Notices of Hearing & Temporary Orders
IDF FINANCIAL SERVICES INCORPORATED, et. al. [Temporary Order and Notice of Hearing]
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BCSECCOM #:
2001 BCSECCOM 495
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Document Type:
Temporary Order and Notice of Hearing
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Published Date:
2001-05-10
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Effective Date:
2001-05-03
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Details:
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2001 BCSECCOM 495
IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, C. 418
AND
IN THE MATTER OF IDF FINANCIAL SERVICES INCORPORATED., 557515 B.C. LTD. carrying on business as COMPREHENSIVE HOLDINGS, COMPREHENSIVE FINANCIAL SERVICES INC. AND CAPITAL FINANCIAL SECURITIES INC.
(COLLECTIVELY, THE “CORPORATE RESPONDENTS”)
AND
IN THE MATTER OF MARK CRAMER, MICHAEL CRAMER, GORDON PATTERSON, JAMES FORTIN, ROD ALBERS, AL SANDERSON, MIKE FLYNN, ROGER OLLENBERGER, PETER JAMES AND DEBBIE HANRAHAN
(COLLECTIVELY, THE “INDIVIDUAL RESPONDENTS”)
Temporary Order and Notice of Hearing Under Section 161
[para 1]
1. TAKE NOTICE that a hearing (the “Hearing”) will be held to give the Corporate Respondents and the Individual Respondents an opportunity to be heard before the British Columbia Securities Commission (the “Commission”) considers whether it is in the public interest to make the following orders:
1.1 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 the Corporate Respondents and Individual Respondents;
1.2 under section 161(1)(d) of the Act that the Individual Respondents resign any position they may each hold as a director or officer of any issuer and each be prohibited from becoming, or acting as, a director or officer of any issuer;
1.3 under section 161(1)(e) of the Act that the Individual Respondents each be prohibited from engaging in any investor relations activities;
1.4 under section 161(1)(f) of the Act that the registration of IDF Financial Services Incorporated (“IDF”) and each of the Individual Respondents be cancelled;
1.5 under section 162 of the Act that each of the Corporate Respondents and the Individual Respondents pay an administrative penalty;
1.6 under section 174 of the Act that each of the Corporate Respondents and Individual Respondents pay the prescribed fees or charges for the costs of, or related to, the Hearing; and
1.7 any other orders as may be appropriate in the circumstances.
[para 2]
2. The Commission will be asked to consider the following facts and allegations:Parties
2.1 557515 B.C. Ltd. was incorporated in British Columbia on January 13, 1998, and is referred to by its directors and officers as Comprehensive Holdings (the “Holding Company”). The shareholders of the Holding Company are: Mark Cramer (30%); Florence Cramer (30%); Michael Cramer (30%); Grant Cramer (5%); and Jeremy Yaseniuk (5%).
2.2 IDF was incorporated in British Columbia on March 28, 1990, and is a securities dealer registered under the Act. The Holding Company has owned 100% of IDF since June, 1998.
2.3 River Ranch Resort Corp. ("Ranch Private Co.") was incorporated in British Columbia on November 4, 1996. Mark Cramer holds 95% of the issued and outstanding common shares of Ranch Private Co. Its purported business is to construct and operate a guest ranch and tourist destination resort on approximately 3,942 acres of land southeast of Vanderhoof, British Columbia (the “Property”).
2.4 River Ranch Resort (VCC) Corp. (“Ranch VCC”) and River Ranch Resort (VCC II) Corp. (“Ranch #2 VCC”) are companies registered under the Small Business Venture Capital Act, R.S.B.C. 1996, c. 429, and are each non-reporting issuers that have filed offering memoranda with the Commission.
2.5 Capital Financial Securities Inc. (“Capital”) was incorporated in British Columbia on March 8, 1996. It appears that 100% of Capital is owned by Florence Cramer.
2.6 River Ranch Limited Partnership (“Cow–Calf LP”) was formed as of November 12, 1998, as a limited partnership under the Partnership Act, R.S.B.C. 1996, c.348. Cow–Calf LP has contracted with Ranch Private Co. to lease all of Ranch Private Co.’s farming lands, buildings, equipment and cattle for a fee of $450,000 per year. Capital is the general partner of Cow-Calf LP and provides it with management services for a fee of $100,000 per year.
