notice of hearing · by canaccord capital corporation (“canaccord”), represented to canaccord...

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Re: JAMES DONALD WOOSTER

NOTICE OF HEARING

TAKE NOTICE that a hearing will be held before the Pacific District Council (the "District Council") of the Investment Dealers Association of Canada (the "Association"), commencing on Monday, July 28, 2003 to Friday, August 1, 2003 at Simon Fraser University at Harbour Centre, Room 1430 D, 515 West Hastings Street, Vancouver, B.C., at 10:00 a.m. or so soon thereafter as the hearing can be held, regarding a disciplinary action brought by the Association concerning James Donald Wooster (the "Respondent").

AND FURTHER TAKE NOTICE that the staff of the Association alleges the following violations of the By-laws, Regulations or Policies of the Association:

1. On or about December 17, 1990, James Donald Wooster, at all material times a registered representative employed by Nesbitt Burns Corp. (subsequently BMO Nesbitt Burns Inc.) (“Nesbitt”), a Member of the Association, failed to use due diligence to ensure that he learned the essential facts relative to his client, RM, contrary to Association Regulation 1300.1 (a).

2. On or about February 17, 1993, James Donald Wooster, at all material times a registered representative employed by Nesbitt, a Member of the Association, amended the investment objectives for the cash account of his client, RM, without the knowledge or consent of that client, and thereby engaged in business conduct or a practice which is unbecoming a registered representative or detrimental to the public interest, contrary to Association By-law 29.1.

3. On or about June 30, 1993, James Donald Wooster, at all material times a registered representative employed by Nesbitt, completed a single New Client Account Form (“NCAF”) for RM to update both RM’s cash account and RM’s RRSP account NCAFs, and he thereby failed to use due diligence to learn the essential facts relative to every account accepted, as required by Association Regulation 1300.1(a).

4. On or about June 30, 1993, James Donald Wooster, at all material times a registered representative employed by Nesbitt, amended the investment objectives for both the cash account and the RRSP account of his client, RM, without the knowledge or consent of that client, and thereby engaged in business conduct or a practice which is unbecoming a registered representative or detrimental to the public interest, contrary to Association By-law 29.1.

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5. On or about July 21, 1993, James Donald Wooster, at all material times a registered representative employed by Nesbitt, misled his client, RM, about the reason that she was required to open a margin account, and thereby engaged in business conduct or a practice which is unbecoming a registered representative or detrimental to the public interest, contrary to Association By-law 29.1.

6. Between May 24, 1995 and November 20, 1995, inclusive, James Donald Wooster, at all material times a registered representative employed by Nesbitt, effected a total of eleven (11) trades in the RRSP account and the margin account of his client, RM, without the prior authorization of RM, and thereby engaged in business conduct or a practice which is unbecoming a registered representative or detrimental to the public interest, contrary to Association By-law 29.1.

7. Between July 1991 and September 1997, inclusive, James Donald Wooster, at all material times a registered representative employed by Nesbitt, recommended that his client, RM, purchase securities for her cash account, RRSP account and margin account that unreasonably exceeded her actual investment objectives for those accounts, and thereby failed to use due diligence to ensure that the recommendations he made for his client, RM, were appropriate for his client and in keeping with her actual investment objectives, contrary to Association Regulation 1300.1 (c).

8. Between February 24, 1993 and January 22, 1997 inclusive, James Donald Wooster, at all material times a registered representative employed by Nesbitt, failed to use due diligence to ensure that the recommendations made for the accounts of his client, RM, were suitable for her, and in keeping with her actual investment objectives, in particular, by recommending the purchase of shares in Biocall, Yuma, Castle Rock, ERI, Bre-X, Farallon, United, Bresea, First Dynasty, Expatriate, Manhattan, Hatthaway/Innovis, Panarim, Intensity, Joss and Mitel, contrary to Association Regulation 1300.1 (c).

9. In or about October 2000 and in or about April 2001, James Donald Wooster, at all material times a registrant in the province of British Columbia, represented to his client, KP, that KP’s brother’s money, held in KP’s margin account, was held separately and was unencumbered, when he knew or ought to have known that was not true, and thereby engaged in business conduct or a practice which is unbecoming a registered representative or detrimental to the public interest, contrary to Association By-law 29.1.

10. In or about March 2001, James Donald Wooster, at all material times a registrant employed by Canaccord Capital Corporation (“Canaccord”), represented to Canaccord that all the investments in the account of a client, KP, were strictly KP’s and that KP intended to reduce or eliminate the margin at the first possible moment, when he knew or ought to have known that was not true, and thereby engaged in business conduct or a practice which is unbecoming a registered representative or detrimental to the public interest, contrary to Association By-law 29.1.

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11. On or about August 9, 1995, James Donald Wooster, at all material times a registered representative employed by Nesbitt, failed to make Nesbitt aware of his involvement in a private placement, and thereby engaged in business conduct or a practice which is unbecoming a registered representative or detrimental to the public interest, contrary to Association By-law 29.1.

AND FURTHER TAKE NOTICE that the following is a summary of the facts alleged and intended to be relied upon by the Association at the hearing:

1. The Respondent was employed at all material times by Nesbitt Burns Inc. at its branch office in Vancouver, B.C. (hereinafter referred to as "Nesbitt", now BMO Nesbitt Burns Inc.) and Canaccord Capital Corp. (“Canaccord”). The Respondent has been registered and employed in the securities industry as follows:

June 11,1987 - December 10,1990 McLeod Young Weir Ltd./ ScotiaMcLeod Inc. Registered Representative

December 12, 1990 - May 4, 1995 Burns Fry Ltd./Nesbitt Burns Registered Representative

May 4, 1995 - February 22, 2001 Nesbitt Burns VP Trading in Securities

And Securities Options

March 7, 2001 - Dec. 19, 2001 Canaccord Capital Corp. Registered Representative

2. The Respondent is not currently employed in the securities industry.

COMPLAINT OF RM

3. On or about June 24, 1998, RM, through her lawyer, complained to the Association about the conduct of the Respondent. In the complaint, RM alleged that, while the Respondent was employed by Nesbitt, he effected unauthorized trades in her accounts, made unsuitable recommendations for her accounts and that he failed to "know" his client, RM.

