re: brant securities limited, keith mcmeekin, hugh … · in the matter of discipline pursuant to...

IN THE MATTER OF DISCIPLINE PURSUANT TO BY-LAW 20

OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA

RE: BRANT SECURITIES LIMITED, KEITH McMEEKIN, HUGH JACKSON JR. and

JOHN DAVIES

SETTLEMENT AGREEMENT

I. INTRODUCTION

1. The staff (“Staff”) of the Investment Dealers Association of Canada (“the Association”)

has conducted an investigation (the “Investigation”) into the conduct of Brant Securities

Limited (“Brant”), Keith McMeekin (“Mr. McMeekin”), Hugh Jackson Jr. (“Mr.

Jackson”) and John Davies (“Mr. Davies”), (collectively “the Respondents”).

2. The Investigation discloses matters for which the District Council of the Association

(“the District Council”) may penalize the Respondents by imposing discipline penalties.

II. JOINT SETTLEMENT RECOMMENDATION

3. Staff and the Respondents consent and agree to the settlement of these matters by way of

this Settlement Agreement in accordance with By-law 20.25.

4. This Settlement Agreement is subject to its acceptance, or the imposition of a lesser

penalty or less onerous terms, or the imposition, with the consent of the Respondents, of a

penalty or terms more onerous, by the District Council in accordance with By-law 20.26.

5. Staff and the Respondents jointly recommend that the District Council accept this

Settlement Agreement.

6. If at any time prior to the acceptance of this Settlement Agreement, or the imposition of a

lesser penalty or less onerous terms, or the imposition, with the consent of the

Respondents, of a penalty or terms more onerous, by the District Council, there are new

facts or issues of substantial concern in the view of Staff regarding the facts or issues set

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out in Section III of this Settlement Agreement, Staff will be entitled to withdraw this

Settlement Agreement from consideration by the District Council.

III. STATEMENT OF FACTS

7. Brant is a Member of the Association. At all material times, Brant conducted business as

a Type 2 Introducing Broker from its business premises located at 70 University Avenue,

Toronto, Ontario.

8. Mr. McMeekin was registered with Brant as Registered Representative on August 26,

1997. On December 11, 1997, Mr. McMeekin was approved as Director (Trading

Officer) and a Managing Director. On September 16, 1998, his title changed to Director,

Trading Officer (Managing Director and CFO). Mr. McMeekin was designated Ultimate

Designated Person (“UDP”) on December 9, 1998. On October 14, 1999, his title

changed to Trading Officer (Managing Partner) and on July 30, 2002 his title changed to

Trading Officer (President, CFO and Managing Director). On July 29, 2003 Mr.

McMeekin was registered as CFO.

9. Mr. Jackson was registered with Brant as a Director and Trading Officer (Managing

Partner) on December 11, 1997. Mr. Jackson was designated Alterate Designated Person

(“ADP”) on May 3, 1999.

10. Mr. Davies was registered with Brant as a Trading Officer (CFO and VP) on November

4, 1999.

11. Mr. McMeekin, as Managing Partner and UDP, Mr. Jackson as Managing Partner and

ADP, and Mr. Davies as Vice-President and CFO were at all material times Senior

Executive Officers of Brant, were responsible for the organization of the Member and

had ultimate responsibility for compliance by Brant with Association Requirements. The

Association requires the Senior Executives of a Member to exercise active supervision

over all activities of the Member. Where management and supervisory functions are

delegated to others, the Association requires the Senior Executives to retain ultimate

responsibility and control at all times.

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12. In particular, the Association expects that the Senior Executive(s) of a Member will inter

alia:

(i) ensure that responsibility for each activity within the Member’s business is clearly

established and communicated to those responsible;

(ii) ensure that those responsible fully understand the business that they manage;

(iii) ensure that relevant compliance procedures and practices have been established

and are working effectively;

(iv) follow up immediately on any warning signals of problems emerging in the

business, ask all necessary questions and take action accordingly; and

(v) follow up on all matters that the Association identifies as needing attention and

ensure that appropriate action is taken and completed expeditiously.

Overview of Allegations 13. The particulars of the alleged failure of Brant to conduct certain compliance procedures

and the alleged failures of the individual respondents to carry out certain supervisory

requirements are set out below:

A. Sales Compliance Reviews and Deficiencies

B. Account Supervision

C. Policies and Procedures

A. Sales Compliance Reviews and Deficiencies 14. In order to monitor whether Members are in compliance with Association Requirements

in the supervision of account activity and activity relating to securities, the Sales

Compliance and Financial Compliance Division of the Association conducts Compliance

Reviews of Members. In order to ensure that any deficiencies are brought to the attention

of the Senior Executives of the Member, the Compliance Review reports are sent under

covering letter addressed to the Senior Executive(s) of the Member.

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15. Where deficiencies in compliance practices or procedures are noted in a Compliance

Review, the Member is required to provide a written response indicating what corrective

measures will be taken to address the deficiencies.

