Decisions
PAUL SCHILLER AND BETTY SCHILLER [Decision]
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BCSECCOM #:
2000 BCSECCOM 134
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Document Type:
Decision
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Published Date:
2000-10-16
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Effective Date:
2000-10-12
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Details:
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2000 BCSECCOM 134
COR#00/211
IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, c. 418
AND
IN THE MATTER OF PAUL SCHILLER AND BETTY SCHILLER
PANEL
Adrienne R. Salvail-Lopez, Member
John K. Graf, Member
Roy Wares, Member
SUBMISSIONS OF COMMISSION STAFF RECEIVED FROM
J.A. (Sasha) Angus
Kristine M. Mactaggart
DECISION OF THE COMMISSION
[para 1]
We released our findings in this matter on July 17, 2000. At that time we advised that we would hear further submissions before issuing orders in respect of our findings. We set a deadline for oral submissions of September 30, 2000, and a deadline for written submissions of September 1, 2000, for Commission staff, and September 30, 2000, for Paul Schiller and Betty Schiller.
[para 2]
Commission staff filed their written submission on August 31, 2000, and sent a copy to the Schillers on the same day. On September 1, 2000, Commission staff filed their bill of costs and once again sent a copy to the Schillers that day. The Schillers have neither filed written submissions nor requested an opportunity to make oral submissions.
[para 3]
Our decision in this matter should be read in conjunction with our findings of July 17, 2000.
[para 4]
Paul Schiller was the president and a director of The Quinto Mining Corporation. His wife, Betty, was the office manager of Quinto. In 1993, the two of them orchestrated a distribution by Quinto of 150,000 units, each consisting of one share and one share purchase warrant. This distribution was structured to make it appear that the units were distributed to Betty Schiller. In fact, the shares, including the shares issued on the exercise of the warrants, ended up in the hands of a number of investors in Ontario and the United States. We made the following findings in regard to the Schillers’ activities in connection with this distribution:
1. Both of the Schillers carried out acts and conduct in furtherance of the distributions. Neither of them was registered under the Securities Act, S.B.C. 1985, c. 83 (the “former Act”) to trade in securities, no prospectus was filed with respect to the the units and the registration and prospectus exemptions purported to be relied upon by Quinto were unavailable for the distribution to the investors. Therefore, we found that the Schillers traded in securities without being registered, contrary to section 20(1) of the former Act, and distributed securities without filing and obtaining a receipt for a prospectus, contrary to section 42(1) of the former Act.
2. Quinto filed with the Commission a Form 20, Report of Exempt Distribution, indicating that the 150,000 units had been distributed to Betty Schiller. The Form 20 was certified by Paul Schiller to be true and correct, even though he knew at the time that the share portion of the units had already been distributed to the investors. We found that in certifying the Form 20 filed by Quinto to be true and correct when he knew it was not, Paul Schiller acted contrary to the public interest.
3. Quinto filed with the Vancouver Stock Exchange three documents respecting the distribution. Paul Schiller certified that the filing was in all respects in accordance with the Exchange’s policy statement respecting private placement of equity shares. In the documents, Betty Schiller represented that she was purchasing the units as principal and that no other person would have a beneficial interest in them. She also undertook not to dispose of any of the units for 12 months without the consent of the Exchange. Both of the Schillers knew at the time the documents were filed that the information contained in them was not true. We found that by causing Quinto to file the documents with the Exchange and, in the case of Paul Schiller, certifying them to accord with the Exchange’s policy statement and, in the case of Betty Schiller, making incorrect representations and undertakings, Paul Schiller and Betty Schiller acted contrary to the public interest.
4. Paul Schiller transferred to the investors free trading Quinto shares held by him in exchange for half of their restricted shares. In doing so, Paul Schiller enabled the investors to do an end run around the 12 month hold period attaching to their shares pursuant to both the former Act and Exchange requirements. We found that, in doing so, Paul Schiller acted contrary to the public interest.
5. Betty Schiller exercised the 150,000 warrants in 1994 and sent the shares issued on exercise to the investors, with one exception. She kept the 8,715 shares that should have been sent to Wallis Wood. Wood’s counsel sent a letter to Quinto and the Schillers advising that the distribution appeared to have been improper and demanding that they compensate Wood for his loss; he calculated that loss as $32,768.40, noting that Wood had been entitled to 8,715 shares at a warrant exercise price of $.84 and that the market price for the shares was $4.60. In response, Wood’s counsel received a cheque for $30,000, which was issued by Quinto and signed by both the Schillers. We found that, by exercising the warrants belonging to Wood and keeping the shares, Betty Schiller perpetrated a fraud on Wood, contrary to section 41.1(c) of the former Act. We also found that, by having Quinto pay Wood for these shares, which were being kept by Betty Schiller, the Schillers perpetrated a fraud on Quinto, contrary to section 41.1(c) of the former Act.
[para 5]
Securities legislation is designed to strike a balance between protecting investors and facilitating the raising of capital by companies. It provides various exemptions from the registration and prospectus requirements that permit junior companies like Quinto to raise capital from sophisticated investors or persons connected to the company or its principals, like Betty Schiller, on the basis that these persons do not need certain of the protections afforded by the legislation.
[para 6]
The Schillers tried to characterize Quinto’s issuance of the 150,000 units as a distribution to Betty Schiller so that they would not have to comply with the legislative requirements associated with a distribution to the investors. As a result, the investors lost the protection they would have received had they dealt through a registrant and received a prospectus.
[para 7]
In their attempt to get around the legislative requirements, the Schillers filed false documents with both the Commission and the Exchange and Paul Schiller enabled the investors to breach their resale rules. Further, Betty Schiller took advantage of the fact that the Quinto warrants were in her name to keep the shares issued on the exercise of the warrants beneficially owned by Wood. Finally, both Schillers had Quinto pay Wood for those shares, in effect stealing $30,000 from the company.
[para 8]
We consider it to be in the public interest to remove the Schillers from the capital markets for a significant period and to impose on them substantial administrative penalties. Accordingly, we order:
1. under section 161(1)(c) of the Securities Act, R.S.B.C. 1996, c. 418, that the exemptions described in sections 44 to 47, 74, 75, 98 or 99 of the Act do not apply to each of Paul Schiller and Betty Schiller for a period of 15 years;
2. under section 161(1)(d)(ii) of the Act, that each of Paul Schiller and Betty Schiller is prohibited from becoming or acting as a director or officer of any issuer for a period of 15 years;
3. under section 161(1)(d)(iii) of the Act, that each of Paul Schiller and Betty Schiller is prohibited from engaging in investor relations activities for a period of 15 years;
4. under section 162 of the Act that Paul Schiller and Betty Schiller each pay an administrative penalty of $25,000; and
5. under section 174 of the Act and in accordance with section 22(1), Item 38(a), (b) and (c) of the Securities Regulation, B.C. Reg. 196/97, that Paul Schiller and Betty Schiller jointly and severally pay the costs of or related to the hearing in the amount of $16,840.
DATED October 12, 2000.
[para 9]
FOR THE COMMISSION
Adrienne R. Salvail-Lopez, Member
John K. Graf, Member
Roy Wares, Member