Settlement Agreement: In the Matter of Barry Magrill

 

IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, c.S. 5, as amended;


IN THE MATTER OF THE STATUTORY POWERS PROCEDURE ACT,
R.S.O. 1990, c.S.22, as amended; and


IN THE MATTER OF BARRY MAGRILL



SETTLEMENT AGREEMENT
BETWEEN STAFF OF
THE ONTARIO SECURITIES COMMISSION
AND BARRY MAGRILL

 

I.      INTRODUCTION

1.      Pursuant to section 5(1) of the "Practice Guidelines - Settlement Procedures in Matters Before the Ontario Securities Commission" of the Ontario Securities Commission Rules of Practice, Staff of the Ontario Securities Commission and Barry Magrill ("Magrill") propose to settle the matters described further below.

II.      ACKNOWLEDGMENT

2.      Solely for the purposes of this agreement and as a basis for the undertakings contained herein, Magrill acknowledges that the facts set out in Part III of this Settlement Agreement are correct.

III.      FACTS

3.      Barnet Magrill Investments Ltd. ("BMI") was, at all material time, registered under Ontario securities law as a securities dealer. Effective July 28, 2000, the registration of BMI was suspended. Magrill was, at all material times, registered as an officer of BMI and was its president. Magrill is not registered currently in any capacity under Ontario securities law.

4.      During the period from 1995 to 2000 (the "Material Time"), virtually all of BMI's business consisted of it acquiring stock for its own account and selling the stock to its clients (referred to below as "principal trading").

5.      During the Material Time over 90% of BMI's revenue was derived from principal trading in the stock of five issuers (the "Five Issuers") referred to below. Stock of each of the Five Issuers was traded through the Canadian Dealing Network ("CDN").

6.      The Five Issuers are as follows:

1. Bridge-it Corporation ("Bridge-it"),
2. Curran Bay Resources Ltd. ("Curran"),
3. Interprovincial Venture Capital Corporation ("Interprovincial"),
4. Windy Mountain Explorations Ltd. ("Windy"), and
5. Library Information Software Corp. ("Library").

7.      In the case of the Five Issuers, BMI either held stock in its inventory or exercised option agreements to acquire the stock in the issuer immediately prior to the commencement of principal trading in the stock with its clients. BMI acquired stock in the Five Issuers at prices significantly lower than the selling price to its clients. BMI resold this stock to its own clients at mark-ups above the acquisition costs ranging from approximately 245% to 440%.

8.      During the Material Time, BMI's gross revenue (i.e., revenue from the sale of stock less acquisition costs) earned from principal trading in the stock of the Five Issuers was approximately $7.2 million.

9.      In the case of each of the Five Issuers, there was no initial trading period. BMI set the initial price charged to its clients.

10.      Particulars of the principal trading in stock of the Five Issuers by BMI are set out below.

Bridge-it

11.      Bridge-it is a reporting issuer in Ontario whose shares were added to the CDN system for trade reporting on December 18, 1997.

12.      During the period from June 7, 1999 to March 2, 2000, BMI purchased 521,750 shares of Bridge-it at a weighted average acquisition cost of $0.28 per share.

13.      BMI began its selling campaign on June 24, 1999 at a price of $1.50 per share. From June 24, 1999 to March 28, 2000, BMI sold 468,550 shares to its clients at a weighted average price of $1.50, generating a gross profit of $519,610.00. The average mark-up by BMI was 436%.

14.      On June 2, 2000 the Commission ordered that trading in Bridge-it shares cease due to Bridge-it's failure to file its annual financial statements for the period ended December 31, 1999, as well as the failure to file its quarterly financial statements for the period ended March 31, 2000.

Curran

15.      Curran is a reporting issuer in Ontario.

16.      Curran's common shares were originally listed on the Alberta Stock Exchange (the "ASE"). There was a trading halt in 1998 which was changed to a suspension on March 17, 1999. The stock was subsequently de-listed by the ASE. It was added to the CDN system for trade reporting on March 30, 1999. Curran's Series 1 Preference shares were added to the CDN on April 30, 1999.

17.      From April 22, 1999 to June 23, 1999, Curran issued 2,000,000 Series 1 Performance shares. From April 1999 to October 1999, BMI purchased 1,280,000 of these shares of Curran at a price of $0.30 per share.

