bre-X investments in the billions of dollars and negative sentiment spilled over into stocks of other mining exploration companies.
Against this backdrop, the transactions set out following were put in evidence before the panel.
3. THE TRANSACTIONS
Milltronics Ltd.
Milltronics Ltd. is a Canadian based electronics firm, which, at the relevant time, was engaged principally in the manufacture and distribution of ultrasonic measurement devices. Shares of Milltronics were held in various Deans Knight accounts in early 1997, including the wrap accounts.
Milltronics shares were not widely traded. In April, 1997, to and including April 23, a total of 33,491 Milltronics shares traded on the Toronto Stock Exchange, a daily average of 2,093 shares. On April 24, a total of 3,120 shares traded and on April 25, a total of 622,095 shares traded. Included in the total of 622,095 shares traded on April 25, were two block trades totalling 600,000 shares. Excluding the block trades, virtually all of the remaining shares traded after Pyper completed the trades referred to in the table below.
On April 24, 1997, Pyper and McKeough participated in a telephone call with an analyst who worked for a brokerage firm. During the call, the analyst advised them that Milltronics, at its annual general meeting that took place at 10:00a.m. that morning, (Eastern time), had announced news that he felt would likely be regarded in the market as negative. The call appears to have been placed soon after the annual meeting terminated.
After the telephone call with the analyst, Pyper initiated the following transactions in his personal account and in the Deans Knight accounts, all of which Pyper admits to having initiated:
| Date (1997) | Description | Account P = Pyper DK = Client | Time (Eastern Time) |
| April 24 | Pyper orders short sale of 1,000 shares at $33.50 | P | 1214 |
 | 1,000 shares sold short at $33.50 | P | 1319 |
| Pyper instructs Gawlick to sell 2,000 shares at $33.00 | DK | (unknown) |
| Gawlick gives order to Scotia McLeod to sell 2,000 shares at $33.00 | DK | 1507 |
| Scotia McLeod sells 1,100 shares at average price of $32.86 (Note 1) | DK | 1527 to 1558 |
| April 25 | Pyper gives order to Cannacord to sell 2,900 shares at $30.00 | DK | 0927 |
| Cannacord sells 2,900 shares at average price of $30.53 | DK | 0937 to 1025 |
| Pyper places order to cover short sale – 1000 shares at $30.25 | P | 1008 |
| Pyper revises order to cover to $30.00 | P | (Note 2) |
| Pyper buys 1,000 shares at $30.00 to cover short position | P | 1018 |
| Midland Walwyn buys 5,000 shares for $30.00 | DK | (Note 3) |
Notes:
1. The remaining portion of the order, being 900 shares, appears to have lapsed, unfilled, at the end of the day. No evidence was presented as to why the average selling price was less than the order price. We expect that Gawlick agreed to a change in the order, allowing the lower price.
2. The exact time is not certain, but it is known to be between 1010 and 1018.
3. The times of these purchases and the details of the orders were not placed in evidence.
On April 24, 1997, Pyper personally sold short 1,000 shares of Milltronics. Within two hours, he instructed Gawlick to sell 2,000 shares of Milltronics for the Deans Knight accounts. The next morning, Pyper ordered the sale of 2,900 shares of Milltronics for the Deans Knight accounts. While the 2,900 share order was being executed, Pyper purchased 1,000 shares to cover his short position. These shares were sold to Pyper from the 2,900 share block that he had put into the market.
Pyper put in the sell order for the Deans Knight accounts at $30.00, and initially put his cover order in at $30.25, reducing his bid to $30.00 within minutes. Again within minutes, Pyper had covered his short position at $30.00. The sell order was completed seven minutes later at an average price of $30.53, at prices ranging from $31.00 to $30.00.
Pyper made a profit, before transaction costs, of $3,500.
Pyper says he short sold the Milltronics shares in his personal account solely because of the information obtained from the analyst. He says the sales for the Deans Knight accounts are unrelated to his personal trades.
Pyper says that the 1,100 and 2,900 Milltronics shares sold for the Deans Knight accounts were transactions required to rebalance the wrap accounts. He says the shares purchased from Midland Walwyn were also for the wrap accounts. He maintains that Gawlick gave him a computer report on April 24, 1997 that indicated a necessity to sell wrap account shares on that date. He further states that the Milltronics shares sold on April 25, 1997 for the Deans Knight accounts were sold by him because he believed, mistakenly he says, they were required to be sold to complete the wrap account rebalancing transaction commenced on April 24, 1997. He also testified that Gawlick told him, late on April 25, 1997, that shares of Milltronics were required for the wrap accounts and thus he purchased, for the Deans Knight accounts, the shares offered by Walwyn.
The computer report to which Pyper refers, being the wrap account report of April 24, 1997, was not placed in evidence. Gawlick testified that she saved these particular records only for “about a week or so” and thus, if it existed, it would have been destroyed in the normal course. Scotia McLeod state that the computer system used to maintain the wrap account records is not capable of reproducing these particular records after “a number of days” have elapsed from their initial creation.
The evidence from Deans Knight’s internal records is that 2,900 of the shares sold and repurchased on April 25, 1997 were actually for the account of a mutual fund managed by Deans Knight. The block was sold and then repurchased through two separate brokers, neither of which was Scotia McLeod, which normally handled wrap account transactions and which handled the Milltronics sale executed by Gawlick.
Gawlick testified that the sale of Milltronics shares she executed for the Deans Knight accounts was in no way required to rebalance the wrap accounts – it was “a flip”, she said. Gawlick and Deans both testified that Pyper told them he initiated the sale of Milltronics shares because he was aware of negative news being disseminated by Milltronics and he felt the stock would decline in price, thus allowing Deans Knight clients to repurchase the shares at a profit.
