Member Firm and
Approved Person Disciplined
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Notice to Members #111/98
By way of an Offer of Settlement, the Member Firm, Wolverton Securities Ltd
("Wolverton") and Mark Wolverton, an Approved Person and a senior vice-president
employed by Wolverton, have agreed to the imposition of the following penalties by the
Exchange:
Wolverton, for violation of Exchange Rules F.1.01 and D.1.09:
- a fine in the amount of $95,000, and
- an assessment of investigative costs in the amount of $25,000.
Mark Wolverton, for violation of Exchange By-Law 5.01(2):
- a fine in the amount of $10,000;
- an assessment of investigative costs in the amount of $1,000.
Rule F.1.01(1)(b), states in part that every Member is required to diligently supervise
all accounts handled by their investment advisers.
Rule D.1.09, states in part that each Member shall give a report to the Exchange within
five days of the occurrence of the event, any information he has regarding any action,
investigation or proceedings against or affecting the licensing or registration of any of
their investment advisers.
By-Law 5.01(2), states in part that an infraction means any conduct, proceeding or
method of business not expressly provided for in the by-laws, rules or regulations which
is unbecoming or inconsistent with just and equitable principles of trade or detrimental
to the interests of the Exchange or the public.
Wolverton Failure to Supervise Robert Jacob Van Santen ("Van Santen")
Van Santen became an investment adviser in 1982. Van Santen has a commerce degree and
was a Chartered Accountant. Prior to being employed by Wolverton, Van Santen was
continuously employed as an investment adviser from 1986 to June 1992. Van Santen was
hired by Wolverton in June 1992 and he was terminated by Wolverton in September 1994.
In late 1988, Van Santen's mother, Maria Van Santen ("Maria") opened a
trading account. In 1990 Van Santen's grandmother, Mrs. Krugers set up Geldria Holding
Corporation ("Geldria") a company registered in the Bahamas. In 1992, Mrs.
Krugers put the shares of Geldria into trust and turned control of Geldria over to Bahamas
International Trust Company Ltd. (the "Bahamas Trust"). The Bahamas Trust was
for the benefit of Mrs. Krugers' great grandchildren. In 1991, Mrs. Krugers opened a
trading account. In 1992, prior to Van Santen moving to Wolverton, the Bahamas Trust
opened a trading account at Van Santen's prior place of employment.
In 1991, Van Santen met with the principals of Exchange listed Keystone Entertainment
Limited ("Keystone").
In 1992, when Van Santen moved to Wolverton, Maria's account, Mrs. Krugers' account and
the Bahamas Trust account were transferred to Wolverton. Mrs. Krugers and Maria had
authority to trade in the Bahamas Trust and Mrs. Krugers accounts. In March, 1993, Bahamas
Trust opened a second account ("Bahamas Trust #2) at Wolverton. In August, 1993,
Maria opened an account in the name of the Estate of Mrs. Krugers at Wolverton.
Hereinafter, the Mrs. Krugers, Maria, Bahamas Trust, Bahamas Trust #2 and the Estate of
Mrs. Krugers will be referred to as the "Van Santen Family Accounts").
From June, 1992, to September, 1994, (the "Van Santen Relevant Period") while
Van Santen was an investment adviser with Wolverton, Van Santen signed Mrs. Krugers'
signature on a number of documents such as private placement subscription agreements and
client instructions for cheques to be issued from the Van Santen Family Accounts. Van
Santen's conduct was used to mislead Wolverton.
During the Van Santen Relevant Period, Van Santen placed telephone calls to Maria and
Mrs. Krugers. When asked by Wolverton, Van Santen advised that all trades in the Van
Santen Family accounts were made at the direction of those authorized to trade in the
accounts.
