UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7499 / January 29, 1998 SECURITIES EXCHANGE ACT OF 1934 Release No. 39596 / January 29, 1998 ADMINISTRATIVE PROCEEDING File No.3-9536 : In the Matter of : ORDER INSTITUTING PROCEEDINGS : PURSUANT TO SECTION 8A OF THE RONALD W. DRIOL, : SECURITIES ACT OF 1933 AND : SECTION 21C OF THE SECURITIES : EXCHANGE ACT OF 1934, MAKING : FINDINGS AND IMPOSING CEASE- Respondent. : AND-DESIST ORDER : I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and they hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Ronald W. Driol ("Driol" or the "Respondent") to determine whether Driol caused violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. II. In anticipation of the institution of these administrative proceedings, the Respondent has submitted an Offer of Settlement for the purpose of disposing of the issues raised in these proceedings. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, the Respondent, without admitting or denying the findings set forth herein, except that he admits to the jurisdiction of the Commission over him and over the subject matter of these proceedings, consents to the entry of the findings and to the issuance of this Order Instituting Proceedings ("Order"). ======END OF PAGE 1====== III. On the basis of this Order and the Respondent's Offer of Settlement, the Commission finds the following<(1)>: A. RESPONDENT Driol was, at all relevant times, employed by Hongkong Bank of Canada in Vancouver, British Columbia, where he managed the accounts of MTC Electronic Technologies, Inc. ("MTC"). Driol first became acquainted with MTC's founder, chairman and president, Miko Leung ("Miko") in 1983. In 1988 Driol and Miko entered into a real estate partnership which Driol improperly concealed from his employer. Specifically, at Driol's suggestion Miko acquired certain real estate in Canada, which Miko held in the name of 8898 Investments, Inc. ("8898"). At or about the time the real estate investment was acquired, Miko gave Driol a 33 percent interest without requiring a financial contribution from him. In exchange, Driol looked after the real estate in Miko's absence. In 1991, after obtaining a 33 percent interest held by another partner, Miko increased Driol's interest to 50 percent, again without requiring any financial contribution from him. In June 1994, after disclosure of some of the events described in this Order, Driol resigned from Hongkong Bank of Canada under pressure, and was hired to work full-time for 8898. B. FACTS Driol's violative conduct was in the context of a "hype and dump" market manipulation effected by Miko and his brother Sit Wa Leung ("Sit Wa"). Between February and August 1992, Miko induced MTC's board to issue options on a total of 1.52 million shares of MTC stock to be granted to a total of 20 different individuals who were represented to be current MTC employees or engineers who would be hired to construct telecommunications systems for MTC in the People's Republic of China. Miko and Sit Wa stole virtually all of those options, arranged for them to be exercised without the payment of the exercise price and arranged for the resulting certificates to be forged such that the stock could be sold through nominee accounts. Miko and Sit Wa then sold the stock between September and December 1992, in a market artificially inflated by false information they had disseminated concerning MTC's current business and future prospects. They realized net proceeds exceeding $12 million from the sale of that stock. Driol's role in the scheme was to place Hongkong Bank of Canada's signature guarantee on stolen stock certificates facilitating their sale through several brokerage accounts held in nominee names. After MTC issued the options, Miko and Sit Wa had MTC's transfer agent issue shares in the names of the designated beneficiaries. During 1992 Miko presented certificates to Driol, and asked him to place signature <(1)> The findings herein are made pursuant to Driol's Offer of Settlement and are not binding on any other person or entity in these or any other proceedings. ======END OF PAGE 2====== guarantees on them. As requested, Driol placed Hongkong Bank of Canada's signature guarantee stamp on the MTC share certificates. He did so in spite of the facts that none of the nominal owners of the certificates were present when Driol guaranteed their signatures, and that he had not met or even heard of them before being presented with the certificates issued in their names. Moreover, Driol guaranteed most, if not all, of the certificates in blank, before the forged signatures were even placed on them. Because the certificates ultimately bore a signature authorizing their transfer that purported to be that of the named owner and that bore Hongkong Bank of Canada's signature guarantee, Miko and Sit Wa were able to deposit the shares into six Canadian brokerage accounts that had been opened in the names of various nominees. During the period September through December 1992, those shares were sold, and the stock sale proceeds were transferred from the nominee brokerage accounts to four nominee bank accounts at the Hongkong Bank of Canada. Little attention was paid to the title of the funds as they were transferred from the brokerage accounts to the bank accounts. There were no bank accounts corresponding to three of the brokerage accounts through which the stolen securities were sold, and those proceeds were simply commingled in a single nominee account. Indeed, funds were commingled even where there were identically titled brokerage and bank accounts. Thereafter most of the funds were transferred from those accounts to other nominee accounts at the Hongkong and Shanghai Banking Corporation Limited, in Hong Kong. Driol played a central role in the transfer of the funds to and from the accounts at Hongkong Bank of Canada, and as a result knew, or was reckless in not knowing, that Miko controlled these nominee accounts. Specifically, Driol wrote or approved the transfer instructions for every wire transfer from these bank accounts during the period September through December 1992, and approved several of the deposits to these accounts from the nominee brokerage accounts. On one occasion Driol issued wire transfer instructions to bank employees for two separate accounts in a single memorandum. On another, Driol received a written request on a single sheet of paper to liquidate three of the accounts, a further indication that these were nominee accounts under common control. This written request contained transfer instructions for each account, and was approved by Driol. C. LEGAL ANALYSIS Section 17(a) of the Securities Act prohibits the employment of fraudulent devices in the offer or sale of securities, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit fraudulent schemes in connection with the purchase or sale of securities. The sales of the option shares described above were part of a scheme by Miko and Sit Wa which involved, among other things, the dissemination of materially false information to inflate MTC's stock price, and the theft and subsequent sale of stolen option shares in the artifically inflated market. Driol played an indispensable role in facilitating the sale of the stolen options stock by guaranteeing stock certificate signatures at Miko's request when he had ======END OF PAGE 3====== no reasonable basis to do so. Furthermore, Driol provided substantial assistance in directing the movement of Miko's and Sit Wa's illegal stock sale proceeds through nominee accounts, reflecting that he knew, or was reckless in not knowing, that Miko and Sit Wa controlled the proceeds. Driol was thus a cause of Miko's and Sit Wa's violations of the antifraud provisions. IV. FINDINGS On the basis of this Order and the Offer of Settlement submitted by the Respondent, the Commission finds that Driol caused violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. V. In view of the foregoing, the Commission has determined it is in the public interest to accept the Respondent's Offer of Settlement. Accordingly, IT IS HEREBY ORDERED, effective immediately, that Driol, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. By the Commission. Jonathan G. Katz Secretary ======END OF PAGE 4======