OSC STAFF LACKS ENFORCEMENT ACCOUNTABILITY
Who Are We?
We are six shareowners and a former director of a Canadian public company. We are inviting investors, independent directors and the general public to attend an Ontario Securities Commission ("OSC") hearing scheduled for December 2 to 4, 2003. It will be at The Harry S. Bray Hearing Room, Ontario Securities Commission, Suite 1700, 20 Queen Street West, Toronto, Ontario, M5H 3S8. At this hearing, we will seek accountability from the OSC for its enforcement process.
We do not believe that our group is alone in being dissatisfied with the lack of enforcement, non-transparency and non-accountability of the OSC Enforcement Staff. We would greatly appreciate your attendance and/or your submissions on any day at the OSC motion hearing from December 2 to 4, 2003.
Description of Our OSC Application
Our application for a hearing before OSC Commissioners seeks an order for a retroactive issuer bid to be provided to all Ontario shareowners. We also seek to have the OSC implement sanctions on the issuer and the selling insiders for their non-compliance with the issuer bid and related public disclosure requirements. The OSC Staff decision to close its enforcement file on the matter is a decision that has been made in bad faith and with poor workmanship. The OSC Staff has acknowledged in writing that non-compliant issuer bids occurred, but it found insufficient material public interest to deploy its limited enforcement resources for sanctions.
The OSC Staff has filed a motion seeking dismissal of our application on grounds that shareholders should address past illegal issuer bids and omitted public disclosure in the court, and not before the OSC. The OSC Staff argues that affected shareowners may not directly ask the OSC Commissioners to hold a hearing for sanctions. The OSC Executive Director has refused to provide the written notice of his decision to close the enforcement file, which would enable us to have the unfettered right to a hearing under Part V Section 8 (2). In any case, it is the position of the OSC Staff that any decision to close an enforcement file is not a decision that may be the subject of a review hearing under Part V Section 8 (2).
The U.S. Securities and Exchange Commission has alleged that Martha Stewart made ill-gotten gains of $45,000 on a $240,000 sale of Imclone Systems Inc. shares, based on insider information. In this case, there was over $530,000 of ill-gotten gains on $710,000 of Technovision Systems Inc. shares sold by six insiders possessing insider information. This is a public company trading on the TSX Venture Exchange. The company issued numerous false press releases to public investors and to 28 Internet Service Providers across Canada about creating a national internet services company. These 28 Internet Service Providers had combined revenues of $40 million and cash flow of $6 million. The consortium of companies had been backed by a $60 million Telus Corporation networking supplier contract and a $10 million ear-marked Royal Bank loan. The six insiders are prominent Canadian lawyers, chartered accountants and businessmen. One of the OSC applicants is myself, a former director of Technovision. I was the whistleblower on the press release misrepresentation, stock trade manipulation and the illegal insider trades with the company. I have twenty-three years of experience in the Canadian securities industry, including business and policy development at the Toronto Stock Exchange and head of equities research and a partner and director of two Canadian investment banks.
Failure to Enforce the Filing of Insider Trading Reports
The applicants filed a motion for the OSC to enforce the requirement for the insiders to file the insider trading reports. The OSC and BCSC Staff and now Commissioner Lorne Morphy, the OSC Pre-Hearing Commissioner, are not enforcing the filing of the insider trading reports. The OSC Staff counsel submits that our request for an independent valuation and the filing of insider trading reports, has no relevance to the Staff’s dismissal motion and that our application for this information is frivolous and vexatious or an abuse of the Commission’s process.
We are dismayed by the OSC Staff position and surprised by Commissioner Morphy’s willingness to defer enforcing the filing of insider trading reports, in light of Canada’s serious insider trading problem.
Summary of Hearing Issues
• The applicants requested information on the criteria that the Commission uses in deciding whether or not to take enforcement action, such as the definition of private dispute between shareowners and a public company; the definition of a technical breach of the OSA, and the definition of Ontario public interest. The answer received from OSC Staff counsel was, “the bulk of the "evidence" you request does not exist. The balance is either irrelevant to these proceedings or is not discloseable to you. Accordingly, I am unable to comply with your Request for further evidence.”
• There should be no dismissal of applications from directors and shareowners, without the OSC first enforcing critical public disclosures, such as independent valuations and filing of insider trading reports.
• The OSC should be supporting directors' efforts to have a company and its insiders meet securities laws, especially public disclosure in information circulars.
• The OSC Executive Director has too much power over selecting who is not to be sanctioned and denying the right to review hearings on his decisions by not providing written notices on the closing of enforcement files.
• The OSC Commissioners (or some other external mechanism) must ensure that adequate and effective securities enforcement services are provided in a fair and accountable manner.
For more information, please contact:
Diane A. Urquhart
Telephone: 905-822-7618
FAX: 905-822-0041
E-mail: urquhart@galaxycapital.com