A handwritten note from Pyper to Gawlick that says: “Sell 2000 at $33 MLS (we will try and buy it back at another time. This thing may decline shortly.)” corroborates the testimony of Gawlick and Deans. [MLS is the stock symbol for Milltronics.] Gawlick says this note confirms her verbal instructions from Pyper to sell the shares on April 24, 1997. Pyper is unable to satisfactorily explain the existence of the note. He says he does not recall giving it to Gawlick, but agrees that he wrote it.
Deans and McKeough both testified that they talked to Pyper at the time about the fact that the sale and repurchase of Milltronics shares initiated by Pyper for the Deans Knight accounts involved only a small fraction of the total Deans Knight holdings, and, as such, was a waste of time since any resulting profit was too small to influence client investment returns. Neither of them could understand why such a small quantity of Milltronics shares was sold and repurchased.
The panel heard evidence from Pyper that the following factors could cause transactions to be necessary for the wrap account. A client could join or leave the Deans Knight portion of the wrap program, existing clients could increase or decrease their commitment to the program, or the model portfolio could change. There was no evidence from anyone that the model portfolio changed and the evidence was that there was no significant change in the number of clients or in their dollar commitment.
Pyper asserts that no one with any expertise in trading shares would believe that the small sale of Milltronics shares made for the Deans Knight accounts could influence the market price of the Milltronics shares. In support of his assertion, Pyper says over 622,000 shares of Milltronics traded on April 25, 1997. We do not accept Pyper’s assertion. He chooses to ignore the fact that the average daily volume of Milltronics shares traded in April, prior to his short sale, was only 2,093 shares. He also fails to point out that he made his short sale of 1,000 shares and Gawlick sold 1,100 shares for the Deans Knight accounts on April 24, 1997, a day when only 3,120 shares traded. Finally, he does not account for the fact that virtually all of the trading in Milltronics on April 25, 1997 (other than one of the two large block trades referred to above) took place after he had completed the transactions for the Deans Knight accounts and for himself.
Given the circumstances on April 25, 1997, being the volume of shares Pyper put into the market and the manner in which he did it, we find that it could have been expected these actions would negatively influence the price of Milltronics shares in the market and Pyper would have known that.
Pyper told no one at Deans Knight about his personal trades in Milltronics, nor did he make any sort of file note about the issue. Knowledge of these trades came out later, after a series of other transactions.
Corriente Resources Inc. - #1
Corriente Resources Inc. is a company that, at the relevant time, was engaged in mineral exploration in South America. Shares of Corriente were held in various Deans Knight accounts in early 1997.
In May, 1997, to and including May 15, a total of 3.0 million Corriente shares traded on the Toronto Stock Exchange, a daily average of just under 277,000 shares.
Pyper says that, in early May, 1997, he became very negative on the prospects for Corriente and that he tried, unsuccessfully on a number of occasions, to convince Deans to sell the Corriente shares held in the Deans Knight accounts. In April, the stock price commenced a precipitous decline, after Corriente released unfavourable drilling results. It had reached a 52 week high of $19.50 in March 1997, but by May 16, 1997, after releasing further unfavourable drilling results, had fallen to $5.20. The reduced price also reflected the negative market sentiment for junior mining exploration stocks in general, resulting from the Bre-X fraud.
Pyper further says that, on May 16, 1997, he had became so negative on Corriente’s prospects that he placed an order in his personal account to short sell Corriente shares. He goes on to testify that, almost immediately after he short sold these shares, he was surprised to receive explicit instructions from Deans that he should sell the Corriente shares held in the Deans Knight accounts, which he says he did.
Following are details of the short sale and related cover in Pyper’s personal account and the transactions in the Deans Knight accounts that Pyper admits initiating, he says as a result of Deans’ instructions:
| Date (1997) | Description | Account P = Pyper DK = Client | Time (Eastern Time) |
| May 16 | Pyper orders short sale of 10,000 shares at $6.20 | P | 1315 |
| 1,000 shares sold short at $6.20 | P | 1333 |
| Pyper revises short sale order to 9,000 shares at $6.15 | P | 1340 |
| 7,200 shares sold short at $6.15 | P | 1343 to 1344 |
| 200 shares sold short at $6.15 | P | 1346 |
| Pyper gives order to Cannacord to sell 150,000 shares (Note) | DK | 1348 |
| Pyper gives order to Yorkton to sell 36,700 shares (Note) | DK | (unclear) |
| Yorkton sells 36,700 shares at average price of $5.62 | DK | 1350 to 1414 |
| Pyper gives order to Bunting Warburg to sell 150,000 shares (Note) | DK | (unclear) |
| Bunting Warburg sells 150,000 shares at average price of $5.42 | DK | 1349 to 1559 |
| Cannacord sells 150,000 shares at average price of $5.40 | DK | 1401 to 1512 |
| Pyper places order to cover short sale – 8,400 shares at $4.75 | P | 1508 |
| Pyper revises order to cover to 8,400 shares at $5.25 | P | 1536 |
| Pyper cancels balance of short sale order of 1,600 shares | P | 1537 |
| Pyper buys 8,400 shares at $5.25 to cover short position | P | 1549 |
Note: Orders appear to have been placed “at market”.
On May 16, 1997, Pyper personally sold short 8,400 shares of Corriente; 1,000 of which were sold at $6.20 and 7,400 of which were sold at $6.15. Minutes after completing the short sale of 8,400 shares, Pyper ordered three different brokers to sell, at market, a total of 336,700 shares of Corriente for the Deans Knight accounts.