16. Any representations given to the Association by a Member in response to findings by the

Association of deficiencies in a Member’s compliance procedures or practices must be

fulfilled by the Member. Senior Executives of the Member responsible for the

compliance function, including the CEO, must ensure that appropriate action is taken and

completed expeditiously in accordance with any such representations given on behalf of

the Member.

Sales Compliance Reviews, 1999-2001

17. In January 1999, an annual Sales Compliance Review was conducted at Brant. As a

result of the review, concerns with Brant’s Sales Compliance procedures were identified,

including:

(i) deficiencies in Brant’s Policies and Procedures Manuals;

(ii) relatively few controls in place with respect to journals between unrelated

accounts, third party cheques and depositing securities to accounts;

(iii) members of the corporate finance department not being segregated from traders;

(iv) no active use of grey and restricted lists and no policies and procedures governing

the containment of confidential information;

(v) no written evidence of daily trading reviews was maintained and review of

monthly statements was deficient;

(vi) deficiencies with respect to client correspondence;

(vii) account documentation deficiencies; and

(viii) deficiencies in signature verification for money laundering purposes.

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18. On July 15, 1999, a written report of the results of the 1999 Sales Compliance Review

was sent to Brant. The covering letter was addressed directly to William Fern, the former

President of Brant and was copied to Mr. McMeekin and Mr. Jackson. This covering

letter specifically directed Brant and its Senior Executives to matters which required

immediate action as priority items. The problems relating to the Policies and Procedures

manual, internal controls relating to journal entries and corporate finance activities,

account supervision and client correspondence were identified as priority items. This

letter also indicated that the Association required a written reply addressing all topics

within one month of receipt by Brant of the Sales Compliance Review.

19. On November 8, 1999, a written response to the 1999 Sales Compliance Review was sent

from Brant to the Association. Brant responded that:

(i) a revised Policies and Procedures manual had been created;

(ii) tighter internal controls would be implemented and no client disbursements or

journal entries would take place without written authorization;

(iii) the procedural manual had been updated to include sections on confidentiality,

grey lists and restricted lists;

(iv) Brant would no longer accept photocopies of identification unless an employee of

Brant had taken the photocopy for purposes of money laundering verification;

(v) account documentation deficiencies would be remedied and a new staff member

had been hired whose job would be to handle the new client account openings;

(vi) appropriate daily and monthly reviews would be conducted immediately; and

(vii) client correspondence issues would be remedied.

20. This response was on behalf of Brant and was signed by Mr. Jackson as Managing

Partner.

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2000 Sales Compliance Review

21. Throughout 2000 and into early 2001, a Sales Compliance Review was conducted at

Brant. This review identified many repeat deficiencies from the 1999 Sales Compliance

Review, despite representations from Brant that the problems would be rectified.

Repeated Sales Compliance deficiencies included:

(i) deficiencies with respect to the organization of corporate finance and the use of

grey and restricted lists;

(ii) deficiencies in signature verification for money laundering purposes;

(iii) insufficient daily and monthly supervision of accounts; and

(iv) account documentation deficiencies.

22. In addition to repeat items from the 1999 Sales Compliance Review, additional problems

identified in the 2000 Sales Compliance Review included:

(i) questionable distributions from control blocks;

(ii) deficient monthly activity reports;

(iii) certain trading and suitability concerns;

(iv) various internal control deficiencies; and

(v) retention of research material problems.

23. On June 18, 2001, a written report of the results of the 2000 Sales Compliance Review

was sent to Brant. The covering letter was addressed directly to Mr. McMeekin. This

covering letter highlighted the matters which required immediate action as priority items.

General account supervision problems, money laundering verification process, corporate

finance problems and retention of research material and were all identified as priority

items. This letter also indicated that the Association required a written reply addressing

all topics within one month of receipt by Brant of the 2000 Sales Compliance Review.

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24. On July 31, 2001 a written response to the 2000 Sales Compliance Review was sent from

Brant to the Association. Brant responded that:

(i) a daily log would be kept and inquiries made via email and memorandum

regarding supervision issues;

(ii) the monthly activity report was prepared by Brant’s carrying broker and it

therefore had no control over its format;

(iii) a new master list of control block positions and officers and directors would be

kept;

(iv) concerns regarding trading and suitability issues would be addressed and

remedied;

(v) there had been confusion over the IDA report on committee updates regarding the

use of fax, documents for purposes of money laundering verification but the

requirement would be clarified;

(vi) identified account documentation deficiencies would be remedied;

(vii) the office structure had been reconfigured for purposes of separating corporate

finance and trading activity and revised grey and restricted lists had been

prepared;

(viii) an amended policy regarding trading during the Restricted Period had been

prepared; and

(ix) client priority would be given for purposes of participating in corporate finance

deals.

25. This response was on behalf of Brant and signed by Mr. McMeekin as managing partner.

26. Based on the representations made by Brant and assurances provided in Mr. McMeekin’s

letter, Association staff advised that the majority of items identified in the 2000 SCR

appeared to be appropriately addressed with certain exceptions including:

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(i) client priority regarding private placements; and

(ii) the policies regarding the grey and restricted lists and trading during the restricted

period were still inaccurate or unavailable.

