Amended Statement of Allegations: In the Matter of Marlene Berry et al.

Statement of Allegations


IN THE MATTER OF THE SECURITIES ACT,

R.S.O. 1990, c. S. 5, as amended

-and-

IN THE MATTER OF MARLENE BERRY, ALLAN EIZENGA, GUY FANGEAT, RICHARD JULES FANGEAT, MICHAEL HERSEY, BRIAN LAWRENCE, LUKE JOHN MCGEE, JOHN NEWMAN, NORMAND RIOPELLE

and ROBERT LOUIS RIZZUTO


AMENDED STATEMENT OF ALLEGATIONS

OF STAFF OF THE ONTARIO SECURITIES COMMISSION

Staff of the Ontario Securities Commission ("Staff") make the following allegations:

THE RESPONDENTS
1. Marlene Berry ("Berry") is an individual who resides in
Belmont, Ontario. Berry has never been registered with the Ontario Securities Commission (the "Commission") to trade in securities.
2. Allan Eizenga ("Eizenga") is an individual who resides in
Milton, Ontario. Eizenga has never been registered with the Commission to trade in securities.

3. Guy Fangeat ("G. Fangeat") is an individual who resides
in British Columbia. G. Fangeat has never been registered with the Commission to trade in securities.
4. Richard Jules Fangeat ("Fangeat") is an individual who
resides in Sparta, Ontario. During the material time, Fangeat was registered with the Commission. Fangeat has not been registered with the Commission since December 29, 1998.

5. Michael Hersey ("Hersey") is an individual who resides
in London, Ontario. Hersey has never been registered with the Commission to trade in securities.

6. Brian Lawrence ("Lawrence") is an individual who
resides in St. Thomas, Ontario. Lawrence has never been registered with the Commission to trade in securities.
7. Luke John McGee ("McGee") is an individual who
resides in Pointe Claire, Quebec. McGee has never been registered with the Commission to trade in securities.

8. John Newman ("Newman") is an individual who resides
in Lachine, Quebec. Newman has never been registered with the Commission to trade in securities.
9. Normand Riopelle ("Riopelle") is an individual who
resides in Mount Brydges, Ontario. Riopelle has never been registered with the Commission to trade in securities.

10. Robert Louis Rizzuto ("Rizzuto") is an individual who
resides in Oakville, Ontario. Rizzuto is registered with the Commission to sell mutual fund securities and limited market products.
THE DISTRIBUTION OF THE SAXTON SECURITIES
11. Saxton Investment Ltd. ("Saxton") was incorporated on
January 13, 1995. Eizenga was Saxton's registered director. Saxton and Eizenga established numerous other corporations. The respondents McGee, Fangeat, Riopelle and Rizutto were officers and/or directors in several of such companies.
12. Between January 1995 and September 1998, the
respondents sold to Ontario investors securities of one or more of the following companies (the "Offering Corporations"):
The Saxton Trading Corp.
The Saxton Export Corp.
The Saxton Export (II) Corp.
The Saxton Export (III) Corp.
The Saxton Export (IV) Corp.
The Saxton Export (V) Corp.
The Saxton Export (VI) Corp.
The Saxton Export (VII) Corp.
The Saxton Export (VIII) Corp.
The Saxton Export (IX) Corp.
The Saxton Export (X) Corp.
The Saxton Export (XI) Corp.
The Saxton Export (XII) Corp.
The Saxton Export (XIII) Corp.
The Saxton Export (XIV) Corp.
The Saxton Export (XV) Corp.
The Saxton Export (XVI) Corp.
The Saxton Export (XVII) Corp.
The Saxton Export (XVIII) Corp.
The Saxton Export (XIX) Corp.
The Saxton Export (XX) Corp.
The Saxton Export (XXI) Corp.
The Saxton Export (XXII) Corp.
The Saxton Export (XXIII) Corp.
The Saxton Export (XXIV) Corp.
The Saxton Export (XXV) Corp.
The Saxton Export (XXVI) Corp.
The Saxton Export (XXVII) Corp.
The Saxton Export (XXVIII) Corp.
The Saxton Export (XXIX) Corp.
The Saxton Export (XXX) Corp.
The Saxton Export (XXXI) Corp.
The Saxton Export (XXXII) Corp.
The Saxton Export (XXXIII) Corp.
The Saxton Export (XXXIV) Corp.
The Saxton Export (XXXV) Corp.
The Saxton Export (XXXVI) Corp.
The Saxton Export (XXXVII) Corp.
The Saxton Export (XXXVIII) Corp.


