Decisions
ROBERT A. DIIANNI [Decision]
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BCSECCOM #:
2001 BCSECCOM 918
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Document Type:
Decision
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Published Date:
2001-09-17
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Effective Date:
2001-09-14
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Details:
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2001 BCSECCOM 918
COR#01/100
IN THE MATTER OF THE SECURITIES ACT, R.S.B.C. 1996, c. 418
AND
IN THE MATTER OF ROBERT A. DIIANNI (AKA ROBERT DIANNI)
HEARING
PANEL
Brent W. Aitken
Joan L. Brockman
Roy Wares
DATE OF HEARING
September 5, 2001
DATE OF DECISION
September 14, 2001
APPEARING FOR COMMISSION STAFF
Kristine M. Mactaggart
DECISION OF THE COMMISSION
[para 1]
This is a hearing under section 161(1) of the Securities Act, R.S.B.C. 1996, c 418. The amended notice of hearing dated August 14, 2001 alleges that the respondent Robert A. DiIanni:
1. was sanctioned by the United States Securities and Exchange Commission in administrative proceedings in 1984 and civil court proceedings in 1987,
2. was convicted in 1989 of securities fraud and other offences by the U.S. courts and was sentenced to prison for 42 months, and
3. between May 3 and July 30, 1993 (the relevant period), manipulated the price of shares of Annisquam Art Company Ltd.
[para 2]
Commission staff seeks permanent orders against DiIanni prohibiting his use of exemptions under the Act, prohibiting him from acting as a director or officer of any issuer and prohibiting him from engaging in investor relations activities. Staff also seeks an order that DiIanni pay the costs of the hearing.
[para 3]
Commission staff served DiIanni with the notice of hearing in accordance with the Act. In correspondence to Commission staff, DiIanni, now apparently a resident of Switzerland, said he did not intend to appear at the hearing.
BACKGROUND
History
[para 4]
This is an old matter. According to the evidence of the staff witness, it is before us now as part of a staff project to deal with old files that have not been settled, heard or closed.
[para 5]
The history is briefly as follows. In 1994, Commission staff, acting on information it had about trading in the shares of Annisquam and DiIanni’s regulatory history in the United States, issued a temporary cease trade order against DiIanni and others, preventing them from trading in the shares of Annisquam. The orders were extended by the Commission until a hearing was held and a decision rendered.
[para 6]
The original notice of hearing, issued at the time of the cease trade order, has been amended and at this point DiIanni is the sole respondent in the matter.
Proceedings in the United States
[para 7]
DiIanni has a history with the U.S. authorities. In 1984, he was barred by the SEC from the securities industry on the basis of findings by the SEC that he contravened U.S. securities laws.
[para 8]
In 1987 the SEC sued DiIanni in U.S. District Court (Massachusetts) and that court issued a permanent injunction and a disgorgement order against DiIanni. This order imposed various conditions on DiIanni.
[para 9]
In 1989 DiIanni pled guilty in U.S. District Court to three counts of mail fraud, three counts of wire fraud, one count of interstate transportation of stolen property and one count of securities fraud. He was sentenced to 42 months in prison for all counts except the securities fraud violation. A sentence of five years on the securities fraud count, to be served consecutively, was suspended and a period of three years’ probation imposed. One of the conditions of the probation was that DiIanni comply with the conditions of the 1987 permanent injunction and disgorgement order.
[para 10]
Soon after his release from prison, DiIanni was charged and convicted of violating the terms of his probation by impersonating his stepson in securities dealings with a brokerage firm and lying to his probation officer. In 1996, affirming the lower court’s decision to revoke his probation and sentence him to two years imprisonment, the U.S. Court of Appeals said:
“Given the relationship between the defendant’s probation infractions and his past criminal conduct, it was not unreasonable for the court to conclude that defendant’s post-release activities suggested that he was positioning himself incognito to get right back into his old heists. The court found his new offences ‘in many ways a kind of shadow of the offences that led initially to Mr. DiIanni’s incarceration . . . . Moreover, they came after considerable experience here with violations of the federal securities law, a SEC injunction, a criminal prosecution . . . . And so, what I have before me is a recidivist who – offered any opportunity – will undertake to engage in conduct that is proscribed by federal securities laws.’ The court reasonably found defendant’s efforts to explain away his behaviour not credible, and his propensity for “anti-social” conduct substantial.”
Annisquam
[para 11]
Annisquam, whose name has since changed, was listed on the Vancouver Stock Exchange (now CDNX). Its business during the relevant period was the reproduction of works of art. Its financial statements for the years ended October 31, 1992, 1993 and 1994 show a reasonably stable state of affairs and disclose nothing that would seem to be consistent with a dramatic run-up in the price of its shares during the relevant period.
[para 12]
Yet the price did run up. Between October 15, 1992 and August 20, 1993, the Annisquam share price increased from $0.22 to $4.30. During the relevant period, May 3 and July 30, 1993, the price rose from $1.60 to $3.45.
[para 13]
During the relevant period, significant trading in Annisquam shares was executed through accounts in the name of Ralston Limited Partnership at various brokerage firms, including Union Securities Limited, a Vancouver broker-dealer. Of the approximately 2.4 million shares of Annisquam traded on the Exchange in this period, about 26% were traded through the Ralston accounts at Union. Ralston was an active buyer and seller. Trades through these accounts represented 73% of the upticks, 73% of the high closes and 59% of the new highs. There were also numerous uneconomic trades of Annisquam shares in the Ralston accounts – Ralston sold shares at prices lower than it purchased them, sometimes on the same day.