2.7 River Ranch Financial Corp. (“FinCorp”) was incorporated in British Columbia on December 11, 1997. River Ranch Capital Corp. (“CapCorp”) was incorporated in British Columbia on December 5, 1997. Cow-Calf LP, FinCorp and CapCorp are non-reporting issuers that have filed a joint offering memorandum with the Commission.
2.8 Strategic Concepts Investment Trust (“Strategic Trust”) was formed by way of settlement in British Columbia on November 19, 1998. It is a non-reporting issuer that has filed an offering memorandum with the Commission. Funds raised under the offering memorandum are to be invested at the discretion of its trustee. Capital is the trustee of Strategic Trust. To date, Strategic Trust has invested in Ranch Private Co. and the companies discussed below at paragraphs 2.8.1 to 2.8.4:
2.8.1 Comprehensive Financial Services Inc. (“Planning Firm”) was incorporated in British Columbia on January 19, 1988. Planning Firm carries on a financial planning business out of the offices of IDF. All registered representatives employed by IDF are also financial planners with Planning Firm. The Holding Company owns 100% of Planning Firm.
2.8.2 AFP Securities Ltd. (“AFP”) was incorporated in British Columbia on February 8, 1994. The purported business of AFP is to negotiate leases for the Holding Company and to recruit individuals for employment at IDF and Planning Firm. The Holding Company owns 100% of AFP.
2.8.3 Prospero Entertainment Group Inc. (“Prospero”) was incorporated in British Columbia on June 21, 1999. The purported business of Prospero is the production of motion pictures. It appears that either the Holding Company or Capital owns 33% of Prospero.
2.8.4 McBride Forest Industries Ltd. (“McBride”) was incorporated in British Columbia on October 15, 1999. Its business is to operate a plywood veneer mill in the vicinity of McBride, British Columbia. McBride is 100% owned by 599768 B.C. Ltd., which was incorporated on January 20, 2000. It appears that as of June 28, 2000, 599768 B.C. Ltd. was owned by “A” shareholders and “D” shareholders. The “A” shareholders were: Strategic Trust (49%); Planning Firm (25.5)%; and Runtz Forest Management Ltd. (25.5%). The “D” Shareholders were: Strategic Trust (49.2%); Capital (20.6%); Runtz Forest Management Ltd. (20.6%); Jeremy Yaseniuk (5%); Grant Cramer (4.1%); and Michael Cramer, Gordon Patterson, Rod Albers, Al Sanderson, Mike Flynn, Roger Ollenberger, Peter James, Debbie Hanrahan, Hedy Schulz and John Kason (0.5%, in the aggregate).
2.9 Quantum Value Ventures (VCC) Corp. (“Quantum VCC”) was incorporated in British Columbia on December 30, 1999. It is a non-reporting issuer that has filed an offering memorandum with the Commission. Capital is the fund manager of Quantum VCC. To date, it appears that Quantum VCC has invested only in Prospero.
2.10 Mark Cramer is a director of each of the Holding Company, Capital, Planning Firm, Ranch Private Co., FinCorp, CapCorp, McBride and AFP. He is a registered representative with IDF and is a current or former branch manager and director of IDF. He is the controlling and majority shareholder of Ranch Private Co. He is a current or former president of Capital and the president of each of the Holding Company, Planning Firm, FinCorp, CapCorp, and AFP.
2.11 Michael Cramer is the son of Mark Cramer and is a director of each of the Holding Company, Planning Firm and AFP. He is a registered representative with IDF and is a current or former director of IDF. He is, or was, an officer of Strategic Trust and member of an advisory committee whose role is to oversee all business investments made by Strategic Trust.
2.12 Gordon Patterson is the father-in-law of Michael Cramer and is a registered representative with IDF.
2.13 James Fortin is the nephew of Mark Cramer and is a registered representative with IDF. He is, or was, an officer of Strategic Trust and a member of an advisory committee whose role is to oversee all business investments made by Strategic Trust.