4. In 1981, RM inherited a diversified, conservative stock portfolio from her late father. RM transferred this portfolio in 1987 to McLeod Young Weir when the Respondent became her registered representative.

5. RM, at all material times, was employed as a medical technologist at Vancouver General Hospital ("VGH"). She was a conservative investor. Her annual income was between $25,000 - $35,000. Her bank account was located at the Bank of Montreal, at the 41st and Oakridge branch in Vancouver, B.C.

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6. On or about December 17, 1990, after the Respondent transferred his employment to Nesbitt, RM opened RRSP account number 7AADVT-1 (the "RRSP Account") and cash account number 7AADVA-5/E (the "Cash Account") with Nesbitt for which accounts the Respondent was at all material times responsible. The New Client Application Forms ("NCAFs") completed at that time by the Respondent for each account contain the following information about RM:

• Annual income: $100,000

• Net worth: $100,000 - $250,000

• Occupation: Nurse at VGH

• Investment knowledge: fair

• Investment objectives: 50% income and 50% long-term growth

• Bank account: TD, Oakridge

7. The information on the NCAFs for the Cash Account and the RRSP Account did not reflect RM's actual circumstances. .

8. On or about December 28, 1992, RM sold her residence in Vancouver, B.C. She purchased two GICs at her bank with the sale proceeds of more than $700,000.00 (the "GICs").

9. On or about February 17, 1993, the Respondent updated the NCAF for the Cash Account to modify RM's investment objectives to 70% long-term growth and 30% venture. RM's actual investment objectives had not changed since the Cash Account was opened. The modification of investment objectives occurred at the direction of the Respondent, without prior consultation with RM.

10. When the GICs matured, RM deposited $125,000 on or about February 26, 1993 and $590,000 on or about March 8, 1993 into the Cash Account. She advised the Respondent that she would require these monies in the near future in order to purchase a new home and accordingly, the funds had to be "risk free" and accessible.

11. On or about March 20, 1993, RM entered into a contract of purchase and sale to purchase a home in Vancouver, B.C. The purchase price was $545,000 and the completion date was July 27, 1993. RM provided this information to the Respondent. Pursuant to RM's instructions, the Respondent, on or about March 22, 1993, withdrew $50,000 from the Cash Account and caused Nesbitt to prepare a bank draft payable to Royal LePage, which was used as the deposit for her house purchase.

12. On or about June 30, 1993, the Respondent completed a single NCAF to update both the existing Cash Account and the RRSP Account NCAFs.

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13. Further, the Respondent modified the investment objectives for the Cash Account and the RRSP Account on the June 30, 1993 NCAF update to 30% income, 40% long-term growth, 30% venture. The reference to RM's bank was also changed to BMO, Oakridge. RM's actual investment objectives had not changed since the Cash Account and the RRSP Account were opened, although the bank information now reflected RM's actual circumstances. The modification of the investment objectives occurred at the direction of the Respondent without prior consultation with RM.

14. On or about July 21, 1993, the Respondent solicited RM to change the Cash Account to a margin account. Accordingly, he had RM execute a margin agreement in order to open margin account number 7AADVA5 (the "Margin Account") with Nesbitt. The Respondent advised RM that she was required to open the Margin Account in order to access the monies required to complete the purchase of her house on July 27, 1993. In fact, the Margin Account was required because there was insufficient cash in the Cash Account for RM to complete her house purchase.

15. On or about July 22, 1993, the balance in the Cash Account, $487,617.25, was transferred to the Margin Account. That balance was insufficient to complete RM's house purchase. On or about July 23, 1993, pursuant to instructions from RM, the Respondent caused Nesbitt to write a cheque on the Margin Account in the amount of $550,000 in order to facilitate RM's house purchase. That withdrawal created a debit balance in the Margin Account in the amount of $62,370.81. The Margin Account maintained a constant debit balance from that point on.

16. On or about February 16, 1996, pursuant to a request from Nesbitt's Compliance Department, the Respondent completed a Nesbitt Client Account Agreement (the "Client Agreement") for RM, which RM then signed. RM's annual income is noted as $70,000 and her liquid net worth is noted as $500,000. The Margin Account investment objective was 100% aggressive trading and the RRSP Account investment objectives were 50% moderate growth and 50% aggressive trading. The risk factors were noted as "high" for each account. The Respondent also noted on the Client Agreement that "*understands she could lose it all." This information was entered on the Client Agreement at the direction of the Respondent without prior consultation with RM.

17. Pursuant to instructions from his branch manager, the Respondent amended the investment objectives for the Margin Account on the Client Agreement to 50% moderate growth and 50% aggressive trading. The Respondent also changed his handwritten notation to read "Likely to move into more mutuals as time goes by!"

18. RM was not aware of the handwritten notations on the Client Agreement or that the investment objectives for the Margin Account had changed until she complained to Nesbitt about the Respondent in 1997 and Nesbitt provided her with copies of all her account documents.

