Settlement Agreement: In the Matter of Patrick Gouveia et al.
IN THE MATTER OF THE SECURITIES ACT,
R.S.O., 1990, C.s. 5 AS AMENDED
-and-
IN THE MATTER OF PATRICK GOUVEIA, ANDREW PETERS,
RONALD PERRYMAN AND PAUL VICKERY
SETTLEMENT AGREEMENT BETWEEN STAFF OF THE
ONTARIO SECURITIES COMMISSION AND PAUL VICKERY
I. INTRODUCTION
1. By Notice of Hearing dated June 2, 2004, the Ontario Securities Commission announced that it proposed to hold a hearing to consider whether pursuant to section 127 and section 127.1 of the Securities Act, R.S.O. 1990, C. S. 5, as amended (the Act), it is in the public interest to make an order that:
(a) the respondents cease trading securities permanently or for such period as the Commission may order;
(b) the exemptions contained in Ontario securities law do not apply to the respondents permanently or for such period as the Commission may order;
(c) the respondents resign any positions they hold as a director or officer of any issuer permanently or for such period as the Commission may order;
(d) the respondents be prohibited from acting as a director or officer of any issuer permanently or for such period as the Commission may order;
(e) the respondents be reprimanded;
(f) the respondents pay the costs of Staff’s investigation and this proceeding; and
(g) such other order as the Commission may deem appropriate.
II. JOINT SETTLEMENT RECOMMENDATION
2. Staff recommend settlement of the proceeding initiated against the Respondent, Paul Vickery, by the Notice of Hearing dated June 2, 2004 in accordance with the terms and conditions contained in paragraph 20 of this agreement. Vickery agrees to the settlement on the basis of the facts agreed to as provided in Part III and consents to the making of an order in the form attached as Schedule A to this agreement on the basis of the facts contained in this agreement.
III. FACTS
(a) Acknowledgement
3. Staff and Vickery agree that the facts and submissions set out in the Settlement Agreement are solely for the purposes of this Agreement, for the settlement of this matter and as a basis for the undertakings contained in the Agreement.
4. Staff and Vickery agree that this Agreement is without prejudice to either Vickery or Staff in any other proceeding brought by the Commission under the Act or any civil proceedings which may be brought by any other person.
(b) Background
5. Atlas Cold Storage Income Trust (Atlas) is an open-ended, limited purpose trust established under the laws of Ontario with its head office in Toronto.
6. Atlas, through its wholly owned subsidiary, Atlas Cold Storage Holdings Inc. (Holdings), and through the wholly owned subsidiaries of Holdings, operates a Canadian and US based network of public refrigerated warehouse facilities, a transportation business, and a retail management business.
7. Atlas is a reporting issuer in Ontario. In August 2000, its units were listed and posted for trading on the Toronto Stock Exchange (TSX). Pursuant to Ontario securities law, it is obliged to file interim and audited annual financial statements with the Commission.
8. Atlas is administered by the Board of Directors of Holdings pursuant to an administration agreement between Atlas and Holdings. The earnings of Holdings and its subsidiaries flow to Atlas and Atlas pays distributable cash to unit holders quarterly as approved by the Board of Trustees of Atlas on the advice of the Board of Directors of Holdings. The payment of distributions for each of the first three quarters is equalized. The distribution is adjusted for Q4 to reflect annual earnings.
(c) Officers of Atlas
9. Patrick Gouveia was a Director and the President and Chief Executive Officer of Holdings. He held through various private entities a significant unit holding in Atlas. As CEO, Gouveia was responsible for all aspects of the operations of Atlas, Holdings and its subsidiaries.
10. Andrew Peters was a Director and Executive Vice-President and Chief Financial Officer of Holdings. Peters has since passed away.
11. Ronald Perryman was the Vice-President of Finance of Holdings. As VP Finance, Perryman was responsible for the financial affairs of Atlas, Holdings and its subsidiaries. His responsibilities included the preparation and public filing of Atlas’ interim and audited annual financial statements.
12. Vickery was the Corporate Controller of Holdings from August 2000 to approximately June 2001. As Corporate Controller, he was responsible for the accounting of the financial affairs of Atlas, Holdings and its subsidiaries. In June 2001, Joe Romagnolo became the Corporate Controller of Holdings and took over the accounting responsibilities from Vickery. Vickery was appointed the Director of Business Controls which did not relate to accounting functions. At all material times, Vickery was an officer of Holdings.
