Unusual trading in OTC stock sparks probe in Briti

Unusual trading in OTC stock sparks probe in British Columbia

7/20/2012 9:01:18 PM | Peter Kennedy

The BCSC recently halted trading in Vancouver-based Forum National Investments, which saw its stock price soar to over $2.50 from 15 cents earlier this year.

The executive director of the British Columbia Securities Commission has issued a temporary order and notice of hearing against three men and a B.C.-based company over concerns about unusual trading volume and share price increases.

The temporary order bars all trading or transferring of the shares of Forum National Investments Ltd. (OBB: FMNL, Stock Forum), a B.C. reporting issuer that is quoted on the U.S. OTC Bulletin Board and recently saw its share price skyrocket in the wake of a paid promotion campaign.

The executive director initially intervened by issuing a halt trade order on June 28, 2012. But he will aim to have the order extended at a hearing in Vancouver on July 31.

Daniel Clozza, Martin Tutschek and Grant Curtis, all of whom are B.C. residents, are named in the notice of hearing. Clozza is the President, CEO, and director of Forum National, while Tutschek is the chief financial officer and a company director. Curtis is a shareholder.

The notice says BCSC staff is concerned with the unusual trading volume and price increase in the shares of Forum National that occurred between May and June 2012. Staff is also concerned with the apparent attempts to violate or circumvent the halt trade order by transferring or issuing shares of Forum National.

During the relevant period, the market for Forum National shares experienced a sudden increase in trading volume and price. In fact, the market capitalization of Forum National increased from just over US$6 million to over US$120 million.

On April 11, 2012 Forum closed at 15 cents on volume of 110,000, leaving the company with a market cap of $6.4 million, based on 42.4 million shares outstanding.

During May and June, Forum National shares experienced a sudden increase in trading volume and price that coincided with certain news releases and an internet promotion campaign.

On July 18, 2012, Forum National shares closed at US$2.80, raising the market cap to US$120.8 million, based on 43.1 million shares outstanding.

During this sudden increase, Forum National was the subject of an internet promotion campaign funded by undisclosed persons, and the company itself issued seven news releases related to the expansion of its viatical settlement business.

Viatical settlement

According to the BCSC, some of the internet stock promotion websites explicitly stated that over US$650,000 had been spent to promote Forum National. “The internet material was highly promotional and predicted a significant increase in the shares of Forum National, generally projecting a target price of US$10,’’ the BCSC said in the notice of hearing released on Friday.

A viatical settlement is a term used for a settlement involving an insured person who is terminally or chronically ill. It involves the sale of a policy owner’s existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit.

Such a sale provides the owner with a lump sum. The third party becomes the new owner of the policy, pays the monthly premiums and receives the full benefit of the policy when the insured dies. According to Wikipedia, purchasing a viatical is similar to buying a zero coupon bond with an uncertain maturity date. The return depends on the seller’s life expectancy and when he or she dies.

The BCSC said the news releases allegedly indicate that between May 15, 2012 and June 25, 2012, Forum National had taken significant steps to expand its viatical insurance settlement business. However, the BCSC says these claims cannot currently be independently verified with publicly available information.

Significant trading

BCSC staff requested that Forum National issue a clarifying news release explaining what role, if any, the company or any of its management had in the promotional internet campaign. To date, the company has declined to issue the release.

Meanwhile, accounts in the name of individuals associated with Clozza engaged significant trading, the BCSC is alleging:

Between April 20, 2012 and June 22, 2012, the account belonging to Clozza’s 74-year-old mother bought 98,600 shares and sold 314,600 shares, for gross profits of $121,697.

Between April 26, 2012 and June 28, 2012, Curtis’s account received a transfer of one million Forum National shares, bought an additional 54,275 shares and sold 735,625 shares for gross profits of $738, 041.

These two accounts are held at a branch of a Vancouver investment dealer, which had at least 52 separate accounts that held positions or traded in Forum National during the relevant period.

These allegations have not been proven. Counsel for the executive director will apply to extend the temporary halt trade order pending an investigation into:

1. The source and funding of the internet material.

2. A connection, if any, between the internet material and the respondents.

3. Reasons for the increased price and trading volume of Forum National shares

4. Attempts to circumvent or violate the halt trade order through transferring and issuing shares of Forum National.

5. Forum National has adequately disclosed the extent to which the company and each of its directors, officers and insiders are involved in or had any knowledge of the Internet material.

6. Forum National has provided the executive director with information that adequately supports the claims make in its news releases.

More allegations about unexplained attempts to transfer shares

The BCSC alleges that on July 5, 2012, Clozza and Tutschek attended the offices of Forum National’s transfer agent in Vancouver. They allegedly carried with them share certificates representing approximately 2.7 million shares of Forum National. Among these, were certificates in the names of Curtis and Tutschek, the Commission alleges.

Clozza allegedly instructed the transfer agent to “overnight” transfer share certificates into the name of a Bahamian company by way of a U.S. brokerage firm. The transfer agent allegedly informed the commission.

On July 16, 2012, Tutschek allegedly sent the transfer agent a treasury direction signed by Clozza and Tutschek on July 11, 2012, directing it to issue share certificates representing 137,500 shares in Forum National. The transfer agent refused.


ABOUT THE AUTHOR Peter Kennedy is a Stockhouse reporter and web content editor.

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