2.14 Rod Albers is a registered representative with IDF. He is, or was, an officer of Strategic Trust and a member of an advisory committee whose role is to oversee all business investments made by Strategic Trust.
2.15 Mike Flynn is a registered representative with IDF and a director of McBride.
2.16 Al Sanderson, Roger Ollenberger, Peter James and Debbie Hanrahan are registered representatives with IDF.
Ranch VCC and Ranch #2 VCC Offerings - $ 4,949,000
2.17 Under three offering memoranda dated July 15, 1997, May 19, 1998, and April 19, 1999, respectively, Ranch VCC issued common shares, pursuant to which a total of $4,805,000 was raised.
2.18 Under an offering memorandum dated January 24, 2000, Ranch #2 VCC issued common shares, pursuant to which a total of $ 144,000 was raised as of July 30, 2000.
2.19 The terms and conditions of the Ranch VCC and Ranch #2 VCC offering memoranda were substantially the same. In each case, the net proceeds were to be invested in convertible preferred shares of Ranch Private Co. It appears that the securities of Ranch VCC and Ranch #2 VCC were sold exclusively by employees of IDF or Planning Firm.
2.20 All of the Individual Respondents sold securities of Ranch VCC or Ranch #2 VCC, or both.
2.21 Under the Ranch VCC and Ranch #2 VCC offering memoranda, the securities were offered for sale in reliance upon the prospectus exemptions contained in subsections 128(a) and 128(b) of the Securities Rules, B.C. Reg. 194/97 (the “Rules”). It appears that none of the exemptions under section 128 of the Rules was available in respect of some of the distributions made under these offerings because, among other things, the purchasers were not sophisticated and purchases were made for amounts of less than $25,000. Accordingly, those distributions appear to have been made contrary to section 61 of the Act.
2.22 The securities offered for sale by the Ranch VCC and Ranch #2 VCC do not appear to have been suitable for many of the subscribers, and therefore IDF and the Individual Respondents appear to have breached section 48 of the Rules in selling them.
2.23 The Ranch #2 VCC offering memorandum appears to contain false or misleading statements, contrary to sections 50(1)(d) and 168.1(1)(b) of the Act. It does not accurately represent the appraised value of the Property. It also falsely represents that a large hotel chain has been significantly involved in the design of a hotel proposed to be built on the Property.
Cow - Calf LP Offering - $ 4,917,500
2.24 Under an offering memorandum dated January 20, 1999, Cow-Calf LP offered to sell units and FinCorp and CapCorp each offered to sell bonds. The offering memorandum represented that proceeds from the sale of units were to be used to finance a cattle operation on the Property. Proceeds from the sale of bonds were to be used to finance the acquisition of units, thereby making the same underlying investment eligible for registered retirement savings plans.
2.25 Between January 20, 1999, and December 29, 2000, Cow-Calf LP, FinCorp and CapCorp issued securities in the amount of $4,917,500 under the offering memorandum. These securities were sold exclusively through IDF.
2.26 All of the Individual Respondents sold securities of Cow-Calf LP, FinCorp and CapCorp.
2.27 In connection with this offering, Cow-Calf LP, FinCorp and CapCorp purported to rely upon the prospectus exemptions contained in subsection 74(2)(4) of the Act and subsections 128(a), 128(b) and 128(c) of the Rules. It appears that neither the exemption in subsection 74(2)(4) of the Act nor any of the exemptions under section 128 of the Rules was available in respect of some of the distributions made under this offering because, among other things, the purchasers were not sophisticated and purchases were made for amounts of less than $25,000. Accordingly, those distributions appear to have been made contrary to section 61 of the Act.
2.28 The investment in units and bonds does not appear to have been suitable for many of the subscribers, and therefore IDF and the Individual Respondents appear to have breached section 48 of the Rules in selling those securities.
Strategic Trust Offerings - $ 3,282,500
2.29 Under an offering memorandum dated February 11, 1999, Strategic Trust issued securities in the amount of $636,500.
2.30 Under an updated offering memorandum dated March 8, 2000, Strategic Trust issued additional securities in the amount of $2,645,000 as of December 31, 2000.