[para 14]
According to an affidavit sworn by DiIanni in 1993, Ralston was a limited partnership specializing in investments in publicly owned companies. DiIanni was a consultant to Ralston and he had been given non-exclusive authority over Ralston’s brokerage accounts by Ralston’s general partner.
[para 15]
Union’s records show that DiIanni and Ralston’s general partner, Mark Pinguey, were the two persons authorized to trade the Ralston accounts at Union. Ralston had accounts at other firms, including Georgia Pacific Securities Corporation, another Vancouver broker dealer, and DiIanni was the sole individual authorized to trade that account on Ralston’s behalf.
[para 16]
In connection with these proceedings, DiIanni sent a letter to Commission staff (which he described as an affidavit). The letter includes the following statements:
“1. I deny all the allegations in [sic] their face . . . .
“2. Specifically, I deny that any high closing or upticking, new high trades, or market domination were the result of any activities of the Ralston accounts.
“3. I deny any uneconomic trades during the relevant period. Sometimes stock was sold in the morning to an overseas investor who complained that he could not get size at a reasonable price. In order to accommodate this investor, stock was bought and sold at a loss to Ralston but with the positive benefit to the overall Ralston position by having this investor on board. Stock would be bought at times at the close to further accommodate this investor at the opening. . . .
. . .
“5. There was never an effort to create the appearance of a misleading or artificial price for Annisquam Art stock. Nor did Ralston benefit in any way from trading as it never sold stock at a profit, to the best of my knowledge.”
FINDINGS
[para 17]
The allegations in the notice of hearing relating to DiIanni’s history of securities violations in the United States are clearly proven by the records before us of those proceedings and we so find.
[para 18]
The allegation in the notice of hearing related to the manipulation of the price of Annisquam’s shares reads as follows:
“2.16 DiIanni engaged in or participated in the transactions . . . relating to the acquisition of or trade of securities of Annisquam when DiIanni knew, or ought reasonably to have known, the transactions created or resulted in a misleading appearance of trading activity in, or an artificial price for, the securities of Annisquam, contrary to section 41.1(a) of the [Securities Act, S.B.C. 1985, c. 83], and contrary to the public interest.”
[para 19]
The Securities Act, S.B.C. 1985, c. 83 was the predecessor to the Act and was the statute in force when the notice of hearing was first issued. Section 41.1 (a) of that Act reads as follows:
“41.1 No person, directly or indirectly, shall engage in or participate in a transaction or scheme relating to a trade or acquisition of a security if the person knows or ought reasonably to know that the transaction or scheme
“(a) creates or results in a misleading appearance of trading activity in, or an artificial price for, any security listed on a stock exchange in the Province.”
[para 20]
The first question is whether DiIanni directly or indirectly engaged in or participated in the trading of the Annisquam shares during the relevant period. There is no direct evidence that DiIanni instructed these trades, but it seems highly unlikely that he did not participate in these trades at all. First, Ralston’s business was stock trading, and DiIanni was its consultant. His role as a consultant is not completely clear, but it apparently required his having trading authority over the Ralston brokerage accounts. This suggests that trading stocks on Ralston’s behalf was part of his assignment. Second, it is clear from the letter he sent to Commission staff in these proceedings that he was familiar with Ralston’s trading operations, including those relating to the trades in the Annisquam shares.
[para 21]
The standard of proof applied to hearings before the Commission is the balance of probabilities, and on that standard we find that DiIanni directly or indirectly engaged in or participated in the trading of the Annisquam shares during the relevant period.
[para 22]
The second question is whether DiIanni knew or ought reasonably to have known that Ralston’s trading created or resulted in a misleading appearance of trading activity in, or an artificial price for, the Annisquam shares.
[para 23]
In Re Atlantic Trust Management Group [1995] 14 BCSC Weekly Summary 84, the Commission considered whether the respondents in that case had contravened section 41.1. Noting that the respondents made many uneconomic trades, were active on both the buy and the sell side and that their trades represented a significant percentage of the total trades, upticks and new highs, the Commission found that the respondents had contravened section 41.1.
[para 24]
We have all of the same factors here – factors that are the hallmarks of stock price manipulation. We have no difficulty finding that Ralston’s trading activity was calculated to create or result in a misleading appearance of trading activity in, or an artificial price for, the Annisquam shares during the relevant period. We also find that DiIanni, with his experience in securities matters (albeit much of it dubious), knew or ought to have known so.
DECISION
In Atlantic, the Commission commented that the respondents’ conduct in that case “ . . . could hardly be more serious. It strikes at the heart of the pricing process on which all investors rely and undermines public confidence in the integrity of our capital markets.” This applies equally to DiIanni. In similar cases, the Commission has imposed lengthy prohibitions against respondents, even without the aggravating factor of a history of securities violations.
[para 26]
In this case, we also have DiIanni’s conduct in the United States. His conduct there, particularly as found by the U.S. courts, shows that DiIanni cannot be trusted to comply with securities laws.
[para 27]
Therefore, considering it to be in the public interest, we make the following permanent orders:
1. under section 161(1)(c) of the Act, that the exemptions described in sections 44 to 47, 74, 75, 98 or 99 do not apply to DiIanni; and
(a) be prohibited from becoming or acting as a director or officer of any issuer, and
(b) be prohibited from engaging in investor relations activities.
[para 28]
We also order, under section 174 of the Act, that DiIanni pay the costs of or related to the hearing. Commission staff is directed to provide a Bill of Costs to the Commission Secretary on or before September 28, 2001.
[para 29]
September 14, 2001.
FOR THE COMMISSION
Brent W. Aitken, Commissioner
Joan L. Brockman, Commissioner
Roy Wares, Commissioner