Settlements

RODERICK A. McLEAN [Sec. 161 & Settlement Agrmnt.]

BCSECCOM #:
2001 BCSECCOM 324, 2001 BCSECCOM 325
Document Type:
Sec. 161 & Settlement Agrmnt.
Published Date:
2001-03-16
Effective Date:
2001-03-16
Details:


2001 BCSECCOM 324


IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, c. 418

AND

IN THE MATTER OF RODERICK A. McLEAN


Order Under Section 161

[para 1]
1. WHEREAS a Settlement Agreement was executed by Roderick A. McLean and the Executive Director, a copy of which is attached hereto as “Schedule A”.

[para 2]
2. NOW THEREFORE, the Executive Director, considering that it would be in the public interest to do so, orders, BY CONSENT, that:

2.1 pursuant to section 161(1)(d) of the Securities Act, R.S.B.C. 1996, c. 418 (the “Act”), McLean be prohibited from becoming or acting as a director or officer of any reporting issuer until such time as:

2.1.1 he has completed a course of study satisfactory to the Executive Director concerning public companies and the duties and responsibilities of directors and officers of public companies; and

2.1.2 McLean satisfies his obligation to pay the sum of $25,000, $5,000 of which represents a portion of the costs of the investigation, as set out in paragraph 5.3 of the Settlement Agreement.

[para 3]
DATED at Vancouver, British Columbia, on March 16, 2001.





Gerry Halischuk
A/Executive Director


2001 BCSECCOM 325


Schedule “A”
IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, c. 418

AND

IN THE MATTER OF RODERICK A. McLEAN


Settlement Agreement

[para 1]
1. The following settlement of issues has been reached between Roderick A. McLean (“McLean) and the Executive Director.

Agreed Statement of Facts

[para 2]
2. McLean acknowledges the following facts as correct:

2.1 During the period from 1995 to 1998 (the “Relevant Period”), Harris McLean Financial Group Ltd. (“Harris McLean”) carried on business as an investment firm with offices in the Cayman Islands.

2.2 During the Relevant Period, McLean and Richard C. Harris, III (“Harris”) were the principals of Harris McLean. McLean was primarily responsible for the administration of corporate affairs on behalf of clients and Harris was primarily responsible for trading activities on behalf of clients.

2.3 None of Harris, McLean or Harris McLean were registered in any capacity under the Securities Act, R.S.B.C. 1996, c. 418 (the “Act”) during the Relevant Period.

2.4 Harris was terminated for cause as an officer and director of Harris McLean in or about April 1998.

2.5 On or about May 26, 1998, McLean caused Harris McLean to commence an action in the Cayman Islands against Harris and his mother, Victoria Harris also known as Ana Jimenez (“Jimenez”) by the issuance of a Writ of Summons in which Harris McLean made a claim for, among other things:

2.5.1 a declaration as to what assets in the hands of Harris and/or Jimenez belong to Harris McLean;

2.5.2 an accounting of secret profits made by Harris and/or Jimenez;

2.5.3 delivery of assets belonging to Harris McLean by Harris and/or Jimenez; and

2.5.4 damages for conspiracy to defraud, fraudulent or other misrepresentation, breach of contract, breach of trust, conversion, breach of fiduciary duty.

2.6 On or about November 11, 1998, McLean caused a liquidator to be appointed in the Cayman Islands to oversee an orderly wind-up of the affairs of Harris McLean and to protect the interests of clients.

2.7 During the Relevant Period, Harris McLean, Harris, and Jimenez maintained trading accounts at several brokerage firms in Vancouver, British Columbia, on their own behalf and on behalf of clients (collectively, the “Harris McLean Accounts”). In some cases there were multiple Harris McLean Accounts opened at each brokerage firm.

2.8 During the Relevant Period Harris McLean, on its own behalf and on behalf of clients, arranged and participated in private placements in the securities of several issuers, including New Era Technologies Inc. (“New Era”) and H&R Enterprises, Inc. (“H&R”). McLean represents that he was not aware of these private placements at the time but has since been advised that these placements took place.

2.9 During the Relevant Period, Michael Lee Mitton (“Mitton”) was associated in varying capacities with a number of the issuers in which the Harris McLean Accounts were trading or in which Harris McLean effected private placements.

