Settlement Agreement: In the Matter of Koman Info-Link Inc. et al.
R.S.O. 1990, c. S.5, AS AMENDED
AND
IN THE MATTER OF
KOMAN INFO-LINK INC., KOMAN INVESTMENT INC. a.k.a. KOMAN INVESTMENT INC. (B.V.I.),SIMON KO AND JOSE CASTANEDA
SETTLEMENT AGREEMENT
RE: JOSE CASTANEDA
I INTRODUCTION
1. On the 10th day of September, 1998, the Ontario Securities Commission (the"Commission") ordered, pursuant to clause 2 of the subsection 127(1) of theSecurities Act, R.S.O. 1990, c. S.5, as amended (the "Act"), that all trading insecurities by Koman Info-Link Inc. ("Koman"), Koman Investment Inc. a.k.a. KomanInvestment Inc. (B.V.I.) ("Koman Investment Inc."), Simon Ko ("Ko"), John Ping SumLam ("Lam") and Jose Castaneda ("Castaneda") cease for a period of fifteen daysfrom the date of the order (the "Temporary Order").
2. On the 22nd day of September, 1998, the Commission ordered pursuant tosubsection 127(7) of the Act that the Temporary Order be extended against allrespondents until the hearing is concluded and that the hearing be adjourned sinedie.
3. By Notice of Return of Hearing dated May 31, 2000 in respect of Koman, KomanInvestment Inc., Ko and Castaneda (the "Notice of Hearing"), the Commissionannounced that it proposed to hold a hearing to consider whether, pursuant tosections 127 and 127.1 of the Act, in the opinion of the Commission, it is in thepublic interest for the Commission:
(a) to make an order under clause 2 of subsection 127(1) of the Act that tradingin securities by the respondents cease permanently or for such other periodas specified by the Commission;
(b) to make an order under subsection 127(3) of the Act that any exemptions inOntario securities law do not apply to the respondents;
(c) to make an order that Ko resign his position as the sole officer and directorof Koman;
(d) to make an order that Ko is prohibited from becoming or acting as a directoror officer of any issuer;
(e) to make an order that the respondents or any of them be reprimanded;
(f) to make an order that the respondents, or any of them, pay the costs ofStaff's investigation in relation to the matter subject to this proceeding;
(g) to make an order that the respondents, or any of them, pay the costs of theproceeding incurred by or on behalf of the Commission; and/or
(h) to make such other order as the Commission considers appropriate.
II JOINT SETTLEMENT RECOMMENDATION
4. Staff of the Commission ("Staff") agree to recommend settlement of the proceedingsinitiated in respect of the respondent, Castaneda, by the Notice of Hearing inaccordance with the terms and conditions set out below. Castaneda agrees to thesettlement on the basis of the facts agreed to as hereinafter provided andCastaneda consents to the making of an Order in the form attached as Schedule"A" on the basis of the facts set out below.
5. This settlement agreement, including the attached Schedule "A" (collectively, the"Settlement Agreement"), will be released to the public only if and when thesettlement is approved by the Commission.
III STATEMENT OF FACTS
Acknowledgement
6. Staff and Castaneda agree with the facts set out in this Part III.
7. Beginning in approximately September, 1996, Castaneda was employed as a traderor Account Executive for Koman. Koman's clients provided funds for the purposeof purchasing or selling foreign exchange contracts (the "Forex Contracts") in anyone of six foreign currencies or gold bullion on margin. All trades were carried outfor speculative purposes. The Forex Contracts had no maturity dates and investorsdid not take delivery of any currency.
8. Some of Koman's clients appointed Castaneda as an Account Executive pursuantto agreements entered into between the clients and Koman/Koman Investment Inc.(the "Agreements"). As an Account Executive, Castaneda had full discretionaryauthority to trade on behalf of Koman's clients pursuant to the Agreement.
9. As an Account Executive, Castaneda had discretion over the size, denominationand number of Forex Contracts transacted on behalf of the client. Castaneda alsohad discretion to close out the client's position in a given foreign currency at anytime, thereby crystallizing a gain (less interest and Koman's commission) orincurring a loss. Crystallized losses (plus Koman's commission and interest) weredebited from the funds on deposit in the client's account. Crystallized gains werecredited to the client's account with interest, if applicable.
10. During the period from approximately September, 1996 until approximatelySeptember, 1998, Castaneda traded in the Forex Contracts on behalf of Koman'sclients. Castaneda has been registered, at various times, to trade in securitiesunder section 26 of the Act as a registered salesperson for the sale of scholarshipsonly. During the material times, Castaneda was not registered under the Act totrade in the securities offered by Koman to Koman's investors.
11. A commission in the amount of $80 (USD) was charged by Koman for eachcompleted transaction which consisted of a purchase and sale of a Forex Contract.Castaneda received commissions from Koman for his trading activity on behalf ofKoman's clients. During the period from February, 1997 to August, 1997, forexample, Castaneda earned commissions in the amount of $62,820.00 (USD) fromKoman in respect of Castaneda's trading activity as an Account Executive on behalfof Koman's clients.