18.      BMI commenced its selling campaign on May 6, 1999 at a price of $1.40 per share. From May 6, 1999 to March 23, 2000, BMI sold 1,105,300 shares to its clients at a weighted average price of $1.62, generating a gross profit of $1,184,367.50. The average mark-up was 440%.

19.      Curran Series 1 Preference shares last traded on June 13, 2000 at a price of $1.40 per share. The last transaction was a cross of 1,000 shares owned by BMI

Interprovincial

20.      Interprovincial is a reporting issuer in Ontario.

21.      Interprovincial was added to the CDN for trade reporting on October 17, 1996. It was approved for quotation on January 8, 1997.

22.      On October 2, 1996, when BMI began purchasing shares of Interprovincial there were 29.6 million shares of Interprovincial outstanding.

23.      In total BMI purchased 5,694,231 shares at a weighted average acquisition cost of $0.11 per share.

24.      BMI commenced its selling campaign on November 4, 1996 at a price of $0.35 per share. From November 4, 1996 to December 22, 1999, BMI sold 6,702,924 shares to its clients at a weighted average price of $0.58 per share generating a gross profit of $2,756,025.15. The average mark-up was 427%.

25.      The current price of Interprovincial is $0.02 per share. The last trade was a trade of 2,200 shares from Scotia McLeod Inc. to W.D. Latimer & Co. Ltd. on May 26, 2000.

Windy

26.      Windy is a reporting issuer in Ontario.

27.      Windy Class B Preferred shares were added to the CDN for trade reporting on June 20, 1995. The common shares traded on the ASE.

28.      As at June 2, 1995, there were 1,038,518 Class B Preferred shares outstanding. BMI purchased a total of 984,431 or 95% of the total shares issued at a weighted average acquisition cost of $0.38 per share.

29.      BMI commenced its selling campaign on August 25, 1995 at $0.70 per share. During the period from June 1995 to December 1995, the common shares traded on the ASE at a low of $0.12 and a high of $0.26 with a total volume of 61,000 shares. From August 1995 to December 1996 the price range at which BMI sold the Class B Preferred shares to its clients was $0.70 to $1.55. From June 30, 1995 to February 11, 1998, BMI sold 1,122,250 shares to its clients at a weighted average price of $1.31. In total BMI generated a gross profit of $985,980.00. the average mark-up was 245%.

30.      The current price of Windy Class B Preferred shares is $0.05. The last trade of a board lot was April 28, 1999 at $0.05 per share. The last reported trade was on December 13, 1999 at $0.05 per share.

Library

31.      Library is a reporting issuer in Ontario.

32.      Library Class A shares were added to the CDN for trade reporting on November 27, 1997. Library did not apply for quotation at that time. It subsequently applied for quotation, but that application was denied on December 14, 1999.

33.      As at November 4, 1997, there were a total of 9,708,000 Class A shares outstanding. From November 12, 1997 to November 17, 1999, BMI purchased a total of 2,133,000 shares at an average acquisition cost of $0.30 per share.

34.      BMI commenced its selling campaign on November 27, 1997 at a price of $1.00 per share. From November 27, 1997 to January 17, 2000, BMI sold 1,954,450 shares to its clients at a weighted average price of $1.34, generating a gross profit of $1,796,621.40. The average mark-up was 347%.

Conduct Contrary to the Public Interest

35.      In engaging in the trading described above, at the specified mark-ups, BMI failed to deal fairly, honestly and in good faith with its clients, in breach of the requirements set out in Ontario securities law, in particular, subsections 2.1(1) and (2) of the Rule 31-505, failed to act in the best interests of its clients and acted contrary to the public interest. Magrill, in his position as president of BMI during the Material Time, authorized, permitted or acquiesced in the contraventions by BMI, described above, and acted contrary to the public interest.

IV.      POSITION OF MAGRILL: MITIGATING FACTORS

36.      The following are mitigating factors to be considered in relating to the settlement agreement herein:

1. Between 1995 and 1999 Magrill took steps to change the focus of BMI's business activity from principal trading to agency trading and to have BMI meet the membership requirements of the Investment Dealers Association of Canada, but was not successful in his efforts;
    
2. In July, 2000 Magrill had BMI apply to the Commission pursuant to section 27 of the Act to surrender its registration voluntarily. In doing so BMI consented to the suspension of its registration in accordance with OSC Rule 33-501;
    
3. Magrill voluntarily undertook to wind up the operations of BMI in accordance with terms and conditions imposed by the Director on consent and to have BMI's client accounts transferred to a member of the Investment Dealers Association to ensure the orderly winding-up of BMI's operations. In September, 2000, the Commission received a comfort letter from BMI's auditor confirming that BMI's financial obligations to its clients had been discharged. Since the winding up of BMI, Magrill has not been employed in the securities industry.