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Unauthorized Trading

19. On or about May 24, 1995 and May 31, 1995, the Respondent effected the following purchases of shares of Yuma Gold Mines Limited ("Yuma") for RM's RRSP Account and Margin Account without the prior authorization of RM:

Date Account Quantity Cost/Proceeds Commission

May 24, 1995 RRSP 5,000 $8,043.13 $293.13

May 31, 1995 Margin 5,000 $8,301.43 $301.43

20. On or about May 24, 1995, May 31, 1995 and June 1, 1995, the Respondent effected the following purchases of shares of Biocall Medical Corp. ("Biocall") for RM's RRSP Account and Margin Account without the prior authorization of RM:


May 24, 1995 RRSP 1,200 $2,153.77 $103.77

May 31, 1995 Margin 1,000 $1,947.13 $ 97.13

June 01, 1995 Margin 3,300 $6,513.96 $243.96

21. On or about May 25, 1995, the Respondent effected the sale of 35,000 CPN Prov of Ontario bonds from the Margin Account for proceeds of $30,125.90, including commission of $175.00, without the prior authorization of RM.

22. On or about May 31, 1995, the Respondent effected the purchase of 10,000 shares of Castle Rock Exploration ("Castle Rock") for the Margin Account at a total cost of $6,441.63, including commission of $241.63, without the prior authorization of RM.

23. On or about May 31, 1995, the Respondent effected the sale of 10,197 units of the Money Max Fund from the RRSP Account for total proceeds of $10,197.00, without the prior authorization of RM.

24. On or about November 6, 1995 and November 16, 1995 the Respondent effected the sale and on November 20, 1995, the Respondent effected the purchase, of shares of Bre-X Minerals Ltd. ("Bre-X") for the Margin Account without the prior authorization of RM:


Nov. 06, 1995 Margin 200 (S) $10,481.38 $218.62

Nov. 16, 1995 Margin 400 (S) $19,299.08 $350.92

Nov. 20, 1995 Margin 200 (B) $10,310.91 $210.91

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Suitability

25. Between July 1991 and January 1993, inclusive, the investment objectives for the RRSP Account were 50% income and 50% long-term growth. During the same period, the RRSP Account contained the following percentages of income and long-term growth securities:

July 1991 - February 1992 Income 100.00% Long-Term Growth 0%

March 1992 Income 47.64% Long-Term Growth 52.36%

June 1992 Income 3.42% Long-Term Growth 96.58%

August 1992 Income 2.50% Long-Term Growth 97.50%

October 1992 Income 3.01% Long-Term Growth 96.99%

November 1992 Income 4.03% Long-Term Growth 95.97%

January 1993 Income 4.00% Long-Term Growth 96.00%

26. Between February 1993 and June 1993, inclusive, the investment objectives for the RRSP Account were 50% income and 50% long-term growth. During the same period, the RRSP Account contained the following percentages of income, long-term growth and venture securities:

February 1993 Income 6.18% L-T Growth 43.09% Venture 50.73%

March 1993 Income 1.71% L-T Growth 19.38% Venture 78.91%

April 1993 Income 2.60% L-T Growth 40.47% Venture 56.94%

May 1993 Income 1.39% L-T Growth 82.99% Venture 15.63%

June 1993 Income 1.40% L-T Growth 67.69% Venture 30.92%

27. Between July 1993 and January 1996, inclusive, the stated investment objectives for the RRSP Account were 30% income, 40% long-term growth and 30% venture. During the same period, the RRSP Account contained the following percentages of income, long-term growth and venture securities:

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July 1993 Income 1.36% L-T Growth 64.60% Venture 34.04%

October 1993 Income 1.43% L-T Growth 72.86% Venture 25.71%

January 1994 Income 1.32% L-T Growth 85.67% Venture 13.01%




September 1994 Income 0.03% L-T Growth 95.10% Venture 4.87%

November 1994 Income 0.19% L-T Growth 96.00% Venture 3.81%

January 1995 Income 0% L-T Growth 97.91% Venture 2.09%




July 1995 Income 12.86% L-T Growth 40.54% Venture 46.60%

August 1995 Income 0.32% L-T Growth 42.64% Venture 57.04%

November 1995 Income 0.38% L-T Growth 48.32% Venture 51.30%

December 1995 Income 0.22% L-T Growth 61.61% Venture 38.17%


28. Between February 1996 and September 1997, inclusive, the stated investment objectives for the RRSP Account were 50% moderate growth and 50% aggressive trading. During the same period, the RRSP Account contained the following percentages of income, moderate growth and aggressive trading securities:

February 1996 Income 0.20% Mod. Growth 68.24% Agg. Trading 31.56%

May 1996 Income 2.17% Mod. Growth 63.22% Agg. Trading 34.61%

August 1996 Income 2.21% Mod. Growth 63.56% Agg. Trading 34.23%

November 1996 Income 2.07% Mod. Growth 67.12% Agg. Trading 30.82%

January 1997 Income 0.17% Mod. Growth 99.83% Agg. Trading 0%

February 1997 Income 0.15% Mod. Growth 87.53% Agg. Trading 12.32%

March 1997 Income 1.67% Mod. Growth 85.81% Agg. Trading 12.52%

June 1997 Income 1.80% Mod. Growth 88.80% Agg. Trading 9.40%

September 1997 Income 1.71% Mod. Growth 87.42% Agg. Trading 10.87%

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29. Between July 1991 and December 1992, inclusive, the investment objectives for the Cash Account were 50% income and 50% long-term growth. During the same period, the Cash Account contained the following percentages of income and long-term growth securities:

July 1991 Income 83.88% Long-Term Growth 16.12%


November 1991 Income 100.00% Long-Term Growth 0%

March 1992 Income 46.78% Long-Term Growth 53.22%

April 1992 Income 24.70% Long-Term Growth 75.30%

August 1992 Income 22.78% Long-Term Growth 77.22%

September 1992 Income 46.84% Long-Term Growth 53.16%


December 1992 Income 50.50% Long-Term Growth 49.50%

30. Between February 1993 and June 1993, inclusive, the stated investment objectives for the Cash Account were 70% long-term growth and 30% venture. During the same period, the Cash Account contained the following percentages of income, long-term growth and venture securities:






31. Between July 1993 and January 1996, inclusive, the stated investment objectives for the Margin Account were 30% income, 40% long-term growth and 30% venture. During the same period, the Margin Account contained the following percentages of income, long-term growth and venture securities:

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July 1993 Income 0% L-T Growth 42.33% Venture 57.67%

August 1993 Income 0% L-T Growth 36.16% Venture 63.84%

September 1993 Income 0% L-T Growth 45.36% Venture 54.64%

October 1993 Income 0% L-T Growth 70.57% Venture 29.43%

November 1993 Income 0% L-T Growth 74.52% Venture 25.48%

December 1993 Income 0% L-T Growth 81.28% Venture 18.72%


February 1994 Income 0% L-T Growth 81.59% Venture 18.41%

March 1994 Income 0% L-T Growth 79.29% Venture 20.71%

June 1994 Income 0% L-T Growth 84.28% Venture 15.72%


September 1994 Income 0% L-T Growth 90.03% Venture 9.97%



January 1995 Income 17.18% L-T Growth 53.23% Venture 29.60%




June 1995 Income 0% L-T Growth 52.66% Venture 47.34%

July 1995 Income 0% L-T Growth 57.92% Venture 42.08%




December 1995 Income 0% L-T Growth 31.12% Venture 68.88%


32. Between February 1996 and September 1997, inclusive, the stated investment objectives for the Margin Account were 50% moderate growth and 50% aggressive trading. During the same period, the Margin Account contained the following percentages of moderate growth and aggressive trading securities:

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February 1996 Moderate Growth 34.09% Aggressive Trading 65.91%

March 1996 Moderate Growth 35.63% Aggressive Trading 64.37%

May 1996 Moderate Growth 25.36% Aggressive Trading 74.64%

August 1996 Moderate Growth 23.55% Aggressive Trading 76.45%

October 1996 Moderate Growth 25.14% Aggressive Trading 74.86%

November 1996 Moderate Growth 31.38% Aggressive Trading 68.62%

December 1996 Moderate Growth 48.90% Aggressive Trading 51.10%

January 1997 Moderate Growth 30.79% Aggressive Trading 69.21%

February 1997 Moderate Growth 29.95% Aggressive Trading 70.05%

April 1997 Moderate Growth 46.93% Aggressive Trading 53.07%

May 1997 Moderate Growth 54.56% Aggressive Trading 45.44%

September 1997 Moderate Growth 64.60% Aggressive Trading 35.40%

33. The Respondent recommended the following purchases of Biocall Medical Corp. ("Biocall") shares for the RRSP Account:

DATE QUANTITY PRICE TOTAL COST COMMISSION % MONTH

END EQUITY

Feb. 24, 1993 4000 $2.95 $12,325.67 $525.67 40.96%

Mar. 5, 1993 2000 $2.85 $5,977.32 $277.82 26.30%

Mar. 31, 1995 2500 $2.422 $6,291.82 $236.82 11.92%

May 31, 1995 1200 $1.7083 $2,153.77 $103.81 4.53%

Aug. 8, 1995 2500 $2.55 $6,622.45 $247.45 11.45%

34. An investment in Biocall was high-risk. By recommending the purchase of Biocall shares for RM's RRSP Account, the Respondent failed to use due diligence to ensure that the recommendations that he made for RM's RRSP Account were appropriate for her and in keeping with her actual investment objectives.

35. The Respondent recommended the following purchases of Biocall shares for RM's Cash and Margin Accounts:

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END EQUITY

Feb. 24, 1993 3600 $2.95 5.80%

Feb. 24, 1993 400 $3.00 $12,258.72 $438.72 0.64%

Mar. 5, 1993 2100 $2.80 1.87%

Mar. 5, 1993 2900 $2.90 $14,914.52 $624.52 2.58%

Mar. 10, 1993 2000 $2.75 1.78%

Mar. 10, 1993 4000 $2.80 $17,300.15 $600.15 3.57%

Mar. 15, 1993 5000 $2.75 $14,353.08 $603.08 4.46%

Feb. 17, 1994 7000 $5.875 $42,091.73 $966.73 16.17%

Nov. 24, 1994 4000 $0.85 2.38%

Nov. 24, 1994 3000 $0.90 $6,338.31 $238.31 1.78%

Jan. 30, 1995 6000 $2.30 $14,290.05 $490.05 9.07%

Feb. 13, 1995 3000 $2.45 $7,629.84 $279.84 4.67%

June 7, 1995 1000 $1.85 $1,947.13 $ 97.13 1.28%

June 8, 1995 3300 $1.90 $6,513.96 $243.96 4.24%

June 22, 1995 2000 $1.50 $3,135.33 $135.33 2.57%

June 23, 1995 2500 $1.60 $4,168.55 $168.55 3.21%

June 27, 1995 4000 $2.05 $8,508.07 $308.07 5.14%

Aug. 8, 1995 2500 $2.526 $6,560.45 $245.45 3.96%

Jan. 19, 1996 3000 $1.81 $5,646.05 $216.05 2.66%

36. An investment in Biocall was high-risk. By recommending the purchase of Biocall shares for RM's Cash Account and Margin Account, the Respondent failed to use due diligence to ensure that the recommendation he made for RM's Accounts were appropriate for her and in keeping with her actual investment objectives.