While two of the sale orders, totalling 300,000 shares, were being filled, Pyper placed an order to cover his short sale at $4.75. When this order wasn’t successful, he revised it 28 minutes later to a price of $5.25. That order was filled 13 minutes later.
The sales of the shares for the Deans Knight accounts were finally completed 10 minutes after Pyper had covered his short sale. The average prices achieved by the three brokers were $5.62, $5.42 and $5.40.
Pyper made a profit, before transaction costs, of $7,610 (the notice of hearing says $7,600, the difference is assumed to be due to rounding).
Deans says he did not give Pyper specific instructions to sell the shares. Deans says he became sufficiently negative on junior mining exploration stocks in early 1997, in approximately the February, March period, to reduce their weighting in the Deans Knight accounts. Later, in approximately the April, May period, he concluded that the Corriente shares should be sold completely. He testified that, in this latter period, he had given Pyper standing authority to sell the Corriente shares, with the price and timing at Pyper’s discretion, at the appropriate time that would maximize the returns to the Deans Knight’s clients. Pyper maintains that he was never given authority as broad as this and that he would only act on very specific instructions. McKeough testified that he recalled Deans clearly telling Pyper, in May, 1997: “John, [you’ve/we’ve] got to get out of this crap”, and McKeough believes this description included Corriente specifically (together with another stock referred to later in this decision as Pacific Rim) and junior gold mining stocks generally. Exactly when in May, 1997, this conversation took place is unclear. It had to be on or before May 16, 1997, however, since on May 16, 1997, Pyper sold all of the Corriente shares held in the Deans Knight accounts. McKeough also corroborated Deans’ testimony that, once Deans had reached his decision to buy or sell, the equity analysts at Deans Knight were given authority to execute the transactions, at their discretion as to the timing and price of orders to place with brokers, within broad parameters.
The sale of shares for the Deans Knight accounts was initiated by Pyper through three separate brokers, rather than a single broker. Deans, McKeough and one of the selling brokers, Craig Millikin, all testified that was an unusual procedure to follow. Millikin said it could result in the market being given the mistaken impression that there was more than one seller and thus that there was competition among sellers. The result of this being that the price obtained could well be lower than it might if one broker were handling the sale. This is particularly so when the sell order is priced “at market”. He also testified that he recalls Pyper telling him, when he placed the order, that he was “not price sensitive”. McKeough said it would be unusual to use more than one broker since it confuses the process and you lose track of what you are doing. Deans testified that using more than one broker to sell a security “that’s not that liquid”, such as Corriente, was not normal, since it can work against getting the best price.
The sales of a total of 336,700 shares for the Deans Knight accounts on May 16, 1997, represented approximately 60 % of the total Corriente shares traded that day and were 120% of the daily average (to May 15) in May, 1997.
Given the circumstances on May 16, 1997, being the volume of shares Pyper put into the market and the manner in which he did it, through multiple brokers who were given “at market” orders (one of them also being told that Pyper was “not price sensitive”), we find that it could have been expected these actions would negatively influence the price of Corriente shares in the market and Pyper would have known that.
After Pyper placed the short sale order in his personal account, and before he placed the sale order he says he received from Deans, Pyper could have, but did not, attempt to first cancel the unfilled balance of his short sale, nor did he instruct his broker to cover his short sale at the then market price, nor did he advise anyone at Deans Knight of his short sale. Instead, he waited till after the client’s shares were in the market and then he placed an order to cover his short sale.
As indicated above, Pyper told no one at Deans Knight about his personal trades in Corriente, nor did he make any sort of file note about the issue. Knowledge of these trades came out later, after a series of other transactions.
Corriente Resources Inc. - #2
The evidence shows that in May, 1997, to and including May 21, a total of 3.9 million Corriente shares traded on the Toronto Stock Exchange, a daily average of just over 283,000 shares.
On May 21, May 22 and May 23, 1997, the following series of transactions occurred in Pyper’s personal account and in the Deans Knight accounts:
| Date (1997) | Description | Account P = Pyper DK = Client | Time (Eastern Time) |
| May 21 | Commission Direct buys 50,000 shares at average price of $4.99 | DK | (Note 1) |
| May 22 | Nesbitt Burns buys 50,000 shares at average price of $4.69 | DK | (Notes 1 and 2) |
| Pyper orders short sale of 10,000 shares at $4.80 | P | 0946 |
| Pyper revises short sale order to 10,000 shares at $4.50 | P | 1051 |
| 10,000 shares sold short at $4.50 | P | 1126 |
| Yorkton ordered to sell 50,000 shares (Note 3) | DK | 1207 |
| Pyper places order to cover short sale – 10,000 shares at $4.00 | P | 1208 |
| Yorkton sells 50,000 shares at average price of $4.43 | DK | 1221 to 1246 |
| Pyper revises order to cover to 10,000 shares at $4.25 | P | 1245 |
| Cannacord ordered to sell 50,000 shares (Note 3) | DK | 1249 |
| Cannacord sells 50,000 shares at average price of $4.32 | DK | 1250 to 1305 |
| Pyper revises order to cover to 10,000 shares at $4.30 | P | 1252 |
| Pyper buys 7,100 shares at $4.30 to cover part of short position | P | 1257 |
| Pyper revises order to cover to 2,900 shares at $4.15; Order expires unfilled at end of day | P | 1257 |
| May 23 | Pyper places order to cover short sale – 2,900 shares at $4.50 | P | 1016 |
| Pyper revises order to cover to 2,900 shares at $4.75 | P | 1339 |
| Pyper revises order to cover to 2,900 shares at $4.85 | P | 1440 |
| Pyper buys 2,900 shares at $4.85 to cover short position | P | 1502 to 1506 |
Notes:
1. The times of these purchases and the details of the orders were not placed in evidence.
2. The confirmation of sale contains conflicting information as to the exact date(s) of the trades. It is dated May 23, 1997 but is stated to be “as of 05/22/97”.
