Settlement Agreement: In the Matter of Frank Mersch and Peter Cunti
R.S.O. 1990, c.S.5, as amended
AND
IN THE MATTER OF
FRANK MERSCH
AND
PETER CUNTI
SETTLEMENT AGREEMENT
1. INTRODUCTION
1. By notice of hearing dated May 7, 1998 (the "Notice of Hearing"), the OntarioSecurities Commission (the "Commission") announced that it proposed to hold ahearing to consider inter alia:
(a) whether, pursuant to section 127 of the Securities Act, R.S.O. 1990 c. S.5,as amended (the "Act") it is in the public interest for the Commission to makean order:
(i) that the exemptions provided for in sections 35, 72, 73 and 93 of theAct shall not apply to one or both of the respondents for such time asthe Commission may direct; and/or
(ii) such other order as the Commission may deem appropriate; and
(b) such other matters as the Commission considers appropriate.
II. JOINT SETTLEMENT RECOMMENDATION
2. In order to resolve the issues in questions, the Staff of the Commission ("Staff") andPeter Cunti ("Cunti") have entered into this Settlement Agreement. The Staff andCunti agree to jointly recommend a full and final settlement of all proceedings in theNotice of Hearing, in accordance with the terms and conditions set out below. Cunticonsents to the making of an order against him in the form attached as Schedule"A" on the basis of the facts set out below.
3. Staff and Cunti agree that this settlement agreement, including the attachedSchedule "A", will be released to the public only if, as, and when the settlement isapproved by the Commission.
III. STATEMENT OF FACTS
Acknowledgment
4. Cunti and the Staff agree with the facts set out in this Part III.
Introduction
5. Cunti resides in the City Toronto. Cunti and Frank Mersch ("Mersch") met in grade-school and have been close personal friends ever since.
Background
6. In April, 1993, DASS No. 25 Holdings Ltd. ("DASS") acquired 25,000 units ofRutherford (which subsequently changed its name to Diamond Fields ResourcesInc. ("Diamond Fields") by way of private placement. Mersch paid for theInvestment by way of a cheque drawn in favour of an investment dealer in BritishColumbia (the "Dealer") in the amount of $3,750.00.
7. In September, 1993, Mersch caused DASS to exercise the 25,000 warrants whichDASS had acquired in April, 1993.
The Formal Transfer of the Investment to Cunti
8. Cunti instructed a law firm in British Columbia (the "Law Firm") to draft for executionany and all documents necessary to formalize his ownership and control of DASS.The documents, which were executed in or about February of 1994, were dated asat February 1, 1993. Cunti, through DASS, paid for all of the costs associated withthe formal transfer of DASS from the Law Firm to himself.
9. Prior to February or March of 1994, a partner in the Law Firm had been the solddirector and shareholder of DASS. Mersch was not, and never has been, an officer,director or shareholder of DASS.
10. In March of 1994, Cunti and DASS opened an account with the Dealer in the nameof DASS.
Cunti's Ontario Securities Commission Examination
11. In January of 1998, Cunti attended at the offices of the Commission pursuant to asummons issued under the Act for the purpose of being examined under s.11 of theAct as to his involvement in DASS (the "Examination").
12. Cunti told Staff that he had been responsible for taking many of the steps necessaryto cause DASS to invest in Diamond Fields, and that he had caused it to acquirethe Investment in early 1993. In fact, as set out above, Cunti had no directinvolvement with DASS until March of 1994. Cunti deliberately misled Staff as tothe timing of his involvement in DASS. Cunti's conduct in doing so was contrary tothe public interest.
IV CUNTI'S POSITION
13. Cunti is not, and has never been, a market participant within the meaning of the Act.Cunti is not, and has never been, a sophisticated investor within the meaning of theAct. Cunti has never been subject to any regulatory action by the Commission anduntil this review by the Staff, Cunti has never been the subject of a Commissioninvestigation.
14. Over the course of their lengthy friendship, Cunti had asked Mersch to provide himwith investment advice on numerous occasions. In or about February or March1993, Cunti learned from Mersch about a potentially profitable, but highlyspeculative investment opportunity (the "Investment") in a company calledRutherford Ventures Corp. ("Rutherford").
15. Cunti understood that Rutherford intended to acquire a number of resourceproperties with funds it would raise by way of a private placement. Cunti, decidedto invest, and asked Mersch to take whatever steps were necessary in order toallow him to participate in the private placement.
