Notices of Hearing & Temporary Orders

ERON MORTGAGE CORPORATION, et. al. [Sec. 161]

BCSECCOM #:
Document Type:
Sec. 161
Published Date:
1998-09-18
Effective Date:
1998-09-17
Details:


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

AND

IN THE MATTER OF ERON MORTGAGE CORPORATION,
ERON INVESTMENT CORPORATION, ERON FINANCIAL SERVICES LTD.,
CAPITAL PRODUCTIONS INC., BRIAN SLOBOGIAN AND FRANK BILLER
(COLLECTIVELY, THE “RESPONDENTS”)


Amended Notice of Hearing Under Section 161

1. TAKE NOTICE that a hearing will be held at the 7th Floor Hearing Room, 865 Hornby Street, Vancouver, British Columbia, (the “Hearing”) to give the Respondents an opportunity to be heard before the British Columbia Securities Commission (the “Commission”). At the Hearing, the Commission will be asked by the Staff of the Commission to make the following orders in the public interest:
      1.1 that any or all of the exemptions described in sections 44 to 47, 74, 75, 98 or 99 of the Securities Act, R.S.B.C. 1996, c. 418 (the “Act”) do not apply to the Respondents, pursuant to section 161(1)(c) of the Act;

      1.2 that Biller and Slobogian be prohibited from becoming or acting as a director or officer of any issuer, pursuant to section 161(1)(d) of the Act;

      1.3 that Biller and Slobogian be prohibited from engaging in investor relations activities, pursuant to section 161(1)(d) of the Act;

      1.4 that Biller and Slobogian each pay an administrative penalty, pursuant to section 162 of the Act;

      1.5 that Biller and Slobogian pay prescribed fees or charges for the costs of or related to the Hearing, pursuant to section 174 of the Act; and

      1.6 such further and other relief as the Commission considers appropriate in the circumstances;
2. AND TAKE NOTICE that the Commission will be asked to consider the following facts and allegations in making its determinations:
      2.1 Eron Mortgage Corporation (“Eron”) was incorporated under the Company Act, R.S.B.C. 1979, c. 59 (the “Former Company Act”) on January 4, 1993, is not a reporting issuer and has never been registered under the Act to trade in securities;

      2.2 Capital Productions Inc. (“Capital”) was incorporated under the Company Act, R.S.B.C. 1996, c. 62 on June 18, 1997, is not a reporting issuer and has never been registered under the Act to trade in securities;

      2.3 Eron Financial Services (“EFS”) and Eron Investment Corporation (“EIC”) were incorporated under the Former Company Act on October 31, 1988, and June 13, 1995, respectively, are not reporting issuers and have never been registered under the Act to trade in securities;
      2.4 Slobogian was the sole director and the president of Eron and Capital and has never been registered under the Act to trade in securities. He is also the president and a director of EFS and EIC;

      2.5 Biller was an officer of Eron, and Capital, a director and officer of EIC and has never been registered under the Act to trade in securities;

      2.6 Eron was registered as a mortgage broker under the Mortgage Brokers Act, R.S.B.C. 1996, c. 313. Slobogian and Biller were registered as sub-mortgage brokers under that Act;

      2.7 from January, 1993 until October, 1997 (the “Relevant Period”), the Respondents:
          2.7.1 solicited residents of British Columbia to make investments by way of loans, either purportedly secured by interests in mortgages on real property (“Mortgage Securities”), or evidenced by promissory notes (“Notes”) or both; and

          2.7.2 as such, engaged in the trading and distribution of the Mortgage Securities and the Notes;
        2.8 the Respondents, or representatives of the Respondents, represented to investors that these investments were short term, secure loans to Eron, EIC, EFS, CPI and a variety of entities to be used primarily as investment capital;

        2.9 the Respondents solicited investors to invest in excess of $200,000,000 during the Relevant Period either by way of Mortgage Securities or Notes or both;
    A. The Trading and Distribution of the Mortgage Securities
        2.10 the Respondents relied on the exemptions from registration and prospectus requirements provided by sections 32(e) and 58(a) of the Former Act and sections 46(e) and 75(a) of the Act for the trading and distribution of the Mortgage Securities;
          Misrepresentations and Fraud in Respect of the Mortgage Securities
            2.11 the Respondents, or representatives of the Respondents, made statements, with the intention of effecting a trade in securities, which they knew or ought to have known were misrepresentations, contrary to section 35(1)(d) of the Former Act [now section 50(1)(d) of the Act ];

            2.12 during the Relevant Period, the Respondents engaged in or participated in transactions or a scheme relating to trading in securities, which they knew or ought reasonably to have known perpetrated a fraud on persons in British Columbia, contrary to section 41.1 of the Former Act [ now section 57(b) of the Act ];

            2.13 during the Relevant Period the Respondents acted contrary to the public interest in respect of the investments solicited;

            2.14 particulars of the allegations set out in paragraphs 2.11, 2.12. and 2.13 are as follows:
                2.14.1 the Respondents, or representatives of the Respondents, in the course of trading in and distributing the Mortgage Securities:
                    (a) misrepresented the value of mortgaged properties to investors;

                    (b) falsely assured investors that the value of mortgaged properties significantly exceeded the value of mortgages registered against it, and that the mortgage in which they were investing therefore provided good security;

                    (c) misrepresented the extent to which mortgaged properties had already been developed;

                    (d) falsely assured investors that their invested funds would be used by borrowers to further develop or to enhance the value of mortgaged properties;

                    (e) falsely assured investors that the securities they were offering involved no or minimal risk;

