COR#95/095

Catherine Esson, for Commission Staff. David Lau. Alexander Ma.

This is a hearing under sections 144 and 144.1 of the Securities Act, S.B.C. 1985, c. 83. It concerns facts and allegations set out in two notices of hearing issued by the Superintendent of Brokers on April 25, 1994 and September 6, 1994. In the first notice Commission staff alleged that Currency Specialist Ltd., AA Management & Services Inc., London & Global Ltd. ("London & Global UK"), Ming Lamm, David Lau and Alexander Kwong Chao Ma ("Alexander Ma") were trading in securities, described as forex contracts, without registration and were engaging in a distribution of securities without a prospectus, contrary to sections 20 and 42 of the Act.  Forex contracts were foreign exchange contracts, purporting to represent the purchase or sale on margin of certain foreign currencies.

The April 25 notice was accompanied by temporary cease trade orders made under section 144(2) of the Act directing the respondents to comply with the registration and prospectus requirements of the Act and to cease trading in the forex contracts, other than to effect trades to liquidate client positions that remained open when the temporary orders were issued.

On September 6, 1994, further temporary cease trade orders, accompanied by the second notice of hearing, were issued on the basis that the respondents business of trading in the forex contracts was continuing in contravention of the temporary orders issued on April 25, 1994. This second set of temporary orders directed that all trading in the forex contracts cease immediately and did not allow for the liquidation of open client positions as with the previous orders of April 25, 1994. The second set of temporary orders was issued against London & Global UK, London & Global FX (Canada) Ltd. ("London & Global FX"), David Kai-Fai Lau (a.k.a. David Lau), Alexander Ma, Tim Lam, Po Zhinke Lamb (a.k.a. Paul Lamb) and Hing Wai Yuen (a.k.a. George Yuen).

At the commencement of this hearing, Commission staff alleged that the respondents business of trading in forex contracts with members of the public in British Columbia is still continuing despite the cease trade orders issued on April 25 and September 6, 1994. Staff alleged that each of the respondents, with the exception of Ming Lamm and Currency Specialist, violated the temporary orders.

All of the respondents, with the exception of Tim Lam, had received notice of the hearing in accordance with the provisions of the Act.

By letter to the Commission dated November 1, 1994, Paul Lamb applied to have the temporary orders revoked and the hearing adjourned for sixty days so that he could convince the Commission that the "foreign exchange trading is not trading in securities" or, if he failed in that, so that he could fulfil the registration requirement. Commission staff argued that since the respondents business of trading in forex contracts was continuing in contravention of the temporary orders it was necessary and in the public interest for the hearing to proceed with the temporary orders remaining in place. However, Commission staff sought to adjourn the proceedings against Tim Lam and, as a result of receiving additional information about an individual named Thomas Lau, staff indicated their intention to issue another notice of hearing joining Tim Lam and Thomas Lau as respondents.

After considering the submissions of Commission staff and Paul Lamb, we refused to revoke the temporary orders or to adjourn the hearing except in respect of Tim Lam.

2.   BACKGROUND

From the time the doors first opened to the public in 1991, there has been a forex contract business operating at #145, 555 West 12th Avenue in Vancouver, British Columbia. These proceedings concern the continuation of that business in the same premises over two distinct periods by two purportedly different sets of corporate entities. The first period, from May 1993 to April 25, 1994, covers the time when the business was carried on under the auspices of AA Management and Currency Specialist. The second period, from April 25, 1994 to the present, covers the time when the business was ostensibly taken over by London & Global UK and London & Global FX.

As the evidence unfolded it became apparent that there were few, if any, substantive changes in the forex contracts, or in the way they were offered to the public, when the London & Global companies took over the business. It also became apparent that the takeover of the business by the London & Global companies was, in large part, a change in name only. Banking records revealed that even before London & Global UK had officially taken over AA Management on April 25, 1994, London & Global UK had on two earlier occasions transferred funds to AA Management. This was in addition to approximately $50,000 provided by Paul Lamb, a principal of London & Global UK, to cover AA Management expenses in April 1994.

Because the forex contracts and the operation of the business essentially stayed the same when taken over by the London & Global companies, we refer below to AA Management and London & Global FX as the 'BC company and Currency Specialist and London & Global UK as the 'offshore company, except where it is necessary to be specific. Before describing the forex contracts and the operation of the business, we provide a brief chronological overview.

