A Vancouver man has agreed to pay a $79,429 fine to the British Columbia Securities Commission as part of a settlement agreement in an insider trading case.
The agreement says Jerome John Rak breached securities laws in 2009 when he purchased shares of Velo Energy Inc., an Alberta company that was planning to hire a new president and chief executive officer . Velo continues to trade as Canadian Overseas Petroleum Ltd. (TSX: V.XOP, Stock Forum).
The settlement deal says Rak had advanced knowledge of Velo’s plan to hire Arthur Millholland, the former president and CEO of Oilexco Inc., when he purchased 172,000 shares in the company at a cost of $32,188.
Rak lives in West Vancouver and is an officer, director and shareholder of Belmont Capital Corp., a private Vancouver holding company which he uses for tax purposes and to buy and sell stocks. He has sole trading authority over Belmont’s trading accounts.
According to an agreed statement of facts, Millholland travelled from Calgary on August 4th, 2009 to attend a meeting in Vancouver with financier Frank Guistra, Ron Brimacombe, and Rak. After the meeting, there was a verbal agreement that Millholland would become Velo’s president and CEO if the results of Millholland’s due diligence were satisfactory.
On August 5, 2009, Millholland began drafting a news release that would announce that he had become president and ceo of Velo. The following day, Millholland sent the draft news release to Rak.
The due diligence was not completed until 4:00 p.m. (EST) on August 7, 2008, at which time a lawyer acting for Millholland gave the final approval for the release to be issued.
After the close of trading on Friday, August 7, 2009, Velo issued the news release. On that day, Velo shares had closed at 20 cents on the TSX Venture Exchange. But on August 10, 2009, the stock price jumped to a high of 49.5 cents.
On August 5th, 6th, and 7th, 2009, Rak, through Belmont, bought 172,000 shares of Belmont.
Prior to those dates, Rak was a significant buyer of Velo shares. From April 1, 2009 to August 1, 2009, he bought over 2.7 million shares of the company through Belmont. His shares were converted to 704,625 shares of Canadian Overseas Petroleum (XOP) in August 2010. On Friday, XOP shares closed at 35 cents, to trade in a range of 85 cents and 28 cents.
Rak agrees that between August 5th, and August 7th, 2009, he was in a special relationship with Velo, and knew that there was a reasonable likelihood that Millholland would become the company’s new president and CEO before that information was generally disclosed.
He also agrees that on those two dates, he purchased shares of Velo through a Belmont trading account.
Notwithstanding that Rak did not sell the shares on August 10, 2009, he agrees that if he had sold them on that date, he could have realized a profit of up to $52,951.
In addition to paying the fine, Rak is subject to several restrictions. He is prohibited from purchasing or trading securities or exchange contracts of any B.C. reporting issuer with whom he is in a special relationship for ten years.
He is also prohibited from acting as a director or officer of any reporting issuer in B.C. for five years.