3. Orders appear to have been placed “at market”.
On May 22, 1997, Pyper personally sold short 10,000 shares of Corriente at $4.50. Approximately 40 minutes later that day, Pyper says, unknown to him, someone ordered the sale, at market, of 50,000 shares of Corriente for the Deans Knight accounts. Immediately after that sale was ordered, Pyper placed an order to cover his short sale at $4.00. The 50,000 shares for the Deans Knight accounts then sold for an average price of $4.43. One minute before the sale of these shares was completed, Pyper revised the price of his cover order to $4.25.
While Pyper’s order to cover his short sale was still outstanding, Pyper says, unknown to him, someone placed another order for the sale, at market, of an additional 50,000 shares for the Deans Knight accounts. Two minutes after this order was placed, Pyper revised the price of his cover order to $4.30 and, within five minutes he had purchased 7,100 shares. The order to sell 50,000 shares for the Deans Knight accounts was completed eight minutes after Pyper had purchased the 7,100 shares and, in fact, the 7,100 shares acquired by Pyper were from the block of shares being sold for the Deans Knight accounts.
Pyper later revised his order to buy the remaining 2,900 shares to a price of $4.15 but that was not successful and the order lapsed unfilled at the end of the day. The next day, as the market went against him, Pyper put in an order to buy at $4.50, which was later raised to $4.75, and then to $4.85, before it was filled.
Pyper made a profit, before transaction costs, of $400.
Pyper says that he did not conduct the trades for the Deans Knight accounts and he says he was unaware of their existence until well after he conducted the trades in his personal account. He claims that the fact the personal trades and the Deans Knight account trades were done so close together is a coincidence.
Deans says that, although he was in the office on May 21 and May 22, 1997, he did not conduct the trades for the Deans Knight accounts and, in consequence, Pyper must have. McKeough says he did not conduct these trades and either Deans or Pyper must have. No evidence was put forth from the brokerage firms as to who placed the orders.
As was the case in the first Corriente transaction, the Deans Knight account shares were sold through more than one broker; in this case, two brokers were used.
What is particularly unusual about the Corriente #2 trades is their relationship to other trades of Corriente shares that took place on what appears to be May 21, 1997 and May 22, 1997. On these dates, a total of 100,000 Corriente shares were purchased through two separate brokers for the Deans Knight accounts. It is these shares that were sold on May 22, 1997, through two brokers who did not participate in the purchase. Prior to these purchases, no Corriente shares were owned in the Deans Knight accounts, all of them having been sold by Pyper on May 16, 1997.
The sales of a total of 100,000 shares from the Deans Knight accounts on May 22, 1997 represented approximately 28% of the total Corriente shares traded that day and was 35% of the daily average (to May 21) in May, 1997.
Given the circumstances on May 22, 1997, being the volume of shares put into the market on that day, and the manner in which it was done, through two different brokers who were given “at market” orders, we find that it could have been expected these actions would negatively influence the price of the Corriente shares in the market and, if Pyper had executed all the trades for the Deans Knight accounts (as we find under “Issues of Credibility”), Pyper would have known that.
Pyper told no one at Deans Knight about his personal trades in Corriente, nor did he make any sort of file note about the issue. Knowledge of these trades came out later, after a series of other transactions.
Pacific Rim Mining Corp.
Pacific Rim Mining Corp. is a company that, at the relevant time, was engaged in mineral exploration in Latin America, principally in Argentina. Shares of Pacific Rim were held in various Deans Knight accounts in early 1997.
The evidence shows that in May, 1997, to and including May 22, a total of just under 862,000 Pacific Rim shares traded on the Vancouver Stock Exchange, a daily average of just over 57,000 shares.
Pyper says that, as with Corriente, he became negative on Pacific Rim in early May, 1997. Further he says he tried unsuccessfully at that time to persuade Deans to sell the Pacific Rim shares in the Deans Knight accounts. Also, like the Corriente situation, he became sufficiently negative on the prospects for the stock that he decided to personally short sell Pacific Rim shares on May 23, 1997.
He goes on to testify that, like Corriente #1, almost immediately after he short sold these shares, he was surprised to receive specific instructions from Deans that he should sell the Pacific Rim shares held in the Deans Knight accounts, which he says he did.
Following are details of the short sale and related cover in Pyper’s personal account and the transactions in the Deans Knight accounts that Pyper admits initiating, he says as a result of Deans’ instructions:
| Date (1997) | Description | Account P = Pyper DK = Client | Time (Eastern Time) |
| May 23 | Pyper orders short sale of 6,000 shares at $4.09 (Note 1) | P | 1316 |
| 3,000 shares sold short at $4.09 | P | 1317 |
| Pyper cancels remaining short sale order of 3,000 shares at $4.09 | P | 1340 |
| Pyper revises short sale order to 10,000 at $4.00 | P | 1340 |
| Pyper gives order to Salman Partners to sell 22,200 shares (Note 2) | DK | 1432 |
| Salman Partners sells 22,200 shares at $4.00 | DK | 1433 |
| Pyper gives order to Nesbitt Burns to sell 191,600 shares (Note 2) | DK | (unknown) |
| Nesbitt Burns sells 191,600 shares at average price of $3.49 | DK | 1438 to (Note 3) |
| Pyper cancels short sale order of 10,000 shares at $4.00 | P | 1511 |
| Pyper places order to cover short sale - 3,000 shares at $3.25 | P | 1511 |
| Pyper revises order to cover to 3,000 shares at $3.35 | P | 1530 |
| Pyper revises order to cover to 3,000 shares at market | P | 1620 |
| Pyper buys 3,000 shares at $3.58 to cover short position | P | 1622 |
Notes:
1. The transaction is shown in Scotia Discount’s historical records of orders at a price of $4.00. It must in fact be $4.09 since the actual sale took place at that price and the stock exchange records show the order being placed at $4.09.
