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The Ontario Securities Commission's landmark case against YBM Magnex International Inc. ended with a whimper Wednesday with a ruling absolving the defunct company's underwriters and three of its eight former directors, including former Ontario premier David Peterson, of any blame.

A disciplinary panel found that YBM's key disclosure documents, including a prospectus for a $100-million equity financing in 1997, failed to reveal the company's reputed links to organized crime.

But the panel found that only five YBM board members bore any responsibility for the disclosure lapses and banned them for varying terms of three years to life from acting as an officer or director of a publicly traded company in Ontario.

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The penalties pale in comparison to those requested by the OSC's enforcement arm. OSC staff asked the panel to ban Mr. Peterson from serving as a director of a public company for five to 10 years. They also asked that investment firms Griffiths McBurney & Partners and National Bank Financial Corp., formerly First Marathon, be banned from underwriting any public financings for up to a year.

Although the firms were not punished for their role in the equity financing, the panel found shortcomings with their work and they were asked to pay hearing costs of $400,000 each. As well, Griffiths McBurney has agreed to have its underwriting practices and procedures reviewed.

The much-anticipated ruling follows 124 days of hearings that ended last November - the longest on record for the OSC.

Although the regulator says the ruling clarifies standards for directors and will help to prevent another situation such as YBM's, it was greeted with a mixture of relief, puzzlement and criticism.

"I am delighted with the outcome," Mr. Peterson said. "But it's not been that much fun for 3½ years."

The disciplinary panel's ruling acknowledges that Mr. Peterson was appointed to the YBM board to add prestige and status. He is a senior partner at Toronto law firm Cassels Brock & Blackwell and a director of several public companies, including Rogers Communications Inc. and Industrial-Alliance Life Insurance Co.

YBM's underwriters also said they were pleased to put the protracted case behind them.

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"The YBM matter has hung over us for 6½ years now," said Kevin Sullivan, chief executive officer of Griffiths McBurney.

Lawrence Haber, an executive vice-president with National Bank Financial, the brokerage arm of National Bank of Canada, described the ruling as reasonable. "We're pleased with the outcome," he said. "We think the decision of the panel is just and measured."

But Alan Lenczner, Mr. Peterson's lawyer, said the OSC decision, which was criticized by corporate governance experts, doesn't clarify anything for directors.

"Where's the guidance in here?" he asked. "If you were a director of a company, you'd read this thing and say, 'What the hell am I supposed to do?' "

The decision comes more than five years after the U.S. Federal Bureau of Investigation raided the Pennsylvania head office of YBM, a supposed industrial magnet maker with plants in Hungary and a listing on the Toronto Stock Exchange.

The OSC suspended trading in the company's shares on May 13, 1998, the same day as the FBI raid. The shares last traded at $14.10 each.

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This past April, U.S. federal prosecutors indicted Semion Mogilevich, the driving force behind YBM; Jacob Bogatin, its former CEO; Igor Fisherman, European operating manager; and Anatoly Tsoura on charges of racketeering, money laundering, falsification of books and records, and a number of wire, mail and securities frauds.

But the OSC panel sought to distance its ruling from the U.S. indictments.

"Despite a hearing which took over 124 hearing days to complete, this case is not about organized crime, money laundering or whether the respondents believed YBM was not a real company," says the three-member panel, led by OSC vice-chairman Howard Wetston. "It is about the disclosure of risk."

Specifically, the panel says investors had a right to know what risks were threatening the company. The OSC says the 1997 prospectus did not contain "full, true and plain" disclosure because it resorted to "muddled" disclosure about the role of a special committee of the board.

The prospectus said the committee was examining general concerns related to doing business in Eastern Europe. In fact, however, the committee was probing the company's suspected links to the Russian mob.

"While disclosing good news with little hesitation, its practice was to restrict the disclosure of bad news," the panel says.

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The panel says Mr. Peterson could have done more to get to the bottom of the suspicions surrounding the company but concludes that he acted reasonably. "While Peterson meets the legal test of due diligence, the panel remains disappointed that he did not offer more insight and leadership to the board in these circumstances," the panel says.

The harshest penalties were to Mr. Bogatin and Mr. Fisherman, who were prohibited for life from acting as an officer or director of any publicly traded company in the province.

Mr. Bogatin, who was born in Russia and has been living in the United States for more than a decade, was arrested at his home in Richboro, Pa., in April in connection with the U.S. indictments.

Owen Mitchell, a former executive at National Bank Financial and YBM director, was hit with a five-year ban and ordered to pay hearing costs of $250,000. The panel says he was in a conflict of interest as chairman of the special committee of YBM's board and with his role at National Bank Financial. The firm would benefit if YBM completed the equity financing, the panel says. As a result, the conflict compromised his judgment.

Mr. Mitchell declined to comment when reached Wednesday.

Two other directors - Pennsylvania businessman Harry Antes and Kenneth Davies of White Rock, B.C. - were each banned for three years and ordered to pay costs of $75,000.

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Mr. Davies was the only director who had a personal visit from the FBI in 1996, the decision notes. He did not discuss the visit with the rest of the board and thus failed to act prudently, it adds. He could not be reached for comment.

The OSC's enforcement arm initially accused everyone involved with the company, including all of its directors, of withholding material information from the public when it unveiled its allegations in November, 1999.

Wednesday, however, two other directors besides Mr. Peterson were not blamed for the long-running scandal - Frank Greenwald, a U.S. resident, and Michael Schmidt, a Canadian.

Harry Underwood, Mr. Schmidt's lawyer, said his client was "very pleased" he was cleared of all the allegations.

Mr. Lenczner, Mr. Peterson's lawyer, said the decision raises more questions than it answers on the disclosure front. "They say this is not a case where you know of facts but failed to disclose them. This is a case of something that doesn't rise to the level of a fact. It's a rumour; it's a potential risk. You can disclose every rumour you hear about a company, and that might in some cases do harm and in some cases do well. You are really into a question of judgment."

With files from reporters Paul Waldie, Sinclair Stewart and Richard Blackwell

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