(d) Inappropriate Capitalization of Expenses
13. Between January 1, 2001 and June 30, 2001, Atlas’ accounting staff presented Gouveia with draft financial results in anticipation of end of quarter reporting. These results were routinely lower than the high group budgets set by Gouveia and approved by the Board of Holdings. When Gouveia received the results, he was routinely dissatisfied and instructed Vickery and his accounting staff to conduct a detailed review whether all expenditures that could be capitalized had indeed been fully capitalized. The review of expenditures, which involved a review of all invoices over Cdn$1,500 and US$1,000 (during the period Jan 2001 to June 2001), was approved by Gouveia, Perryman and Peters and resulted in additional capitalized expenditures which improved Atlas’s quarterly earnings. In his capacity as corporate controller, Vickery was involved in the capitalization of costs which were subsequently restated. These capital expenditures by Holdings consisted of the following items: (a) wages and expenditures related to construction projects (b) wages and expenditures related to information technology projects such as (i) software conversions (ii) the development and implementation of new programming; and (c) electronic data interface projects that had been developed for long-term customers. With respect to the capitalization of individual salaries, estimates were used as neither construction nor IT staff prepared daily time sheets breaking out the proportion of their time spent on various projects.
14. On the direct instructions of Peters, the level of internal salary capitalizations was reviewed and increased. Vickery believed that Peters’ instructions resulted from discussions held by Peters and Gouviea with the VP of Information Technology.
15. As a result of the instructions he received in 2001 to aggressively capitalize expenses and as a result of his observations of the 2002 financial statements and March 2003 quarterly statements, it was evident to Vickery that Romagnolo was instructed to conduct the same detailed review of expenditures to ensure that all expenses had been fully capitalized to assist in enabling Atlas to achieve its earning targets. Vickery’s belief was reflected through email correspondence between a former employee in the finance department of an American subsidiary of Atlas and himself. On April 12, 2003, Vickery received an email from the employee which included the statement:
How are things at Atlas otherwise? The share price keeps ticking up, so I guess the street still thinks it’s the real thing. Hopefully it’s not a house of cards that eventually tumbles, but from what I knew of the numbers that could eventually happen. Anyhow, hopefully Joe continues with his creative accounting efforts.
On May 7, 2003, Vickery replied by email in which he stated:
Joe is the same as ever-grumbling about life making adjustments which probably should not be made and reaching earnings targets that I don’t wish to know about.
Vickery had no specific knowledge of entries made by Romagnolo and had no influence over Romagnolo or the accounting staff.
16. In January 2002, prior to the commencement of the 2001 year end audit, Vickery and Romagnolo presented an exposure list to Gouveia, Peters and Perryman and suggested certain accruals and potential areas of exposure within the financial statements, including capitalization of expenses, in order to ensure that these issues of concern would be brought to the attention of the auditors. Vickery assisted Romagnolo in the preparation of schedules for the meeting and although aware of specific details of the items listed, Vickery’s role was one of advisor to Romganolo and he had limited input into the calculation of the items tabled. Vickery was not otherwise involved in the 2001 audit and had no contact with the auditors.
(e) Filing of Materially Misleading Financial Statements
17. At the end of each financial reporting period and at the end of each financial year, Atlas accounting staff prepared the consolidated financial statements for Atlas. The inappropriate capitalization of expenses resulted in the understatement of expenses and the overstatement of earnings in the financial statements of 2001. The consolidated financial statements, therefore, were materially misleading. This misleading financial statements together with other reporting information including general details of capitalizations were presented to the audit committee and the Board of Atlas for approval and the misleading financial statement was filed with the Commission. Vickery did not participate in audit committee or Board meetings after October 2001 and was not present when the 2001 statements were approved by the board.
(f) Restatement of Financial Statements
18. As a result of misstatements in the financial statements for the year ended December 31, 2002, on January 30, 2004, Atlas had to amend and restate its financial statements for 2001 and 2002. Earnings for the year ending 2001 were reduced and the inappropriate capitalization of expenses between January 1, 2001 and June 30, 2001, the portion for which Vickery had been responsible, contributed to the reduction.
IV. CONDUCT CONTRARY TO ONTARIO SECURITIES LAW AND CONTRARY TO THE PUBLIC INTEREST
19. Vickery acknowledges the conduct described in Part III and acknowledges that the conduct was contrary to Ontario securities law and contrary to the public interest.
V. TERMS OF SETTLEMENT
20. Vickery agrees to the following terms of settlement:
(a) Vickeryagrees to resign all positions as an officer or director of any issuer;
(b) Vickery agrees not to be or act as a director or officer of any issuer for five years;
(c) pursuant to clause 6 of subsection 127(1) of the Act, Vickery shall be reprimanded; and
(e) pursuant to section 127.1 of the Act, Vickery agrees to pay the sum of $5,000 in respect of the costs of the investigation and hearing in this matter.