2001 Sales Compliance Review

27. In October 2001, a Sales Compliance review was conducted at Brant. This review

identified a significant number of repeat deficiencies, some of which carried over from

the 1999 and 2000 Sales Compliance reviews, despite assurances from Brant that these

problems would be rectified. Repeated deficiencies included:

(i) account supervision deficiencies;

(ii) money laundering verification problems; and

(iii) cash account rule violations.

28. In addition to these repeated items, additional priority items identified in the 2001 Sales

Compliance Review included:

(i) exception reports regarding monthly reviews;

(ii) concerns regarding out of jurisdiction accounts;

(iii) concerns regarding pending documentation collection;

(iv) advertising, sales literature and research report approval issues;

(v) identification of Pro orders; and

(vi) issues with respect to changes to filled orders.

29. On August 27, 2002, a written report of the 2001 Sales Compliance review was sent to

Brant. The covering letter was addressed directly to Mr. McMeekin as Managing

Partner. The covering letter noted that a modest number of prior issues appeared to be

addressed but that a persistent and problematic pattern remained evident. The covering

letter advised that despite Brant’s representations in its response to the 2000 SCR, the

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number of Priority Items from the 2000 SCR to the 2001 SCR had only been reduced

from 11 to 10. Of additional concern was the fact that at least one half of the priority

items identified in the 2001 SCR had also been priority items in the 2000 SCR.

30. The covering letter further advised that the improvements and remedies promised by

Brant in its response to the 2000 SCR had failed to materialize, either as a result of

ineffective implementation or, in some cases, due to employee disregard of Brant’s

published policies. In at least one case, the trading activities of an active registrant

continued to generate significant concerns with very meager evidence that the more

rigorous supervision required previously by the Association had been seriously

undertaken.

31. On September 25, 2002, Brant provided a written response to the 2001 SCR. In this

response, Brant advised as to further steps it had taken regarding the improvement of

account supervision including:

(i) the hiring of a full time Chief Compliance Officer as of January, 2002;

(ii) the fact that Brant had internally placed a registrant on close supervision as of

June 26, 2002;

(iii) Brant had recently changed carrying brokers and that concerns regarding the

exception reports for monthly reviews would be conveyed to the new carrying

broker for remedying;

(iv) documentation deficiencies would be addressed by the new Chief Compliance

Officer; and

(v) out of jurisdiction accounts as well as money laundering verification concerns

would be addressed.

32. The Association acknowledges that Brant made these substantial and satisfactory changes

to satisfy Association’s requirements.

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B. Account Supervision

Brant Compliance Infrastructure

33. Mr. McMeekin, as the UDP pursuant to Association regulation 1300.2 was responsible to

oversee Brant’s supervision of accounts. Mr. McMeekin was not directly involved in the

daily and monthly supervision of account activity as he had delegated this responsibility

to Mr. Jackson.

34. Mr. Jackson, as the ADP was at all material times its Head of Compliance, was

responsible to oversee Brant’s supervision of accounts. Mr. Jackson was responsible for

conducting daily and monthly account supervision. He also supervised the trading desk

and was involved in institutional sales as a “producing person”. Mr. Jackson did not have

a “back-up” for monthly supervision.

35. Mr. Davies, as CFO, was responsible for daily account supervision in Mr. Jackson’s

absence. Mr. Davies monitored Brant’s inventory positions, and approved all cash and

stock journals entries. He was ultimately responsible for all client credit issues.

Supervision of Accounts

36. Policy 2 of the Association describes minimum standards for retail account supervision at

Member firms. These standards include a requirement that the Member conduct weekly

and monthly reviews of account trading activity. Had these reviews been properly

conducted between January 2000 and October 2001, with respect to certain client

accounts, the following trading irregularities would have been detected:

a) various instances of Cash Account Rule violations where cash accounts were able

to act as margin accounts or clients were able to re-age the client debit;

b) various instances where clients were able to make purchases of securities and sell

those securities without paying for the initial trade, the positions frequently being

liquidated at month end and at a loss to the client;

c) various instances of transactions in the certain securities in which positions were

purchased at the beginning of the month and sold at the end of the month to avoid

a mark-to-market adjustment;

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d) a group of accounts apparently acting in concert for purposes of free-riding and

debit-kiting which in October, 2001 left an accumulated deficit of approximately

$500,000 and which culminated in Brant’s carrying broker requiring an

immediate end to the client trading activity or the injection of further capital.

Repeated Cash Account Rule Violations

37. The 2000 SCR found that certain client accounts revealed a pattern of Cash Account Rule

violations. Brant clients were able to re-age the client debit. The concern was

specifically raised with Brant Senior Executives by Association Sales Compliance

personnel and added to the planning process for the next SCR to examine in greater

detail.

38. Subsequently, the 2001 SCR found that certain accounts revealed questionable trading

practices and Cash Account Rule violations. Of these accounts three of them had been

identified in the 2000 SCR as having Cash Account Rule violations. Brant did not

provide satisfactory evidence that the activities were questioned except for one memo

questioning the registered representative on the trading in one of the accounts. Staff is of

the view that there was no satisfactory response or follow-up to this memorandum.