2. Orders appear to have been placed “at market”.
3. The exact time Nesbitt Burns completed the sales is not known. The stock exchange records show that Nesbitt Burns sold a total of 194,100 shares on this date and that they had not sold 191,600 shares until after 1614.
On May 23, 1997, Pyper personally sold short 3,000 shares of Pacific Rim for $4.09 (the notice of hearing says 6,000 shares, but, at the hearing itself, the number alleged to be sold short was 3,000 shares. The evidence is clear that it was 3,000 shares). Some 23 minutes later, he placed an additional order to sell short 10,000 shares at $4.00.
Approximately 50 minutes later that day, Pyper ordered the sale, at market, of 22,200 shares of Pacific Rim for the Deans Knight accounts. The order was filled within a minute, at $4.00. Within six minutes of that order being placed, Pyper placed another order to sell, at market, 191,600 shares of Pacific Rim for the Deans Knight accounts.
During the period that the order for the sale of 191,600 shares was in the market, unfilled, Pyper cancelled his 10,000 share short sale order and placed an order to cover his 3,000 share short sale at $3.35. This was later revised to a price of “market” and was filled at $3.38. The sale of the 191,600 shares was completed at an average price of $3.49.
As a result of the transactions in Pyper’s personal account, he earned a gross profit, before brokerage and any other carrying costs, of $1,530 (the notice of hearing says $1,500, the difference is assumed to be rounding).
Deans says he did not give Pyper specific instructions to sell the shares. Deans says Pacific Rim falls into the same category as Corriente, in that he became sufficiently negative on junior mining exploration stocks in early 1997, in approximately the February, March period, to reduce their weighting in the Deans Knight accounts. Later, in May, he concluded that the Pacific Rim shares should be sold completely. He testified that he had told Pyper to sell the Pacific Rim shares, with the price and timing at Pyper’s discretion, at the appropriate time that would maximize the returns to the Deans Knight’s clients. Pyper maintains that he was never given authority as broad as this and that he would only act on very specific instructions. McKeough’s testimony on this issue is related above, under Corriente #1, and it corroborates Deans’ testimony.
Pyper initiated these sales for the Deans Knight accounts through two separate brokers.
Deans gave evidence that, on May 26, 1997, the brokers used by Pyper to effect the trades in the Deans Knight accounts made comments to him about the trades. One said Pyper was “heavy handed” in his trading by instructing the broker to “whack the bids”. The Salman Partners broker said he had told Pyper that he would buy more Pacific Rim shares at a price that turned out to be higher than the price Pyper later accepted from Nesbitt Burns.
The sales of a total of 213,800 shares from the Deans Knight accounts on May 23, 1997 represented approximately 67 % of the total Pacific Rim shares traded that day and were 375% of the daily average (to May 22) in May, 1997.
Given the circumstances on May 23, 1997, being the volume of shares Pyper put into the market and the manner in which he did it, through multiple brokers who were given market orders (one of them also being told to “whack the bids”), we find that it could have been expected these actions would negatively influence the price of Corriente shares in the market and Pyper would have known that.
After Pyper placed his orders to short sell the Pacific Rim shares and before he placed the sell order he says he received from Deans, Pyper could have, but did not, cancel the unfilled portion of his short sale, nor did he immediately instruct his broker to cover the short sale at the then market price, nor did he advise anyone at Deans Knight about his short sale. Instead, he waited till after the client shares were in the market and then he placed an order to cover the short sale. This order was at a specific price, which Pyper later revised downward. When this did not result in purchases, he subsequently placed the order at “market”, after which it was filled.
As indicated above, Pyper told no one at Deans Knight about his personal trades in Pacific Rim, nor did he make any sort of file note about the issue. Knowledge of these trades came out later.
4. POST TRANSACTION EVENTS
Pyper’s broker, Scotia Discount, noticed that Pyper was conducting frequent, very brief, generally same day, short sale transactions, the transactions were unusually successful (i.e., profitable), they tended to be larger in dollar amount than his buy transactions, and they involved small cap companies, which was not usual for their clients. They reviewed the client information that Pyper had provided them and noted that he worked for a portfolio manager. One of the Scotia Discount personnel owned shares in one of the mutual funds managed by Deans Knight and noticed that Pyper’s short sales included a “couple” of the companies owned by the fund. Concerned that there might be a connection between Pyper’s success rate and his place of employment, they first contacted Pyper and asked him if Deans Knight was connected with the sale of Pacific Rim shares on May 23, 1997, through a named broker. Pyper denied any connection with the sale, yet he now admits to having made the sale in question. Obviously, Pyper lied to Scotia Discount when he made this denial.
Not being satisfied with Pyper’s response, Scotia Discount later called Deans Knight and ultimately spoke with Deans. They advised Deans that an employee of Deans Knight was short selling Pacific Rim shares, and that there appeared to be institutional sales of Pacific Rim shares taking place during the same day.