                    (f) promised investors returns of 15% to 24% on funds invested, while they knew, or ought to have known, that such rates of return were not realistic under the circumstances and could not be maintained;

                    (g) represented to investors that the loans were short term, for periods varying from 6 to 12 months, repayable on demand, while they knew or ought to have known that the loans would not or could not be repaid as agreed without raising more funds from additional investors; and

                    (h) represented to investors that repayment of the funds was guaranteed by Eron, Slobogian or Biller while they knew or ought to have known that they would not or could not do so;
                2.14.2 the Respondents failed to provide investors with the Mortgage Securities they had promised to them, and in particular:
                    (a) put some investors, who were promised an interest in a particular mortgage, such as a second mortgage, into a mortgage with lower priority, such as a third or fourth mortgage, without their knowledge; and

                    (b) put some investors, who were promised an interest in a particular mortgage, such as a $2 million mortgage, into a mortgage with a higher principal amount, such as a $5 million mortgage, without their knowledge;

                2.14.3 the funds raised by the Respondents from investors for investment in particular mortgages exceeded the amounts secured by the mortgages;

                2.14.4 the Respondents did not advance some of the funds raised from investors for investment in particular mortgages to the borrowers, but expended it in ways not disclosed to the investors;

                2.14.5 the Respondents applied funds raised from subsequent investors to make the interest or capital payments to existing investors without the knowledge of the investors;

                2.14.6 the Respondents knew or ought to have known, when they solicited investors to invest in particular mortgages, that the amount secured by the mortgage exceeded the value of the underlying equity;

                2.14.7 the Respondents knew or ought to have known, when they solicited investors to invest in particular mortgages, that the investments would not or could not be repaid by the maturity date;

                2.14.8 the Respondents knew or ought to have known, when they advanced investors’ funds to particular borrowers, that the funds would not be expended by the borrowers in connection with the development or servicing of the mortgaged property; and

                2.14.9 the Respondents failed to keep complete and adequate financial and other records in respect of the money raised from investors;
        B. The Trading and Distribution of the Notes

            I. Illegal Distribution

            2.15 the Respondents traded in and distributed the Notes to investors, with the total amount of investments exceeding $30 million;

            2.16 the Respondents failed to file and obtain a receipt for a prospectus qualifying the distribution of the Notes to the investors;

            2.17 as none of the Respondents were registered to trade in securities, and as no exemption from the requirements of sections 20 and 42 of the Former Act (now sections 34 and 61 of the Act ) was available to the Respondents for most transactions with investors, the trades and distributions of the Notes to investors were made contrary to sections 20 and 42 of the Former Act (now sections 34 and 61 of the Act );

            II. Misrepresentations and Fraud in Respect of the Trade and Distribution of the Notes

            2.18 the Respondents, or representatives of the Respondents, made statements, with the intention of effecting a trade in securities, which they knew or ought to have known were misrepresentations contrary to section 35(1)(d) of the Former Act [ now section 50(1)(d) of the Act ];

            2.19 during the Relevant Period, the Respondents engaged in or participated in transactions or a scheme relating to trading in securities, which they knew or ought reasonably to have known perpetrated a fraud on persons in British Columbia, contrary to 41.1 of the Former Act [ now section 57(b) of the Act];

            2.20 during the Relevant Period, the Respondents acted contrary to the public interest in respect of the investments solicited; and

            2.21 particulars of the allegations in paragraphs 2.18., 2.19 and 2.20. are as follows:
                2.21.1 the Respondents, or representatives of the Respondents, in the course of trading in and distributing the Notes:
                    (a) either failed to apprise the investors of the risk involved in the investments, or falsely assured investors that the investments involved minimal or no risk;

                    (b) promised investors returns of 15% to 24% on funds invested, while they knew, or ought to have known, that such rates of return were not realistic under the circumstances and could not be maintained;

                    (c) represented to investors that the loans were short term, for periods varying from 6 to 12 months, repayable on demand, while they knew or ought to have known that the loans would not or could not be repaid as agreed without raising more funds from additional investors;

                    (d) represented, by implication, or otherwise, to investors that the funds raised would be applied to generate revenue, while the intention was primarily to pay fees to the Respondents, maintain interest payments or repay capital to existing investors and make miscellaneous inappropriate payments; and

                    (e) represented to investors that repayment of the funds was guaranteed by Eron, Slobogian or Biller while they knew or ought to have known that they would not or could not do so;
                2.21.2 the Respondents applied funds raised from subsequent investors to make the interest or capital payments to existing investors without the knowledge of the investors;


                2.21.3 the Respondents advanced funds raised from investors to entities which they knew or ought to have known would not or could not maintain the interest rates applicable or repay the capital;

                2.21.4 the Respondents applied some of the funds raised, or permitted the funds to be applied, in ways not contemplated by the individual investors, such as purchasing a Rolex watch for $34,500, making a deposit of $24,810 on a Mercedes Benz vehicle and advancing funds to projects without the knowledge of investors; and

                2.21.5 the Respondents kept incomplete and inadequate financial and other records in respect of the money raised from investors;
          3. AND TAKE NOTICE that the Respondents or their counsel are required to attend at the 7th Floor Hearing Room, 865 Hornby Street, Vancouver, British Columbia, on September 30, 1998, at 9:00 a.m., if they wish to be heard before the Commission fixes a date for the Hearing;

          4. AND TAKE NOTICE that determinations may be made in this matter if the Respondents or their counsel do not appear at the Hearing.


          DATED at Vancouver, British Columbia, on September 17, 1998.






          Michael J. Watson
          A/Executive Director

          ©2024 British Columbia Securities Commission