2.10 Mitton:

2.10.1 is the subject of lengthy enforcement orders, to which he consented, issued by the Executive Director in 1988 (the “Cease Trade Order”). Pursuant to the terms of the Cease Trade Order, Mitton is prohibited from acting as a director or officer of any issuer and is not permitted to trade in or advise in any securities for a period of 20 years from the date of the Cease Trade Order; and

2.10.2 has a lengthy criminal record in Canada and has been convicted of fraud and fraud-related offences on several occasions.

2.11 Based upon dealings with Mitton and upon information provided in August and September 1996 by staff of the Commission to Harris and to legal counsel for Harris McLean, McLean ought reasonably to have known that Mitton’s activities were restricted by the terms of the Cease Trade Order and that Mitton had an extensive criminal background relating to fraudulent activities in general and to trading in securities in particular. McLean did not become aware of the exact nature of Mitton’s background until approximately March 1998.

2.12 Harris McLean continued to have dealings with Mitton, primarily through Harris, with respect to the trading of securities and corporate management of issuers in British Columbia during the Relevant Period, after Harris was advised by staff of the Commission of the nature and extent of the Cease Trade Order and Mitton’s past criminal record.

2.13 During the Relevant Period, Harris McLean and McLean failed to adequately monitor the activities of Harris as they related to the Harris McLean Accounts and the trading of the Harris McLean Accounts.

2.14 Harris misrepresented to McLean:

2.14.1 the nature and extent of Mitton’s background;

2.14.2 the nature and extent of dealings by Harris, on his own and on behalf of Harris McLean, with Mitton and relating to the trading effected in the Harris McLean Accounts; and

2.14.3 Harris’ academic and brokerage industry credentials.

2.15 During the Relevant Period, the Harris McLean Accounts actively traded, in accounts in British Columbia and elsewhere, in the securities of several issuers including, among others, New Era, Clay-Tech Industries Inc. (“Clay-Tech”), Hillestad Pharmaceuticals Inc. (“Hillestad”), Highland Holdings International Inc. (“Highland Holdings”), and H&R. The securities of these issuers were either listed on the Vancouver Stock Exchange (now the Canadian Venture Exchange), the Alberta Stock Exchange or were quoted through the facilities of the NASD OTC Bulletin Board;

2.16 During the Relevant Period, Harris provided trading instructions for 95% of the transactions effected in the Harris McLean Accounts, and McLean provided trading instructions for the balance of the transactions. McLean represents that less than 1% of the trading instructions given by McLean were based upon direct dealings between McLean and Mitton, which occurred when McLean took telephone calls from Mitton in the absence of Harris.

2.17 At certain times during the Relevant Period, a number of trades were effected in the Harris McLean Accounts which resulted in:

2.17.1 purchases of securities of several issuers in the accounts, particularly in accounts associated with Mitton, while these accounts were in an outstanding debit position or had inadequate funds to effect settlement and for which payment was not made on the prescribed settlement dates;

2.17.2 debits in the accounts, particularly accounts associated with Mitton, being carried past the prescribed settlement dates;

2.17.3 forced sales of securities in the accounts by the respective brokerage firm or by Harris or McLean on behalf of the accounts at the request of the respective brokerage firms to cover debits in the accounts, which occurred frequently in accounts associated with Mitton;

2.17.4 a number of subsequent re-purchases in other Harris McLean Accounts of the same securities which had been previously the subject of forced sales by brokerage firms;

2.17.5 in April and May 1996, a client delivered to Harris McLean two cheques totalling approximately $525,000 CDN for deposit to a client account at Harris McLean which was associated with Mitton. Based upon the client’s instructions and the receipt of the two cheques from the client, Harris McLean delivered two of its own cheques, totalling approximately $525,000 CDN and signed by Harris and/or McLean, to one Vancouver brokerage firm to cover large purchases of securities in two accounts. One account was a Harris McLean Account and the other an account for an associate of Mitton. Both of the client cheques were returned to Harris McLean ‘not sufficient funds’ and, as a consequence, the two Harris McLean cheques were also returned ‘not sufficient funds’ when presented for payment by the Vancouver brokerage firm. Subsequent attempts by the Vancouver brokerage firm to collect payment from the client of Harris McLean, through negotiations with Mitton and Harris, were unsuccessful. The Vancouver brokerage firm effected a forced sale of the securities in the two accounts over a subsequent period in order to cover the debits in the accounts. As it appears that Mitton-associated accounts were on both the buy and sell sides of the sell-outs, the effect of the sell-out transactions was that the debits in the accounts were transferred to another brokerage firm. McLean represents that he was not aware at the time that the other account was associated with Mitton, nor was he aware that the Harris McLean cheques were to be used to cover debits in an account associated with Mitton. McLean further represents that he was advised by a representative of the Vancouver brokerage firm that the cheques provided by Harris McLean would not be negotiated until McLean notified the Vancouver brokerage firm to confirm that the cheques provided to Harris McLean by its client had been honoured;