37. The Respondent recommended the following purchases of Yuma shares for RM's RRSP Account:


END EQUITY

May 18, 1995 4000 $1.31 $5,449.74 $209.74 12.84%

May 31, 1995 5000 $1.55 $8,043.13 $293.13 16.05%

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38. An investment in Yuma was high-risk. By recommending the purchase of Yuma shares for RM's RRSP Account, the Respondent failed to use due diligence to ensure that the recommendations he made for RM's RRSP Account were appropriate for her and in keeping with her actual investment objectives.

39. The Respondent recommended the following purchases of Yuma shares for RM's Margin Account:


END EQUITY

Apr. 27, 1995 5000 $1.45 $7,526.52 $276.52 6.44%

June 7, 1995 5000 $1.60 $8,301.43 $301.43 6.24%

40. An investment in Yuma was high-risk. By recommending the purchase of Yuma shares for RM's Margin Account, the Respondent failed to use due diligence to ensure that the recommendations he made for RM's Margin Account were appropriate for her and in keeping with her actual investment objectives.

41. The Respondent recommended the following purchases of Castle Rock shares for RM's Margin Account:


END EQUITY

May 8, 1995 10,000 $0.80 $8,301.43 $301.43 4.54%

June 7, 1995 10,000 $0.62 $6,441.63 $241.63 0% (sold)

42. An investment in Castle Rock was high-risk. By recommending the purchase of Castle Rock shares for RM's Margin Account, the Respondent failed to use due diligence to ensure that the recommendations he made for RM's Margin Account were appropriate for her and in keeping with her actual investment objectives.

43. On or about July 21, 1995, the Respondent recommended the purchase of 8200 shares @ $1.6656 of ERI Ventures Inc. ("ERI") for RM's RRSP Account for a total cost of $14,143.48 (including commission of $485.48), which purchase constituted 24.18% of RM's RRSP Account, as at July 31, 1995 (after 2200 ERI shares were subsequently sold on July 25, 1995). An investment in ERI was high-risk. By recommending the purchase of ERI shares for RM's RRSP Account, the Respondent failed to use due diligence to ensure that the recommendation he made for RM's RRSP Account was appropriate for her and in keeping with her actual investment objectives.

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44. On or about July 17, 1995, the Respondent recommended the purchase of 5000 shares @ $1.84 of ERI for RM's Margin Account for a total cost of $9,541.29 (including commission of $341.29), which purchase constituted 7.63% of RM's Margin Account, as at July 31, 1995. An investment in ERI was high-risk. By recommending the purchase of ERI shares for RM's Margin Account, the Respondent failed to use due diligence to ensure that the recommendation he made for RM's Margin Account was appropriate for her and in keeping with her actual investment objectives.

45. The Respondent recommended the following purchases of Bre-X shares for RM's Margin Account:


END EQUITY

Oct. 20, 1995 1000 $27.25 $27,656.02 $406.02 30.01%

Nov. 23, 1995 200 $50.50 $10,310.91 $210.91 5.48%

Jan. 22, 1997 3000 $24.45 $73,550.00 $200.00 26.78%

46. An investment in Bre-X was high-risk. By recommending the purchase of Bre-X shares for RM's Margin Account, the Respondent failed to use due diligence to ensure that the recommendations he made for RM's Margin Account were appropriate for her and in keeping with her actual investment objectives.

47. The Respondent recommended the following purchased of Farallon Resources Ltd. ("Farallon") shares for RM's Margin Account:


END EQUITY

Nov. 8, 1995 3000 $ 2.33 $7,257.88 $267.88 7.03%

Nov. 17, 1995 2000 $ 3.05 $6,290.65 $190.65 4.69%

May 29, 1996 3000 $16.6383 $50,773.37 $858.37 17.69%

Nov. 6, 1996 3000 $14.995 $45,900.96 $915.96 17.10%

48. An investment in Farallon was high-risk. By recommending the purchase of Farallon shares for RM's Margin Account, the Respondent failed to use due diligence to ensure that the recommendations he made for RM's Margin Account were appropriate for her and in keeping with her actual investment objectives.

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49. On or about June 27, 1995, the Respondent recommended the purchase of 5,000 shares @ $3.50 of United Compass Resources ("United") for RM's Margin Account for a total cost of $18,109.01 (including commission of $609.01) which purchase constituted 12.67% of RM's Margin Account as at June 30, 1995. An investment in United was high-risk. By recommending the purchase of United shares for RM's Margin Account, the Respondent failed to use due diligence to ensure that the recommendation he made for RM's Margin Account was appropriate for her and in keeping with her actual investment objectives.

50. On or about January 9, 1996, the Respondent recommended the purchase of 3,000 shares @ $6.75 of Bresea Resources Ltd. ("Bresea") for RM's Margin Account for a total cost of $20,864.92 (including commission of $614.92) which purchase constituted 15.33% of RM's Margin Account as at January 31, 1996. An investment in Bresea was high-risk. By recommending the purchase of Bresea shares for RM's Margin Account, the Respondent failed to use due diligence to ensure that the recommendation he made for RM's Margin Account was appropriate for her and in keeping with her actual investment objectives.