Van Santen's Violations
An Exchange Hearing Panel (the "Panel") conducted a hearing into the conduct
of Van Santen and a decision regarding penalty was issued on March 24, 1997. The Panel
concluded in part, that Van Santen:
- during the Van Santen Relevant Period, Van Santen exercised discretion in the trading of
the Van Santen Family Accounts. The Van Santen Family Accounts had given verbal
authorization, but had not given prior written authorization for Van Santen to exercise
discretion over the accounts and Wolverton had not accepted the accounts as discretionary,
contrary to rule F.2.22;
- during the Van Santen Relevant Period, Van Santen traded Keystone in the Van Santen
Family Accounts in conflict with the interests of his other clients who also traded
Keystone such that this created a conflict between his own interest and those of his
clients, contrary to rule F.2.10;
- during the period July 4, 1994, to September 31, 1994, Van Santen knowingly executed
trades in the Geldria account that created a false or misleading appearance of trading
activity for Keystone, contrary to rule F.2.17;
- during the period of June 1, 1993 to September 23, 1993, Van Santen received and entered
cross orders for spousal client accounts that resulted in the re-ageing of the debit
position from one account to another, contrary to Exchange By-Law 5.01(2).
The conduct of Van Santen is addressed in Notice to Members #124/96 and #25/97.
Wolverton failed to diligently supervise Van Santen by failing to:
- question the high concentration of Keystone shares in the Van Santen Family Accounts and
in particular the Krugers Account to determine whether the high concentration in the
shares of Keystone was a suitable investment for Krugers, an 82 year old client;
- question the excessive trading activity in the Van Santen Family Accounts, and in
particular the Krugers Account;
- question the excessive and improper crosses of securities between client accounts and
the Van Santen Family Accounts;
- question the trading of shares of Keystone in the Van Santen Family Accounts that did
not make economic sense, specifically buying high and selling at lower prices on the same
trade day;
- diligently review the Van Santen Family Accounts which consistently produced gross
commissions over $1,000;
- diligently supervise the client accounts to detect and curtail the improper re-ageing of
client accounts.
Wolverton thereby violated Rule F.1.01.
Mark Wolverton
During the period of November 2, 1994 to April 17, 1995, (the "Mark Wolverton
Relevant Period") Mark Wolverton was employed by Wolverton as a director,
vice-president of trading, an investment adviser and VCT trader.
During the Mark Wolverton Relevant Period, Mark Wolverton was the investment adviser
for two related client accounts (the "Client Accounts"). Mark Wolverton also
entered orders for a house inventory account (the "Inventory Account").
During the Mark Wolverton Relevant Period, the Client Accounts were under-margined.
This resulted from the accumulation of a large position in the shares of Exchange listed
Wedgewood Resources Ltd. ("Wedgewood"). As at December 1, 1994, the Client
Accounts had been under-margined for a period of twenty consecutive business days. In
accordance with Exchange Rule F.10.07, the Client Accounts after 20 business days, should
have been restricted to transactions that would not increase the margin deficiency in the
accounts.
During the Mark Wolverton Relevant Period, Mark Wolverton, knowing that the Client
Accounts were under-margined, and believing, incorrectly, that the guarantee of the Client
Accounts allowed for "buy" orders to be placed, permitted the entry of
"buy" orders on behalf of the Client Accounts that resulted in 58 purchases of
Wedgewood shares (the "Under-Margined Trades").
Mark Wolverton on November 7, 1994, believing that there was a concerted effort in
illegally short sell Wedgewood shares, made 16 purchases of Wedgewood shares in the
Inventory Account at prices higher than the previous price at which a board lot traded
(the "Uptick Trades"). Mark Wolverton made the Uptick Trades to counteract the
perceived illegal short sales in an effort to maintain the price of Wedgewood.
Mark Wolverton thereby violated Exchange By-Law 5.01(2).
Wolverton Failure to Supervise
Wolverton failed to diligently supervise Mark Wolverton and the Under-Margined and
Uptick Trades. Wolverton thereby violated Exchange Rule F.1.01.
Wolverton Breach of Rule D.1.09
On July 10, 1996, Wolverton was notified by the Illinois Secretary of State Securities
Department (the "State of Illinois"), that Wolverton was subject of an
investigation pertaining to the sale of securities to Illinois residents without being
registered to do so with the State of Illinois.
On August 27, 1996, Wolverton received from the State of Illinois, a Notice of Hearing
summoning Wolverton to a hearing scheduled for October 28, 1996 (the "Hearing").
Wolverton, on September 24, 1996, forwarded a letter to the Exchange with notification
of the Hearing.
Wolverton failed to report any action, investigation or proceeding to the Exchange
within the required 5 days and thereby violated Exchange Rule D.1.09.
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