2.1  Overview

GS Bullion & Forex Inc., incorporated in British Columbia on August 13, 1991, was the first company at 555 West 12th Avenue that provided members of the public with the opportunity to participate in the forex contracts business. GS Bullion was set up at the direction of Thomas Lau, an individual who had been involved in similar operations in Hong Kong. On April 14, 1992, GS Bullion changed its name to AA Management and the business carried on under that name until April 25, 1994. AA Management was owned or controlled, directly or indirectly, by any or all of Thomas Lau, Tim Lam, Paul Lamb, and Ming Lamm. Despite the different spelling of the surname, Tim Lam, Paul Lamb and Ming Lamm are brothers.

Initially, Goldstock Bullion & Forex Ltd., which was represented to be a foreign currency dealer in Hong Kong with an office in Toronto, was described as the market maker for the forex contracts. Goldstock was not registered under the securities legislation of British Columbia, Hong Kong or Ontario, although copies of expired Hong Kong registration certificates for a variety of similarly named Goldstock companies were kept in AA Managements offices. Thomas Lau was the principal of all of the Goldstock companies. On May 1, 1993, AA Management announced that Currency Specialist had taken over as market maker for the forex contracts. However, there were no changes in AA Managements staff or operations.

Currency Specialist was incorporated in the United Kingdom and, according to former AA Management employees David Lau and Alexander Ma, its principals were Thomas Lau and Tim Lam. Currency Specialist held itself out as a foreign currency dealer with offices located at 3rd Floor, Cameo House, 11 Bear St., London. It was not registered under the securities legislation of the United Kingdom and it was not registered to carry on business in British Columbia.

David Lau and Alexander Ma were both in their early twenties and had been recruited to work in the Vancouver office when it first opened as GS Bullion. Following a few weeks of training from the operations manager, they began trading forex contracts, initially for themselves and thereafter for a few family members. Over time they acquired some supervisory responsibilities over others who traded. They were paid about $500 a month for this. In March 1993, Alexander Ma became the president of AA Management and David Lau was a general marketing manager. Although they admittedly did little but attend the offices, they were paid each month $2,500 and $1,500, respectively for their services. At the invitation of Ming Lamm and Tim Lam, Alexander Ma and David Lau each invested $50,000 in the business of AA Management in the fall of 1993.

Around the same time as Lau and Mas investment, Tim Lam sent Ming Lamm to be the operations manager at AA Management and thereafter David Lau and Alexander Ma took direction from him. When in Vancouver, Ming Lamm represented that London & Global UK was connected to AA Management and he displayed London & Global UK advertisements and brochures in AA Managements offices.

London & Global UK was a company incorporated in the United Kingdom and its principals were Tim Lam and Paul Lamb, although Paul Lamb stated that he had unofficially acquired Tims interest in 1992. London & Globals principal place of business was located at the Top Floor, Cameo House, 11 Bear Street, London, England and it had the same telephone number as Currency Specialist. London & Global UK represented that it was a foreign currency broker available to handle spot currency transactions on a 24 hour basis. London & Global UK also held itself out as part of the London & Global Group, a purported group of international foreign currency brokers with branch offices in Manchester, Paris, Hong Kong and Vancouver. Thomas Lau was also a principal of the London & Global Group.

In March 1994, Commission staff began investigating the affairs of AA Management and Currency Specialist. On March 11, 1994, Commission staff visited the offices of AA Management and met with Ming Lamm, David Lau and Alexander Ma.

Ming Lamm left Vancouver within two weeks of Commission staffs visit and all subsequent attempts by Commission staff to locate him were unsuccessful. David Lau and Alexander Ma decided to continue running the Vancouver office on their own in an attempt to salvage the money they had invested in AA Management. They immediately encountered difficulties in meeting expenses, in particular staff salaries and commissions. In addition, many clients wanted to withdraw their money but there was not enough to pay them out. Unable to find Ming Lamm, Alexander Ma located his brother, Paul Lamb, at the London & Global UK offices in London and convinced him to come to Vancouver and provide financial assistance to AA Management. On his second visit to Vancouver on April 15, 1994, Paul Lamb provided approximately $50,000 to cover AA Managements expenses and indicated that he intended to take over AA Managements business. According to Alexander Ma and David Lau, the $50,000 was from a suitcase Paul Lamb brought with him containing between $70,000 to $80,000 in various denominations and currencies.

