COR#95/187

Todd Follett, for Commission staff.

A notice of hearing under section 144 of the Securities Act, 1985 S.B.C., c.83 was issued on August 23, 1995, by the Superintendent of Brokers.  The notice states that the Commission would be asked to determine whether it is in the public interest to make orders under sections 144(1)(c) and (d) and 154.2 of the Act against Robert Ross Errol Dion based on the following:

1.		that on May 29, 1995, Dion pled guilty to one count of having defrauded Prudential Bache Securities Canada Ltd., now Burns, Fry Ltd., between July 31, 1990, and September 11, 1990, of over $1,000 contrary to section 380(1)(a) of the Criminal Code of Canada;
2.		that the offence consisted of tendering $265,980.80 in NSF cheques to Prudential Bache as payment for stock as part of a scheme involving numerous direct and nominee stock purchases and sales of six Vancouver Stock Exchange listed companies; and
3.		that he received a sentence of nine months incarceration to be served by electronic monitoring.

To support the allegations in the notice, Commission staff filed a certified copy of Dions record of conviction, a transcript of the submissions made on June 30, 1995, at his plea and sentencing, and the information to obtain a search warrant in furtherance of the criminal proceedings sworn November 25, 1992, by Corporal Hurkett of the Royal Canadian Mounted Police.

On November 7, 1995, following the hearing, we considered it in the public interest to order under section 144(1)(c) and (d) of the Act, that Dions exemptions be withdrawn and that he be prohibited from acting as a director or officer of a reporting issuer until we rendered our decision.

2.   BACKGROUND

In the summer of 1990, Dion and his associates received in the aggregate 760,294 Exchange shares of six Vancouver Stock Exchange companies.  Throughout August 1990, Dion deposited the Exchange shares into several brokerage accounts at the Wolverton Securities Ltd. offices in Vancouver, British Columbia.  The accounts were in the names of Dion and his associates.  Dions associates gave Dion authority to trade the securities in the accounts or traded the securities in the accounts at his instruction.

In the normal course of business in 1990, a brokerage firm would issue a cheque five business days after the sale of a security.  However for a fee, a client could request an early Settlement cheque on the date of the sale.  For the majority of the Exchange shares, as soon as they were deposited into the Wolverton accounts, they were sold and an early Settlement cheque issued in the amount of the sale.

During August 1990, 601,700 Exchange shares were sold from the Wolverton accounts on Dions direct or indirect instructions. Seven cheques were issued from the accounts aggregating $412,831.92.  Four early Settlement cheques were issued to Dion from the accounts dated August 8 for $61,500, August 22 for $93,673.37, August 22 for $76,000 and August 31 for $112,482.30 for a total of $343,655.67.  Three cheques were issued to Dions associates dated August 1 for $41,464.66, August 22 for $13,228.30 and August 23 for $13,483.29 for a total of $68,176.35.

During the summer of 1990, Dion and his associates opened six brokerage accounts at the Prudential Bache offices in Calgary, Alberta.  The same registered representative was acting for all  these Prudential Bache accounts.

On a number of occasions, between August 8 and 31, 1990, at the same time shares of an Exchange company were sold out of the Wolverton accounts, Dion and his associates purchased shares of the same Exchange company in the Prudential Bache accounts.  There were about 300,000 Exchange shares traded under these circumstances. The Prudential Bache accounts, in 39 "buy" transactions, purchased 761,500 Exchange shares for a total price of $429,405.  Dion gave buy instructions in at least 32 of these 39 trades.  406,000 Exchange shares were purchased on August 31 for a total of $172,950.  With respect to the purchase of these 406,000 Exchange shares, which were distributed amongst all the Prudential Bache accounts, the registered representative accepted buy instructions from Dion for the "group" even though Dion did not have trading authority for each of the six accounts.

Dion instructed his associates as to what cheques to write, the amount and how to allocate these cheques amongst the Prudential Bache accounts to pay for the Prudential Bache purchases.  Dion had arranged with his associates that he would deposit the proceeds of early Settlement cheques he received from the Wolverton accounts into his associates chequing accounts prior to their cheques clearing so that the cheques written by his associates to pay for purchases in the Prudential Bache accounts would not bounce.

On August 31, 1990, the Exchange halted trading in the shares of the six Exchange companies.  As of that date no Exchange shares had been sold out of the Prudential Bache accounts.

