CDNX:
Yorkton, Member Firm Disciplined
|
|
An Offer of Settlement between the Canadian Venture
Exchange Inc. (the "Exchange") and Yorkton Securities Inc. ("Yorkton")
was accepted by the Exchange on February 23, 2000.
Rules Violated
Yorkton has admitted to violating Rule F.1.01 of the Vancouver Stock
Exchange ("VSE") that states in part, every member is required to diligently
supervise all accounts handled by his investment advisers and to use due diligence to
learn the essential facts relative to every client, every order, every cash or margin
account accepted or carried by them and every person holding power of attorney over any
account accepted or carried by them.
Penalty Assessed
Pursuant to the terms of the Offer of Settlement, Yorkton is required
to:
- pay a fine in the amount of $60,000, and
2. pay $20,000 towards the costs of the
Exchanges investigation.
Summary of Facts
Yorkton, during the period December 2, 1991, to October 15, 1992, (the
"Caprice Period"), failed to diligently supervise their investment advisers,
Barry Duane Reagh ("Reagh"), David Alexander Kuznecov ("Kuznecov") and
Buddy Melvin Jack Brown ("Brown").
Yorkton, during the period July 5, 1993, to August 31, 1993 (the
"Hi-Tech Period"), failed to diligently supervise their investment adviser David
Randall Miller ("Miller").
Reagh, Kuznecov, Brown, and Miller collectively will be referred to as
the "Investment Advisers".
Yorkton, during the Caprice Period also failed to
diligently supervise six (6) client accounts (the "Spector Accounts") for which
John Spector ("Spector"), president of former Exchange listed Caprice Greystoke
Enterprises Ltd. ("Caprice"), had trading authorization over the accounts. The
Spector Accounts were in the names of Spectors family members.
Yorkton, during the Hi-Tech Period also failed to diligently supervise
a client account in the name of Sheik Fouad A. Fadel ("Fadel"). Miller was the
investment adviser for the Fadel account.
The Caprice Period
During the Caprice Period, Reagh and Kuznecov executed client buy
orders for the Spector Accounts in the shares of Caprice at prices higher than the
previous trade or order at which a board lot traded and there were no subsequent trades or
orders that effected the market price of Caprice. The Exchange considers this to be a high
close trade.
During the Caprice Period, Reagh and Kuznecov entered orders for the
Spector Accounts that were responsible for:
- 76 in-house crosses that may not have resulted in a change of beneficial ownership;
- 89 high close transactions or on 59% of the total trading days, and
- 491 uptick transactions of 55% of all uptick transactions.
Spector Accounts Activity
During the Caprice Period, the Spector Accounts
solely traded in the shares of Caprice. Each month during the Caprice Period, the
commission generated in the Spector Accounts exceeded the minimum $1,000 commission
threshold set by the minimum standards for retail account supervision.
The Hi-Tech Period
During the Hi-Tech Period:
- the Fadel Account, through Yorkton, purchased and sold shares of former Exchange listed
International Hi-Tech Industries Inc. ("Hi-Tech");
- the share price of Hi-Tech increased from $8.50 to $8.88;
- the Fadel Account was responsible for purchasing 163,100 shares of Hi-Tech representing
51% of the total buying market;
- Millers client accounts were responsible for 82 of 160 total uptick trades for the
market during the Hi-Tech Period. Of the 82 uptick trades, the Fadel Account conducted 71
uptick trades.
Fadel Account Activity
During the Hi-Tech Period, on 25 trade days, Miller executed high
close trades after 1:00 p.m. for the Fadel Account (the "High Close Trades").
The High Close Trades accounted for 90% of all the high close trades for the shares of
Hi-Tech executed after 1:00 p.m. Of the 25 High Close Trades, 18 established the day high.
The High Close Trading activity unduly influenced the trading activity
by creating an artificial price for the shares of Hi-Tech.
The Fadel Account was a dominant price leader in the Hi-Tech market
during the Hi-Tech Period.
For the months of July and August 1993, the
commission generated in the Fadel Account exceeded the minimum $1,000 commission threshold
set by the minimum standards for retail account supervision.
The equity in the Fadel Account was predominately in the shares of
Hi-Tech.
Yorktons Failure to Supervise
Yorkton knew or ought to have known their obligations to act as
an industry gatekeeper as set out in Vancouver Stock Exchange ("VSE") Notice to
Members ("NTM") #96/98, originally covered in VSE NTM #50/94 and #48/89. Yorkton
failed to diligently supervise the Investment Advisers by failing to detect
deceptive and misleading trading patterns in the shares of Caprice and Hi-Tech by failing
to:
- detect orders by the Investment Advisers for the shares of Caprice and Hi-Tech that
resulted in high close trades. Specifically, the Investment Advisers executed buy orders
in the shares of Caprice and Miller in the shares of Hi-Tech at prices higher than the
previous trade or order at which a board lot traded and there were no subsequent trades or
orders that affected the price of Caprice and Hi-Tech;
- question the price leadership by clients both in the shares of Caprice and Hi-Tech;
- appreciate the trading patterns of the Spector Accounts that consistently crossed
Caprice shares giving the appearance of wash trading activity;
- diligently review client accounts where the minimum $1,000 commission threshold was
exceeded and in doing so, may have detected the deceptive trading pattern and
concentration of securities therein;
- detect the concentration in the client accounts in the shares of Caprice and Hi-Tech.
Yorkton failed to meet the supervisory standard expected of a Member
firm and thereby violated Rule F.1.01 of the Vancouver Stock Exchange.
Kuznecovs and Browns discipline in relation to Caprice is
detailed in VSE NTM #75/97 and #57/96 respectively.
The conduct of Reagh and Miller is presently under review by an
Exchange Hearing Panel.
- 30 -
Back to
Index of News Releases |