51. The Respondent recommended the following purchases of First Dynasty Mines Ltd. ("First Dynasty") shares for RM's Margin Account:


END EQUITY

Jan. 23 1996 2000 $7.375 $15,200.21 $450.21 11.03%

Jan. 25, 1996 1000 $8.00 $ 8,252.80 $252.80 5.52%

Jan. 29,1996 4000 $9.7968 $39,823.91 $636.41 22.06%

52. An investment in First Dynasty was high-risk. By recommending the purchase of First Dynasty shares for RM's Margin Account, the Respondent failed to use due diligence to ensure that the recommendations he made for RM’s Margin Account were appropriate for her and in keeping with her actual investment objectives.

53. On or about December 22, 1995, the Respondent recommended the purchase of 3,000 shares @ $4.35 of Expatriate Resources Ltd. ("Expatriate") for RM's Margin Account for a total cost of $13,515.94 (including commission of $465.94), which purchase constituted 8.89% of RM's Margin Account, as at December 31, 1995. An investment in Expatriate was high-risk. By recommending the purchase of Expatriate shares for RM's Margin Account, the Respondent failed to use due diligence to ensure that the recommendation he made for RM's Margin Account was appropriate for her and in keeping with her actual investment objectives.

54. The Respondent recommended the following purchases of Manhattan Minerals Corp. B ("Manhattan") shares for RM's Margin Account:

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END EQUITY

Aug. 13, 1996 5000 $ 6.3690 $32,752.47 $ 907.47 11.57%

Nov. 20, 1996 5000 $10.20 $52,107.60 $1,107.60 20.39%

55. An investment in Manhattan was high-risk. By recommending the purchase of Manhattan shares for RM's Margin Account, the Respondent failed to use due diligence to ensure that the recommendations he made for RM's Margin Account were appropriate for her and in keeping with her actual investment objectives.

56. The Respondent recommended the following purchases of Hatthaway Matheson Enterprises shares, which became Innovis Corp. on October 8, 1993 ("Hatthaway/Innovis") for RM's RRSP Account:


END EQUITY

Apr. 15, 1993 3000 $2.20 $6,914.74 $314.74 14.33%

June 21, 1993 3500 $2.60 $9,447.73 $347.73 17.55%

57. An investment in Hatthaway/Innovis was high-risk. By recommending the purchase of Hatthaway/Innovis shares for RM's RRSP Account, the Respondent failed to use due diligence to ensure that the recommendations he made for RM's RRSP Account were appropriate for her and in keeping with her actual investment objectives.

58. The Respondent recommended the following purchases of Hatthaway/Innovis shares for RM's Cash Account and Margin Account:


END EQUITY

Mar. 23, 1993 5000 $1.35 $ 7,070.89 $320.89 1.41%

Apr. 7, 1993 8000 $2.30 $19,187.67 $787.67 2.53%

Apr. 21, 1993 7000 $2.05 $14,976.89 $626.89 2.21%

June 17, 1994 2000 $0.93 0.75%

June 17, 1994 3000 $0.95 $ 4,907.68 $197.68 1.13%

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59. An investment in Hatthaway/Innovis was high-risk. By recommending the purchase of Hatthaway/Innovis shares for RM's Cash Account and Margin Account, the Respondent failed to use due diligence to ensure that the recommendations he made for those accounts were appropriate for her and in keeping with her actual investment objectives.

60. The Respondent recommended the following purchases of Panarim Resources Inc. ("Panarim") shares for RM's Cash Account:


END EQUITY

Mar. 5, 1993 25,000 $0.15 $3,947.84 $197.84 0.34%

Mar. 24, 1993 25,000 $0.12 $3,167.09 $167.09 0.34%

61. An investment in Panarim was high-risk. By recommending the purchase of Panarim shares for RM's Cash Account, the Respondent failed to use due diligence to ensure that the recommendations he made for RM's Cash Account were appropriate for her and in keeping with her actual investment objectives.

62. The Respondent recommended the following purchases of Intensity Resources Ltd. ("Intensity") for RM's Cash Account and Margin Account:


END EQUITY

June 7, 1993 3000 $4.15 $12,909.56 $459.56 1.62%

July 5, 1993 3000 $4.50 $13,994.30 $494.30 4.67%

Dec. 8, 1993 4000 $2.45 $10,171.66 $371.66 5.00%

63. An investment in Intensity was high-risk. By recommending the purchase of Intensity shares for RM's Cash Account and Margin Account, the Respondent failed to use due diligence to ensure that the recommendations he made for those accounts were appropriate for her and were in keeping with her actual investment objectives.

64. On or about June 3, 1993, the Respondent recommended the purchase of 4,000 shares @ $5.125 of Joss Energy Ltd. ("Joss") for RM's Cash Account for a total cost of $21,217.44 (including commission of $717.44), which purchase constituted 2.64% of RM's Cash Account, as at June 30, 1993. An investment in Joss was high-risk. By recommending the purchase of Joss shares for RM's Cash Account, the Respondent failed to use due diligence to ensure that the recommendation he made for RM's Cash Account was appropriate for her and in keeping with her actual investment objectives.

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65. On or about March 15, 1993, the Respondent recommended the purchase of 8,000 shares @ $2.36 of Mitel Corp. ("Mitel") for RM's Cash Account for a total cost of $19,686.72 (including commission of $806.72), which purchase constituted 2.82% of RM's Cash Account, as at March 31, 1993. An investment in Mitel was high-risk. By recommending the purchase of Mitel shares for RM's Cash Account, the Respondent failed to use due diligence to ensure that the recommendation he made for RM's Cash Account was appropriate for her and in keeping with her actual investment objectives.

COMPLAINT OF KP

66. On or about February 22, 1999 KP opened cash account number 830-09805 with Nesbitt (“KP’s Cash Account”) for which Cash Account the Respondent was at all material times responsible.