39. In virtually all of one registered representative’s accounts, clients were allowed to make

purchases and subsequently sell the securities, without paying for the initial trade. In

most instances, the positions were liquidated at month end and usually at a loss to the

client. The activity should have been questioned by Senior Executives and the

investigation should have been documented with appropriate follow-up noted.

Transactions in Two Specific Securities

40. A Brant registered representative has a personal relationship with two individuals whose

accounts were amongst those identified for Cash Account Rule violations as set out

above. One of these individuals was a promoter of a certain security which was

repeatedly traded amongst the registered representative’s clients’ accounts. A second

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specific security was also repeatedly traded amongst the registered representative’s

clients’ accounts. Brant was the market maker for both these securities.

41. A review of the trading blotters was conducted by Association Staff for trades involving

these two securities. Five accounts were selected for further analysis for the period

January 1, 2001 to September 30, 2001.

42. This account analysis confirmed:

(a) A pattern in four of the accounts of buying stock at the beginning of the month

with a subsequent sale of the same stock at the end of the month without

settlement for the initial purchase. Occasionally these accounts had a debit

balance prior to the purchase being made. At the end of the month, the debit

balance was usually cleared or reduced by the sale; and

(b) The sale at the end of the month was almost always to either of another of the

registered representative’s clients, a Brant inventory account or an account

located at an American brokerage firm.

43. The month end daily commission report for September 2001 identified sales of the two

securities from clients’ cash accounts to Brant’s inventory account. Each of these clients

had a debit in the account at the time of the sales. There is no evidence of inquiries into

the trading activity found on the daily log for that date.

44. The trading activity relating to the two securities should have been questioned by Senior

Executives and the investigations should have been documented with appropriate follow-

up noted.

Free Riding

45. A selection of the registered representative’s clients’ accounts were further analyzed by

Association Staff to detect patterns of free riding. The analysis reveals that certain

accounts appear to have acted in concert. The trading activity in the subject accounts was

terminated in October 2001 when there was an accumulated deficit of approximately

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$500,000. The end of this trading activity coincides directly with the October 2001

instructions to Brant by its carrying broker’s new credit manager to put an immediate end

to this trading activity or inject more capital.

46. Brant’s carrier reported to Brant that the aggregate holdings of certain holdings in the

subject accounts totalled approximately 16% of the issued shares and were illiquid

positions. At this point, Brant’s carrying broker demanded the immediate provision of an

increased comfort deposit to $700,000 from $530,000 and prohibited further purchases of

the two securities referred to in paragraphs 40-44 above unless the client account was

fully funded with cash to support the entire purchase.

47. This trading activity should have been questioned by Senior Executives and the

investigations should have been documented with appropriate follow-up noted.

Supervision of a second Registered Representative

48. Policy 2 of the Association describes minimum standards for retail account supervision at

Member firms. These standards include a requirement that the Member conduct weekly

and monthly reviews of account trading activity. Had these reviews been properly

conducted between November 1999 and October 2001, with respect to a second

registered representative’s trading activity, the following trading irregularities would

have been detected:

(c) certain sales from control blocks which were not reported as such;

(d) certain crosses and wash trades; and

(e) unusual trading activity in certain accounts controlled by individuals with

questionable trading backgrounds.

Three Specific Accounts

49. The second registered representative opened accounts for D.P. Limited (the “DP Ltd.

Account”), M.M. (the “MM Account”) and G.E.G. Ltd. (“the GEG Ltd. Account”).

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50. A number of transactions occurred in these accounts which should have been reviewed

during the following mandatory monthly reviews of statements generating $1,000 or

more in commissions:

• DP Ltd.: November and December, 1999, January–July, 2000, September,

2000–April, 2001 and June–August, 2001

• MM: September–October, 2000, December, 2000, January, April and

August 2001

• GEG Ltd.: March–August, 2001

51. A monthly review of the DP Ltd. account for the months of January 2000 to April 2000

and June to July 2000 should have resulted in the detection of a pattern of multiple

receipts and deliveries of a large number of share certificates in a variety of stocks and

subsequent cash disbursements. The trading activity involved:

a) Letters of Authorization written on DP Ltd.’s letterhead, indicating corporate

addresses in Brussels, London and Gibraltar despite account opening documentation

indicating the account is domiciled in Gibraltar;

b) large cash disbursements made by wire transfer to banks or entities not identified in

the bank section found on DP Ltd.’s account opening documentation;

c) the account regularly liquidated blocks of stock after the securities had been

transferred into the account;

d) the existence of numerous wire transfers to unrelated banks or entities, when DP Ltd.

was domiciled in Gibraltar.

e) over $1,000 in commissions for the month of July 2001 which ought to have been

reviewed by Mr. Jackson, because it was not included in the July 2001 Branch

Account Activity Report (“BAAR”).

52. Mr. McMeekin, Mr. Jackson and Mr. Davies failed to fully investigate these transactions

or adequately supervise the registered representative’s management of the DP Ltd.

Account.