16. Cunti understood that the investment would be made on his behalf by a privateBritish Columbia corporation, and Mersch agreed to make the necessaryarrangements for Cunti. Mersch paid for the Investment on Cunti's behalf on theunderstanding that this money was a loan. Cunti and Mersch had agreed that anybenefit (or loss) which might ultimately result from the investment would beexclusively for DASS' or Cunti's account.
17. Cunti was slow to execute the various documents necessary to properly formalizehis ownership of DASS and of the shares in Diamond Fields.
18. In the Spring of 1994, Cunti advised a Law Firm in British Columbia (the "LawFirm") that DASS had been reserved for him and that he had been the beneficialowner of the Investment from the outset. Cunti instructed the Law Firm to draft forexecution any and all documents necessary to formalize his ownership and controlof DASS. The documents, which were executed in or about February of 1994, weredated as at February 1, 1993 in order to reflect the date that Cunti's beneficialownership of DASS and thereby indirectly the investment, had occurred.
19. Cunti has never attempted to conceal the nature and extent to which Mersch wasresponsible for Cunti's participation in the Investment. Cunti never misled theCommission as to the fact that this investment had been discussed with Mersch inFebruary or March 1993, and that it was always understood and agreed that thisinvestment would ultimately be for Cunti's loss or benefit.
20. Cunti, and/or DASS has paid for all of the costs associated with the formalizationof Cunti's ownership of DASS.
21. Mersch has never received any direct or indirect benefit for his role in facilitating theInvestment. At all times, Mersch was acting on Cunti's behalf.
VI TERMS OF SETTLEMENT
22. Cunti will be prohibited from relying upon the exemptions provided for in sections35, 72, 73, and 93 of the Securities Act ("Act") for a period of two years (2) from thedate of the approval of this settlement.
VI STAFF COMMITMENT
23. If this settlement is approved by the Commission, Staff will not initiate any othercomplaint to the Commission, or request the Commission hold any other hearing,or issue any other order, or make any application to a court or a judge in respectof any conduct, or alleged conduct, of DASS, or of Cunti, or any person associatedwith Cunti, arising out of the facts set out in this agreement, except as provided forby this agreement.
VIII PROCEDURE FOR APPROVAL OF SETTLEMENT
24. Approval of the settlement set out in this agreement shall be sought at the publichearing of the Commission scheduled for August 18, 1998 or such other date asmay be agreed to by Staff and Cunti, in accordance with the procedures describedin this agreement.
25. Staff and Cunti agree that this agreement is approved by the Commission, it willconstitute the entirety of the evidence to be submitted respecting Cunti in thismatter, and Cunti agrees to waive his rights to a full hearing and appeal of thematter under the Act.
26. Staff and Cunti agree that if this settlement is approved by the Commission, neitherStaff nor Cunti will make any public statement inconsistent with this agreement.
27. If, for any reason whatsoever, this settlement is not approved by the Commissionor an order in the form attached as Schedule "A" is not made by the Commission:
(a) each of Staff and Cunti will be entitled to all available proceedings, remediesand challenges, including proceeding to a hearing of the allegations in theNotice of Hearing and Statement of Allegations, unaffected by thisagreement or the settlement negotiations;
(b) the terms of this agreement will not be referred to in any proceeding, ordisclosed to any person, except with the written consent of both Cunti andStaff or as may be required by law; and
(c) Cunti agrees that he will not, in any proceeding, refer to or rely upon thisagreement or the negotiation or process of approval of this agreement as thebasis for an attack on the Commission's jurisdiction, alleged bias,appearance of bias, alleged unfairness or any other remedies or challengesthat may otherwise be available.
VII DISCLOSURE OF AGREEMENT
28. The terms of this agreement will be treated as confidential by all parties hereto untilapproved by the Commission, and forever if, for any reason whatsoever, thissettlement is not approved by the Commission, except with the written consent ofboth Cunti and Staff or as may be required by law.
29. Any obligations of confidentiality shall terminate upon approval of this settlementby the Commission.
IX EXECUTION OF AGREEMENT
30. This agreement may be signed in one or more counterparts which together shallconstitute a binding agreement.
August 12th, 1998.
"Peter Cunti"
STAFF OF THE ONTARIO SECURITIES COMMISSION
Per: "Larry Waite"