Decisions
PAUL ANTHONY STENNER [Decision]
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BCSECCOM #:
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Document Type:
Decision
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Published Date:
1998-01-23
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Effective Date:
1998-01-20
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Details:
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COR#98/014
IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, c. 418
AND
IN THE MATTER OF PAUL ANTHONY STENNER
HEARING
| PANEL: | DOUGLAS M. HYNDMAN | CHAIR |
 | PETER A. MANSON,Q.C. | MEMBER |
| DIANE K. WOLCH | MEMBER |
| DATE: | NOVEMBER 3, 1997 |
| APPEARING: | JAMES A. ANGUS | FOR COMMISSION STAFF |
| STEPHEN ZOLNAY | |
DECISION OF THE COMMISSION
1. INTRODUCTION
This decision relates to a hearing under section 161 of the Securities Act, R.S.B.C. 1996, c. 418. On September 12, 1997, the Executive Director issued temporary orders and a notice of hearing against Paul Anthony Stenner. The temporary orders, under section 161(2) of the Act, required that Stenner resign any position he held as a director or officer of any issuer, prohibited him from becoming or acting as a director or officer and from engaging in investor relations activities and removed from him the application of the exemptions under the Act.
The hearing was originally scheduled for September 26, 1997. On that date, the hearing was adjourned to November 3 and the temporary orders were extended until the hearing was held and this decision rendered. The hearing proceeded on November 3, 1997. Stenner did not appear.
The notice alleges that Stenner, while registered as a mutual fund salesperson under the Act, took in excess of $500,000 from six clients and, in so doing contravened numerous provisions of the Act and the Securities Rules, R.B.C. Reg 194/97.
2. BACKGROUND
Stenner was registered under the Act as a mutual fund salesperson from February 1993 (or earlier) until February 1997. He operated from an office in Abbotsford. He was with Georgia Brokerage Inc. from February 1993 until May 1995 and then with Planvest Pacific Financial Corporation, which acquired Georgia, until August 1995. On September 1, 1995, he moved to Manulife Securities International Ltd. (“Manulife Securities”). Manulife Securities terminated his employment on February 11, 1997.
During this period, Stenner was also licensed in the province as a life insurance agent, first for Great West Life Insurance Company and latterly for Manufacturers Life Insurance Company (“Manulife Insurance”). It appears he operated his insurance agency business through his company, Paul Stenner Insurance Services Inc. His life insurance license was terminated by Manulife Insurance on March 26, 1997.
Stenner’s Clients
The evidence before us relates to Stenner’s dealings with six clients. We received oral evidence from Linda Milani, an investigative assistant with the Commission’s Enforcement Division, and documentary evidence, including records of related criminal proceedings against Stenner and complaint letters and signed statements from the six clients.
Estate of Ann Valerie Pritchard
In August 1993, Anne Gillian Fennellow and Mary Jane Dodds became co-executors of the estate of Anne Valerie Pritchard. The estate, valued at about $115,000, was to be invested to produce income for the beneficiary, the deceased’s mother Sheila Pritchard. They invested the money in a mutual fund. Some months later, Stenner persuaded Fennellow and Dodds he could earn a better return for the estate. On his advice, they redeemed the mutual fund investment and had the proceeds paid to Stenner. Without informing Fennellow and Dodds and without their approval, Stenner invested the estate funds in Specialized Surgical Services Inc., a speculative venture also known as the “Croft Clinic”. Stenner had the investment recorded in his own name, not the name of the estate. After Fennellow and Dodds discovered in September 1996, from the estate’s tax accountant, what the funds had been invested in, they attempted to get an explanation from Stenner. After avoiding them for two months, he assured them everything would be all right, but he never, despite repeated requests, produced documentation for the investment.
John LeRuyet
John LeRuyet is about 70 years of age. About 3 years ago, in December 1994 or January 1995, he transferred his mutual fund account from another dealer to Stenner. On Stenner’s advice, he redeemed his mutual fund holdings of about $133,000 in order to purchase a $500 per month annuity from Great West Life. In February 1995, LeRuyet provided a cheque payable to Paul Stenner Insurance Services Inc. to pay for the annuity. Although LeRuyet received monthly deposits of $500 into his bank account, which he thought were from the annuity, he learned in March 1997 that Great West Life had no record of the annuity. Separately, LeRuyet loaned Stenner $5,000 in November 1995 for an unspecified purpose and, although the interest rate was supposedly 10%, Stenner paid him back $8,000 in April 1996. Beginning in May 1996, LeRuyet gave Stenner $20,000, in 3 installments, to purchase 25,000 shares in the Croft Clinic. He never received any share certificates for this investment.