12. Some of the investors for whom Castaneda acted as an Account Executive sufferedsignificant trading losses.
13. In particular, a Koman investor, W.F., provided funds in the amount of $242,327.31(USD) to Koman to trade in Forex Contracts between approximately February, 1997and July, 1997. During the material times, Castaneda was appointed by W.F. to actas one of the Account Executives in respect of W.F.'s accounts with Koman. Duringthe material times, Koman debited W.F.'s accounts for a total of $83,584.00 (USD)for commissions and $56,119.75 (USD) for interest charges. By March, 1998, W.F.had suffered a net loss of $242,182.65 (USD).
14. Investor, M.A., provided funds in the amount of approximately $100,000.00 (CDN)to Koman to trade in Forex Contracts during the period from approximately lateNovember, 1996 to May, 1997. During the material times, Castaneda wasappointed by M.A. to act as one of the Account Executives in respect of M.A.'saccounts. By October, 1997, M.A. was advised that there were no further fundsremaining in her accounts with Koman. M.A. had withdrawn some funds previously.However, M.A. suffered net losses in the amount of $60,000.00 to $70,000.00(CDN).
CONDUCT CONTRARY TO THE PUBLIC INTEREST
15. In conducting the activities described above Castaneda traded in securities, namelythe Forex Contracts, without registration and without an exemption from theregistration requirements contrary to section 25 of the Act and contrary to the publicinterest.
IV TERMS OF SETTLEMENT
16. Castaneda agrees to the following terms of settlement:
(a) pursuant to clause 2 of subsection 127(1) of the Act, Castaneda will ceasetrading in securities for a period of five years effective from the date ofapproval of this Settlement Agreement by the Commission;
(b) Castaneda agrees not to apply for registration in any capacity under the Actfor a period of fifteen years effective from the date of approval of thisSettlement Agreement by the Commission; and
(c) pursuant to clause 6 of subsection 127(1) of the Act, Castaneda will bereprimanded by the Commission.
V STAFF COMMITMENT
17. If this Settlement Agreement is approved by the Commission, Staff will not initiateany complaint to the Commission or request the Commission to hold a hearing orissue any order in respect of any conduct or alleged conduct of Castaneda inrelation to the facts set out in Part III of this Settlement Agreement.
VI PROCEDURE FOR APPROVAL OF SETTLEMENT
18. The approval of the settlement as set out in the Settlement Agreement shall besought at a public hearing before the Commission scheduled for such date as isagreed to by Staff and Castaneda in accordance with the procedures describedherein and such further procedures as may be agreed upon between Staff andCastaneda.
19. If this Settlement Agreement is approved by the Commission, it will constitute theentirety of the evidence to be submitted respecting Castaneda in this matter andCastaneda agrees to waive any right to a full hearing and appeal of this matterunder the Act.
20. If this Settlement Agreement is approved by the Commission, the parties to thisSettlement Agreement will not make any statement that is inconsistent with thisSettlement Agreement.
21. If, for any reason whatsoever, this settlement is not approved by the Commission,or the Order set forth in Schedule "A" is not made by the Commission:
(a) each of Staff and the Respondent, Castaneda, will be entitled to proceed toa hearing of the allegations in the Notice of Hearing and related Statementof Allegations unaffected by the Settlement Agreement or the settlementnegotiations;
(b) the terms of the Settlement Agreement will not be raised in any otherproceeding or disclosed to any person except with the written consent ofStaff and the Respondent, Castaneda, or as may be otherwise required bylaw; and
(c) the Respondent, Castaneda, further agree that each will not raise in anyproceeding the Settlement Agreement or the negotiation or process ofapproval thereof as a basis for any attack on the Commission's jurisdiction,alleged bias, appearance of bias, alleged unfairness or any other challengethat may otherwise be available.
22. If, prior to the approval of this Settlement Agreement by the Commission, there arenew facts or issues of substantial concern, in the view of Staff, regarding the factsset out in Part III of this Settlement Agreement, Staff will be at liberty to withdrawfrom this Settlement Agreement. Notice of such intention will be provided toCastaneda in writing. In the event of such notice being given, the provisions ofparagraph 21 in this part will apply as if this Settlement Agreement had not beenapproved in accordance with the procedures set out herein.
VII DISCLOSURE OF SETTLEMENT AGREEMENT
23. Counsel for Staff or the Respondent, Castaneda, may refer to any part or all of thisSettlement Agreement in the course of the hearing convened to consider thisagreement. Otherwise, this Settlement Agreement and its terms will be treated asconfidential by all parties to the Settlement Agreement until approved by theCommission, and forever if, for any reason whatsoever, this settlement is notapproved by the Commission.
24. Any obligation as to confidentiality shall terminate upon the approval of thisSettlement Agreement by the Commission.
VIII EXECUTION OF SETTLEMENT AGREEMENT
25. This Settlement Agreement may be signed in one or more counterparts whichtogether shall constitute a binding agreement and a facsimile copy of any signatureshall be as effective as an original signature.
DATED this 31stday of May, 2000.
SIGNED IN THE PRESENCE OF:
"Jose Castaneda"
Staff of the Ontario Securities Commission"Michael Watson"
Director of Enforcement