On April 25, 1994, the Superintendent issued temporary orders directing Currency Specialist, AA Management, London & Global UK, Ming Lamm, Alexander Ma and David Lau to comply with the registration requirements of he Act and to cease trading in the forex contracts except to liquidate existing positions at the request of clients. April 25, 1994, was also the day London & Global UK took over AA Managements business. In a note posted in the AA Management offices, Paul Lamb confirmed that London & Global UK "will assume all responsibility from AA Management. That all deposits due to clients will be honoured from 25th of April 1994." Despite assuming these liabilities, Paul Lamb was emphatic in stating to existing clients that there had been no business dealings or associations between London & Global UK and AA Management and that any representations to the contrary were false. He insisted that if existing clients of Currency Specialist wanted to become clients of London & Global UK, they had to agree not to demand repayment or withdraw any funds owing by AA Management as at April 30, 1994, until August 1, 1994. After August 1, 1994, clients were to be paid one half of the outstanding amount due and owing to them each month.

London & Global FX, a wholly owned subsidiary of London & Global UK, replaced AA Management as the BC company. At Paul Lambs request, David Lau and Alexander Ma became directors of London & Global FX to meet the requirement of having at least two Canadian directors and each received $2,500 in cash a month.

In early May 1994, Paul Lamb sent George Yuen from the London & Global UK office to supervise and act as the operations manager at London & Global FX. Yuen said he was sent to ensure business was conducted "in the London & Global way". Despite the cease trade orders, forex contracts continued to be bought and sold through the Vancouver office at Yuens direction. David Lau and Alexander Ma took directions from Yuen.  However, by August 1994 they seldom came to the office, although they continued to receive their $2,500 monthly cash payments. In August 1994, London & Global UK began reneging on their earlier agreement with clients to repay them one half of the outstanding amount owing each month. As of the date of the hearing, some clients were still unable to withdraw funds owing to them.

On September 6, 1994, the Superintendent issued a further order directing London & Global UK, London & Global FX, David Lau, Alexander Ma, Tim Lam, Paul Lamb and George Yuen to comply with the registration and prospectus requirements of the Act and to cease trading in the forex contracts. No provision was made for liquidating existing client positions. Yuen returned to London in October 1994 and Paul Lamb sent another London & Global UK employee, Siva Adhikari, to replace him. Adhikari confirmed at the hearing that London & Global is still open for business, although he claimed he had not brought in any new clients.

None of the respondents is registered under the Act. Since the issuance of the cease trade orders, London & Global FX has applied for registration under the Act as a securities dealer but registration has not been granted.

2.2  The Forex Contracts and the Operation of the Business

The business of the BC company was segregated into two functions - marketing and operations. The marketing function was conducted in a public area furnished with desks and computer terminals, which continuously displayed currency price quotations provided by the Knight Ridder news service. Financial consultants and clients worked in this area. The operations function was carried out in an area inaccessible to the public but connected to the public area by a window through which orders to open and liquidate contracts could be placed. The operations room was equipped with computers and telephones and staffed by employees of the BC company. The operations manager had general authority over the office and in particular the operations room. The operations manager had signing authority for all bank accounts and control over all client funds.

Financial consultants, under arrangements with the BC company, placed orders to open and liquidate forex contracts for their own account and for clients. Financial consultants received approximately two weeks of training and the BC company employed marketing managers to supervise them. Financial consultants were required to understand and explain to inexperienced clients how the forex contract businesses was conducted at the BC company and how to access market information and world news from various information sources. Clients often executed orders entered into agreements with the financial consultants allowing the financial consultants to trade on their behalf. The financial consultants received a commission from the BC company for each forex contract transaction completed by a client. A complete transaction consisted of an order to open a contract and an order to liquidate the contract. The offshore company charged the client a fee of US $80 for each complete transaction. When the London & Global companies took over, financial consultants also had the opportunity to earn incentive and bounty bonuses if they met certain quotas. Financial consultants commissions were worked out individually according to a commission formula and the commission deduction would show up on the clients statements. Bonuses, however, were not shown on client statements. The clients profits and losses were calculated by a formula set out in the offshore companys literature.

Before members of the public could become clients and place orders through the BC company, they were required to enter into a written contract called the "Customer Agreement" with the offshore company.