67. On or about August 6, 1999, KP’s Cash Account was changed to a margin account with Nesbitt (“KP’s Margin Account”) for which Margin Account the Respondent was at all material times responsible. On or about March 20, 2000, KP’s Margin Account changed to 825-89257 as a result of purely administrative changes at Nesbitt.

68. In or about October 2000, KP’s brother, who resided outside Canada, wired $238,577.70 to KP’s account at the Delta Credit Union for KP to invest on his behalf in short-term investments until KP’s brother arrived in Canada in or around Christmas 2000 (“KP’s Brother’s Money”).

69. In or about October 2000, KP contacted the Respondent to discuss the possibility of the Respondent deriving income on KP’s Brother’s Money until KP’s brother arrived in Canada. KP advised the Respondent that KP’s Brother’s Money belonged to his brother and had to be unencumbered and kept separate from KP’s assets. The Respondent suggested two options. The first was to open a separate account in either KP’s name or in the name of KP’s brother. However, both KP and KP’s brother were reluctant to complete the paperwork necessary to open another account. The second option suggested by the Respondent was to deposit KP’s Brother’s Money to KP’s Margin Account and invest it in short-term notes, so that it would be kept separate from KP’s own money in KP’s Margin Account.

70. On or about October 30, 2000, KP wrote a cheque on his account at the Delta Credit Union to Nesbitt in the amount of $238,577.70, which represented his Brother’s Money. The memo field on the cheque stated the name of KP’s brother.

71. On or about November 2, 2000, KP’s Brother’s Money was posted to KP’s Margin Account. KP’s Brother’s Money was invested and re-invested when they became due in short-term fixed income products.

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72. In or about December 2000, KP’s brother became ill and did not travel to Canada as planned. Accordingly, KP instructed the Respondent to invest KP’s Brother’s Money for longer terms in order to obtain better rates of interest.

73. On or about February 22, 2001, the Respondent left Nesbitt and on or about February 23, 2001, he joined Canaccord, although his registration was approved effective March 7, 2001.

74. In or about late February or early March 2001, KP was contacted by staff at Nesbitt and advised that he had borrowed approximately $320,000 on margin in KP’s Margin Account. As a result, KP became confused about the value of KP’s Margin Account. Accordingly, in or about March 2001, he transferred his Margin Account to Canaccord for which margin account the Respondent was again responsible (“KP’s Canaccord Margin Account”).

75. On or about March 5, 2001, KP wrote to the Respondent at Canaccord and stated:

Here it is, the form I promised to make up showing the information I wish to receive each month, along with your statements, which at best I do not consider client friendly. As you know, I wish to spend as little time as possible thinking about the stock market and leave the management of my investments strictly to you.

But frankly, I have been unpleasantly surprised at the size of the “margin” amount, and am resolved never to remain in ignorance of such matters again. Also I must be assured that the moneys entrusted to me for safekeeping are not encumbered or in any way subjected to the vagaries of the market.

Please confirm that you will let me have the information I require, on a regular basis or let me know if there is going to be any difficulty in providing it.

Regards, KP (the “Letter”)

76. The Letter contained an attachment entitled Statement of Your Account, which is a blank form created by KP (“SOYA”). The SOYA included the following statement:

You presently owe to us the sum of $________ (8) for stocks included in the above, bought for you on margin.

Your estimated net equity, (7)- (8), with us is $__________(9).

We also hold in your name the sum of $________ totally independent of, and not included in the above. We understand that this money is being held in trust by you for others and is consequently not to be encumbered in any way. It is presently invested and earning interest as follows: ____________.

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77. On or about March 22, 2001, Canaccord’s compliance department sent a memo to the Respondent regarding KP’s Canaccord Margin Account, which stated, “Client is 76 years old, & into margin for triple annual income, we need RR comments to justify suitability.” (the “Memo”).

78. The Respondent replied to the Memo, on the face of the Memo itself, that “This is strictly clients [sic] investment money. He doesn’t need access to the capital at all, and fully intends to reduce/eliminate margin at the first possible moment. Averaged down on sunw [sic] and others and has been hammered in currents mkts. [sic]. Waiting for recovery. Jamie Wooster.”

79. In or about April 2001, the Respondent completed and signed a SOYA for KP. That SOYA stated that “You presently owe to us the sum of $316,879.05 (8) for stocks included in the above, bought for you on margin. Your estimated net equity (7)-(8) with us is $9,490.95(9). We also hold in your name the sum of $243,354.00 totally independent of, and not included in the above. We understand that this money is being held in trust by you for others and is consequently not to be encumbered in any way. It is presently invested and earning interest as follows: Fully guaranteed money market earning approximately 4.50%”.

80. On or about June 7, 2001, the Respondent completed and signed a SOYA for KP. That SOYA stated that “You presently owe to us the sum of $319,000 (8), for stocks included in the above, bought for you on margin. Your estimated net equity, (7)-(8), with us is $49,006.60 (9). We also hold in your name the sum of $245,015 totally independent of, and not included in the above. We understand that this money is being held in trust by you for others and is consequently not to be encumbered in any way. It is presently invested an earning interest as follows: 4.10%”.

81. On or about July 9, 2001, the Respondent completed and signed a SOYA for KP. That SOYA stated that “You presently owe to us the sum of $318,130.00 (8), for stocks included in the above, bought for you on margin. Your estimated net equity, (7)-(8), with us is $2,329.12 (9). We also hold in your name the sum of $246,000.00 totally independent of, and not included in the above. We understand that this money is being held in trust by you for others and is consequently not to be encumbered in any way. It is presently invested and earning interest as follows: Money market maturing Aug 17/2001.”