13. All of the Offering Corporations were incorporated
pursuant to the laws of Ontario. The respondents' sales of shares of the Offering Corporations (the "Saxton Securities") constituted trades in securities of an issuer that had not been previously issued.

14. The distribution of the Saxton Securities contravened
Ontario securities law. None of the Offering Corporations filed a preliminary prospectus or a prospectus with the Commission. No Offering Corporation was issued a receipt for a prospectus by the Commission.
15. The Offering Corporations purported to rely on the
"seed capital" prospectus exemption contained in subparagraph 72(1)(p) of the Securities Act, R.S.O. 1990, c. S.5 (the "Act"). Neither this exemption, nor any other prospectus exemption, was available to them.

16. None of the exemptions from the registration
requirements in Ontario securities law was available for the sale of the Saxton Securities.

HERSEY'S CONDUCT

(a) Sale of the Saxton Securities
17. Hersey participated in the illegal distributions, and
engaged in unregistered trading, of the Saxton Securities. Between 1995 and 1996, Hersey sold in excess of $2 million worth of the Saxton Securities to over 30 Ontario investors. Many of the clients to whom Hersey sold the Saxton Securities had purchased insurance products from him and trusted him implicitly.
18. Hersey did not make the appropriate independent
inquiries and conduct the necessary due diligence before he sold the Saxton Securities to his clients.

19. Hersey failed to provide his clients with access to
substantially the same information concerning the Saxton Securities that a prospectus filed under the Act would provide. None of his clients received an Offering Memorandum prior to purchasing the Saxton Securities. The only documentation provided to clients by Hersey was vague promotional material prepared by Saxton.
20. Hersey misrepresented to his clients the nature and
quality of the Saxton Securities. Among other things, Hersey told certain investors that the Saxton products were guaranteed notwithstanding that the Offering Memoranda described them as "speculative". He also misrepresented the terms under which the investment could be liquidated.
21. Hersey earned a 5% commission on his sales of the
Saxton Securities.
22. Hersey recruited others to become Saxton salespeople.
In describing the investment products to such salespeople, Hersey made similar misrepresentations to those described in paragraph 20.
(b) Sale of SecurCorp Financial Inc. Securities
23. In or about December 1992, Hersey incorporated
Professional Insurance Management Inc. ("Professional Insurance"). Hersey and his wife were the officers of Professional Insurance. Hersey was the company's sole director. Through Professional Insurance, Hersey offered his clients the opportunity to purchase investment products, including that of SecurCorp Financial Inc. ("SecurCorp").
24. SecurCorp was incorporated in September 1996.
Hersey was SecurCorp's sole officer and director. SecurCorp offered investors a high yield guaranteed investment product and an interest in SecurCorp's Cuban ventures (the "SecurCorp Securities").

25. The distribution of the SecurCorp Securities
contravened Ontario securities law. SecurCorp did not file a preliminary prospectus or a prospectus with the Commission. Further, none of the prospectus exemptions were available to it.

26. Commencing in or about 1994 and through early 1999,
Hersey participated in the illegal distribution, and engaged in unregistered trading, of the SecurCorp Securities. Hersey sold in excess of $200,000 worth of such securities to Ontario investors. He earned commissions on such sales.

27. Some of the clients who purchased the SecurCorp
Securities had previously purchased the Saxton Securities from Hersey. Once Hersey's relationship with Saxton terminated in or about late 1996, Hersey recommended to certain clients that they transfer their money from Saxton to SecurCorp.
28. Hersey failed to provide his clients with access to
substantially the same information concerning the SecurCorp Securities that a prospectus filed under the Act would provide. None of Hersey's clients received an Offering Memorandum in connection with their purchase of such Securities.
29. Hersey misrepresented to his clients the nature and
quality of the SecurCorp Securities. He told clients that such investments were guaranteed and fully insured.
30. In certain cases, he misrepresented in which vehicle
clients' monies had been invested. He also moved clients' money from SecurCorp to another investment vehicle without their knowledge (see paragraph 37 below).
(c) Sale of the Sussex International Ltd. Securities
31. In or about December 1994, Hersey incorporated
Sussex International Ltd. ("Sussex International"). Hersey was Sussex International's sole officer and director.

