Settlements

PAUL DANIEL JOHNSON [Sec. 161 & Agreed Stmt]

BCSECCOM #:
Document Type:
Sec. 161 & Agreed Stmt
Published Date:
1998-12-04
Effective Date:
1998-11-26
Details:


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

AND

IN THE MATTER OF PAUL DANIEL JOHNSON


Order Under Section 161

1. WHEREAS an Agreed Statement of Facts and Undertaking was executed by Paul Daniel Johnson (“Johnson”) and the Executive Director, a copy of which is attached hereto as Schedule “A”:

2. NOW THEREFORE the Executive Director, considering that it would be in the public interest to do so, orders, by consent, that:
      2.1 pursuant to section 161(1)(f) of the Securities Act, R.S.B.C. 1996, c. 418 (the “Act”), Johnson’s registration is suspended for a period of three months from the date of the Order;

      2.2 Johnson shall be placed under close supervision by his employer for a period of six months from the date the period of suspension is over;

DATED at Vancouver, British Columbia, on November 26, 1998.





Michael J. Watson
A/Executive Director



Schedule “A”

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

AND

IN THE MATTER OF PAUL DANIEL JOHNSON

Agreed Statement of Facts and Undertaking

The following agreement has been reached between Paul Daniel Johnson (“Johnson”) and the Executive Director:

1. Johnson acknowledges the following facts as correct:
      1.1 from May, 1989 to the present Johnson has been a mutual fund salesperson/registered representative restricted to trading in mutual fund securities;

      1.2 in or around December, 1993, September, 1994 and November, 1995, Johnson advised certain clients (the “Clients”) to borrow from a financial institution in the sums of $121,000.00, $104,000.00 and $95,000.00, respectively in order to invest in mutual funds (the “Strategy”) and the Clients borrowed and invested in accordance with Johnson’s advice;

      1.3 the Strategy recommended by Johnson was a leveraged investment strategy. Johnson promoted and recommended the Strategy to the Clients. The Commission has published a policy expressing concern about this type of investment, as disclosed in NIN 87/67. The concern is that the practice of excessive leveraging is contrary to the interests of investors and essentially destabilizing to the mutual fund industry;

      1.4 the Strategy recommended by Johnson to the Clients involved the Clients:
          (a) borrowing money against real property owned by the Clients;

          (b) using the borrowed funds to purchase mutual funds (“the Funds”) on a deferred sales charge basis which imposed significant costs to the Clients if withdrawal from the fund was required in the short term;

          (c) entering into a “systematic withdrawal plan” at the time the funds were purchased, such that all monthly loan payments were paid for by selling sufficient invested capital to meet the monthly payments as opposed to payment from other sources of capital. This payment option is aggressive and erodes the value of the funds, particularly in a declining market;

      1.5 the Strategy resulted in Johnson earning fees or commissions that were higher than he would otherwise have earned.

      1.6 Johnson provided information to the Clients about the Strategy that was misleading, confusing, and falsely demonstrated the advantages of the Strategy without disclosing the disadvantages and risks associated with the Strategy;

      1.7 Johnson failed to provide the disclosure statement to the Clients as required by NIN 87/67, in violation of the requirements of the Commission that this statement be provided to prospective purchasers of leveraged mutual funds;

      1.8 Johnson failed to act fairly, honestly, and in the Clients’ best interests when he recommended the Strategy and the payment option;

      1.9 the Strategy, as recommended by Johnson, is an unsuitable investment strategy;

      1.10 Johnson failed to act in accordance with the public interest in recommending the Strategy; and

      1.11 Johnson was paid commissions totalling $9,717.50.
2. Johnson has cooperated with Staff of the Commission in providing evidence and information.

3. Johnson consents to an Order (the “Order”) by the Executive Director that:
      3.1 pursuant to section 161(1)(f) of the Securities Act, R.S.B.C. 1996, c. 418 (the “Act”), Johnson’s registration is suspended for a period of three months from the date of the Order;

      3.2 Johnson shall be placed under close supervision by his employer for a period of six months from the date the period of suspension is over;

      3.3 on or before the period of suspension expires Johnson shall pay the sum of $15,000 to the Commission with respect to this matter, $10,000 of which represents penalty and $5,000 of which represents a portion of the costs of the investigation.
4. Johnson undertakes from the date of this agreement to comply with the provisions of the Act and the Securities Rules, B.C. Reg. 194/97 and the “Know Your Client” obligations of his registration.

5. Johnson waives any right he may have under the Act or otherwise, to a hearing, hearing and review, judicial review or appeal related to, in connection with or incidental to this agreement.


DATED at Vancouver, British Columbia, on November 26, 1998.




“Richard P. Hamilton” ________)
Witness Signature)
)“Paul Daniel Johnson”
Richard P. Hamilton_________)
Witness Name)_____________________
404 - 815 Hornby Street______)Paul Daniel Johnson
Vancouver, B.C.____________)
Address)
Barrister & Solicitor__________)
Occupation)

DATED at Vancouver, British Columbia, on November 26, 1998.




Michael J. Watson
A/Executive Director
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