Contrary to assurances he had made to his associates, Dion did not deposit any proceeds of early Settlement cheques from the Wolverton accounts into his associates bank accounts.  Although it appears that Dion received at least $343,655.67 from sales in the Wolverton accounts, Dions own bank account, from which he issued cheques to pay for some of the Prudential Bache purchases did not have sufficient funds to cover the cheques he wrote.  As a result seven cheques issued by Dion to pay for the Prudential Bache purchases dated August 14 for $24,000, August 21 for $74,000, August 29 for $30,425, August 29 for $25,546, August 29 for $25,546, August 29 for $25,546 and August 31 for $60,897.80 for a total of $265,960.80, were returned NSF.  The monthly brokerage statements showed no form of payment made for the 406,000 Prudential Bache purchases made on August 31.  As of September 30, 1990, there was a debit position of $357,037.32 in the Prudential Bache accounts.

Hurkett reviewed a surveillance report prepared by the Exchange that tracked all of the trading in the Exchange shares of the six Exchange companies covering the period June 1, 1990 to September 30, 1990.  The report contained a list of all the individual trades for, the brokerage firm on each side of the trade, the amount bought and sold, the price, the time of the trade and the trade ticket number.  With information from the surveillance report and client brokerage statements, Hurkett determined which client was on each side of a particular transaction.

On the basis of the surveillance report, account opening documentation, client brokerage statements and interviews with several of the account holders and the registered representative for the six Prudential Bache accounts, Hurkett concluded that during August 1990:

1.		there were 39 trades where the six Prudential Bache accounts bought 761,500 Exchange shares;
2.		on the "buy" side, Dion gave trading instructions for at least 32 of the 39 trades; and
3.		Dion was on both on the "buy" and "sell" side of the same transaction on a minimum of 7 trades.

3.  DECISION

Dions guilty plea on May 29, 1995, to one count of fraud under section 380(1)(a) of the Criminal Code of Canada, is his acknowledgment that he had an intent to defraud, and did defraud, Prudential Bache of $265,980.80 by issuing NSF cheques to Prudential Bache as payment for Exchange shares.

The defrauding of Prudential Bache was part of a scheme involving numerous direct and nominee share purchases and sales of the six Exchange listed companies.  During August 1990, 760,294 Exchange shares were deposited into the Wolverton accounts.  The accounts were in the names of Dion and his associates. Dions associates gave Dion authority to trade the securities in the accounts or they traded the securities in the accounts at his instruction.  By August 31, the Wolverton accounts sold 601,700 Exchange shares and the Prudential Bache accounts, bought, in the name of Dion or his associates,  761,500 Exchange shares in 39 trades.  On the "buy" side, Dion gave trading instructions for at least 32 of the 39 trades.  Dion was on both on the "buy" and "sell" side of the same transaction on a minimum of 7 trades.  For about half of the 601,700 Exchange shares traded by Dion and his associates in August 1990, Dion instructed the Wolverton representative to sell shares of one of the Exchange companies at the same time Dion instructed the Prudential Bache representative to purchase shares of the same Exchange company.

The effect of this trading was to create the impression of arms length trading in the shares of the six Exchange companies, while in fact the Exchange shares were effectively being moved between accounts at Dions instruction.  It was fictitious trading and had an illusory effect on the reported trading activity in the shares of the six Exchange companies. When the Exchange trading halt occurred on August 31, 1990, there was little change in the total Exchange share holdings controlled by Dion and his associates, even though Dion and his associates had received over $400,000 as a result of the sale of the Exchange shares from the Wolverton accounts.

This Commission considered the effect of this kind of trading activity on the integrity of the capital markets in the decision of Eugenio Sirianni et al., [1991] 40 BCSC Weekly Summary 7.  In doing so it referred to the United States Securities and Exchange Commission ("SEC") decision of In the Matter of Thornton and Company, 28 S.E.C. 4 (1948) 208.  The SEC observed, at page 218:

Investors reading reports of stock exchange transactions on ticker tapes and in newspapers ordinarily assume that the reports reflect legitimate transactions.  If the transactions instead reflect fictitious activity, such investors are deceived as to the market in the security. They are falsely led to believe that bona fide transactions have occurred at a certain price and they may be induced by the volume or price changes to purchase or sell the securities as the case may be.

When an outsider, a member of the public, reads the price quotations of a stock listed on an exchange, he is justified in supposing that the quoted price is an appraisal of the value of that stock due to a series of actual sales between various persons dealing at arm's length in a free and open market on the exchange, and so represents a true chancering of the market value of that stock thereon under the process of attrition due to supply operating against demand.

Accordingly we order:

1.		under section 144(1)(c) of the Act, that the exemptions described in sections 30 to 32, 55, 58, 80, and 81 of the Act do not apply to Dion a period of 20 years from the date of this order;
2.		under section 144(1)(d) of the Act, that Dion is prohibited from becoming or acting as a director or officer of an issuer for a period of 20 years from the date of this order; and
4.		under section 154.2 of the Act and section 183 Item33(a) of the Securities Regulation B.C. Reg. 270/86, that Dion pay costs of the hearing in the amount of $1,000.