32. Sussex International was another Saxton vehicle.
Sussex International represented to the public that it was investing in the same businesses as the Offering Corporations.
33. Sussex International offered investors the opportunity
to purchase shares in the company (the "Sussex International Securities"). The distribution of the Sussex International Securities contravened Ontario securities law. Sussex International did not file a preliminary prospectus or a prospectus with the Commission. Further, none of the prospectus exemptions were available to it.

34. Hersey participated in the illegal distribution, and
engaged in unregistered trading, of the Sussex International Securities. Hersey earned commissions on his sales of the Sussex International Securities. Certain of Hersey's clients who purchased the Sussex International Securities also had purchased the Saxton Securities and/or the SecurCorp Securities.
35. Hersey failed to provide his clients with access to
substantially the same information concerning the Sussex International Securities that a prospectus filed under the Act would provide. None of Hersey's clients received an Offering Memorandum in connection with their purchase of the Sussex International Securities.
36. Hersey misrepresented to his clients the nature and
quality of the Sussex International Securities. Hersey told clients that their investments were guaranteed and RRSP-eligible.
37. In certain cases, Hersey told clients that they had
purchased SecurCorp Securities notwithstanding that he had invested their money in Sussex International. In other cases, Hersey transferred clients' money into Sussex International without their knowledge.
(d) Sale of Securities post September 1998
38. In February 1999, Hersey sold Securcorp Securities to
an Ontario investor. Hersey engaged in such unregistered trading notwithstanding the commencement of this Commission proceeding against him and in face of a cease trade order dated September 24, 1998.
39. The conduct of Hersey, described in paragraphs 17
through 38, was contrary to Ontario securities law and the public interest.
FANGEAT'S CONDUCT

(a) Fangeat's Sales of the Saxton Securities
40. Fangeat became registered with the Commission to sell
mutual fund securities in February 1993. Between December 31, 1996 and May 7, 1997 and July 2, 1997 and December 28, 1998, Fangeat was registered to sell mutual fund securities and limited market products.

41. By 1996, Fangeat also had been licensed with the
Financial Services Commission of Ontario to sell life and other insurance products for many years.
42. Fangeat participated in the illegal distributions of the
Saxton Securities. Between 1996 and late spring 1998, Fangeat sold, or acted as the financial advisor in connection with, at least $10 million worth of the Saxton Securities to Ontario investors. Many investors had been clients of Fangeat for several years and trusted him implicitly.
43. Fangeat failed to provide his clients with access to
substantially the same information concerning the Saxton Securities that a prospectus filed under the Act would provide. Further, he did not make the appropriate independent inquiries and conduct the necessary due diligence before he sold the Saxton Securities to his clients.
44. Fangeat misrepresented to his clients the nature and
quality of the Saxton Securities. Among other things, Fangeat marketed and endorsed all the Saxton investment products as no, or low, risk notwithstanding that the Offering Memoranda described the Saxton Securities as "speculative".
45. Fangeat represented to clients that Saxton intended to
go public and ultimately would be listed on a recognized stock exchange.
46. Moreover, Fangeat provided clients with account
statements which did not reflect the true value of the Saxton Securities.
47. Fangeat failed to adequately assess the suitability of his
clients' investments in the Saxton Securities.

48. Fangeat's sales of the Saxton Securities were never
processed through his sponsor firm. In or about the summer of 1997, notwithstanding that Fangeat had been told by his then-sponsor that he was not authorized to sell such Securities, he continued to do so.

(b) Fangeat's Role in Saxton's Management
49. Fangeat held the position of marketing officer at
Saxton. Ultimately, Fangeat became a Saxton Vice-President. Fangeat was involved in Saxton management discussions and decision-making. His company, Integrated Planning Services Inc. ("Integrated Planning"), processed subscription agreements, RRSP applications and related paperwork respecting investors' purchases of the Saxton Securities.