The salient terms of the Customer Agreement provided as follows. The offshore company agreed to establish a trading account for the client for the purchase and sale of various currencies against the US Dollar. The client agreed to have the offshore company act as market maker for all transactions traded for the clients account. The client was required to deposit between 2-5% of the purchase or sale price as margin before being able to place an order with the offshore company. The client was required to remit the balance due for an order to the offshore company within two business days of the order. In the event the client failed to settle the order within this prescribed time, the client was charged interest on a daily basis on the credit extended to cover the balance owing on the order. The offshore company reserved the right to liquidate the client's account without prior notice if the clients margin deposit fell short of the requirement. The client acknowledged and accepted the risk that it could be difficult or impossible to liquidate a position. The client also acknowledged that he or she understood the risks and opportunities inherent in these kinds of transactions and confirmed that no request had been made to, or reliance placed on the offshore company to advise on the merits of entering into the purchase or sale of currencies or maintaining open positions.

Despite the terms of the customer agreement, the practice was as follows. On opening an account, clients were required to deposit a minimum amount of U.S. $10,000 before they could place orders to buy or sell currency with the offshore company. A U.S. $10,000 deposit would permit a client to purchase two forex contracts equivalent to U.S. $100,000 each. The forex contracts could only be opened with or liquidated through the offshore company. Open orders were liquidated by noon the following day if the client did not maintain the 5% margin deposit requirement. If the loss on liquidation exceeded the amount of margin on deposit, the client would be obligated to pay the deficiency to the offshore company. Account statements did not indicate how interest was being charged. Clients never remitted the balance of the contract price within two days of the order and never took delivery of the foreign currency. In fact, the offshore company made clear in its promotional literature, and the clients understood, that this was not an option.

After receiving an order, an operations room employee would purportedly place a call to the offshore company to obtain a price for the foreign currency. Prior to April 1993, AA Management had contacted Goldstocks Toronto office to obtain prices. Although Currency Specialist was the designated market maker as of May 1993, AA Management staff continued to call the same Goldstock phone number in Toronto to obtain prices. Telephone records indicate that about 600 to 1000 calls per month were placed as follows: until March 1994 to Toronto; in April and May 1994 to Hong Kong, and since May 1994 to London.

When Currency Specialist was the market maker, the price given was always 10 points different from the Knight Ridder quote. When the London & Global companies took over, the price spread increased to, often, a 30 to 40 point difference from the Knight Ridder quote. For example, if a client wished to enter a contract for the purchase of Pounds Sterling and the Knight Ridder quote for the purchase of Pounds Sterling was 1.6775 (meaning one Pound could be purchased at US $1.6775), the client would pay US $1.6785 per Pound to Currency Specialist and between US $1.6805 and US $1.6815 per Pound to London & Global. Similarly, if a client wished to enter a contract for the sale of Pounds Sterling and the Knight Ridder quote for the sale of Pounds Sterling was 1.6765 (meaning one Pound could be sold at US $1.6765) the client would sell at US $1.6755 per Pound to Currency Specialist and between US $1.6735 and US $ 1.6725 per Pound to London & Global.

For each trade, a buy or sell order ticket was completed which indicated the client account number, the type of order, the currency, the number of lots, the price and whether the order was a new contract or a liquidation of a previous contract. A copy of the buy or sell order ticket was provided to the BC company and the information was entered into the BC companys computer for the purpose of producing account statements for clients, a deposit and payment record showing credits to the client accounts and all clients margin payments and a daily summary of all transactions. The daily summary, prepared for faxing to the offshore company each day, would show client account numbers, the payments in or withdrawals out of client accounts, credits or debits to client accounts and the nature of each transaction. During the period of time Currency Specialist was the designated market maker, records of client transactions and trading information were faxed every day to the Goldstock office in Toronto and to Tim Lam in Los Angeles, rather than to Currency Specialists offices in London.

The BC company also prepared and provided to clients daily account statements. The statements were in the name of the offshore company and were in three sections. The first section, headed "Trading List", showed all the transactions completed that day, noting the number of contracts, price at which each contract was opened or liquidated, the commission payable and the profit or loss made on each contract liquidated. The second section, headed "Open Trading List ", listed each contract that remained open at the end of the day, noting the opening price, the current price at which the contract could be liquidated, interest payable or receivable for the day on the open contracts and the "floating" profit or loss. The third section, headed "Account Details", showed the previous days closing cash balance, the addition or deduction of profit or loss on liquidated contracts, margin deposits and withdrawals by the client and the new cash balance of the account. The floating profit or loss on open contracts was then added to or subtracted from the new cash balance to become the equity in the account. The margin requirement for all outstanding contracts was deducted from the equity to determine whether the client was required to deposit additional funds to meet margin requirements. If the equity was greater than the margin requirement, the difference was noted as "free margin" and could be withdrawn.

