COURT OF APPEAL FOR ONTARIO

Page: 57
[122] Hryniak then explained his trading program. He said that he used an arbitrage
strategy known as “basis” trading, or “cash and carry” trading. By “basis” he meant the
difference between the cost of acquiring an asset and the future value of that asset. For
example, if Tropos bought a bond for less than its face value and later sold it at face value
or a premium, the “basis” would be the profit or the difference between the purchase
price (and associated fees and costs, called the costs of carry) and the price received on
the sale.
[123] At the meeting, Mauldin said that his group was looking for an investment with a
high rate of return. He was so taken with Hryniak‟s presentation that ten days after the
meeting he wired U.S.$1.2 million on behalf of the group to the Cassels Brock trust
account. Later he sent an additional U.S.$50,000 to Cranston‟s holding company, Rhino
Holdings.
[124] The parties dispute whether the U.S.$1.2 million was deposited at Cassels Brock
with one of Hryniak‟s entities or with a Panamanian company called Frontline
Investments, then owned by Cranston. Hryniak said the Mauldin group invested with
Cranston; the Mauldin group said that it invested directly with Hryniak. That dispute did
not need to be resolved because eventually the U.S.$1.25 million from the Mauldin group
found its way to Tropos Capital – Hryniak‟s company. Between June and December
2001, Tropos Capital raised U.S.$10.2 million to be invested in the Tropos Joint Venture.
This amount included the Mauldin group‟s funds.