V.      TERMS OF SETTLEMENT

37.      Magrill agrees to the following terms of settlement:

1. Magrill undertakes not to apply for registration in any capacity for a period of two years from the date of consent by the Executive Director to this settlement agreement;
    
2. Magrill undertakes not to act as an officer or director of a registrant or an officer or director of any issuer in Ontario which has an interest directly or indirectly in any registrant for a period of five years from the date of consent by the Executive Director to this settlement agreement;
    
3. Magrill undertakes not to purchase or sell securities for a period of two years from the date of consent by the Executive Director to this settlement agreement, with the exception that he be permitted to purchase or sell securities:
    
   1. in personal accounts in his and/or his spouse's name in which he or his spouse, alone or together, has or have the total beneficial interest; and
       
   2. in registered retirement savings plans in which he or his spouse has the sole beneficial interest;
       
4. Magrill undertakes reasonably to cooperate with the Commission and its Staff in any investigation by Staff relating to matters concerning other persons; and
    
5. Magrill acknowledges that the Director retains discretion to consider his suitability for registration pursuant to section 26 of the Act in the event that Magrill seeks to apply for registration in any capacity under the Act following the two year period referred to in clause (a) above. In the event of such an application, Magrill agrees that he will not oppose the imposition of reasonable terms on his registration, including terms of supervision and reporting requirements, should the director, in exercising his or her discretion, deem appropriate the imposition of such terms in considering Magrill's suitability for registration.

38.      Magrill agrees that he will not, in any proceeding, refer to or rely upon this Settlement Agreement, settlement discussions/negotiations or the process of obtaining the Executive Director's consent to this Settlement Agreement as the basis for 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.

VI.      STAFF COMMITMENT

39.      If this settlement receives the consent of the Executive Director, Staff will not initiate any other proceedings under the Act against Magrill in relation to the facts set out in Part III of this Settlement Agreement.

40.      If this settlement receives the consent of the Executive Director, and at any subsequent time Magrill fails to honour the terms contained in Part V of this Settlement Agreement, Staff may initiate proceedings against Magrill in relation to the facts set out in Part III herein and/or refer to this Settlement Agreement in any future proceeding.

VII.      APPROVAL OF SETTLEMENT

41.      If, for any reason whatsoever, the Executive Director does not consent to this settlement:

1. this Settlement Agreement and its terms, including all discussions and negotiations between Staff and Magrill leading up to the execution of this Settlement Agreement, shall be without prejudice to Staff and Magrill;
    
2. Staff and Magrill shall be entitled to all available proceedings, remedies and challenges, including proceedings to a hearing of these matters before the Commission, unaffected by this Settlement Agreement or the settlement discussions/negotiations; and
    
3. The terms of this Settlement Agreement will not be referred to in any subsequent proceeding, or disclosed to any person, except with the written consent of Staff and Magrill or as may be required by law.

VII.      DISCLOSURE OF SETTLEMENT AGREEMENT

42.      This Settlement Agreement and its terms will be treated as confidential by Staff and Magrill until consented to by the Executive Director, and forever, if for any reason whatsoever this settlement is not consented to by the Executive Director, except with the consent of Staff and Magrill, or as may be required by law.

43. Any obligation of confidentiality shall terminate upon receiving the Executive Director's consent to this settlement.

44.      Staff and Magrill agree that if the Executive Director does consent to this settlement, they will not make any public statement inconsistent with this Settlement Agreement.

IX.      EXECUTION OF SETTLEMENT AGREEMENT

45.      This Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement.

46.      A facsimile signature of any signature shall be effective as an original signature.
 

DATED this 27th day of June, 2003
 

Judith Bagrill Witness July 8, 2003.	Barry Magrill BARRY MAGRILL STAFF OF THE ONTARIO SECURITIES COMMISSION (Per) Michael Watson MICHAEL WATSON Director, Enforcement Branch
I hereby consent to the settlement of this matter on the terms contained in this Settlement Agreement.
July 9, 2003	(Per) Charlie Macfarlane CHARLIE MACFARLANE Executive Director