Clients funds were not held in trust. Several accounts were maintained by the BC company and the offshore company. Occasionally the operations manager used a personal account to facilitate cash transactions. Throughout, funds flowed between the accounts and company expenses were paid from accounts into which client funds had been deposited. When the London & Global companies took over, client margin funds were initially deposited into a personal account of the operations manager or sent directly to London. Clients or financial consultants were paid in cash if they requested it or simply if it was otherwise convenient to do so. Cash transactions were common. According to Alexander Ma, two accounts of Currency Specialist at National Trust were closed on April 25, 1994, because the trust company was concerned with possible money laundering. Throughout, the offshore company, or its principals, would provide working capital to the BC company as requested and profits of the business were transferred from the BC company to the offshore company or the principals of the offshore company.

The offshore company took the opposite position from clients on each contract. It appears the offshore company was not hedging its risks under the forex contracts. Therefore, the offshore company would make a trading profit on a contract only if the client incurred a trading loss. Conversely, if the client made a trading profit on a contract, the offshore company would incur a trading loss.

One operations manager testified that "the success of this business depends on clients losing more than they win". Indeed, the manner in which the business was eventually conducted virtually ensured that clients would lose money. The Knight Ridder currency quotes, on which the contract prices were based, provided for a normal spread of 10 points between buying and selling prices. Currency Specialist increased this spread, it appears to 30 points, by adding or subtracting 10 points from the Knight Ridder price. In the example cited above, a client opening and liquidating a contract for Pounds Sterling would lose about US $180 as a result of the price spread. London & Global UK increased the 30 point spread to between 70 and 90 points, by adding or subtracting 30 to 40 points from the Knight Ridder price. In the example cited above, a client opening and liquidating a contract for Pounds Sterling would lose between US $415 and US $535 as a result of the price spread. As a result, a client would lose a significant amount on opening and liquidating a contract apart from any movement in the Knight Ridder quotes. In addition, the client would pay commission of US $80 and could be charged interest. These transaction costs might, for an individual transaction, be outweighed by a significant favorable movement in the currency value. More commonly, the transaction costs would either outweigh any favorable currency movement or be exacerbated by an unfavorable movement.

Although the records were incomplete, a computer printout run on October 31, 1994, indicated that for the last six months of the forex contract business carried on by AA Management and Currency Specialist, there was a small profit of US $5,105, made up of: trading loss $212,438; interest $28,903; and commission $188,640. For the first six months of the forex contract business carried on by the London & Global companies, there was a profit of US $900,504, made up of: trading profit $603,330; interest $114,514; and commission $182,760. During this period, client equity decreased from US $710,395 to US $133,910. Clearly, increasing the price spread and interest charges had a very positive effect on London & Globals profits.

Most investors were from the Chinese community. Also, the BC company specifically advertised for, recruited and contracted with individuals in the local Chinese community to be financial consultants who would in turn find and trade for clients. Brochures and handbooks were used to solicit clients and were intended to leave an impression that the financial integrity of the forex business was established and substantial. It is useful to refer to these documents in some detail.

One full page ad, headed by English and Chinese characters, was published in the B.C. edition of the Sing Tao Daily News on August 15, 1994, under the name London & Global FX, with its Vancouver address and phone and fax number, and with a London & Global Group logo (translated as Way Tong Finance). The ad in Chinese, as translated, read as follows:

WAY TONG FINANCE

CONFIDENCE GUARANTEED

	If better development of ones business is desired, one must join the finance industry. Only those who are forged and survive the test in stormy weather can become a real financier. (This paragraph was adjacent to a picture of Paul Lamb, noted as "Group President, Mr. Lam Pao Sing".)
	Networked with various large finance markets of the world. Using the most advanced computing system, providing the latest information and analysis on foreign currency transactions providing customers with the latest market information professional analysis and personal assistance by certified professional agents. Branch offices in various places of the world, including Manchester UK, Paris France, Vancouver Canada, and Ireland. With its firm foundation and powerful strength, Way Tong Finance has sufficiently got its expression and will have further development in the near future.
	With the economical development in the Far East, being a Chinese, this is the opportunity one must seize to open up new territories. I representing Way Tong Finance a group full of strength and life welcome you into our ranks to realize your aspirations in this challenge loaded industry. And let us build more fortunes together.
	Join the finance industry. Realize your ideals. People with aspirations are welcomed to join the Way Tong Finance.

