Canaccord Capital agrees to fines and audit for involvement in Stanhiser and Excel investment fraud
Released: 06/29/00 Contact: Dean Pelkey
NR #00/28 (604) 899-6880 or
(BC only) 1-800-373-6393
Canaccord Capital agrees to fines and audit
for involvement in Stanhiser and Excel investment fraud
for involvement in Stanhiser and Excel investment fraud
Vancouver -- Canaccord Capital Corporation has agreed to pay $428,000 in penalties and investigative costs for its role in a stock fraud perpetrated by Gary Stanhiser and his Excel group of companies.
In an agreement signed with the British Columbia Securities Commission, Canaccord states it has improved its compliance procedures but the BCSC has imposed an audit on Canaccord's compliance record for the fiscal year 1999-2000. Canaccord will pay all costs associated with the audit and also agrees to fix any deficiencies discovered by the audit.
"The onus is on senior management to ensure their companies and employees comply with securities regulations," said Stephen Wilson, BCSC executive director.
"This incident shows that an investment firm without an adequate compliance program is vulnerable to fraud, manipulation and an abuse of client trust."
Canaccord was home to a number of accounts controlled by Stanhiser that he used to pool investors' money. Stanhiser later used money from the accounts to buy into offshore trusts and other companies he controlled.
Although Canaccord officials say the company did not knowingly participate in Stanhiser's scheme, they agree the company failed to properly supervise its employees and did not question the nature and type of transactions being made by Stanhiser and the Excel companies.
The BCSC levied a $100,000 penalty on Stanhiser in March and banned him from the B.C. securities market for the rest of his life. A former pastor with the Seventh Day Adventist Church, Stanhiser bilked more than $11 million from 300 investors. Many of the investors were church members in B.C. and California. Canaccord had 140 clients who invested in Stanhiser's scheme.
The B.C. Securities Commission is the independent provincial government agency responsible for regulating trading in securities and exchange contracts within the province. Copies of the agreement can be viewed on the commission’s website www.bcsc.bc.ca or by contacting Media Relations Officer Dean Pelkey at 899-6880.
Here is a list of the agreed breaches of Securities Act and Rules by Canaccord. Text of the full agreement can be found at www.bcsc.bc.ca.
By assisting the Excel Group in the collection and payment of monies in the Scheme and by assisting in the physical distribution of securities purchased through the Scheme in the absence of a prospectus or any exemption, Canaccord unwittingly participated in a breach of section 61(1) of the Act.
By failing to inquire into and learn about the business operations of Excel International, Diomondmark and Excel Funding, Canaccord breached section 48(1) of the Securities Rules, B.C. Reg. 194/97 (the “Rules”) requiring Canaccord to make inquiries to learn the essential facts relative to every client.
Canaccord failed to establish and apply prudent business procedures for dealing with clients and was in breach of section 44(1) of the Rules, the particulars of which are as follows:
- Canaccord’s compliance department did not undertake reviews, when commissions were between $1000 and $2500 per month, of monthly statements of the Excel Group Accounts, in breach of IDA Policy No. 2 and Exchange Policy Statement CR06 of the Vancouver Stock Exchange (“VSE”).
- On a number of occasions, the Excel Group instructed Canaccord to move securities from its accounts to the accounts of the Individual Investors, without using the facilities of the Exchange, which Canaccord did without proper control and supervision and without reviewing the transfers, as required by VSE Policy Statement CR04.
- Canaccord issued cheques without proper control and supervision to issuers in order to pay for private placements arranged by the Excel Group. Funds for those cheques were drawn from a number of accounts including the Excel Group Accounts and accounts of Individual Investors. No one at Canaccord made any inquiry concerning these transactions, which inquiry would have indicated the nature of the Scheme.
- Significant amounts of funds were periodically journal- transferred, without proper supervision or control, from Individual Investors’ accounts into one of the Excel Group Accounts. The Individual Investors provided written instructions to Canaccord that clearly indicated they were making the transfers in order to participate in private placements arranged by the Excel Group. No one at Canaccord queried these journal transfers, which indicated the pooling arrangements lying behind the Scheme.
- Multiple cheques from Individual Investors and others were deposited periodically into one of the Excel Group Accounts, without proper supervision and control. No one at Canaccord questioned this activity, which was an indication of the activity underlying the Scheme.
- Canaccord allowed one of its boardrooms to be used by the Excel Group on one occasion for one day, for the promotion of the Scheme or otherwise, without approval of the VSE, in breach of VSE Rule F.2.05.
Canaccord failed to supervise its employees adequately and properly and, as a result, failed to deal properly or fairly with its clients, in breach of section 14(1) of the Rules, the particulars of which are set out in paragraph 2.21.
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