Martin Schroeder
Martin Schroeder began investing in mutual funds through Stenner in 1992 and he and Stenner later became friends. In June 1995, Stenner recommended that Schroeder redeem some funds, for proceeds of $21,700 (which reflected a loss on the original investment in these funds), and invest this amount in the Croft Clinic. Stenner told Schroeder he was director of finance for the Clinic and that, because Schroeder had lost on the funds, Stenner would sell him a $25,000 investment in the Croft Clinic for $21,700. Schroeder’s investment has been acknowledged by the Clinic. In September 1995, Schroeder decided to redeem his remaining mutual funds to purchase a $600 per month annuity. He gave Stenner a cheque for $215,000 payable to Paul Stenner Insurance Services Inc. to purchase the annuity, purportedly from Manulife Insurance. Although Schroeder received monthly deposits of $600 into his bank account, which he thought were from the annuity, he learned in March 1997 that Manulife Insurance had no record of his annuity.
Helen Sclar
John Sclar has known Stenner since 1989 and began investing through Stenner in 1991. In November 1992, John Sclar got his mother Helen Sclar to invest in a mutual fund through Stenner. She invested an additional amount through Stenner in the same fund in June 1995. In February 1997 she arranged to invest $20,000, which she had previously paid to Paul Stenner Insurance Services Inc., in Manulife Insurance guaranteed investment funds. (There was no evidence as to whether these were securities or insurance products. Since they were to be sold by Manulife Insurance, we presume they were segregated funds, which might have been structured as insurance products rather than securities.) In March 1997, John Sclar learned that Manulife Insurance had no record of the investment.
Christine Lamb
Christine Lamb had a retirement fund with Great West Life. In 1993 or 1994, Great West gave her file to Stenner. Lamb and her husband met with Stenner and transferred some $200,000 from other investments to Great West. In September 1996, after her husband had died, Lamb arranged to invest $35,000 through Stenner in Great West funds. (Although Lamb’s witness statement described these as mutual funds, we presume they were segregated funds.) She gave Stenner two cheques totalling $35,000 payable to Paul Stenner Insurance Services Inc. She later contacted Stenner when the investment did not appear on her Great West account statement. He said he would contact them to have it corrected. In March 1997, Lamb learned that Great West had no record of the investment.
John Ellis
John Ellis and his wife were clients of Stenner. In September 1996, they agreed, on Stenner’s advice, to invest in the Croft Clinic. They gave Stenner a cheque for $10,000 payable to Paul Stenner Insurance Services Inc. They did not receive any share certificates despite making frequent requests to Stenner. Finally, in April 1997, Stenner told them the investment was “gone”. Croft Clinic advised them that it had no record of their investment.
Criminal Charges
3. FINDINGS
Commission staff allege that Stenner breached a number of sections of the Act and the Securities Rules, R.B.C. Reg. 194/97. The alleged contraventions include:
- engaging in transactions relating to trades in securities that perpetrated a fraud on his clients (Act section 57);
- failing to deal fairly, honestly and in good faith with his clients (Rules section 14);
- acting as an adviser without being registered (Act section 34(1)(c));
- making a misrepresentation with the intention of effecting a trade in a security (Act section 50(1)(d));
- failing to send his clients confirmations of the purchases and sales of securities he made on their behalf (Rules section 36);
- falsifying records required to be sent to clients under sections 36 to 38 of the Rules;
- failing to ensure that investments were suitable for clients (Rules section 48).
In our view, the first two allegations listed are the substantial ones here. Our findings are focused on them. The other alleged contraventions are, in this context, technical breaches that are subordinate to the main allegations.