Both the brochure and handbook, which displayed the London & Global Group logo and which were entitled "Currency Dealers and Brokers in the Foreign Exchange Markets" and "Dealers Handbook", respectively, described London & Globals business.

The brochure written in Chinese, English and French, included the following:

*		London and Global are currency brokers in the foreign exchange markets... With its head office situated in London in the worlds largest financial centre, and offices in the heart of Paris, Vancouver, Manchester and Hong Kong, London and Global assists its clients to deal profitably on the foreign exchange markets by advising them on the economic environment and the latest market movements and handling spot currency transactions on their behalf 24 hours a day;
*		CUSTOMER SERVICE At London and Global each investor is provided close team service to advise on all aspects of their account deals. The individual service provided by London and Global is exceptional. Keeping each investor informed of market movements and supplying regular economic updates, London and Global is able to ensure that the client makes the most profitable use of investment opportunities as and when they occur. Similarly the team is on hand to answer queries or to provide advice just as often or as little as the client requires;
*		SECURITY, FLEXIBILITY AND CONTROL Clients of London and Global have the option to dedicate as little or as much time to the direct control of their accounts as they determine. Many establish stop loss limits and some chose to grant their personal account manager power of attorney to act on their behalf. In all transactions London and Global maintains the highest levels of security and confidentiality. Furthermore, each deal is recorded on tape and client funds are held in an entirely separate account thus ensuring clients peace of mind.

*		London & Globals business was foreign currency speculation and provided the mechanism by which clients could speculate and profit from a favourable movement in the exchange rate between the currencies bought and sold on the foreign markets. It specifically stated that:  "Speculation is a form of short-term investment activity. Foreign exchange speculators buy currencies with the intention of re-selling them at a profit. Large returns can be made on a fairly small investment within a short period of time. At London & Global our broking staff have constant access to market information and can help you to make judgements about a suitable strategy."
*		Clients margin funds were kept in segregated accounts separate from operating funds of London & Global.
*		Although clients were told that with foreign currency speculation they could not avoid losses, clients could control the amount of risk they were willing to accept. They were told that they "need never to lose heavily" and could control their maximum loss by placing a "stop loss" order or "limit" order on their account.
*		Account managers were experienced traders with a deep understanding of the market who would assist clients and provide information about economic trends and events.
*		London & Global employed a chief research officer who researched world events and the reasons for fluctuations in the markets to assist clients. This person would hold daily seminars to provide information to account managers.

Not only did the respondents attempt to mislead their clients through their promotional literature, the respondents attempted to mislead or, at best, to thwart Commission staff in their investigation.

When Commission staff began investigating this matter in early March 1994, they immediately began encountering difficulties in obtaining documents and other information from each of the respondents despite many assurances of complete cooperation. Requests were either completely or partially ignored. Problems in the production of documents were invariably caused by someone else. For example, in his interview with Commission staff on July 20, 1994, Yuen described the various records kept and acknowledged that he was responsible for preparing and sending them to London & Global UK, but he refused to produce any of them without Paul Lambs authority. Paul Lamb, on the other hand, in a letter to Commission staff shortly thereafter confirmed "Please be asured (sic) of my full and unreserved co-operation. I will call and speak to George to ask him to collect all the items for you that relate to L&G. Surely you might have detected that George is a character in some way. Alexander is on holiday, I will try to talk to David and see if he could work on list relating to AA. David appears to be hesitant to do anything without Alexander saying "go."

At the end of the day, many of the documents requested by Commission staff were simply not produced.

3.   ANALYSIS AND FINDINGS

Our analysis and findings are focused on the following issues:

1.		whether the forex contracts are securities within the meaning of section 1(1) of the Act;
2.		whether the respondents were trading in securities contrary to sections 20 and 42 of the Act; and
3.		whether the respondents were also advising in securities contrary to section 20 of the Act.

The forex contracts offered by the respondents are, in substance, the same as those offered by the respondents in our decision In the Matter of Yuen Chow International Group, et al., COR #95/093, released concurrently with this decision. For the reasons given in that decision, we find that the forex contracts offered by the respondents are investment contracts and therefore securities as defined in section 1(1) of the Act.

