Settlements
JACOB NORMAN FRIESEN [Sec. 161 & Settlement Agrmnt.]
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BCSECCOM #:
2001 BCSECCOM 1075, 2001 BCSECCOM 1076
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Document Type:
Sec. 161 & Settlement Agrmnt.
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Published Date:
2001-11-15
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Effective Date:
2001-11-14
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Details:
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2001 BCSECCOM 1075
IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, C. 418
AND
IN THE MATTER OF JACOB NORMAN FRIESEN
Order Under Section 161
[para 1]
1. The Executive Director has entered into a Settlement Agreement with Jacob Norman Friesen (“Friesen”), a copy of which is attached as Schedule “A”.
[para 2]
2. The Executive Director, considering it to be in the public interest to do so, orders, by consent, that:
2.1 under section 161(1)(f) of the Securities Act, R.S.B.C. 1996, c. 418 (the “Act”), Friesen continue to be subject to strict supervision by his employer for a period of six months from the date of this Order;
2.2 under section 161(1)(d) of the Act, Friesen is prohibited from serving as a compliance officer of any registrant for a period of 10 years from the date of this Order;
2.3 under section 161(1)(d) of the Act, Friesen is prohibited from serving as a partner, director or officer, other than a compliance officer, of any registrant until the later of:
2.3.1 five years from the date of this Order; and
2.3.2 the date he successfully completes the Partner Director Officer course;
2.4 under section 161(1)(c) of the Act, Friesen is prohibited from trading or advising in exempt securities which are covered by exemptions contained in sections 45(5), 46(j) and 74(4) of the Act and sections 89(a) and (b) and 128(a) and (b) of the Securities Rules, B.C. Reg. 194/97 until the later of five years from the date of this Order and the date he becomes fully registered under the Act; and
2.5 if Friesen become fully registered under the Act, he will be subject to strict supervision by his employer for a period of six months from the date of registration.
[para 3]
DATED at Vancouver, British Columbia on November 14, 2001.
Steve Wilson
Executive Director
2001 BCSECCOM 1076
SCHEDULE “A”
IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, C. 418
AND
IN THE MATTER OF JACOB NORMAN FRIESEN
Settlement Agreement
[para 1]
1. The following settlement of issues has been reached between Jacob Norman Friesen (“Friesen”) and the Executive Director.
Agreed Statement of Facts
[para 2]
2. Solely for securities regulatory purposes in British Columbia and elsewhere, and as the basis for the undertaking and orders referred to in paragraphs 3 and 4 of this settlement agreement, Friesen acknowledges the following facts as correct:
2.1 During the period between September 7, 1994, and May 27, 1999 (the “Relevant Period”), Friesen was registered under the Securities Act, R.S.B.C. 1996, c. 418 (the “Act”) as a registered representative restricted to trading in mutual fund securities.
2.2 Friesen has been employed as a registrant as follows:
2.2.1 February 5, 1992 to December 30, 1992 – Georgia Brokerage Inc.
2.2.2. January 4, 1993, to November 18, 1994 – Vantage Securities Inc.
2.2.3 November 23, 1994, to November 17, 1998 – Friesen Financial Securities Inc.
2.2.4 December 10, 1998 to May 27, 1999 – National Bank Financial Ltd.
2.2.5 May 27, 1999 to the present - IPC Investment Corporation (BC) Limited (“IPC”).
2.3 During the Relevant Period, Friesen was registered as an insurance broker through Friesen Financial Services Inc. (“Friesen Services”).
2.4 Friesen is currently registered as a registered representative restricted to mutual funds, subject to certain conditions imposed by the Executive Director.
2.5 Friesen Financial Securities Inc. (“Friesen Securities”) was registered under the Act as a mutual fund dealer from November 23, 1994, until November 22, 1998.
2.6 At all material times, Friesen was a director, officer, and shareholder and was the directing mind of Friesen Securities and Friesen Services.
2.7 Friesen served as the designated compliance officer for Friesen Securities from the period March 19, 1997, to November 17, 1998.