50. Fangeat recruited and managed most of the Saxton
salespeople and acted as an intermediary between Saxton and its sales representatives. In this role, he made various misrepresentations to Saxton salespeople including:

(i) that they did not need to be registered with the Commission to sell the Saxton Securities;
(ii) that the sales of the Saxton Securities complied with Ontario securities law;
(iii) that the capital invested in Saxton's Guaranteed Investment Certificate/Fixed Dividend Account product was guaranteed;
(iv) that the Saxton investment products were suitable for conservative investors with low risk investment objectives;

(v) that, based on the profitability of Saxton to date, the "Equity Dividend Account" product would provide a 30% rate of return for investors; and
(vi) that a sponsor firm had authorized the sale of the Saxton Securities.

51. Each of the Offering Corporations prepared an Offering
Memorandum. Such Memoranda provided little information about Saxton other than the geographic location in which the company conducted business. Fangeat was an officer of several of the Offering Corporations. As such, he failed to scrutinize adequately the accuracy and sufficiency of such Memoranda before they were distributed to salespeople and prospective investors.

52. Saxton distributed to investors quarterly statements.
Fangeat knew that the quarterly statements were unsubstantiated by any accounting or financial data in Saxton's possession. Fangeat also knew that the statements misrepresented the value of the shareholders' investments and thus, were misleading to investors and Saxton salespeople
(c) Fangeat's Compensation
53. Fangeat received commissions of at least $500,000 on
his sales of the Saxton Securities. He also received a management fee of 2.5% on all Saxton Securities sold. Among other things, Saxton provided Fangeat with a Mercedes Benz as part of his compensation package and paid Integrated Planning's overhead expenses.

(d) Sales of the Sussex International Securities
54. Fangeat participated in the illegal distribution of the
Sussex International Securities. Sussex International operated out of Fangeat's Integrated Planning offices.

(e) Failure to Contact the OSC
55. In the late summer of 1997, Saxton received a legal
opinion that the distribution of the Saxton Securities contravened Ontario securities law. Despite his knowledge of this opinion, Fangeat did not contact the Commission. Moreover, he continued to participate in the raising of funds from the public through the distribution of the Saxton and Sussex International Securities.
56. Fangeat's conduct, described in paragraphs 40 through
55, was contrary to Ontario securities law and the public interest.
McGEE'S CONDUCT
57. McGee is a lawyer by training. He was called to the
Ontario bar in 1993. In or about 1995, McGee became licensed as an insurance agent with the Financial Services Commission of Ontario. McGee has never been registered with the Commission.
(a) McGee's Management Role
58. McGee became actively involved in the business of
Saxton in the summer of 1996. By early 1997, McGee was Saxton's Vice-President. McGee also was an officer and/or a director of several of the Offering Corporations. Eizenga terminated McGee in December 1997.
59. The sales to Ontario investors of the Saxton Securities
constituted illegal distributions. Among other things, the Offering Corporations were designed to circumvent the "seed capital" prospectus exemption requirement that sales be made to no more than 25 purchasers. McGee was aware of the corporate structure used by Saxton to distribute its securities. To McGee's knowledge, once one Offering Corporation solicited 25 investors, a new Offering Corporation was created.
60. Each of the Offering Corporations prepared an Offering
Memorandum. Such Memoranda provided little information about Saxton other than the geographic location in which the company conducted business. McGee was an officer of several of the Offering Corporations. The Offering Memoranda described McGee as an "investment consultant" and lawyer. McGee failed to scrutinize adequately the accuracy and sufficiency of such Memoranda before they were distributed to salespeople and prospective investors.
61. McGee provided to salespeople and investors written
and oral information concerning Saxton and its operations. In this regard, McGee made various inaccurate and misleading statements. McGee failed to take the necessary steps to verify the accuracy and reliability of such information before distributing it to salespeople and investors.
62. McGee's misrepresentations to the Saxton salespeople
included:
(i) that they did not need to be registered with the Commission to sell the Saxton Securities;
(ii) that the sales of the Saxton Securities complied with Ontario securities law;
(iii) that based on the profitability of Saxton to date, the "Equity Dividend Account" product would provide a 30% rate of return for investors;
(iv) that the capital invested in Saxton's "Guaranteed Investment Certificate/Fixed Dividend Account" product was guaranteed; and
(v) information relating to the financial state and health of Saxton.