2.31 The securities of Strategic Trust were sold exclusively through IDF.
2.32 All of the Individual Respondents sold securities of Strategic Trust.
2.33 In connection with these offerings, Strategic Trust purported to rely upon the prospectus exemptions contained in subsection 74(2)(4) of the Act and subsections 128(a), 128(b) and 128(c) of the Rules. It appears that neither the exemption in subsection 74(2)(4) of the Act nor any of the exemptions under section 128 of the Rules was available in respect of some of the distributions made under these offerings because, among other things, the purchasers were not sophisticated and purchases were made for amounts of less than $25,000. Accordingly, those distributions appear to have been made contrary to section 61 of the Act.
2.34 Neither of the Strategic Trust offering memoranda appears to make proper disclosure concerning the nature of Strategic Trust’s business, the projects to be financed or the use of proceeds, as required by the form specified under section 133(1)(c) of the Rules. The distribution made under each offering memorandum therefore appears to have been made contrary to section 61 of the Act.
2.35 The investment in the securities of Strategic Trust does not appear to have been suitable for many of its subscribers, and therefore IDF and the Individual Respondents appear to have breached section 48 of the Rules in selling those securities.
Quantum VCC Offering - $ 832, 000
2.36 Under an offering memorandum dated August 31, 2000, Quantum VCC issued securities in the amount of $832,000 as of December 31, 2000.
2.37 To date, the securities of Quantum appear to have been sold exclusively through IDF.
2.38 Except for Mark Cramer, Roger Ollenberger and Debbie Hanrahan, all of the Individual Respondents sold securities of Quantum VCC.
2.39 In connection with this offering, Quantum VCC purported to rely upon the prospectus exemptions contained in subsections 128(a) and 128(b) of the Rules. It appears that none of the exemptions under section 128 of the Rules was available in respect of some of the distributions made under this offering because, among other things, the purchasers were not sophisticated and purchases were made for amounts of less than $25,000. Accordingly, those distributions appear to have been made contrary to section 61 of the Act.
2.40 The Quantum VCC offering memorandum does not appear to make proper disclosure concerning the nature of Quantum VCC’s business, the projects to be financed or the use of proceeds, as required by the form specified by section 133(1)(c) of the Rules. The distribution made under the offering memorandum therefore appears to have been made contrary to section 61 of the Act.
2.41 The investment in the securities of Quantum VCC does not appear to have been suitable for many of its subscribers, and therefore IDF and the Individual Respondents who sold those securities appear to have breached section 48 of the Rules.
False Advertising
2.42 Advertising literature authorized by Mark Cramer and distributed by Ranch Private Co., Capital and certain of the Individual Respondents misrepresents the involvement of a large hotel chain in the development of the Property, contrary to section 50(1)(d) of the Act.
Fair Dealing
2.43 The securities distributed by Ranch VCC, Ranch #2 VCC, Cow-Calf LP, FinCorp, CapCorp, Strategic Trust and Quantum VCC (the “Issuers”) were all high-risk investments. Irrespective of client needs or risk tolerance, those securities were nonetheless sold to IDF clients who had specifically stated that they wished only to make low risk investments, who had limited investment knowledge or who otherwise had a low risk tolerance, contrary to section 14 of the Rules
Misrepresentations
2.44 In the absence of a proper factual basis and without a real prospect of success, Mark Cramer and Michael Cramer each either intentionally or recklessly assured certain investors that the hotel or lodge to be built on the Property would be completed at various specified times, certain of which have already passed, contrary to section 50(1)(d) of the Act.
2.45 AWT Holdings Ltd. (“AWT”) was incorporated in British Columbia on January 23, 1997. It is a non-reporting issuer that filed an offering memorandum dated December 5, 1997, with the Commission.
2.46 In the absence of a proper factual basis and without a real prospect of success, Michael Cramer and one or more of the Individual Respondents represented to clients of IDF that the securities of Ranch Private Co. and AWT would eventually be posted and listed for trading on a stock exchange and would trade at prices higher than those at which they could be purchased, contrary to sections 50(1)(b) and 50(1)(d) of the Act.