Compliance Audit Deficiencies
2.8 During a routine compliance audit performed by staff of the Commission at Friesen Securities in 1997 (the “Audit”), it came to the attention of staff that:
2.8.3 Most of the sales of the exempt securities that were made by Friesen were processed ‘off-book’, in that they were recorded on the books of Friesen Services rather than the registered dealer, Friesen Securities, as required. Friesen represented to staff of the Commission that all future sales of exempt securities and commission revenues would be transacted through Friesen Securities.
2.9 Despite the representations made by Friesen to staff of the Commission as referenced in paragraph 2.8.3 above, some sales of exempt securities that were made after the Audit were recorded on the books of Friesen Services rather than Friesen Securities.
2.11 Friesen ought to have ceased his activities relating to advising in exempt securities when he was informed during the Audit that such activities were not authorized by his registration.
Exempt Product Advising
2.12 During the Relevant Period Friesen acted as an adviser without registration with respect to the sale of the exempt securities. In particular:
2.12.1 he sold a substantial volume of the exempt securities to in excess of 100 of the mutual fund and insurance clients of Friesen Securities and Friesen Services;
2.12.2 he organized and hosted at his office a number of seminars and sales presentations for his clients relating to several of the exempt securities. It was Friesen and not the issuers who followed up with the clients and made the sales of the exempt securities;
2.12.3 he suggested or recommended the sale of the exempt securities to a number of the clients; and
2.12.4 he published a newspaper called the “Friesen Financial Voice” (the “Newsletter”) on four occasions between the period 1996 and 1998. The Newsletter was distributed to Friesen’s clients and to other members of the public in British Columbia. The Newsletters contained generic financial planning and tax advice, profiles of various mutual funds, client testimonials and promotional advertisements for a number of the exempt securities, together with suggestions that interested parties contact Friesen Securities for further information.
Suitability
2.13 For a number of clients to whom Friesen recommended or traded in exempt securities during the Relevant Period, there was inadequate or no ‘know your client’ information and documentation on file.
2.14 Some of the trades in exempt securities by Friesen for his clients were not suitable investments for those clients, based upon the risk tolerance, level of investment knowledge, age, and stated investment objectives of those clients.
2.15 Some of Friesen’s clients redeemed other securities, including mutual funds, in order to complete some of the trades in the exempt securities recommended to them by Friesen.
2.16 Most of the exempt securities recommended by Friesen to his clients were speculative and high risk, as was disclosed in the offering memorandum relating to the various offerings. Many of the clients who purchased these exempt securities have suffered financial losses or devaluation of their investment portfolios as a result of their investment in the exempt securities recommended by Friesen.
2.17 Friesen received substantial commission revenues from the sales of the exempt securities at rates disclosed in the Offering Memoranda for those securities.
Activity contrary to the Act, the Rules and the Public Interest
2.18 Friesen acted as an adviser without registration with respect to the sale of the exempt securities, contrary to section 34 of the Act.
2.19 Friesen traded in exempt securities that were risky, illiquid and speculative and as a result were unsuitable investments for many of the investors. Friesen did not advise investors that the exempt securities were unsuitable, contrary to section 14 and 48 of the Securities Rules, B.C. Reg. 194/97 (the “Rules”).
2.20 Friesen Securities was required to record all purchases and sales of securities in the daily blotter or other record of original entry pursuant to section 30 of the Securities Regulation, B.C. Reg. 196/97 (the “Regulation”) and section 29 of the Rules. The sales of the exempt securities made by Friesen were recorded on the books of Friesen Services rather than the registered dealer, Friesen Securities, contrary to section 30 of the Regulation and section 29 of the Rules. As compliance officer and as the directing mind of Friesen Securities, Friesen knew or ought to have known that this activity occurred and he did nothing to address it.
2.21 During the period that Friesen served as the designated compliance officer for Friesen Securities he failed to approve new accounts and to adequately supervise transactions of the registrant, contrary to section 42 of the Regulation and section 65 of the Rules.
2.22 As the directing mind behind Friesen Securities, Friesen was responsible for Friesen Securities’ compliance and business procedures. Friesen knew or ought to have known that the documents maintained at Friesen Securities’ head office did not comply with sections 30 and 40 of the Regulation and sections 29 and 44 of the Rules, which required Friesen Securities to establish and apply written prudent business procedures for dealing with clients.
