Last Updated: Wednesday 11 July 2001 LOCAL BUSINESS
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Regulator cites broker for mob link
B.C. Securities Commission accuses Pacific International and its top officers and directors of turning a blind eye to illegal stock dealings in U.S. accounts
David Baines Vancouver Sun
BERT QUATTROCIOCCHI: PI director and executive vice-president
MARTY REYNOLDS: Former PI chairman and former VSE chairman
MAX MEIER: PI chairman and CEO and former VSE vice-chairman
B.C. Securities Commission lawyer Sasha Angus
B.C.'s top securities enforcer has accused Pacific International Securities and nine of its senior officer and directors of turning a blind eye to mob-related securities fraud and money laundering.
B.C. Securities Commission executive director Steve Wilson alleged Tuesday that the Vancouver brokerage group ought to have known some of its clients were using U.S. dollar accounts to launder money and manipulate stocks, but failed to make the necessary inquiries.
In an eight-page notice of hearing, Wilson lists 14 clients of Pacific International who have been the subject of criminal or regulatory proceedings in the United States.
Many of these clients have also been associated with U.S. mobsters and mob-related stock scams.
Wilson said Pacific International's officers and directors had reason to doubt the motives of some of these clients, but failed to learn the essential facts of their "identity, reputation and reasons for retaining Pacific International."
Wilson was particularly critical of PI chairman and CEO Max Meier, who founded the firm 20 years ago, and Larry McQuid, the firm's senior vice-president of administration and designated compliance officer.
Meier has been a prominent Howe Street figure. He served as a member of the VSE board of governors for 10 years, including a stint as vice-chairman from 1994 to 1997.
McQuid, a former RCMP commercial crime officer and VSE compliance manager, also served on the VSE board of governors from 1997 until November 1999 when the exchange amalgamated with the Alberta Stock Exchange to form the Canadian Venture Exchange.
Wilson also cited seven other directors, nearly all of whom hold executive positions and are also well known in the Vancouver brokerage community:
l Jean-Paul Bachellerie, the firm's president and chief operating officer. He is a chartered accountant and member of the Chartered Accountants Institute of B.C.
l Germain Carriere, president and chief operating officer of National Bank Financial Ltd., a wholly-owned subsidiary of the National Bank of Canada. (National Bank Financial holds a 35-per-cent equity interest in Pacific International).
l John Eymann, co-founder and vice-chairman. He is also a member of the B.C. Securities Commission policy advisory committee, a member of the ethics committee of the Canadian Securities Institute, and has served on numerous VSE disciplinary panels.
l Bert Quattrociocchi, executive vice-president in charge of sales and research.
l Marty Reynolds, chairman from June 1994 to October 1998 and a director until March 1999. Reynolds was a long-time VSE governor and served as VSE chairman from 1989 to 1991.
l Robert Blades, a vice-president since 1990. He is a former employee of TD Greenline Investor Services.
l Theresa Mary Sheehan, a vice-president since August 1997. Sheehan is the daughter of John Sheehan, former president of B.C. Hydro.
"We have named all the directors because they bear the ultimate responsibility for what happens at the firm," said commission enforcement director Sasha Angus, who will represent Wilson at the hearing, tentatively scheduled for Sept. 19.
"What we're trying to address is the necessity of proper compliance procedures not only being in place but being followed. You must know who your client is and why are they at your firm and what they are doing at your firm."
John Woods, editor of Canada Stockwatch, a Vancouver-based stock-market information service, had a blunter description of what the notice is all about.
"They are accusing the heart of Howe Street brokerage fraternity of governing in the sprit of the three monkeys," he said.
Pacific International -- which has 154 employees in Vancouver, Victoria and Calgary -- immediately issued a statement charging that the notice of hearing contains "inaccurate and groundless statements."
"Any suggestion that PI condoned improper conduct in any of its more than 30,000 client accounts is simply unfounded," said Meier.
He said the notice of hearing "looks at past conduct and retroactively suggests new standards of supervisory responsibilities for a brokerage house."
He also questioned the naming of PI's senior officers and directors, who he described as "experienced and respected individuals who understand their corporate governance responsibilities and have acted responsibly throughout."
He said allegations that the firm's directors did not do enough to prevent misconduct by others "are unwarranted and unfair, particularly to those directors who did not have direct compliance responsibilities."
PI's lawyer, Don Sorochan, said the notice of hearing is "based on several faulty legal premises, is not based on the evidence, and contains allegations that are without foundation and overreaching in the extreme."