2.17.6 trading by the Harris McLean Accounts in the securities of some issuers, including Clay-Tech, Hillestad, New Era and H&R, was effected during periods of heavy trading volumes and rising prices for those issuers, with Mitton-related accounts predominantly on the other side of the transactions. McLean represents that he was not aware at the time that Mitton-related accounts were on the other side of the transactions; and

2.17.7 all of which had the effect of delaying payment for securities past the prescribed settlement date in breach of the requirements for the operation of cash accounts, thereby placing the capital of the respective brokerage firms at risk. McLean represents that he was not aware of the effect of these transactions.

2.18 Harris and clients of Harris McLean arranged to set up a ‘box’, a potentially manipulative practice, relating to the trading in New Era in order to prevent the liquidation of certain blocks of securities in the market thereby driving down the price of the securities of New Era. McLean represents that he was not aware of these arrangements at the time but learned of them subsequently.

2.19 With respect to the trading by Harris McLean and its clients in the securities of H&R during the Relevant Period:

2.19.1 a majority of the trading by Harris McLean was effected in one of several Harris McLean Accounts at Georgia Pacific Securities Corporation (“Georgia Pacific”);

2.19.2 predominantly one Harris McLean Account traded actively in the securities of H&R during August and September 1997, including the period at the end of September 1997 in which large losses were incurred by a broker dealer in the United States, which trading indirectly contributed to the financial collapse of that broker dealer;

2.19.3 transfers of cash and securities were made from that one Harris McLean Account to other Harris McLean Accounts and to the accounts of others, including Jimenez. McLean represents that he was aware of only some of these transfers but he was not aware of the transfers to the Jimenez account, nor was he aware that Jimenez had a separate account until about March 1998; and

2.19.4 instructions relating to transactions in that one Harris McLean Account were provided primarily by Harris and occasionally by McLean for the purpose of settling outstanding positions.

2.20 Harris McLean was not registered as a portfolio manager under the Act.

2.21 Based upon the facts set out above, McLean ought to have known, although he represents that he did not actually know, that the Harris McLean Accounts and holders of certain related accounts in the Cayman Islands were engaging or participating in suspicious or irregular trading activities, including potential wash trading and debit kiting, which may have created or resulted in a misleading appearance of trading activity in, or an artificial price for, securities of several issuers during the Relevant Period.

2.22 McLean represents that he was unaware of the full extent and nature of the trading activities conducted through the Harris McLean Accounts during the Relevant Period until after Harris left employment with Harris McLean.

2.23 The settlement difficulties arising from the activities described in paragraph 2.17 above resulted, in part, from clients of Harris McLean failing to deliver funds or securities to cover the debits in the accounts and, in part, from the unauthorized conduct of Harris.

2.24 Harris and Jimenez attempted to effect the transfer of certain shares of Highland Holdings from one of the Harris McLean Accounts to Jimenez by presenting a document, dated on or about December 17, 1997 and purportedly signed by a client (now deceased), authorizing that transfer. The client’s estate disputed the authenticity of the document, filed a complaint with staff of the Commission, and arranged for an examination of the document by a forensic document examiner.

2.25 The forensic document examiner issued a report in June 1998 concluding that it was highly probable that the transfer document was not an authentic document sent by the client to Harris McLean but rather was a photocopy of a composite made up of portions from two other documents, being facsimiles from the client (directed to Harris and McLean at Harris McLean) relating to separate matters which were then ‘cut and pasted’ to form the document in question.

2.26 McLean represents that he was not aware that the transfer document referenced above was not genuine and relied upon affidavits sworn by Harris and Jimenez in that regard.

2.27 During the Relevant Period, Harris McLean maintained an account for an offshore private issuer owned and controlled by a British Columbia resident (the “B.C. Accountholder”).

2.28 The B.C. Accountholder has advised staff of the Commission that it had provided verbal trading authorization to permit two other persons to effect trades in the account and that substantial debits were incurred in the account. At the time, McLean represents that he was unaware of the verbal trading authorization.