The relevant legislative provisions are as follows:
- Section 57 of the Act
A person must not, directly or indirectly, engage in or participate in a transaction or scheme relating to a trade in or acquisition of a security … if the person knows, or ought reasonably to know, that the transaction or scheme … perpetrates a fraud on any person in British Columbia …
Section 14 of the Rules
(1) A registrant must deal fairly, honestly and in good faith with the clients of the registrant.
(2) A registered
- (a) salesperson,
(b) trading partner, director or officer,
(c) advising employee, or
(d) advising partner, director or officer
of a dealer or adviser must deal fairly, honestly and in good faith with the clients of the dealer or adviser.
The evidence shows that Stenner received money belonging to each of the clients and represented to each of them that he had carried out their instructions to invest it on their behalf. In each case, he converted a substantial sum, apparently for his own use, as summarized below:
- Estate of Ann Valerie Pritchard — Stenner persuaded the executors to redeem a mutual fund investment and then he invested the money, some $115,000, without authorization and in his own name, in shares of the Croft Clinic.
- John LeRuyet — Stenner advised LeRuyet to redeem his mutual fund investment of about $133,000 and, while purporting to invest it in an insurance product, misappropriated it. Stenner also accepted $20,000 from LeRuyet purportedly for investment in shares of the Croft Clinic, and misappropriated the money.
- Martin Schroeder — Stenner accepted $215,000 from the redemption of Schroeder’s mutual fund investment and, while purporting to invest it in an insurance product, misappropriated it.
- Helen Sclar — Helen Sclar had been Stenner’s client for several years and had invested in a mutual fund through him. Stenner accepted $20,000 from her for investment in an insurance product. Instead, Stenner misappropriated the $20,000.
- Christine Lamb — Lamb had been Stenner’s client for several years and had made substantial investments in insurance products through him. Stenner accepted $35,000 from her for investment in an insurance product and misappropriated it.
- John Ellis — Ellis and his wife were clients of Stenner. Stenner advised them to invest in shares of the Croft clinic. He accepted $10,000 from them for that purpose and misappropriated it.
In pleading guilty to the criminal charges, Stenner has admitted that he perpetrated a fraud on each of the clients. We find that, for those frauds that were related to trades in securities, namely the frauds against the Estate of Ann Valerie Pritchard, John LeRuyet, Martin Schroeder and John Ellis, Stenner contravened section 57 of the Act.
Stenner was a registrant under the Act and was obliged to deal fairly, honestly and in good faith with his clients. Instead, he dealt with them unfairly, dishonestly and in bad faith. We find that, in his dealings with the six clients described above, Stenner contravened section 14 of the Rules.
4. DECISION
Stenner’s conduct in this matter was despicable. He stole substantial sums totalling $555,000 from clients who came to him for advice on their investments. In some cases he took the life savings of elderly clients. In one case he borrowed $5,000 from a client, which is an inappropriate practice for a registrant, and then repaid the client $8,000 within a few months. The payment of this exorbitant return to the client helped Stenner win the client’s confidence and allowed Stenner to obtain $20,000 from the client, which Stenner then converted to his own use,
Stenner utterly abused his position as a registrant and the trust his clients placed in him. As a result, he is now in jail and has been ordered to pay $535,000 in restitution. The clients, many of them elderly, have lost substantial sums that they thought were invested safely. Stenner must not be permitted to prey on the investing public again.
Accordingly, we consider the following orders to be in the public interest. We order:
- 1. under section 161(1)(c) of the Act that the exemptions described in sections 44 to 47, 74, 75, 98 and 99 do not apply to Stenner for a period of 30 years from the date of this decision;
2. under section 161(1)(d)(ii) of the Act that Stenner is prohibited from becoming or acting as a director or officer of any issuer for a period of 30 years from the date of this decision;
3. under section 161(1)(d)(iii) of the Act that Stenner is prohibited from engaging in investor relations activities for a period of 30 years from the date of this decision;
4. under section 162 of the Act that Stenner pay an administrative penalty of $60,000;
5. under section 174 of the Act that Stenner pay prescribed fees or charges for the costs of or related to the hearing, in the amount of $1,000 for the one day hearing.
DATED at Vancouver on January 20, 1998.
FOR THE COMMISSION
| Douglas M. Hyndman | Peter A. Manson, Q.C. |
| Chair | Member |
| Diane K. Wolch |
| Member |