Deans realized the individual was Pyper and called Pyper at his home, where he was studying for his CFA exam. He asked Pyper to authorize Scotia Discount to release his personal trading records. After a brief delay, Pyper did that and Scotia Discount released the information to Deans Knight.
Deans then asked the company accountant to correlate Pyper’s personal trading activity, obtained from Scotia Discount, with the trading in the Deans Knight accounts. Immediately, the issue of the four sets of transactions described above came to light.
Deans and his partner Doug Knight confronted Pyper with the information they had gathered. Deans testified that Pyper admitted that he had conflicts of interest with respect to the transactions. Shortly thereafter, Deans and Knight asked for Pyper’s resignation, which he refused to give. As a result, they terminated his employment.
At a later date, Pyper launched a wrongful dismissal suit against Deans Knight. This suit was ultimately settled out of court. During the course of the settlement negotiations, Pyper says he threatened Deans with public disclosure of a purported lax compliance environment at Deans Knight.
Included in the material that was submitted in evidence was an AIMR code of conduct recommendation that a person who earns profits in situations involving conflicts should immediately and voluntarily disgorge the profits. Deans says Pyper did not do so voluntarily and that withholding it from termination payments otherwise owing to Pyper effected the disgorgement. Pyper says he agreed to the disgorgement as it formed part of a voluntary settlement reached with Deans Knight. He further says he would have made the payment earlier but felt there were mitigating circumstances that arose from the compliance environment in which he worked. This same AIMR recommendation also called for the person in the troubled circumstances to “break the trade” and to report conflicts of interest to one’s employer.
5. SECTION 128 FINDINGS
Burden of Proof
Pyper asserts that the burden of proof in this case requires more than a balance of probabilities. This issue has been settled by the Commission in In the Matter of Capital Reserve Inc. et al, December 2, 1988 British Columbia Securities Commission Weekly Summary. On appeal that decision was confirmed by the Court of Appeal in a unanimous decision indexed as Rak v. B.C. (Superintendent of Brokers) (1990) 51 B.C.L.R. (2d) 27.
Accordingly, we reject Pyper’s assertion in this matter.
Issues of Credibility
Pyper asserts that the Milltronics transactions for the Deans Knight accounts were to rebalance the wrap accounts. Deans, Gawlick and McKeough all testified that Pyper told them his purpose in conducting the transactions was to earn a quick profit for clients. Pyper’s own note to Gawlick corroborates this testimony. The wrap account records indicated that there was no significant change in any of the elements that would cause a wrap account rebalancing to be necessary. The number of clients and their investment levels did not change, except in a minor way. There was no evidence of a change in the model portfolio. The practice was to use Scotia McLeod for transactions involving rebalancing the wrap accounts, however, Pyper used Scotia McLeod and two other brokers for the transactions in question. We find that the evidence that Pyper is not now telling the truth about the Milltronics transactions is overwhelming.We prefer the evidence of Deans, Gawlick and McKeough regarding the Milltronics transactions.We therefore find that on April 24 and 25, 1997, when Pyper effected the sales of the Milltronics shares in the Deans Knight accounts, he did so without any intention of rebalancing the wrap accounts.
Pyper asserts that, after he made his short sales of Corriente and Pacific Rim shares on May 16, 1997, and May 23, 1997, respectively, he received specific instructions from Deans to sell the Corriente and Pacific Rim shares in the Deans Knight accounts. Pyper would have us believe that this was a coincidence. Pyper did not, however, after receiving the instructions he says he received from Deans, cancel any unfilled portions of his short sales. Nor did he instruct his broker to cover his short position at market. Nor did he tell Deans, who he says was giving him his instructions, about the existence of his short sales. Instead, Pyper used multiple brokers to sell the shares for the Deans Knight accounts, a practice which we find hinders the ability of brokers to get the best price for shares by causing the price to be influenced by competing offers for sale. In the case of these sales, the situation was aggravated because the orders appear to have been placed at market. Furthermore, Pyper, in the case of Pacific Rim, told one of the selling brokers to “whack the bids” and refused an offer of a higher price from the other and, in the case of Corriente, told one of the brokers that he was “not price sensitive”. We find that Pyper’s conduct was inconsistent with obtaining the best prices for the Deans Knight accounts but was consistent with him covering his short sale for his benefit and advantage.
Deans testified that he did not give Pyper any instructions to sell Corriente and Pacific Rim shares on May 16, 1997, and May 23, 1997, and that, prior to May 16, 1997, Pyper had been given a mandate by him to sell Corriente and Pacific Rim shares on behalf of the Deans Knight accounts. Dean’s testimony is consistent with the fact it was not unusual for analysts at Deans Knight to be given such mandates and, more importantly, McKeough corroborated Deans’ testimony that Deans had given Pyper a mandate to sell Corriente and Pacific Rim shares. We find that Pyper’s version of what happened with respect to the Corriente #1 and Pacific Rim transactions is not believable. We prefer the testimony of Deans and McKeough. We therefore find that on May 16, 1997, and May 23, 1997, Pyper acted on his own, without specific instructions from Deans, when he sold the Corriente and Pacific Rim shares for the Deans Knight accounts.
Pyper asserts that he did not conduct the trades in the Corriente shares in the Deans Knight accounts on May 21, 22 and 23, 1997. Deans and McKeough testified that they did not buy or sell Corriente shares on those dates. When we examine the evidence on how the trades were conducted, we see that not only were four different brokers used, two on the buy side and two on the sell side, but also, the sales were made within a day or on the same day as the purchases, the sale orders appear to have been put in “at market” and a significant loss was incurred. This conduct was inconsistent with acting in the best interests of the Deans Knight accounts but was consistent with Pyper making a short sale and covering his position for his benefit and advantage. Further, it is clear to us that the market went against the strategy. Initially, the price declined and Pyper was forced to sell the Corriente shares for the Deans Knight accounts at prices that resulted in a significant loss. Then the price rose and Pyper was forced to increase his bid several times, finally covering his short sale at prices above his short sale price, just barely making money, before transaction costs, on the overall short sale transaction.
