A B.C. Securities Commission panel has dismissed allegations that Vancouver-based investment dealer Pacific International Securities Inc. and its directors contravened securities rules and acted contrary to the public interest.

Two of the three panel members concluded that, with minor exceptions, BCSC staff did not prove the allegations in a notice of hearing issued on July 10, 2001. One panel member, in a dissenting decision, concluded that the allegations were mainly proven.

The decision followed a hearing that lasted 124 days between early 2002 and late 2004, in which some 20,000 pages of evidence were presented. BCSC staff alleged in the hearing that Pacific International had contravened the know-your-client rule, failed to establish and apply written prudent business procedures and acted contrary to the public interest, and that the firm’s directors had breached their duties in failing to ensure that Pacific International complied. The allegations related to the U.S. dollar accounts of mainly foreign clients of Pacific International.

The majority of the panel — commissioners John Graf and Roy Wares — found that staff had failed to prove the allegations and failed to prove that the firm’s directors had not acted reasonably in responding to allegedly suspicious conduct. In her dissenting decision, vice chair Adrienne Salvail-Lopez found that Pacific International had contravened the know-your-client rule and failed to establish and apply written prudent business procedures for dealing with clients and that its directors had failed in their duties to ensure the firm was properly managed in compliance with these requirements.

In response to the news, B.C. Securities Commission chair Doug Hyndman issued a statement indicating that the case is a precedent-setting one for the BCSC.

“The Pacific International hearing was a precedent-setting case. Commission staff asked a commission panel to find the directors of an investment firm accountable for allegedly failing to take the proper compliance action for account activity conducted by the firm’s brokers,” he noted.

“The majority of the commission panel did not accept the case presented by staff. They concluded that staff’s obligation was to show that Pacific International and its directors did not act reasonably when faced with information about the reputations of some foreign clients of the firm and that the evidence did not meet that threshold,” Hyndman explained. “One panel member took a different view, and wrote dissenting findings that the allegations were essentially proven.”

“A split decision, while it is commonly encountered in judicial proceedings, is a first for a BCSC panel,” Hyndman noted. “While this highlights how difficult and complex this case was for the panel members to decide, it also shows why we have three-member, independent commission panels conducting hearings. Their independence is key to maintaining public confidence in our commission decisions.”

Hyndman conceded that the case has taken too long to be resolved, noting that the hearing lasted almost three years. “But, this was a very complex and difficult case: In all, the hearing panel heard 124 days of evidence and applications,” he said. “The panel was presented with close to 20,000 pages of evidence, over 15,000 pages of transcripts and 94 exhibits by staff and the lawyers for the respondents.”

He thanked both the panel members and commission staff for their work on the case, saying, “I also recognize that commission staff put considerable time and effort into this case. I am confident that they will learn from the decision and be prepared to bring forward challenging cases in the future with a view to protect investors and the integrity of our securities markets.”

Pacific International Securities Inc. said it was extremely pleased by the panel’s ruling, which it said vindicated all of the directors.

In a statement, Pacific International Chairman & CEO Max Meier stated that “while the hearing process was long, we recognize that the matters facing the panel were complex and that time was required to reach the right decision.” He went on to say that “the firm has always taken its compliance responsibilities seriously and we remain committed to contributing to the strength of Canada’s capital markets and to investorconfidence in the financial services industry.”