Statement of Allegations: In the Matter of Frank Mersch and Peter Cunti
R.S.O. 1990, CHAPTER S.5
AND
IN THE MATTER OF
FRANK MERSCH AND PETER CUNTI
STATEMENT OF ALLEGATIONS OF STAFF OF
THE ONTARIO SECURITIES COMMISSION
Staff of the Ontario Securities Commission (the "Commission") make the following allegations:
The Respondents
1. Frank Mersch is an individual who resides in Toronto. At all material times, Mersch was a director and officer of Altamira Management Ltd. ("Altamira"),and was registered with the Commission.
2. At all material times, Mersch was the Portfolio Manager of Altamira Account #31.
3. At all material times from November 23, 1993, Mersch was one of five members of Altamira's Trading and Ethics Committee.
4. Peter Cunti is an individual who resides in Toronto.
Investment by Mersch
5. 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 Mersch took steps to secure for himself aprivate British Columbia corporation known as Dass No. 25 Holdings Ltd. ("Dass") through which he intended to invest in Diamond Fields.
6. 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 cheque in the amount of $3,750.00. The private placement closed on April 5, 1993.
7. In September, 1993, Mersch caused Dass to exercise the 25,000 purchase warrants it had acquired in April, 1993.
Investment by Altamira
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.
Altamira's Trading Policy
9. On or about November 23, 1993, Altamira adopted internal rules regarding personal trading by its employees. Those rules required, among other things, thatall "personal securities transactions" be cleared prior to execution by two members of Altamira's Trading and Ethics Committee.
10. Altamira's rules stated that the necessary clearance would ordinarily be denied for trading in any securities held in any portfolio managed by Altamira, andthat such restriction would apply regardless of whether the portfolio securities were acquired before or after the individual's securities.
Transfer of Dass
11. In or about March of 1994, Mersch decided to take steps to transfer apparent ownership and control of Dass to Cunti, and to make it appear that Cunti hadbeen the sole beneficial owner of Dass from February of 1993. Mersch discussed this decision with Cunti.
12. In March of 1994 Cunti instructed the solicitors for Dass to take the necessary steps to transfer apparent ownership and control of Dass to him.
13. Mersch is, and has always been, the sole beneficial owner of Dass. Mersch caused Dass and Cunti to take these steps to conceal Mersch's ownership ofDass.
Mersch's Statements
14. On August 16, 1996, Mersch authorized, permitted, or acquiesced in the delivery of a letter from Altamira to the British Columbia Securities Commission("BCSC") in which Mersch, through Altamira, represented to the BCSC that Cunti had been the owner of Dass from February of 1993 and that at no time hadMersch had a beneficial interest in Dass.
15. On March 6, 1997, Mersch voluntarily gave an oral statement to staff of the Ontario Securities Commission ("OSC") in which Mersch stated that Cunti hadbeen the owner of Dass from February of 1993 and that at no time had Mersch had a beneficial interest in Dass.
16. Each of these two statements was false in a material respect. In particular, Cunti had no connection with or interest in Dass prior to March of 1994. FromFebruary of 1993 until at least March of 1994, Mersch (or Mersch together with his wife) was the sole beneficial owner of Dass.
17. Mersch knew, at the time he made these statements, that they were false in a material respect.
18. In making the statement to staff of the OSC, Mersch committed an offence contrary to paragraph 122(1)(a) of the Securities Act.
Cunti's Statements
19. On or about August 20, 1996, Cunti gave information to the British Columbia Securities Commission in answer to inquiries made by that Commission. Ingiving those answers, Cunti stated that he had been the owner of Dass from February of 1993 and that at no time had Mersch had a beneficial interest in Dass.
20. On January 15, 1998, Cunti was examined by staff of the OSC pursuant to a summons issued under section 13 of the Securities Act. In that examination,Cunti stated that he had been the owner of Dass from February of 1993 and that at no time had Mersch had a beneficial interest in Dass.
21. In that examination, Cunti made numerous other statements regarding his or Mersch's involvement with Dass or with persons connected with Dass.
22. All of the statements made by Cunti regarding his involvement with Dass were false in a material respect. Cunti knew, at the time he made these statements,that they were false in a material respect. In particular, Cunti did not become involved with Dass until in or about March of 1994, one year later than he statedhe did.
23. In making these statements to staff of the OSC, Cunti committed an offence contrary to paragraph 122(1)(a) of the Securities Act.
Other
24. Such additional allegations as counsel may advise and as the Commission may permit.
DATED at Toronto this 7th day of May, 1998.