The Tribune

By NEIL HARTNELL Tribune Business Editor A BAHAMIAN financial services executive has settled an action brought against him by Canadian regulators over a "false, misleading" $615,000 securities offering, agreeing to accept "the reduced charge of acting against the public interest". Gaye Knowles, described in documents obtained by Tribune Business as a Bahamas resident and "principal and directing mind" of Travelers Holdings Management Services (Bahamas), accepted a five-year ban on his involvement in the Ontario securities market to settle the case brought over a Bahamian International Business Company's (IBC) unregistered offering. However, Tribune Business can also reveal that the Ontario Securities Commission (OSC) has withdrawn all allegations made in the same case against two other Bahamas-based financial services executives, Anthony Howorth and Giorgio Knowles. Mr Howorth disclosed this development in replies to questions e-mailed to him by this newspaper. He said: "I am pleased to say that through my vigorous defense of my actions, and my representations as to the legal position of Ameron, the Bahamian International Business Company, and the fact that Gaye Knowles decided to accept a penalty on reduced charges, on February 22 the OSC staff withdrew all the allegations against Ameron, MX-IV Ltd, Anthony Howorth and Giorgio Knowles." Mr Howorth told Tribune Business that Gaye Knowles was "able to negotiate the reduced charge against him of acting against the public interest in not taking reasonable steps to understand the business that the promoters were proposing to conduct using Ameron; not taking steps to ensure that his signature was not used to solicit investors; and that the regulatory approvals were not obtained prior to the promoters using Ameron to promote securities sales". "Gaye Knowles could not afford to fight this case any further, and has accepted the penalty of five years ban on selling or partaking in any new issues in Ontario," Mr Howorth added. "He agreed that as the managing director of Ameron, he was responsible for the operations and due diligence for the IBC." The settlement agreement with the Ontario Securities Commission, which has been seen by this newspaper, detailed how Travelers' business, as a financial and corporate services provider, involved incorporating Bahamian IBCs for clients, providing nominee directors and officers for them, and opening bank and trading accounts for the IBCs. Gaye Knowles and Travelers were contacted in 2007 by a Canadian citizen, Vadim Tsatskin, who last year pleaded guilty to one count of fraud in an unconnected securities offering. As a result, an IBC called American Oil & Gas Resources was established, although it was subsequently struck off the Bahamas' IBC register for non-payment of fees. "Gaye Knowles advertised his company's services for providing nominee officers/directors for IBCs to Tsatskin as providing a certain level of anonymity and asset protection, as 'names do not appear on the public records of the Government registry'," the OSC settlement agreement alleged. Tsatskin contacted Gaye Knowles in April/May 2009 for American Oil to be restored, and renamed Ameron Oil & Gas. This was agreed, with Gaye Knowles agreeing to act as Ameron's nominee director and officer. He brought Mr Howorth in to fulfill the same role, with his son, Giorgio Knowles, becoming Ameron's secretary. Some $4,600 was paid to Travelers for this service. Of this sum, the OSC settlement said $1,510 went to restoring Ameron the IBC registry, and $100 was paid to Euro Caribbean Management Service, as registered agent, for the name change. Mr Howorth received an initial $500 fee, and the remainder - some $2,490 or 54 per cent - was retained by Gaye Knowles and Travelers. Gaye Knowles agreed to be paid $1,000 per month by Tsatskin and his co-conspirator, Mark Grinshpun, to act as Ameron's president and "establish and operate a virtual office" for the company, with Mr Howorth agreeing to receive $500 a month as vice-president. The settlement agreement details that Gaye Knowles was the only person in the Bahamas to have direct contact with Tsatskin, with his son and Mr Howorth never meeting or corresponding with him or Grinshpun. "Gaye Knowles has represented to staff that he advised Howorth and Giorgio Knowles that he would be responsible for conducting all due diligence to ensure the legitimacy of the operations proposed by Tsatskin and Grinshpun, and that the proposed operations would comply with all applicable laws and regulations," the OSC settlement said. Legal opinions from US and Bahamian lawyers, which were supposed to be provided on Ameron's proposed operations, were never provided to Gaye Knowles. He was, though, handed promotional materials touting the sale of units in MX-IV Ltd, a supposed Bahamian partnership, which would give buyers an equity interest in four oil wells located in Kentucky. The promotional materials allegedly included a 'welcome letter' purporting to come from Gaye Knowles, and the OSC settlement said: "The promotional materials, including the welcome letter, contained obvious misrepresentations, including representations about Knowles' experience in the industry." Nevertheless, the OSC said he provided his electronic signature to Grinshpun for use on the letter. "Gaye Knowles took no reasonable steps to determine the accuracy of the representations contained in the promotional material and welcome letter," the OSC alleged. "Other than his request that Grinshpun produce legal opinions, Knowles took no steps to determine whether the business proposed by Grinshpun and Tsatskin was legitimate, and carried out in compliance with applicable laws and regulations." In his defence, Gaye Knowles said he told Grinshpun that the offering materials should not be sent out until the legal opinions came in, but took no further steps to prevent their use. He was also informed by Grinshpun of an escrow agreement with a Bahamian attorney, which would see funds received and paid out from a trust account held at a Bahamas-based bank. Neither the attorney nor the bank were named. The Ameron and MX-IV offering took place between June 2009 and April 2010, with neither the salespersons, Ameron or the issue itself registered with the OSC. Some $615,500 was raised from 15 investors, with proceeds flowing through the Bahamas account. About 19 per cent of the sum raised was paid out as sales commissions. Among the "misrepresentations" cited by the OSC were that the salespersons used false names; that oil wells were already in production and that funds raised would be used to drill more; that returns would be generated in 90 days; and that Ameron had a "90 per cent success rate" on earlier projects. "It is Gaye Knowles' position that he did not authorise Grinshpun or Tsatskin to undertake any operations in the name of Ameron prior to obtaining the legal opinions, that he was not aware of the fact that any solicitations were made to members of the public by individuals purporting to act on behalf of Ameron for the purpose of selling the MX-IV units, and that he was not involved in any such solicitations," the OSC said. "It is Gaye Knowles' position that he did not receive a copy of the escrow agreement, and that he was not aware that the agreement purported to be entered into by Ameron or that investors' funds were deposited into the escrow account."