2.29 It appears that the B.C. Accountholder’s account was used in trading schemes connected to Mitton, which schemes appear to have resulted in breaches of criminal and securities regulatory laws in British Columbia and Canada and which contributed to large monetary losses to investors and investment firms in Canada, the United States of America and the Isle of Man. McLean represents that hewas unaware of these facts at the time the trades occurred.

Mitigating Factors

[para 3]
3. The Executive Director has taken into account the following facts as factors mitigating the sanctions which would otherwise have applied in the public interest:

3.1 McLean has fully co-operated with the staff of the Commission in its investigation into the matters referred to in this agreement, to the extent permitted by the confidentiality laws of the Cayman Islands;

3.2 from the outset, Harris misrepresented to McLean his academic and brokerage industry credentials and his work experience in the brokerage industry and that Harris made misrepresentations to the Cayman Island government when applying for his various licences. In addition, Harris extensively misrepresented to, and concealed from, McLean many of his activities and his misconduct on behalf of Harris McLean during the Relevant Period;

3.3 as of April, 1998, McLean severed his partnership with Harris and caused Harris to be terminated as an officer and director of Harris McLean. At that time, McLean undertook a full review of the activities of Harris and the court action referred to in paragraph 2.5 above was commenced by Harris McLean;

3.4 McLean was unaware of the full extent and nature of Harris’s activities, involving Mitton in particular, and Harris’ dealings in British Columbia in general, until after Harris left Harris McLean;

3.5 McLean has reviewed or caused to be reviewed a transcript of the testimony of Harris at a hearing before the Commission held on October 2, 1997 relating to a variation application filed by Harris McLean relating to a Direction to Freeze Property issued by the Commission with respect to Harris McLean Accounts at Georgia Pacific. McLean has voluntarily advised staff of the Commission that in several material respects, the testimony of Harris was false and misleading;

3.6 as a result of assistance provided to staff of the Commission by McLean and others, enforcement orders were issued against Harris and Jimenez regarding the testimony referenced in paragraph 3.5 above;

3.7 McLean and Harris McLean have each suffered substantial losses as a result of the activities of Harris, Jimenez, and Mitton and, as a consequence, Harris McLean was placed into voluntary liquidation by the courts of the Cayman Islands on the initiative of McLean;

3.8 McLean has, on a voluntary basis, not participated in the British Columbia securities market for the past three years; and

3.9 McLean is the sole owner and principal of McLean Financial Group Ltd. (“McLean Financial”), an investment firm with offices in the Cayman Islands. McLean Financial made application to the Trade and Business (Licensing) Board in the Cayman Islands for registration subsequent to Harris McLean being placed into liquidation. As a result of the application process, McLean and McLean Financial were subjected to a thorough review of their affairs by the Trade and Business (Licensing) Board. The Trade and Business (Licensing) Board issued a licence to McLean Financial, on or about November 12, 1998, to carry on the trade or business of Stock Brokerage & Securities Execution Trader.

Order

[para 4]
4. McLean consents to an order by the Executive Director (the “Order”) that pursuant to section 161(1)(d) of the Act, McLean be prohibited from becoming or acting as a director or officer of any reporting issuer until such time as:

4.1 he has completed a course of study satisfactory to the Executive Director concerning public companies and the duties and responsibilities of directors and officers of public companies; and

4.2 McLean satisfies his obligation to pay the sum of $25,000, $5,000 of which represents a portion of the costs of the investigation, as set out in paragraph 5.3 of this Settlement Agreement.

Undertakings

[para 5]
5. McLean undertakes and agrees as follows:

5.1 McLean will not make application for registration in any capacity under the Act until the expiration of three months from the date of the Order;

5.2 McLean has no intention to, nor will he, serve as a partner, director or officer of any registrant under the Act;

5.3 McLean will pay to the Commission, upon execution of this Settlement Agreement, the amount of $25,000, $5,000 of which represents a portion of the costs of the investigation; and

5.4 McLean undertakes to comply with the Act and the Securities Rules, B.C. Reg. 194/97.

Waiver

[para 6]
6. McLean 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.

[para 7]
DATED at Vancouver, British Columbia, on March 15, 2001.

“Roderick A. McLean”
Roderick A. McLean


“Robert E. Breivik”
Witness Signature
Robert E. Breivik
Witness Name (please print)
Skwarok & Breivik
P.O. Box 10024
3000 – 700 West Georgia Street
Vancouver, BC, Canada V7Y 1A1
Witness Address
Barrister & Solicitor
Witness Occupation

DATED at Vancouver, British Columbia, on March 16, 2001.




Steve Wilson
Executive Director
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