99/24

June 18,1999

Notice to Members #52/99

By way of an Offer of Settlement, C.M. Oliver & Company Ltd. ("C.M.Oliver"), a Member Firm, has agreed to the imposition of the following penalties by the Exchange for violation of Exchange Rule F.1.01:

1. payment of a fine in the amount of $20,000, and
2. an assessment of investigative costs in the amount of $3,000.

Rule F.1.01(1)(b) states in part that every member is required to diligently supervise all accounts handled by his investment advisers.

On October 25, 1995, an Investment Adviser (the "Investment Adviser") was terminated by Marleau Lemire Securities Inc. ("Marleau") for:

• "failing to secure payment from clients";
• "allowing trading in under-margined accounts"; and,
• "flipping positions with insufficient equity in accounts".

On November 11, 1995, an application to transfer the Investment Adviser’s registration from Marleau to C.M.Oliver was approved by the Exchange. The Exchange informed C.M.Oliver that as a condition of the Investment Adviser’s employment the Investment Adviser was to be placed on strict supervision until the completion of an investigation by the Investment Dealers Association of Canada, (the "IDA") arising from the Investment Adviser’s termination by Marleau.

During the period November 14, 1995, through January 5, 1998 (the "Relevant Period"), C.M.Oliver filed monthly strict supervision reports with the Exchange (the "Supervision Reports"). The Supervision Reports indicated in part, that C.M.Oliver monitored the Investment Adviser to ensure the following:

1. All orders, both buy and sell, were initialled by a senior officer before entry.
   
2. All client accounts were reviewed for:

1. suitability of investment;
2. excess trading, and
3. compliance with cash account rules.

3. Any client account generating in excess of $500 per month in commissions was reviewed and a prima facie check was made on the authenticity of orders entered.

There was no indication on the Supervision Reports filed by C.M.Oliver that there were problems with the Investment Adviser’s conduct in any of the above noted areas. In April 1997, C.M.Oliver disclosed to the Exchange on their filing of the Supervision Reports, that they had received two client complaints regarding the conduct of the Investment Adviser.

During the Relevant Period, the Investment Adviser was responsible for handling the accounts of eleven clients that subsequently complained of the Investment Adviser’s conduct.

On January 5, 1998, the Investment Adviser was terminated by C.M.Oliver for complaints of:

• discretionary trading,
• trading without proper instructions,
• guaranteeing client accounts,
• promising no client losses as a result of a recommended transaction, and
• failing to notify C.M.Oliver of an extended absence.

During the Relevant Period, C.M.Oliver:

• inquired as to the nature of matters outstanding with the IDA, however received no definitive response at any time;
• failed to review the Investment Adviser’s accounts generating monthly commissions in excess of $500 to determine the authenticity of orders entered until the latter part of the Relevant Period, however C.M.Oliver was of the understanding that the account monthly commission threshold for strict supervision was $1,000;
• failed to detect that two of the Investment Adviser’s client accounts were trading speculative securities in a manner that was contrary to the investment objectives and acceptable risk as outlined on the new client application form;
• failed to determine that some of the Investment Adviser’s clients did not settle outstanding debit positions in accordance with cash account rules;
• restricted the Investment Adviser’s client accounts for failing to settle outstanding debit positions;
• determined that the Investment Adviser posed a credit risk for C.M.Oliver;
• prevented the Investment Adviser from crossing debit positions from one client to another;
• on three occasions detected that the Investment Adviser had placed orders directly with a trader without first having the trade approved by a senior officer of C.M.Oliver, and
• as a result of the above, C.M.Oliver interviewed the Investment Adviser on several occasions at which times the Investment Adviser was verbally reprimanded.

During the Relevant Period, C.M.Oliver gathered evidence of poor credit practices by the Investment Adviser. This activity by the Investment Adviser was similar to the activity for which the Investment Adviser was terminated by Marleau and subsequently placed under strict supervision by the Exchange. C.M.Oliver’s failure to stop the Investment Adviser in a timely fashion from continuing poor credit practices, contributed to the allegations of further misconduct by some of the Investment Adviser’ clients. C.M.Oliver thereby violated Exchange Rule F.1.01, failure to supervise the Investment Adviser and her client accounts.

The conduct of the Investment Adviser remains under review by the Exchange.

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