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53. Mandatory monthly reviews of the MM Account should have resulted in the detection of

a pattern of multiple receipts and deliveries of a large number of share certificates in a

variety of stocks, and one particular stock FB.com.

54. The account activity also involved multiple cheques issued in the name of Bendix

Foreign Exchange for pick-up at Brant despite the fact that the account opening

documentation indicates the MM Account was domiciled in the Turks & Caicos.

55. Mr. McMeekin, Mr. Jackson and Mr. Davies failed to fully investigate these transactions

or adequately supervise the registered representative’s management of the MM Account.

56. Mandatory monthly reviews of the GEG Ltd. account during March through August 2001

would have revealed multiple wire payments out of the account to an unrelated

corporation’s account at a U.S. bank and subsequently into GEG Ltd.’s own name by

way of ABN AMRO Bank in New York and Swiss American Bank in Antigua.

57. Despite the trading activity described above, no supervision with respect to these

accounts was found during the 2000 Sales Compliance Review. During the 2001 Sales

Compliance Review only three memos from Mr. Jackson to the registered representative

dated February and September 2001 were provided to the Association’s sales compliance

team. As a result of his compliance review of January 2001 account statements, Mr.

Jackson questioned the registered representative on the relationship between MM and an

account in the name of MB, one of the accounts that transferred shares of FB.com to

MM. Mr. Jackson also asked if either of the two accounts had a relationship with

FB.com. The registered representative’s response was simply that MB told him that the

transfers were for “consulting services” rendered. There was no further investigation or

follow-up.

58. Mr. Jackson’s memo dated September 2001 regarding the August monthly review noted

activity in the MM and GEG Ltd. Accounts. Regarding the MM account, Mr. Jackson

instructed the registered representative to closely monitor the trading activity on the

account for patterns of buying high and selling low. With respect to the GEG Ltd.

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Account, the registered representative was asked to provide an explanation for the

transfer of certain share certificates from GEG Ltd. to DP Ltd. and then back again the

following month. The registered representative replied in a memo dated September 24,

2001, that MM was trying to catch the right side of the market with regard to the buy and

sell transactions.

59. These limited inquiries made by Mr. Jackson regarding the account activity in the DP

Ltd., MM and GEG Ltd. Accounts do not meet the minimum standards for retail account

supervision as described in Policy 2 of the Association.

The F Accounts

60. The registered representative opened five accounts for an individual “IB” in the name of

F Holdings Limited as follows:

• F Holdings Ltd. 001

• F Holdings Ltd. #1




61. The F Holdings Ltd. 001 account was opened in February 1998, while F Holdings Ltd. #1

was opened in January 1999. The three other F accounts were opened in March 2000.

IB is listed as President and CEO of F and identifies his business as either “investments”

or “asset management”. The accounts are domiciled at a Post Office Box in Nassau,

Bahamas. During the period – September 1999 to October 2001 – the F #1 account was

operated mostly as a bank account with relatively little securities trading activity.

62. Typically on a monthly basis there would be a dozen or more cheques deposited from a

variety of institutions, one or two wire payments or cheques issued, several share

certificate deposits, several cash or certificate transfers from/to other Brant accounts. The

trades in the account were overwhelmingly “sells” of shares previously deposited into the

account.

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63. The F accounts generated little commission and, as such, the activity would not be found

on the daily and monthly supervision reports. Brant, Mr. McMeekin, Mr. Jackson and

Mr. Davies however, should have monitored journals, transfers and share certificate

deposits. Minimal and insufficient inquiries were made into the account activity. In

addition, there were no formal policies or procedures in place to identify the significant

chequeing and wire transfer activity. Between September 1999 and October 2001,

several million dollars were deposited and wired out of the F #1 account.

64. In November 2000, 2.5 million shares of FB.com shares were received in the F #1

account. At that time 18.6 million shares were issued and outstanding and the shares

received potentially represented a control block position. No evidence of any inquiries

into these receipts or for the balance of 2.87 million shares held at the end of December

2000, was found.

65. Mr. Jackson directed two memoranda to the registered representative dated February and

March 2001 regarding control block concerns in shares of FB.com in the F #1 account.

However, there was no response nor any adequate follow-up conducted to resolve those

concerns. The February 2001 memo states that Mr. Jackson’s compliance review of

January account statements identified holdings of 2,870,220 FB.com shares. This figure

is in excess of 10% of the outstanding shares. Mr. Jackson requested information relating

to the shares but received no response from the registered representative and did not

follow up further.

66. Similarly, Mr. Jackson’s March 2001 memo cites a further 2,830,000 shares of FB.com

deposited into the F #1 account during February 2001. FB shares at this time totaled 5.7

million representing over 30% of the 18.6 million shares outstanding. Mr. Jackson

requested the identity of the owner of the shares and an update to the NAAF.

67. It was not until May 2001 that Mr. Jackson restricted all activity in FB in the F accounts

and required clarification of the situation directly from the client. Mr. Jackson expressed

a concern that blocks of FB.com shares were deposited and F had not made the proper

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filings with the OSC regarding control block activity. IB indicated that the FB.com

shares were the property of at least nine of his clients and that he was therefore confident

that they had not exceeded the control block limits.

