Settlement Agreement: In the Matter of Frank Mersch and Peter Cunti - Frank Mersch
R.S.O. 1990, c.S.5, AS AMENDED
AND
IN THE MATTER OF
FRANK MERSCH and PETER CUNTI
SETTLEMENT AGREEMENT
RE: FRANK MERSCH
I. INTRODUCTION
1. By notice of hearing dated May 7, 1998 (the "Notice of Hearing"), the Ontario Securities Commission (the "Commission") announced that it proposed to holda hearing to consider:
(a) whether, pursuant to section 127 of the Act, it is in the public interest for the Commission to make an order:
(i) that the exemptions provided for in sections 35, 72, 73 and 93 of the Act shall not apply to one or both of the respondents for such time as the Commissionmay direct; and/or
(ii) that the registration of the respondent Frank Mersch ("Mersch") be suspended or restricted for such period as the Commission may order, or that terms andconditions be imposed on his registration; and/or
(iii) such other order as the Commission may deem appropriate; and
(b) such other matters as the Commission considers appropriate.
II. JOINT SETTLEMENT RECOMMENDATION
2. (a) The Staff of the Commission ("Staff") agree to recommend settlement of the proceeding initiated in respect of Mersch by the Notice of Hearing inaccordance with the terms and conditions set out below. Mersch consents to the making of an order against him in the form attached as Schedule "A" on thebasis of the facts set out below.
(b) Staff and Mersch agree that this settlement agreement, including the attached Schedule "A", will be released to the public only if and when the settlement isapproved by the Commission.
III. STATEMENT OF FACTS
Acknowledgement
3. Mersch agrees with the facts set out in this Part III.
Factual Background
4. Mersch was, at all material times, registered pursuant to section 26 of the Securities Act, R.S.O. 1990, c. S.5, as amended (the "Act") and was an employee,director and officer of Altamira Management Ltd. ("Altamira").
5. At all material times, Mersch was the Portfolio Manager of Altamira Account #31.
6. In or about February of 1993, Mersch was told that an opportunity existed to participate in a private placement being carried out by Rutherford VenturesCorp., subsequently known as Diamond Fields Resources Inc. ("Diamond Fields"). In February and March of 1993 an investment dealer in British Columbiatook steps to secure a private British Columbia corporation known as Dass No. 25 Holdings Ltd. ("Dass") for Mersch through which the investment in DiamondFields would be made.
7. Mersch caused Dass to purchase 25,000 units of Diamond Fields at a cost of $0.15 per unit. Each unit consisted of one common share and one common sharepurchase warrant. Mersch paid for the investment by way of a personal cheque in the amount of $3,750.00. The private placement closed on April 5, 1993.
8. On or about May 19, 1993, Mersch caused Altamira Account #31 to purchase 190,000 units of Diamond Fields at a cost of $2.85 per unit. Each unitconsisted of one common share and one common share purchase warrant. Other Altamira accounts managed by other portfolio managers also subscribed.
9. In September, 1993, Mersch caused Dass to exercise the 25,000 purchase warrants it had acquired in April, 1993. Mersch paid the sum of $3,750.00 to allowDass to exercise the warrants.
10. On or about November 23, 1993, Altamira adopted internal rules regarding personal trading by its employees and created a Trading and Ethics Committee.Those rules required, among other things, that all "personal securities transactions" be cleared prior to execution by two members of the Committee, of whichMersch was a member.
11. Altamira's rules stated that the necessary clearance would ordinarily be denied for trading in any securities held in any portfolio managed by Altamira afterthat date, and that such restriction would apply regardless of whether the portfolio securities were acquired before or after the individual's securities.
12. In or about March of 1994 Cunti advised the solicitors for Dass that he was the owner of Dass and instructed them to take the necessary steps to transferownership and control of Dass to him.
13. On March 6, 1997, Mersch gave an oral statement to staff of the Ontario Securities Commission ("OSC"). Mersch told OSC staff that Cunti had, from early1993, been responsible for taking the necessary steps to cause Dass to invest in Diamond Fields. In fact, Cunti had no direct involvement with Dass until March1994. Mersch deliberately misled OSC staff as to the timing of Cunti's involvement in Dass.
14. Mersch's conduct in making this statement was contrary to the public interest.
IV. MERSCH'S POSITION
15. Mersch never intended to receive the benefit of Dass' investment in Diamond Fields ("the investment") and has never received any direct or indirect personalor financial benefit from it.
16. Mersch was never an officer, director or registered shareholder of Dass. Until March of 1994 a member of the law firm acting as the solicitor for Dass wasthe only shareholder.
17. Although Mersch did not intend to keep the investment for himself and did not consider himself to be an owner of Dass at the time, he now understands thathis actions may not have been consistent with that state of affairs.
18. The shares of Diamond Fields owned by Dass were subject to escrow conditions and were not traded by Dass prior to March of 1994.
V. TERMS OF SETTLEMENT
19. Mersch shall not reapply for registration for a period of 6 months from the date of approval of this agreement.
VI. STAFF COMMITMENT
20. If this settlement is approved by the Commission, Staff will not initiate any complaint to the Commission or request the Commission to hold a hearing orissue any other order in respect of any conduct or alleged conduct of Mersch in relation to the facts set out in Part III of this agreement.
21. If this settlement is approved by the Commission, Staff will not initiate any other proceedings against Mersch in relation to the facts set out in Part III of thisagreement.
VII. PROCEDURE FOR APPROVAL OF SETTLEMENT
22. Approval of the settlement set out in this agreement shall be sought at the public hearing of the Commission scheduled for June 11, 1998, or such other dateas may be agreed to by Staff and Mersch, in accordance with the procedures described in this agreement.
23. Staff and Mersch agree that if this agreement is approved by the Commission, it will constitute the entirety of the evidence to be submitted respecting Merschin this matter, and Mersch agrees to waive his rights to a full hearing and appeal of the matter under the Act.
24. Staff and Mersch agree that if this settlement is approved by the Commission, neither Staff nor Mersch will make any public statement inconsistent with thisagreement.
25. If, for any reason whatsoever, this settlement is not approved by the Commission or an order in the form attached as Schedule "A" is not made by theCommission:
(a) each of Staff and Mersch will be entitled to all available proceedings, remedies and challenges, including proceeding to a hearing of the allegations in theNotice of Hearing and Statements of Allegations, unaffected by this agreement or the settlement negotiations;
(b) the terms of this agreement will not be referred to in any proceeding, or disclosed to any person, except with the written consent of both Mersch and Staff oras may be required by law; and
(c) Mersch agrees that he will not, in any proceeding, refer to or rely upon this agreement or the negotiation or process of approval of this agreement as the basisfor any attack on the Commission's jurisdiction, alleged bias, appearance of bias, alleged unfairness or any other remedies or challenges that may otherwise beavailable.
VIII. DISCLOSURE OF AGREEMENT
26. The terms of this agreement will be treated as confidential by all parties hereto until approved by the Commission, and forever if, for any reason whatsoever,this settlement is not approved by the Commission, except with the written consent of both Mersch and Staff or as may be required by law.
27. Any obligations of confidentiality shall terminate upon approval of this settlement by the Commission.
IX. EXECUTION OF AGREEMENT
28. This agreement may be signed in one or more counterparts which together shall constitute a binding agreement.
Dated this 10th day of June, 1998.
"FRANK MERSCH"
STAFF OF THE ONTARIO SECURITIES COMMISSION.