VI. STAFF COMMITMENT
21. If this Settlement Agreement is approved by the Commission, Staff will not initiate any other proceeding under the Act against Vickery based on the facts as set out in Part III of this Agreement.
22. This Settlement Agreement constitutes full answer to the allegations contained in the Notice of Hearing and Statement of Allegations.
VII. PROCEDURE FOR APPROVAL OF SETTLEMENT
23. Approval of the Settlement Agreement shall be sought at a hearing of the Commission scheduled for August 25, 2006 at 9:30 a.m.
24. Counsel for Staff and counsel for Vickery may refer to any part or all of this Settlement Agreement at the Settlement Hearing. Staff and Vickery agree that this Settlement Agreement will constitute the entirety of the evidence to be submitted at the Settlement Hearing.
25. If this Settlement Agreement is approved by the Commission, Vickery agrees to waive its rights under the Act to a full hearing, judicial review or appeal of the matter.
26. Whether or not the Settlement Agreement is approved by the Commission, Vickery agrees that he will not, in any proceeding, refer to or rely on this Settlement Agreement, the settlement discussions and negotiations or the process of approval of the Settlement Agreement as the basis of any attack on the Commission’s jurisdiction, alleged bias or appearance of bias, alleged unfairness or any other remedies or challenges that may otherwise be available.
27. If, for any reason whatsoever, this Settlement Agreement is not approved by the Commission or an order in the form attached as Schedule “A” is not made by the Commission:
(a) this Settlement Agreement and its terms, including all discussions and negotiations between Staff and Vickery leading up to its presentation at the Settlement Hearing, shall be without prejudice to Staff or Vickery; and
(b) except as set out in paragraph 28, Staff and Vickery shall be entitled to all available proceedings, remedies and challenges, including proceeding to a hearing of the allegations in the Notice of Hearing and Statement of Allegations of Staff, unaffected by this Settlement Agreement or the settlement discussions and negotiations.
VIII. DISCLOSURE OF AGREEMENT
28. Except as required by its terms, this Settlement Agreement will be treated as confidential by the Commission, and forever if, for any reason whatsoever, this Settlement Agreement is not approved by the Commission, except with the written consent of Staff and Vickery or as may be required by law.
29. Any obligations of confidentiality attaching to this Settlement Agreement shall terminate upon approval of this settlement by the Commission.
30. Staff and Vickery agree that if this Settlement Agreement is approved by the Commission, they will not make any public statement inconsistent with this Settlement Agreement, testimonial or otherwise.
IX. EXECUTION OF SETTLEMENT AGREEMENT
31. This Settlement Agreement may be signed in one or more counterparts which together shall form a binding agreement.
32. A facsimile copy of any signature shall be as effective as an original signature.
DATED AT TORONTO this “21 st” day of August, 2006.
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_____________________
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“Paul Vickery”
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Witness
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Paul Vickery
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DATED AT TORONTO this “23 rd” day of August, 2006.
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“Kelley McKinnon |
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SCHEDULE “A”
IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c.S.5, AS AMENDED
AND
IN THE MATTER OF PATRICK GOUVEIA, ANDREW PETERS,
RONALD PERRYMAN AND PAUL VICKERY
ORDER
WHEREAS on June 2, 2006, the Ontario Securities Commission issued a Notice of Hearing pursuant to s. 127 and s. 127(1) of the Securities Act, R.S.O. 1990, c.S.5, as amended, (“the Act”) in respect of the respondents Patrick Gouveia, Andrew Peters, Ronald Perryman, and Paul Vickery;
AND WHEREAS the respondent Paul Vickery (“Vickery”) entered into a Settlement Agreement with Staff of the Commission dated [ ·], 2006, in which he agreed to a proposed settlement of the proceeding commenced by the Notice of Hearing subject to the approval of the Commission;
AND UPON receiving the Settlement Agreement and the Notice of Hearing and upon hearing submissions of Staff and counsel for Vickery;
AND WHEREAS the Commission is of the opinion that it is the public interest to make this order;
IT IS ORDERED THAT:
1. the Settlement Agreement attached to this order schedule “A” is approved;
2. pursuant to clause 7 of s. 127(1) of the Act, the respondent, Vickery, is to resign all positions as a director of officer of any issuer;
3. pursuant to clause 8 of s. 127(1) of the Act, the respondent, Vickery is prohibited from becoming or acting as a director or officer of any issuer for five years;
4. pursuant to clause 6 s. 127(1) of the Act, the respondent, Vickery is reprimanded; and
5. pursuant to s. 127(1) of the Act, the respondent, Vickery pay costs of $5,000.
DATED at Toronto, this day of , 2006.
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