68. Prior to May 2001, F regularly received in blocks of shares for other issuers and trading

activity was similar to that of FB. Brant failed to adequately supervise the trading in the

F accounts by failing to adequately question this activity. It was not until October 2001

that Mr. Jackson requested IB to take his business elsewhere, after a fruitless search for

F’s registration as an investment counsel firm in the Bahamas.

The Accounts Involving RS

69. The registered representative opened a number of accounts for individuals who are

connected to, or involved with, an individual named RS.

70. RS was President and Director of TMCorp., an account opened with the registered

representative on August 30, 1999.

71. A priority finding of the Association’s 2000 SCR priority findings was the absence of a

system at Brant to monitor activity in control positions and of insiders. The sales

compliance team discovered physical certificates representing control blocks in CDN-

listed securities being deposited or transferred into third party accounts at Brant and sold

into the market. There was no evidence found during the 2000 SCR to indicate Brant had

inquired about the requisite filings with the OSC or why the deposits were being made to

a number of Brant accounts.

72. The CDN securities discovered by the sales compliance team were:

• WN Inc.;

• DC Corp.;

• AC Corp.; and

• ME Ltd.

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73. Many of the shareholders and officers of WN Inc., DC Corp., AC Corp. and ME Ltd.

were the same for each company:

74. With the exception of DC Corp., the transfer agent, FM Ltd. made all the requisite filings

for the four issuers. FM Ltd.’s phone number is the same as the phone number for the

corporate offices of AC Corp., ME Ltd. and WN Inc. WN Inc. and DC Corp. had the

same address.

75. The trading activities in these stocks were generally conducted through TM Corp. and RS

related accounts. Both TM Corp. and a relative of RS’s accounts were domiciled in

British Columbia. Neither the registered representative nor Brant were registered in this

province. The trading activities in these stocks ought to have generated concerns and

questions from the Respondents. No such concerns or questions were raised or

evidenced.

76. At a minimum, the following activity should have been investigated by Brant and its

Senior Executives:

(a) whether the receipt of a series of physical share certificates of WN Inc. by client

accounts opened by the registered representative came from control blocks or

insiders and whether requisite filings were made;

(b) why the change of beneficial ownership of the WN Inc. Securities did not go

through an exchange;

(c) whether account documentation needed to be updated to reflect possible insider

information;

(d) why the WN Inc. shares were subsequently journalled to client accounts at Brant

and other Member Firms to related, or apparently related, individuals;

(e) apparent wash trades in WN Inc. Securities between certain corporate accounts at

Brant and other Member Firms;

(f) whether the TM Corp. receipt of large blocks of shares in DC Corp. represented

control block transactions;

(g) why large deposits of DC Corp. shares were made by an insider to his account and

journalled a significant number of DC Corp. shares to a corporate account

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controlled by RS and an associate, only to have those shares journalled back two

months later;

(h) whether large deposits of share certificates in AC Corp. to other accounts

maintained by associates of RS represented control block or insider transactions;

(i) whether subsequent journal transfers of AC Corp. shares to TM Corp. were

control block or insider transactions;

(j) why AC Corp. shares were purchased by TTM Corp. at $1.00 when all other AC

Corp. transactions that day were purchases at $2.25, including purchases by a

relative of RS;

(k) why TM Corp. had journalled to third parties or sold on several occasions shares

of ME Ltd. from a control block;

(l) why there were cash account violations and free-riding in several accounts

serviced by the registered representative relating to the WN Inc., DC Corp., AC

Corp. and ME Ltd. transactions; and

(m) why crosses and possible wash trades were utilized to reduce but not fully

eliminate debits in various accounts serviced by the registered representative

relating to the WN Inc., DC Corp., AC Corp. and ME Ltd. transactions.

C. Brant’s Corporate Policies & Procedures

77. As noted in both the 1999 and 2000 Sales Compliance Reviews, Brant did not have a

physical structure in place to restrict access to its Corporate Finance department. Brant’s

Corporate Finance staff worked in close proximity to trade desk and research staff. This

physical structure persisted until at least the summer of 2000.

78. Prior to December 1999, Brant had limited experience in corporate finance work. Prior

financings were of a small magnitude and Brant’s role was limited to part of an overall

syndicate. Brant’s involvement in corporate financings related exclusively to the oil &

gas sector. At this time, Brant had little, if any, experience using Grey and Restricted

Lists, as such lists are described in the Ontario Securities Act.

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79. Ontario Securities Commission Policy 33-601 provides guidelines for policies and

procedures concerning inside information. It defines a “Grey List” as a highly

confidential list, compiled by a registrant, of issuers about which the registrant has inside

information. Policy 33-601 defines a “Restricted List” as a list, compiled by a Registrant,

of issuers about which the registrant may have inside information. Policy 33-601 defines

“Inside Information” as a material fact or a material change with respect to a reporting

issuer that has not been generally disclosed.

