ALBERTA SECURITIES COMMISSION NOTICE OF HEARING
Citation: De Gouveia, Re, 2012 ABASC 90 Date: 20120309 Docket: ENF-005852
Securities Act, R.S.A. 2000, c. S-4, as amended (Act) To: David De Gouveia
Notice: The Alberta Securities Commission (Commission) will convene at 2:30 pm on Wednesday, the 11th day of April 2012, at Calgary, or elsewhere, in Alberta, to deal with any preliminary matters, and to set a date for a hearing regarding the allegations in this Notice. At the hearing, the Commission will consider whether it is in the public interest to order:
(i) Under subsection 198(1)(a) of the Act, that trading in or purchasing cease in respect of specified securities;
(ii) Under subsection 198(1)(b) of the Act, that you cease trading in or purchasing securities;
(iii) Under subsection 198(1)(b.2) of the Act, that you be reprimanded;
(iv) Under subsection 198(1)(c) of the Act, that any or all of the exemptions
contained in Alberta securities laws do not apply to you;
(v) Under subsection 198(1)(d) and (e) of the Act, that you resign any positions that you hold as a director or officer of an issuer, registrant or investment fund manager and that you be prohibited from becoming or acting as a director or officer or as both a director and officer of any issuer, registrant, or investment fund manager;
(vi) Under subsection 198(1)(e.3) of the Act, that you be prohibited from acting in a management or consultative capacity in connection with activities in the securities market;
(vii) Under subsection 198(1)(i) of the Act, that you pay to the Commission any amounts obtained or payments or losses avoided as a result of non- compliance with Alberta securities laws;
(viii) Under subsection 199 of the Act, that you each pay an administrative penalty;
Location: Procedure:
(ix) Under subsections 202(1) and (2) of the Act, that you pay the costs of the investigation and hearing; and
(x) Such further and other order under Section 198 as the Commission deems appropriate.
Location: Alberta Securities Commission, 5th Floor, 250 – 5th Street SW, Calgary, Alberta.
Procedure
1. You may obtain disclosure and particulars of the allegations in this Notice from Don Young, c/o Alberta Securities Commission, 600, 250 – 5 Street SW, Calgary, Alberta, T2P 0R4, telephone 403.297.2642
2. You may be represented by legal counsel and you or your counsel may make representations and introduce relevant evidence.
3. If you or your counsel fail to attend on April 11, 2012, at 2:30 pm, or as directed, the hearing may proceed in your absence and an order may be made against you without further notice.
See also section 29 of the Act and Commission Rule 15-501 – Rules of Practice and Procedure for Commission Proceedings.
Allegations
Summary of Breaches
1 Staff of the Commission (Staff) alleges that David De Gouveia (also known as David Gouveia – De Gouveia) breached the Act and acted contrary to the public interest by engaging in a course of conduct that contributed to a false or misleading appearance of trading activity in and an artificial price for the securities of Magellan Minerals Ltd. (Magellan).
Parties
2 De Gouveia is an individual, residing in Calgary, Alberta.
3 Magellan is an Alberta corporation whose securities (Shares) are listed for trading on the
TSX Venture Exchange (TSXV).
Circumstances
4 In late October or early November 2008, the President and CEO of Magellan made an agreement with De Gouveia for De Gouveia to act as a corporate advisor to Magellan. Among other duties, De Gouveia was to disseminate information concerning Magellan to as many people as possible.
5 On November 1, 2008, De Gouveia was granted options by Magellan to purchase 200,000 Shares, at an exercise price of
.23 (Options). The Options vested over time, with 50,000 Shares available for exercise on each of February 1, May 1 and November 1, 2009, and May 1, 2010.
6 During the period November 3, 2008, to April 30, 2009 (Relevant Period), De Gouveia actively traded Shares in his personal accounts. De Gouveia’s trading can be summarized, in part, as follows:
6.1 Of the 122 trading days during the Relevant Period, he entered orders on 86 days, and bought or sold Shares, or both bought and sold Shares, on 63 days;
6.2 He made 191 trades of Shares during the Relevant Period – 135 purchase trades and 56 sales trades;
6.3 Of the 135 purchase trades, 12 were wash trades (trades where he was both seller and purchaser of the Shares);
Of the 122 trading days during the Relevant Period, he entered orders on 86 days, bought or sold Shares, or both bought and sold Shares, on 63 days;
He made 191 trades of Shares during the Relevant Period – 135 purchase trades 56 sales trades;
Of the 135 purchase trades, 12 were wash trades (trades where he was both seller purchaser of the Shares);
Approximately 77% of the 135 purchase trades he made were executed on upticks
6.4 (a trade at a price higher than the immediately preceding trade);
6.5 He established the trading high price of the day for 25 of the 135 purchase trades, and on those days the high price was not matched by other independent accounts;
6.6 On 29 days he both bought and sold Shares, with most of the sales of Shares at prices lower than he had paid that same day;
6.7 On 21 days, he sold Shares and then executed the next trade by buying Shares at a higher price;
6.8 In 5 of the 6 months in the Relevant Period, he established the high price of the month for the Shares; and
6.9 On 28 days, he executed trades that were uneconomic.
7 In January 2009, De Gouveia’s trading account was flagged by the compliance department of his broker dealer for unusual trading patterns involving the Magellan Shares. On March 5, 2009, De Gouveia was questioned as to his trading strategy involving the Shares, and he claimed his motivation was to accumulate Shares and make a profit. During the week of March 9, 2009, De Gouveia was asked to exit the broker dealer and his two trading accounts closed.
8 De Gouveia exercised all of the Options he was granted in order to purchase the 200,000 Shares. He then sold those 200,000 Shares over time at a profit of approximately $122,000.
9 Staff alleges De Gouveia’s trading in the Shares during the Relevant Period was not consistent with his expressed motive of accumulation and profit.
Breaches
10 As a result of the above, Staff alleges that De Gouveia:
10.1 breached subsection 93(a)(i) of the Act by trading in the Shares when he knew, or might reasonably be expected to know, that his conduct would result in or contribute to a false or misleading appearance of trading activity in the Shares; and
10.2 breached subsection 93(a)(ii) by trading in the Shares when he when he knew, or might reasonably be expected to know, that his conduct would result in or contribute to an artificial price for the Shares.
11 Staff further alleges that De Gouveia’s trading activities: including upticks, high closes, wash trades, and uneconomic trades, did not reflect genuine supply and demand and were contrary to the public interest.
) Calgary, Alberta, 9 March 2012. ) ) ) ) )
ALBERTA SECURITIES COMMISSION
“Original Signed By”
W.E. Brett Code, Q.C. Director, Enforcement