Pyper would have us believe it was a mere coincidence that, after he had conducted his short sale of Corriente shares on May 22, 1997, Deans conducted sales of Corriente shares for the Deans Knight accounts. The coincidence is alleged by Pyper to extend to the fact that it is mere chance his orders straddled the sale of the shares for the Deans Knight accounts. We find it incredible that Pyper asks us to believe that Deans would purchase shares of Corriente at a time when none were owned in the Deans Knight accounts and that Deans, who testified that using more than one broker to effect a transaction can work against getting the best price, would use four different brokerage firms to effect the purchases and sales.
We find that Pyper’s version of what happened with respect to the Corriente #2 transactions is not believable. We prefer the testimony of Deans and McKeough. We therefore find that on May 21 and May 22, 1997, Pyper effected all the trades of the Corriente shares for the Deans Knight accounts.
Pyper would have us believe that Deans and Gawlick have lied to the Commission. He says that Gawlick did so as a result of her employment at Deans Knight. Pyper says that Deans was motivated to lie because he attempted to use the Commission to further his ends in the lawsuit that Pyper initiated against Deans Knight. Pyper offers no evidence, except his testimony, that Deans and Gawlick lied. As to Gawlick’s testimony, it is corroborated by Deans and McKeough and by documentary evidence, including the note in Pyper’s handwriting. Deans’ testimony is corroborated by Gawlick and McKeough and other witnesses, and by documentary evidence. Deans’ and Gawlick’s testimony is also more consistent with what actually happened. We find that Pyper’s allegation that Deans and Gawlick lied is without foundation.
The Transactions
The allegations against Pyper are that, on four separate occasions during April and May 1997, he contravened section 128 of the Act. The relevant portions of section 128 are:
- A person who has access to information concerning the…investment portfolio managed for a client by a portfolio manager…must not use that information to purchase or sell securities…for the person’s benefit or advantage.
In the case of the Milltronics transactions, Pyper admitted that he instructed Gawlick to make the first sale of Milltronics shares from the Deans Knight accounts and that he personally conducted all the other transactions.
We have found that, in the Corriente #1 and Pacific Rim transactions, on May 16, 1997, and May 23, 1997, Pyper acted on his own, without specific instructions from Deans, when he sold the Corriente and Pacific Rim shares for the Deans Knight accounts.
Finally, we have found that, in the case of the Corriente #2 transactions on May 21 and May 22, 1997, Pyper effected all the trades of the Corriente shares for the Deans Knight accounts.
We find, therefore, that Pyper, as an employee of Deans Knight, and the person who ordered the sales from the Deans Knight accounts, in the Milltronics, Corriente #1, Corriente #2 and Pacific Rim transactions, was, under section 128 of the Act, “a person who ha[d] access to information concerning the…investment portfolio managed for a client by a portfolio manager”.
The remaining issue is whether Pyper “use[d] that information to purchase or sell securities…for [his] benefit or advantage”.
In each case, being the Milltronics, Corriente #1 and #2 and Pacific Rim transactions:
- Pyper’s short sales, but not the related covering, preceded placing the order for the sales of shares from the Deans Knight accounts. Clearly, Pyper intended that his short sale should benefit from the sales of shares from the Deans Knight accounts. He knew that the proper thing to do was to first close out his short sale, but he did not. Instead, Pyper covered his short position while the sale orders for the Deans Knight accounts were being filled.
- Given the circumstances, being the volume of shares Pyper put into the market, and the manner in which he did it, we have found that it could have been expected these actions would negatively influence the price of the shares in the market and Pyper would have known that. At this stage in his career, Pyper was sufficiently experienced to know that the price of the shares could be, and likely would be, influenced negatively by handling the sales in this fashion. We believe that, by conducting the sales for the Deans Knight accounts in this fashion, he deliberately set out to depress the price of the shares and enhance his profits from his short sale transaction.
- Pyper made a profit.
Accordingly, we find that, when Pyper covered his short positions in Milltronics on April 25, 1997, Corriente on May 16, 1997 and May 22, 1997 and Pacific Rim on May 23, 1997, he did so using, for his benefit and advantage, the information that he had ordered the sale of Milltronics, Corriente and Pacific Rim shares from the Deans Knight accounts.
Therefore, we find that Pyper contravened section 128 of the Act when he covered his short positions in Milltronics on April 25, 1997, Corriente on May 16, 1997 and May 22, 1997 and Pacific Rim on May 23, 1997.
Pyper's Defence
Pyper offers a number of items in his defence that are not essential for the panel to deal with. As Pyper is not represented by counsel, however, for his benefit, some of these items are discussed below.
He says, and we find, as follows:
- Pyper suggests that Scotia Discount breached a client confidence when they told Deans Knight about Pyper’s trades. We find that Scotia Discount’s conduct is irrelevant to these proceedings but point out that it is a registrant’s duty to investigate suspicious trading activities.
- Pyper asserts that Commission staff did not perform adequate work to assess the credibility of the witnesses who were employed by Deans Knight, being Deans and Gawlick. Where appropriate, we have already made findings on credibility and we believed Deans’ and Gawlick’s testimony whenever their testimony differed from Pyper’s. We are satisfied that Deans and Gawlick told the truth at this hearing.