80. The purpose of Policy 33-601 is to provide general guidelines that registrants may wish

to consider in satisfying the requirements of the exemption contained in Subsection

175(1) of the Regulation to the Ontario Securities Act. Subsection 175(1) of the

Regulation provides an exemption from the Insider Trading provisions of Subsection

76(1) of the Act. Policy 33-601 encourages registrants to consider which practices and

procedures would be appropriate for their business.

81. Policy 33-601 goes on to recommend that registrants consider establishing written

policies on procedures for purposes of education employees, containing inside

information, restricting transactions and compliance with the general prohibition on

insider trading.

82. In particular, Policy 33-601 advises that a registrant should normally place an issuer on

the Grey List when it has received inside information about the issuer and specifically

cites the example of where a registrant has been invited to manage or participate in a

possible offering. Grey Lists are to be disseminated only to those employees who require

the list to monitor unusual principal or agent trading in the securities by the registrant or

its employees and, if necessary, to inquire about or restrict trading. Policy 33-501

advises that a registrant should normally move an issuer’s name from the registrant’s

Grey List to the registrant’s Restricted List when the registrant has agreed to act as an

underwriter, or banking group member and the transaction on which the registrant is

acting has been generally disclosed but the registrant is still in possession of, or may gain

access to, inside information during the course of the transaction.

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83. In the 2000 SCR, the Association’s Sales Compliance team noted that Brant had not used

the Grey or Restricted List as it was intended, nor did Brant appropriately distribute the

Restricted List to all applicable employees.

84. It was not until November, 2001, after a second request by the Sales Compliance

department that Brant provided a copy of amended policies and procedures with respect

to Grey and Restricted Lists that corresponded to those of OSC Policy 33-601.

IV. CONTRAVENTIONS

Brant

85. From December 1998 through 2001, as noted above, Brant, a Member of the Association,

contravened Association By-laws, Regulations and Policies and engaged in conduct

unbecoming a Member by failing to respond in a timely manner to Association concerns

regarding the design, establishment, oversight and implementation of an effective sales

compliance program to ensure proper compliance with regulatory requirements; contrary

to Association By-law 29.1.


failed to maintain adequate supervisory procedures in accordance with Association Policy

No. 2, contrary to Association Regulation 1300.2.


failed in many instances to use due diligence to learn the essential facts relative to certain

customers and orders or accounts accepted, and to ensure that such orders or accounts

accepted were within the bounds of good business practice contrary to Association

Regulation 1300.1(a) and 1300.1(b).

88. From December 1998 through 2001, as noted above, Brant, a Member of the Association

violated Association By-Law 29.1 by engaging in a business conduct or practice that is

unbecoming and detrimental to the public interest by failing in many instances to

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ascertain the identities and investigate trading activity as required by clause 1.5(1) of

Rule 31-505, made under the Securities Act, R.S.O. 1990, c. S. 5, as amended.

Mr. McMeekin

89. From December 1998 through 2001, as noted above, Mr. McMeekin, an Approved

Person employed by Brant, a Member of the Association, and a Senior Executive of

Brant, failed in many instances to carry out his duties and responsibilities to ensure the

Member was in compliance with Association Requirements pursuant to Association

Regulation 1300.2 and Policy No. 2.


Person employed by Brant, a Member of the Association, and a Senior Executive of

Brant, engaged in conduct unbecoming his positions by failing in many instances to carry

out his duties and responsibilities to ensure that Brant fulfilled representations provided

to the Association to put into place and implement procedures to ensure compliance with

Association requirements contrary to Association By-law 29.1.


Person employed by Brant, a Member of the Association and a Senior Executive of

Brant, violated Association By-Law 29.1 by engaging in a business conduct or practice

that is unbecoming and detrimental to the public interest by failing in many instances to



Mr. Jackson

92. From May 1999 through 2001, as noted above, Mr. Jackson, an Approved Person

employed by Brant, a Member of the Association, and a Senior Executive of Brant,

failed in many instances to carry out his duties and responsibilities to ensure the Member

was in compliance with Association Requirements pursuant to Association Regulation

1300.2 and Policy No. 2.

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employed by Brant, a Member of the Association, and a Senior Executive of Brant,

engaged in conduct unbecoming his positions by failing in many instances to carry out

his duties and responsibilities to ensure that Brant fulfilled representations given to the

Association to put into place and implement procedures to ensure compliance with

Association requirements contrary to Association By-law 29.1.


employed by Brant, a Member of the Association and a Senior Executive of Brant,

violated Association By-Law 29.1 by engaging in a business conduct or practice that is

unbecoming and detrimental to the public interest by failing in many instances to



Mr. Davies

95. From November 1999 through 2001, as noted above, Mr. Davies, an Approved Person

employed by Brant, a Member of the Association, and a Senior Executive of Brant, failed

to carry out his duties and responsibilities to ensure the Member was in compliance with

Association Requirements pursuant to Association Regulation 1300.2 and Policy No. 2.