Records show Pacific International has been one of the most-disciplined brokerage firms on Howe Street.
In July 1999, The Sun conducted a survey of the 18 brokerage firms under the VSE's audit jurisdiction and determined that, from January 1995 to June 1999, Pacific International and its brokers ranked as the VSE's most-penalized brokerage group with $999,200 in fines and costs.
The firm's brokers ranked second, behind Georgia Pacific Securities, in suspensions with 75 years of total suspensions during the same period. Most of the firm's woes stemmed from U.S.-related securities activity.
The notice of hearing says that in 1993, Pacific International's commissions from accounts trading securities listed or quoted in the U.S. totalled about $2.3 million, or 14 per cent of total commission revenue.
By Dec. 31, 1999, this figure had increased to $19.2 million, or 67 per cent of total commission revenue. Of this business, 80 per cent came was generated by non-resident accounts.
"This increase indicates the respondents had a business strategy to encourage the development of this business," the notice states.
Woods described the figures as "astonishing. It's absolutely revealing of how Pacific International and probably many other firms survived the demise of the VSE."
In a January 1999 interview with The Sun, Meier said his firm's clients were favouring speculative stocks in the U.S. because of "over-regulation" by the VSE under then-president Michael Johnston.
"We go where our clients want to go, and obviously in the last few years a lot of clients have gone to the ASE, Canadian Dealing Network and bulletin board," he said at the time.
"We don't recommend stocks in those markets, but there seem to be a lot of people who want to be involved in them."
According to Wilson, a lot of those people were involved in nefarious activities.
He alleges that on four occasions between July 1995 and December 1999, the U.S. department of justice filed indictments naming PI clients, citing their trading through PI accounts and alleging breaches of U.S. securities laws.
He alleges that during the same period, the U.S. Securities and Exchange Commission named accounts or clients of PI in an unspecified number of civil complaints. And on July 11, 1998, the VSE issued a citation against PI broker Jean Claude Hauchecorne for brokering mob-relating stock transactions. A VSE disciplinary panel subsequently banned him for life.
The notice makes no mention of former PI brokers Dirk Rachfall and David Patterson, who in 1999 were lured to the U.S. by FBI agents who arrested them for helping mob-related figures rig a U.S. stock. They were convicted, spent five months in jail and each ordered to pay $130,000 US.
"Pacific International knew or ought to have known of some or all the indictments, the complaints, the citation and some or all of the behaviour which led to them," the notice charges
"This information ought to have led Pacific International to conduct internal reviews of the trading in U.S. markets and account-opening activities and to address the compliance deficiencies those reviews should have revealed. This did not happen and the compliance deficiencies continued."
The notice states that certain of the accounts "displayed activities and characteristics that would have caused a reasonable registrant to investigate the owners and operations of the accounts ..."
It notes that each of these activities, "alone or in combination, is potentially a symptom of illegal conduct or conduct contrary to the public interest, including money laundering and share manipulation."
The notice names 14 clients who ran accounts at PI who had criminal or regulatory histories in the United States. They are Angel Lorie, David Hesterman, Anthony Elgindy, Steven Keyser, Richard Gladstone, Joseph Garofalo, Paul Harary, Jimmy Ray Carter, Maurice Rind, Randolph Beimel, Todd Moore, Gerald Burns, Salvatore Mazzeo and Shalom Weiss.
The most serious action was against Weiss. He was indicted in Orlando, Fla., in April 1999 on racketeering and money-laundering charges and sentenced to 845 years in jail and ordered to pay more than $100 million US in restitution to his victims.
Wilson said PI should have recognized some of the warning signs:
l Some accounts were cash accounts and ran significant debit balances.
l Large blocks of stock quoted on the OTC Bulletin Board flowed through the accounts. (The Bulletin Board is a virtually-unregulated over-the-counter market in the United States).
l Sales proceeds were frequently distributed to third parties.
l Some clients paid significant fees so they could receive cash from sales before the usual settlement date.
l Cash flowed through some of the accounts with little or no intervening trading activity.
Wilson said that given the extent of its U.S. business, PI should have registered as a broker dealer with the U.S. National Association of Securities Dealers, which could have assisted the firm in its gatekeeper and compliance functions.
If found to have contravened securities rules, the respondents could have their registrations revoked or suspended, be prohibited from acting as a directors or officers of any B.C. public company, ordered to pay administrative penalties up to $100,000 each and required to pay investigation and hearing costs.
dbaines@pacpress.southam.ca
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