3.2  Were the respondents trading in securities without being registered and were they distributing securities without filing and obtaining a receipt for a prospectus?

Commission staff alleged that each of the respondents traded in securities contrary to section 20 of the Act and distributed securities without filing and obtaining a receipt for a prospectus contrary to section 42 of the Act.

Section 20(1)(a) of the Act provides that "no person shall trade in a security unless he is registered as a dealer, or a salesman, partner, director or officer of a registered dealer and is acting on behalf of that dealer...".

Trade is defined in section 1(1) of the Act to include:

(a)

a disposition of a security for valuable consideration whether the terms of payment be on margin, instalment or otherwise, but does not include a purchase of a security or a transfer, pledge, mortgage or other encumbrance of a security for the purpose of giving collateral for a debt, ... (c) the receipt by a registrant of an order to buy or sell a security, (e) any act, advertisement, solicitation, conduct or negotiation directly or indirectly in furtherance of any of the activities specified in paragraphs (a) to (d).

The BC company operated a facility at which members of the public could become clients of the offshore company and place orders to open and liquidate forex contracts. The BC company provided clients with customer agreements, received orders and transmitted them to the offshore company, provided documentation and information to members of the public relating to the offshore companys business and the client's investments with the offshore company, maintained records on behalf of the offshore company, and received funds from clients on behalf of the offshore company.

The business of the offshore company and the BC company involved the disposition for valuable consideration of securities in the form of forex contracts. Both the offshore company and the BC company engaged in advertising, solicitation and other acts in furtherance of the forex contract business. On this basis, we find that each of AA Management, Currency Specialist, London & Global UK and London & Global FX was trading in securities and each was required to be registered under section 20(1)(a) of the Act. None of these respondents was registered under the Act and no exemption from registration was available for this trading. Accordingly, we find that each of AA Management, Currency Specialist, London & Global UK and London & Global FX was trading in securities in contravention of section 20(1)(a) of the Act.

Each of Paul Lamb, Ming Lamm, George Yuen, David Lau and Alexander Ma actively participated in the forex contract business and therefore were trading in securities. Accordingly, we find that each of these respondents was required to be registered under section 20(1)(a) and, since they were not registered and no exemption from registration was available for this trading, they were trading in securities in contravention of section 20(1)(a) of the Act.

Section 42(1) of the Act provides that:

Unless exempted under this Act or the regulations, a person shall not distribute a security unless a preliminary prospectus and a prospectus respecting that security

(a)

have been filed with, and (b) receipts obtained for them from,

      Distribution is defined in section 1 of the Act as follows ...

"distribution" means, where used in relation to trading in securities,

(a)

a trade in a security of an issuer that has not been previously issued, ...

3.3  Were the respondents advising in securities contrary to section 20(1)(c) of the Act?

Commission staff also alleged that each of the respondents was advising in securities without being registered, contrary to section 20(1)(c) of the Act.

Section 20(1)(c) of the Act provides that:

	No person shall ... (c) act as an adviser unless he is registered as (i)  an adviser, or (ii) a partner, director or officer of a registered adviser and is acting on behalf of that adviser
	in accordance with the regulations.
	Section 1 of the Act defines adviser as follows:
	"adviser" means a person engaging in, or holding himself out as engaging in, the business of advising another with respect to investment in or the purchase or sale of securities;

A person who recommends an investment in an issuer or the purchase or sale of an issuers securities, or who distributes or offers an opinion on the investment merits of an issuer or an issuers securities, is advising in securities. If a person advising in securities is distributing or offering the advice in a manner that reflects a business purpose, the person is required to be registered under the Act.

The evidence confirms that each of the individual respondents engaged in conduct relating to these representations, thereby facilitating the advising business of both the BC and the offshore company. The individual respondents managed the forex contract business for the BC company and the offshore company and were also in the business of advising. We find that each of the respondents was required to be registered as an adviser under section 20(1)(c) of the Act and, since they were not registered and no exemption from registration was available for them to act as advisers, they all contravened section 20(1)(c) of the Act.

4. DECISION

As we have already indicated, in our view there was no real corporate distinction between the business of the offshore company and that of the BC company. The evidence demonstrates that, contrary to what clients were led to believe, the trading in the forex contracts was all internal. There were no independent, arms length foreign currency brokers acting as market makers. The individuals that ran the offshore companies ran the whole operation. They set up the local office, provided it with senior management, provided working capital and siphoned any profits offshore. They simply controlled the entire business.