2.23 As the directing mind of a registrant, Friesen was required to ensure that the registrant complied with the record keeping and reporting requirements set out in the Act, the Regulation and the Rules. His failure to do so was contrary to the public interest.
Mitigating Factors
2.24 The Executive Director has taken into account the following facts as factors mitigating the sanctions, which would otherwise have applied in the public interest:
2.24.1 at the time Friesen was advising his clients with respect to the sale of the exempt securities, he was unaware that the conduct in question was contrary to the policies of the Commission or the requirements of the Act. Friesen considered his activities to constitute marketing activities reasonably associated with his authorization to sell exempt securities, and did not appreciate this conduct constituted unauthorized advising with respect to the sale of the exempt securities;
2.24.2 during the Relevant Period, Friesen was advised by the compliance officer at Vantage that he was permitted to recommend the exempt securities to his clients;
2.24.3 while employed by Vantage, Friesen relied upon due diligence reviews of the exempt securities performed by Vantage;
2.24.4 during the Relevant Period, Friesen reimbursed two clients who were sold exempt securities by former employees of Friesen Securities, which did not appear to Friesen to be appropriate investments for those clients;
2.24.5 after being advised during the Audit that his activities with respect to the sale of exempt securities constituted unauthorized advising, Friesen curtailed these activities dramatically. Specifically:
2.24.5.1 no further promotional material for exempt securities was published in the ‘Friesen Financial Voice’;
2.24.5.2 Friesen’s advising activities were restricted to clients who had previously purchased exempt securities;
2.24.5.3 Friesen made 17 individual sales of exempt securities to 12 clients who had previously purchased exempt securities. About half of these transactions involved conversions of bonds which did not involve the investment of new funds;
2.24.6 Pursuant to an agreement between Friesen and the Executive Director, Friesen’s registration has been subject to the following conditions since August 9, 1999:
· not to trade or advise in any exempt securities;
· to ensure that all know your client forms were up-dated and completed within a 6 month period or prior to any new transaction for the client, whichever was earlier; and
· strict supervision by his employer.
2.24.7 Friesen has co-operated with Commission staff throughout the course of its investigation.
Order
[para 3]
3. Friesen consents to an order by the Executive Director under section 161 of the Act (the “Order”) that:
3.1 Friesen continue to be subject to strict supervision by his employer for a period of six months from the date of the Order;
3.2 Friesen is prohibited from serving as a compliance officer of any registrant for a period of 10 years from the date of the Order;
3.3 Friesen is prohibited from serving as a partner, director or officer, other than a compliance officer, of any registrant until the later of:
3.3.1 five years from the date of the Order; and
3.3.2 the date he successfully completes the Partner Director Officer course;
3.4 Friesen is prohibited from trading or advising in exempt securities which are covered by exemptions contained in sections 45(5), 46(j) and 74(4) of the Act and sections 89(a) and (b) and 128(a) and (b) of the Rules until the later of five years from the date of the Order and the date he becomes fully registered under the Act; and
3.5 if Friesen becomes fully registered under the Act, he will be subject to strict supervision by his employer for a period of six months from the date of registration.
Undertaking
[para 4]
4. Friesen undertakes and agrees:
4.1 to comply fully with the provisions of the Act and the Rules;
4.2 to comply fully with the “know your client” record keeping requirements of the Act; and
4.3 to pay to the Commission the total sum of $50,000, $15,000 of which represents costs relating to the investigation.
Waiver
[para 5]
5. Friesen waives any right he may have, under the Act or otherwise, to a hearing, hearing and review, judicial review or appeal related to, in connection with or incidental to this agreement and any orders.
[para 6]
Dated at Vancouver, British Columbia, on November 13, 2001.
“Jay Friesen”
Jacob Norman Friesen
“Mike Tsuboi”_____________________ )
Witness Signature )
)
Mike Tsuboi______________________ )
Witness Name (please print) )
)
12486 Alliance Dr._________________ )
Richmond, BC V8E 6J2____________ )
Address )
Assistant_________________________ )
Occupation
Dated at Vancouver, British Columbia, on November 13, 2001.
Steve Wilson
Executive Director