- Pyper asserts that the Scotia Discount documents placed in evidence, and which account for an important part of the documentary evidence in support of the allegations, were not accurate and should not be relied upon. Pyper claims that some minor errors in the Scotia Discount documents placed in evidence at the hearing are sufficient to seriously question the overall reliability of the documents. There was nothing put before us that contradicted the important pieces of evidence, being the descriptions, dates and times of the transactions in question. Rather, the documents produced from the Toronto Stock Exchange and the Vancouver Stock Exchange corroborated these important pieces of evidence. Therefore, we find no support for Pyper’s assertion.
- Pyper asserts that Deans and Gawlick lost or destroyed documentary evidence that would support his assertion that the sales of Milltronics shares from Deans Knight accounts were required under the wrap program and he infers this was done deliberately. Pyper produces no evidence in support of his assertion. The evidence actually produced was that Gawlick did not keep the reports, as a matter of course, beyond a week or so and the Scotia McLeod computer system could not reproduce them after a short period of time. If the report for April 24, 1997, ever existed, and we have only Pyper’s testimony that it did, Gawlick had no reason not to follow her usual practice and to destroy the report. We do not believe Pyper’s assertion. Furthermore, we find that it is irrelevant to these proceedings whether Pyper made the trades in the Deans Knight accounts to rebalance the accounts.
- Pyper asserts that the compliance environment at Deans Knight was inadequate to prevent employees from becoming inadvertently caught in conflicts of interest. Pyper’s suggestion that somehow the compliance practices at Deans Knight were responsible for the dilemma in which he finds himself is untenable and, in any event, irrelevant. More troublesome is that, by innuendo, Pyper suggests that other Deans Knight personnel engaged in improper trading practices. He offers nothing in the way of evidence to support his inferences and we therefore dismiss them. By the relevant time, Pyper had completed the portion of the CFA course dealing with ethical behaviour. He did not follow the AIMR recommended procedures of disclosing apparent conflicts to his employer, nor did he attempt to break the trades, nor did he immediately volunteer to disgorge his profits. Deans testified that Pyper had the responsibility at Deans Knight for distributing to new employees an internal memorandum prepared by Pyper that summarized key AIMR code of conduct recommendations, together with the recommendations themselves. Gawlick recalled receiving this information from Pyper when she commenced employment there and McKeough testified that he received at least the AIMR code of conduct recommendations from Pyper when he began his employment at Deans Knight. We find that there is overwhelming evidence Pyper knew all about the AIMR code of conduct recommendations and we also find that it is incomprehensible he now blames his former employer for his own shortcomings in not following these recommendations.
- Pyper made much of his allegation that there was no program at Deans Knight to sell junior mining exploration stocks, and in particular, Corriente and Pacific Rim. Pyper claims that Deans had not given him general authority to sell these positions but, instead, gave him specific instructions to make the sales on same dates as he executed the sales of Corriente and Pacific Rim shares for the Deans Knight accounts. He appears to believe that, in the absence of a sale program, or the granting of general authority, he could not be found to have contravened section 128 of the Act. Such is not the case. Even if Pyper’s assertion were true that there was no program and Pyper had not been given general authority but, instead, Deans had given Pyper specific instructions to sell Corriente and Pacific Rim after Pyper had sold short, Pyper’s actions thereafter still brought him within the ambit of section 128. To avoid the applicability of this section, Pyper would have had to first eliminate his short position before he instructed the brokers to sell the shares for the Deans Knight accounts. In the case of Milltronics, if his allegation had been true that the sales for the Deans Knight accounts were necessary to rebalance the wrap accounts, he would still have had to eliminate his short position before he commenced selling for the Deans Knight accounts. His failure to do so in each case, coupled with his actions to maximize his profits from the short sales after having placed the sell orders for the Deans Knight accounts, where the execution of the sell orders could have been expected to negatively influence the market, would still have constituted contraventions of section 128 in the case of the Milltronics, Corriente #1 and Pacific Rim transactions, had they occurred in the circumstances alleged by Pyper. Regardless, Pyper effected these trades in the Deans Knight accounts and we find that it is irrelevant whether he did so with general or specific instructions, or, indeed, without instructions.
- Pyper left virtually no one untouched in his attempt to defend himself by challenging the actions and the credibility of others. Both this Commission and Scotia Discount were accused of not carrying out their duties properly. Deans and Gawlick were accused of lying. Pyper intimated that Deans and Gawlick suppressed evidence. Deans Knight was accused of lax compliance practices and Pyper inferred that Deans Knight employees were engaged in improper trading. While Pyper says McKeough was not lying, to accept Pyper’s view of these transactions one has to assume that Pyper is saying McKeough’s memory was quite poor. We find that the systematic attempts by Pyper to denigrate the testimony and conduct of others, without having a shred of evidence to support his position, are quite inappropriate.
6. ORDERS
We have found that the Pyper contravened section 128 of the Act on four separate occasions. The parties may make submissions prior to the Commission determining what orders ought to be made in the public interest. If the parties wish to make oral submissions, they are asked to make a request to the Secretary of the Commission by March 31, 2000, and a date in April for oral submissions will be fixed. If the parties wish to make only written submissions, we direct Commission staff to file their submissions with the Secretary of the Commission and to send a copy of them to Pyper by April 7, 2000. Pyper will have until April 21, 2000 to file his written submissions with the Secretary of the Commission and to send a copy to Commission staff.
DATED March 24, 2000.
FOR THE COMMISSION
John K. Graf Roy Wares
Member Member