[../../../../Top/IncHeaderLogo.htm]    News Release
[../../../../Top/IncHeaderTicker.htm]
[IncLNavSectionWhatsNew.htm]
For Immediate Release

00/21


CONTACT:

March 28, 2000

Pam Whitworth
Communications Director
Canadian Venture Exchange
Tel: (604) 488-3126
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:

  1. pay a fine in the amount of $60,000, and

     2.  pay $20,000 towards the costs of the Exchange’s 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 Spector’s 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;
  • Miller’s 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.

Yorkton’s 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 Adviser’s by failing to detect deceptive and misleading trading patterns in the shares of Caprice and Hi-Tech by failing to:

  1. 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;
  2. question the price leadership by clients both in the shares of Caprice and Hi-Tech;
  3. appreciate the trading patterns of the Spector Accounts that consistently crossed Caprice shares giving the appearance of wash trading activity;
  4. 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;
  5. 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.

Kuznecov’s and Brown’s 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

Right Navigation
Lead Stories
CDNX News Releases
Archives
Executive Speeches
Schedule of CDNX Events
[../../../../Top/IncFooter.htm]