63. Many of the Saxton salespeople relied on McGee's
representations given that he was a Saxton Vice-President and a lawyer. Salespeople, in turn, relayed inaccurate and misleading information McGee provided them to their clients.
64. Saxton distributed to investors quarterly statements.
McGee knew that the quarterly statements were unsubstantiated by any accounting or financial data in Saxton's possession. McGee also knew that the statements misrepresented the value of the shareholders' investments and thus, were misleading to investors and Saxton salespeople.
65. Further, McGee knew that Fangeat was making
misrepresentations to certain investors. McGee failed to take the appropriate steps to curtail Fangeat's activity or to correct the information provided to investors.
66. In or about mid-1997, McGee became aware that there
were significant investor funds for which Saxton could not account. McGee failed to alert the Commission and/or any other law enforcement agency and did not take appropriate steps to stop the sale of the Saxton Securities.
67. Ultimately, McGee sought legal advice and was told
that Saxton was engaged in serious securities violations. Notwithstanding this knowledge, McGee failed to:
(i) approach the Commission; and
(ii) instruct the Saxton salespeople to stop selling the Saxton Securities.

(b) McGee's Sales of the Saxton Securities
68. Between March and May 1996, McGee sold the Saxton
Securities directly to at least 4 Ontario investors for a total amount in excess of $80,000. McGee earned commissions of 5% on such sales.
69. McGee failed to provide his clients with access to
substantially the same information concerning the Saxton Securities that a prospectus filed under the Act would provide. Investors were not provided with an Offering Memorandum prior to their purchase of the Saxton Securities and McGee did not otherwise provide adequate information.
70. Moreover, McGee misrepresented to investors that the
Saxton Securities was a guaranteed investment product notwithstanding that the Offering Memoranda described such Securities as "speculative".
71. McGee also was involved with the general promotion,
solicitation and sale of the Saxton Securities by, among other things, drafting promotional and investor relations material for distribution to prospective investors and discussing with sales representatives and prospective investors the Saxton business and growth potential.

(c) McGee's Compensation
72. In addition to commissions paid on his own direct
sales, between the summer of 1996 and early 1997, McGee was paid 2.5% of all monies raised through the purchase of the Saxton Securities. Commencing in February 1997, McGee received a salary for his work with Saxton. In connection with his involvement in Saxton, McGee earned, in approximately one year, in excess of $500,000.
73. By virtue of the conduct described in paragraphs 57
through 72, McGee participated in the illegal distributions of the Saxton Securities and engaged in unregistered trading contrary to section 25 of the Act. No registration exemption was available to him. McGee's conduct was contrary to Ontario securities law and the public interest.
BERRY’S CONDUCT
74. During the material time, Berry worked for Integrated
Planning, Professional Management and Sussex International.

75. Between 1996 and 1998, Berry participated in the
illegal distributions of the Saxton, SecurCorp and Sussex International Securities for which she was remunerated. Further, she engaged in conduct which constituted "trading" in the Saxton Securities without being registered to do so contrary to section 25 of the Act. No exemption from the registration requirements was available to Berry.
76. Berry met with many of Fangeat's clients and, among
other things, had them sign subscription agreements and other documents relating to their purchase of the Saxton Securities. Berry also sent letters to Saxton and Laurentian Bank on behalf of clients giving instructions.
77. All the paperwork concerning the purchase of Saxton
Securities was processed through Berry and Integrated Planning. Berry worked closely with Fangeat and was kept fully apprised of the business and management of Saxton.
78. All the paperwork concerning the purchases of Sussex
International Securities and SecurCorp Securities was processed through Berry and Sussex International and Professional Management respectively.
79. Berry knew that Hersey was unregistered and that his
difficulties with Eizenga related to Herseys alleged dishonest conduct respecting the handling of investor funds. Notwithstanding this knowledge, Berry worked with Hersey to solicit funds from the investing public.
80. By the late summer 1997/fall 1997, Berry was aware
that the distribution of Saxton Securities may not comply with Ontario securities law. Notwithstanding this knowledge, Berry continued to participate in their distribution (and that of Sussex International Securities) and failed to contact the Commission.
81. Berry's conduct, described in paragraphs 74 through 80
above, was contrary to Ontario securities law and the public interest.
RIZUTTO'S CONDUCT
82. Rizzuto was first registered with the Commission to
trade mutual fund securities in September 1992. Commencing in January 1997, Rizutto could also trade limited market products.