Their modus operandi was to target the local Chinese community and convince them that they were investing their money in a very risky but legitimate forex business. However we have seen that the legitimacy of this business and the purported regard for client funds was simply an illusion.

The determination of the respondents, especially of Paul Lamb, to keep this business operating without any regulatory controls or scrutiny was apparent from the first moment the doors at #145, 555 West 12th Avenue opened for business and up to and through the hearing.

It was reflected in:

*		the manner in which the business was set up, including the attempts to hide the principals behind the operation;
*		the failure to disclose the non arms length relationship between the offshore company and the BC company;
*		the representations to clients that they were dealing with reputable and established international foreign currency brokers;
*		the representations to clients that their funds were segregated from operating funds when, in fact, they were not;
*		the failure to disclose to clients on their statements that bonuses were paid to financial consultants;
*		the unorthodox banking practices;
*		the failure to provide information and records to Commission staff;
*		the continued representation to regulators that the offshore company was merely trading in spot currency contracts;
*		the deliberate breach of the cease trade orders by each of the respondents (Ming Lamm and Currency Specialist excepted) through their continuation of the business under a different corporate identity; and
*		the failure of Ming Lamm, George Yuen and Paul Lamb to attend the Commission hearing.

Cases such as this re-emphasize the significance and necessity of ensuring strict compliance with the registration requirements in the Act. As we stated in Atlantic (supra), "requiring persons in the business of trading and advising in securities to be registered under the Act is a fundamental part of the regulatory scheme to protect investors from fraudulent, abusive and unfair practices". The respondents consistently sought to undermine this fundamental regulatory goal and their clients suffered significant financial losses as a consequence.

In light of these circumstances and our findings that the corporate respondents breached sections 20 and 42 of the Act, we can see no distinction between the conduct of AA Management, Currency Specialist, London & Global UK and London & Global FX, save for the fact that Currency Specialist did not participate in the breach of the temporary cease trade orders of April 25 and September 6, 1994.

With respect to the individual respondents, we find that Paul Lamb merits the severest sanction. He led and directed the other individual respondents to avoid their regulatory responsibilities through evasion and deception. Whether for greed or loyalty, Ming Lamm and George Yuen obliged and followed Tim Lams or Paul Lambs instructions. Ming Lamm attempted to avoid the regulatory consequences of his conduct by simply disappearing. George Yuen was less than cooperative with Commission staff in their investigation. He too simply left the jurisdiction after having directed the Vancouver office to continue trading forex contracts despite the temporary cease trade orders. David Lau and Alexander Ma, although young and inexperienced initially, out of greed continued to participate in a business they knew was operating in contravention of the cease trade orders.

Despite differing degrees of involvement, all of these respondents breached sections 20 and 42 of the Act and they must be held accountable.

We consider it necessary to protect the public from the activities of the respondents for a substantial period of time given this deliberate disregard of British Columbias regulatory requirements. Accordingly, we order:

1.		under section 144(1)(a) of the Act, that each of the respondents comply with sections 20 and 42 of the Act;
2.		under section 144(1)(b) of the Act, that each of the respondents cease trading in the forex contracts;
3.		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 AA Management, Currency Specialist, London & Global UK, London & Global FX and Paul Lamb for a period of 20 years from the date of this order, to Ming Lamm and George Yuen for a period of 15 years from the date of this order and to Alexander Ma and David Lau for a period of 10 years from the date of this order;
4.		under section 144(1)(d) of the Act that each of the individual respondents is prohibited from becoming or acting as a director or officer of an issuer for the period of time specified opposite his name:

	Paul Lamb	20 years from the date of this order;
	George Yuen	15 years from the date of this order;
	Ming Lamb	15 years from the date of this order;
	David Lau and
	Alexander Ma	10 years from the date of this order;

5.		under section 144.1 of the Act, that AA Management, Currency Specialist, London & Global UK, London & Global FX, Paul Lamb, Ming Lamm and George Yuen each pay an administrative penalty of $50,000 and that David Lau and Alexander Ma each pay an administrative penalty of $10,000; and
6.		under section 154.2 of the Act, that the AA Management, Currency Specialist, London & Global UK, London & Global FX, Paul Lamb, Ming Lamm and George Yuen pay costs of or related to the hearing in an amount to be determined following submissions from the parties.