Fraud
2.47 Contrary to section 57 of the Act, both Mark Cramer and Michael Cramer each directly and indirectly engaged in or participated in a series of transactions relating to trades in securities of the Issuers and AWT that they each knew or ought to have known perpetrated a fraud on clients of IDF in British Columbia, namely:
2.47.1 Each sold securities offered under the Ranch #2 VCC offering memorandum, which contained statements they each knew or ought to have known were false or misleading as alleged in paragraph 2.23 above;
2.47.2 Mark Cramer authorized advertising literature that he knew or ought to have known was false or misleading, as alleged in paragraph 2.42 above;
2.47.3 Mark Cramer directly and indirectly distributed the foregoing advertising literature to clients of IDF;
2.47.4 Michael Cramer directly or indirectly distributed the foregoing advertising literature to clients of IDF;
2.47.5 Mark Cramer and Michael Cramer each represented to investors on a number of occasions that the hotel or lodge to be built on the Property would be completed, which they each knew or ought to have known was false or misleading as alleged in paragraph 2.44 above;
2.47.6 Michael Cramer represented to investors that the securities of River Ranch Co. and AWT would be listed for trading on a stock exchange, which he knew or ought to have known was false or misleading as alleged in paragraph 2.46 above; and
Prior Regulatory Action
2.48 To date, it appears that Ranch Private Co. and the Issuers have financed their operations and developments almost exclusively through distributions of securities under exempt offerings. It also appears that Ranch Private Co., in order to complete its development of the tourist destination resort on the Property, currently requires additional financing in excess of several millions of dollars. Similarly, it appears that Cow-Calf LP urgently requires additional financing in order to continue its ranching operations on the Property.
2.49 At the request of staff of the Commission and considering it in the public interest, the Commission issued directions under section 151 of the Act on February 26 and 27, 2001, to freeze certain funds payable to Cow-Calf LP.
2.50 At the request of staff of the Commission and considering it in the public interest, the Executive Director ordered under section 161(2) of the Act on April 9, 2001 that all persons cease trading in securities of the Issuers. On April 24, 2001, the Commission extended this cease trade order to August 23, 2001.
[para 3]
3. The Executive Director considers that the length of time to hold the Hearing could be prejudicial to the public interest.
[para 4]
4. The Executive Director, considering that it would be in the public interest to do so, orders under section 161(2) of the Act (the “Temporary Order”) that:
4.1 none of the exemptions described in sections 44 to 47, 74, 75, 98 and 99 of the Act applies to any of the Corporate Respondents and Individual Respondents, except that each of them may trade in mutual fund securities and securities in respect of which prospectus receipts have been issued by the Executive Director and that each of the Individual Respondents may trade for their own personal accounts; and
4.2 each of the Individual Respondents and Corporate Respondents is prohibited from engaging in any investor relations activities;
for a period expiring on May 11, 2001.
[para 5]
5. TAKE NOTICE that the Hearing will be held at the 12th Floor Hearing Room, 701 West Georgia Street, Vancouver, B.C., on Friday, May 11, 2001, at 10:00 a.m.
[para 6]
6. AND TAKE NOTICE that at the Hearing the staff of the Commission will bring the following applications:
6.1 that the matter be adjourned to August 23, 2001 to permit the conclusion of the investigation in this matter; and
6.2 that the Temporary Order be extended until such time as the Hearing is completed and a decision rendered.
[para 7]
7. AND TAKE NOTICE that the Corporate Respondents and Individual Respondents may be represented by counsel at the Hearing and may make representations and lead evidence. The Corporate Respondents and Individual Respondents are requested to advise the Commission of their intention to attend by contacting the Secretary to the Commission at PO Box 10142, 9th Floor, 701 West Georgia Street, Vancouver, BC, telephone: (604) 899-6500.
[para 8]
8. AND TAKE NOTICE that determinations may be made in this matter if the Corporate Respondents and Individual Respondents, or their counsel, do not appear at the Hearing.
[para 9]
DATED at Vancouver, British Columbia, on May 3, 2001.
Steve Wilson
Executive Director