83. Rizutto participated in the illegal distributions of the
Saxton Securities. Each of the Offering Corporations prepared an Offering Memorandum. Such Memoranda provided little information about Saxton other than the geographic location in which the company conducted business. Rizutto was an officer of seven of the Offering Corporations. As such, he failed to scrutinize adequately the accuracy and sufficiency of such Memoranda before they were distributed to salespeople and prospective investors.
84. Between April 1997 and April 1998, Rizzuto sold the
Saxton Securities to 7 Ontario investors for a total amount sold of approximately $750,000. He received commissions of approximately $24,000 on such sales.
85. Rizzuto failed to provide his clients with access to
substantially the same information concerning the Saxton Securities that a prospectus filed under the Act would provide. Among other things, none of his clients received an Offering Memorandum prior to purchasing the Saxton Securities.

86. Rizzuto misrepresented the nature and quality of the
Saxton Securities. He told clients that they were purchasing a low risk guaranteed product. In fact, investors were purchasing shares in Saxton, such securities which were described in the Offering Memoranda as "speculative".
87. Rizzuto failed to adequately assess the suitability of his
clients investments in the Saxton Securities.

88. The sale of the Saxton Securities were not processed
through Rizuttos sponsor firm. Rizzuto failed to inform his sponsor that he was engaged in the selling of such products.
89. The conduct of Rizzuto, described in paragraphs 82
through 88 above, was contrary to Ontario securities law and the public interest.
RIOPELLE'S CONDUCT
90. During the material time, Riopelle was a licensed life
insurance agent.

91. Riopelle participated in the illegal distributions, and
engaged in unregistered trading, of the Saxton Securities. No exemption from the registration requirements was available to him.
92. Riopelle was an officer of nine of the Offering
Corporations. Each of the Offering Corporations prepared an Offering Memorandum. Such Memoranda provided little information about Saxton other than the geographic location in which the company conducted business. In his capacity as an officer of certain Offering Corporations, he failed to scrutinize adequately the accuracy and sufficiency of such Memoranda before they were distributed to salespeople and prospective investors.
93. Riopelle sold the Saxton Securities to 8 Ontario
investors for a total amount sold of approximately $480,000.00. All such investors were clients who had purchased life and other insurance products previously from Riopelle.

94. Riopelle earned commissions of approximately
$24,000 on the sales described in paragraph 93.
95. Riopelle failed to provide his clients with access to
substantially the same information concerning the Saxton Securities that a prospectus filed under the Act would provide. Among other things, none of his clients received an Offering Memorandum prior to purchasing the Saxton Securities.
96. Riopelle misrepresented the nature and quality of the
Saxton Securities. He told clients that they were purchasing a low risk guaranteed product from Saxton. In fact, investors were purchasing shares in Saxton, such securities which were described in the Offering Memoranda as "speculative".
97. The conduct of Riopelle, described in paragraphs 90
through 96 above, was contrary to Ontario securities law and the public interest.
THE REMAINING RESPONDENTS' CONDUCT
98. In respect of the respondents Eizenga, G. Fangeat,
Lawrence and Newman, these individuals acted contrary to Ontario securities law and the public interest by:
(i) selling the Saxton Securities and thus, participating in such Securities' illegal distribution; and
(ii) trading in securities without being registered with the Commission and with no available exemption from the registration requirements of Ontario securities law.

99. Such other allegations as Staff may make and the
Commission may permit.


    DATED at Toronto this 7th day of February, 2003.