82. The month-end net equity, in Canadian funds, and excluding the value of KP’s Brother’s Money, in the Margin Account and then in KP’s Canaccord Margin Account was:

November 2000 $181,741

December 2000 $148,909

January 2001 $199,779

February 2001 $ 41,958

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March 2001 ($ 17,993)

April 2001 $ 42,642

May 2001 $ 24,895

June 2001 $ 11,862

July 2001 ($ 9,881)

August 2001 ($ 79,787)

September 2001 ($140,460)

October 2001 ($ 90,751)

November 2001 $ 18,355

83. Nesbitt entered into a settlement agreement with KP with respect to his complaint.

ERI VENTURES INC. (“ERI”)

84. On or about June 19, 1995, ERI announced a private placement (the "Private Placement") of 625,000 shares @ $0.76 per share. The Vancouver Stock Exchange issued a notice on or about August 18, 1995 that it had accepted the Private Placement.

85. The Respondent was listed as a placee with respect to 20,000 shares in the Private Placement on the Treasury Order and Register of Allotments. On or about August 9, 1995, the Respondent executed a Private Placement Questionnaire and Undertaking which confirmed that he was purchasing 20,000 ERI shares @ $0.76 for a total of $15,200. The Respondent, in connection with the Private Placement, also executed a Form 20A Securities Act Acknowledgement and Undertaking along with a Subscription and Power of Attorney.

86. On or about September 7, 1995, share certificate number 142 representing 20,000 ERI shares was issued in the name of the Respondent. The address noted on the share certificate was the Respondent's business address.

87. On or about September 9, 1995, share certificate number 142 was cancelled and was replaced by certificate number 232 in the name of the Respondent, representing 10,525 ERI shares. On or about December 18, 1995, a letter enclosing share certificate number 232 was sent to the Respondent. Receipt of that letter was acknowledged by the Respondent.

88. The Respondent did not make Nesbitt aware of his participation in the Private Placement and thereby engaged in conduct unbecoming a registered representative, contrary to Association By-law 29.1

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Previous Discipline History

89. The Respondent was disciplined by the Association in 2000 for failing to use due diligence to ensure that recommendations he made for a client were appropriate and in keeping with that client's investment objectives (Association Regulation 1300.1 (c)) and for failing to use due diligence to ensure that he learned the essential facts relative to his client (Association Regulation 1300.1 (a)). This conduct transpired between November 1992 to August 1995. For these infractions, the Respondent was fined $12,000 and as a condition of continued approval, he was required to re-write and pass the Conduct and Practices Handbook for Securities Industry Professionals examination. In addition, the Respondent was required to pay $2,000 toward the Association's costs. The foregoing is outlined in Association Bulletin # 2766.

AND FURTHER TAKE NOTICE that the Respondent shall be entitled to appear in person or by counsel at the hearing and to be heard thereat, to call, examine and cross-examine witnesses, and to present arguments and submissions.

AND FURTHER TAKE NOTICE that the By-laws of the Association provide that if the District Council adjudges the Respondent to have committed any of the violations referred to, the District Council has the power to impose any one or more of the following penalties:

(i) a reprimand; (ii) a fine not exceeding the greater of

(1) $1,000,000.00 per offence, and (2) an amount equal to three times the pecuniary benefit which accrued to

such person as a result of committing the violation;

(iii) suspension of approval of the person for such specified period and upon such terms as the District Council may determine;

(iv) revocation of approval of such person;

(v) prohibition of approval of the person in any capacity for any period of time;

(vi) such conditions of approval or continued approval as may be considered

appropriate by the District Council.

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AND FURTHER TAKE NOTICE that the District Council may, in its discretion, require that the Respondent pay the whole or any portion of the costs of the proceedings before the Council and any investigation relating thereto.

AND FURTHER TAKE NOTICE that the Respondent has ten (10) days from the date of service of this Notice of Hearing and Particulars to serve upon the Association a Reply signed by the Respondent or his counsel at:

Investment Dealers Association of Canada Suite 1325, 650 West Georgia Street P.O. Box 11614, Station Main Vancouver, B.C. V6B 4N9 Attention: Barbara G. Lohmann, Enforcement Counsel

A Reply may either: (i) specifically deny (with a summary of the facts alleged and intended to be relied upon by

the Respondent, and the conclusions drawn by the Respondent based on the alleged facts) any or all of the facts alleged or the conclusions drawn by the Association in the Notice of Hearing and Particulars; or

(ii) admit the facts alleged and conclusions drawn by the Association in the Notice of

Hearing and Particulars and plead circumstances in mitigation of any penalty to be assessed.

AND FURTHER TAKE NOTICE that the District Council may accept as having been proven any facts alleged or conclusions drawn by the Association in the Notice of Hearing and Particulars which are not specifically denied, with a summary of the facts alleged and conclusions drawn based on those alleged facts, in the Reply.

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AND FURTHER TAKE NOTICE that if the Respondent fails to serve a Reply or attend in person or by counsel at the hearing (notwithstanding that a Reply may have been served), the District Council may proceed with the hearing of the matter on the date and at the time and place specified in this notice, or on any subsequent date, at any time and place, without further notice to and in the absence of the Respondent, and the District Council may accept the facts alleged or the conclusions drawn by the Association herein as having been proven and may impose any of the penalties prescribed by the By-laws of the Association. DATED this _____day of ___________________, 2003.

_____________________________ Warren Funt Vice-President, Western Canada Member Regulation

INVESTMENT DEALERS ASSOCIATION OF CANADA Suite 1325 - 650 West Georgia Street P.O. Box 11614 Vancouver, BC V6B 4N9

notice of hearing · by canaccord capital corporation (“canaccord”), represented to canaccord...

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