V. ADMISSION OF CONTRAVENTIONS AND FUTURE COMPLIANCE

96. The Respondents admit the contravention of the Statutes or Regulations thereto, By-laws,

Regulations, Rulings or Policies of the Association noted in Section IV of this Settlement

Agreement, for the purposes of this regulatory proceeding only. In the future, the

Respondents shall comply with these and all By-laws, Regulations, Rulings and Policies

of the Association.

VI. DISCIPLINE PENALTIES

97. The Respondents accepts the imposition of discipline penalties by the Association

pursuant to this Settlement Agreement as follows:

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Brant

(a) a fine in the amount of $125,000.00;

(b) as a condition of continued approval, that in the event Brant fails to comply with any of

these discipline penalties within the ensuing 30 days, the District Council may, upon

application by the Senior Vice President, Member Regulation and without further notice

to Brant, suspend the approval of Brant until the penalties and costs herein are complied

with.

Mr. McMeekin

(a) a fine in the amount of $35,000.00; and

(b) as a condition of continued approval, that in the event Mr. McMeekin fails to comply

with any of these discipline penalties within the ensuing 30 days, the District Council

may, upon application by the Senior Vice President, Member Regulation and without

further notice to Mr. McMeekin, suspend the approval of Mr. McMeekin until the

penalties and costs herein are complied with.

Mr. Jackson


(b) as a condition of continued approval, that in the event Mr. Jackson fails to comply with

any of these discipline penalties within the ensuing 30 days, the District Council may,

upon application by the Senior Vice President, Member Regulation and without further

notice to Mr. Jackson, suspend the approval of Mr. Jackson until the penalties and costs

herein are complied with.

Mr. Davies


(b) as a condition of continued approval, that in the event Mr. Davies fails to comply with

any of these discipline penalties within the ensuing 30 days or additional time as agreed,

the District Council may, upon application by the Senior Vice President, Member

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Regulation and without further notice to Mr. Davies, suspend the approval of Mr. Davies

until the penalties and costs herein are complied with.

98. In assessing these sanctions, Staff specifically considered as a mitigating factor the fact

that the Respondents have made significant efforts to address the deficiencies noted

above and that those deficiencies have been satisfactorily resolved. But for the co-

operation and efforts made by the Respondents, Staff would have sought the imposition

of greater sanctions.

VII. ASSOCIATION COSTS

99. The Respondent, Brant shall pay the Association’s costs of this proceeding in the amount

of $60,000.00 payable to the Association.

VIII. EFFECTIVE DATE

100. This Settlement Agreement shall become effective and binding upon the Respondents

and Staff in accordance with its terms as of the date of :

(a) its acceptance; or

(b) the imposition of a lesser penalty or less onerous terms; or

(c) the imposition, with the consent of the Respondents, of a penalty or terms more

onerous, by the District Council.

IX. WAIVER

101. If this Settlement Agreement becomes effective and binding, the Respondents hereby

waive their right to a hearing under the Association By-laws in respect of the matters

described herein and further waives any right of appeal or review which may be available

under such By-laws or any applicable legislation.

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X. STAFF COMMITMENT

102. If this Settlement Agreement becomes effective and binding, Staff will not proceed with

disciplinary proceedings under Association By-laws in relation to the facts set out in

Section III of the Settlement Agreement.

XI. PUBLIC NOTICE OF DISCIPLINE PENALTY

103. If this Settlement Agreement becomes effective and binding:

(a) the Respondents shall be deemed to have been penalized by the District Council

for the purpose of giving written notice to the public thereof by publication in an

Association Bulletin and by delivery of the notice to the media, the securities

regulators and such other persons, organizations or corporations, as required by

Association By-laws and any applicable Securities Commission requirements; and

(b) the Settlement Agreement and the Association Bulletin shall remain on file and

shall be disclosed to members of the public upon request.

XII. ACCEPTANCE OR REJECTION OF SETTLEMENT AGREEMENT

104. If the District Council rejects this Settlement Agreement:

(a) the provisions of By-laws 20.10 to 20.24, inclusive, shall apply, provided that no

member of the District Council rejecting this Settlement Agreement shall

participate in any hearing conducted by the District Council with respect to the

same matters which are the subject of the Settlement Agreement; and

(b) the negotiations relating thereto shall be without prejudice and may not be used as

evidence or referred to in any hearing.

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AGREED TO by the Respondents at the City of Toronto, in the Province of Ontario,

this “19th ” day of April , 2004.

Brant Securities Limited

“Witness” “Per: Keith McMeekin” “Witness” “Keith McMeekin”

“Witness” “Hugh Jackson, Jr.”

“Witness” “John Davies”

AGREED TO by Staff at the City of Toronto, in the Province of Ontario,

this “20th ” day of April 2004.

“Ricki Anderson” “ANDREW P. WERBOWSKI” Witness Enforcement Counsel on behalf of the Staff of the

Investment Dealers Association of Canada

INVESTMENT DEALERS ASSOCIATION OF CANADA

(ONTARIO DISTRICT COUNCIL)

Per: “Hon. Alvin B. Rosenberg, Q.C”

Per: “David Kerr” Per: “Robert J. Guilday”

re: brant securities limited, keith mcmeekin, hugh … · in the matter of discipline pursuant to...

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