A L B E R T A S E C U R I T I E S C O M M I S S I O N. IN THE MATTER OF The Securities Act (S.A. 1981, c. S-6.1, as amended) (the "Act") - and -

Transcription

1 A L B E R T A S E C U R I T I E S C O M M I S S I O N IN THE MATTER OF The Securities Act (S.A. 1981, c. S-6.1, as amended (the "Act" - and - IN THE MATTER OF The General By-Law of The Alberta Stock Exchange -and- IN THE MATTER OF Cartaway Resources Corporation (formerly Cartaway Container Corporation, First Marathon Securities Limited, John Ivany, Christopher Michael Stuart, William DeJong, Walter Nash, Robert Arthur Hartvikson and Blayne Barry Johnson (collectively, "the Respondents" Amended N O T I C E O F H E A R I N G (Subsections 165(1, 167.1(1 and 167.1(2 1. TAKE NOTICE that, pursuant to subsection 165(3 of the Act, the Alberta Securities Commission (the "Commission" will convene at its hearing room, 4th floor, Ave SW, Calgary, Alberta, on Thursday, September 24, 1998, at 9:30 a.m., to arrange a date for a hearing of the allegations in this Notice of Hearing and to deal with any other preliminary matters. At the hearing of the allegations, the Commission will consider: 1.1 whether, pursuant to subsection 165(1 of the Act, the Commission should order that the Respondents cease trading in all securities as defined in the Act; 1.2 whether, pursuant to subsection 165(1(c of the Act, the Commission should order that any or all of the exemptions contained in sections 65, 66, 66.1, 107, 115, 116, 132, and 133 of the Act or in the Alberta Securities Commission Rules under the Act (the "Rules" shall not apply to the Respondents; 1.3 whether, pursuant to subsections 165(1(d and 165(1(e, the Commission should order that any of the Respondents resign from any positions that each may hold as a director or officer of any issuer, and be prohibited from becoming or acting as a director or officer or both of any issuer; 1.4 whether, pursuant to subsection 56(1, the Commission should suspend, cancel, restrict or impose terms or conditions or both on the registration of any of the registrant Respondents, or reprimand any of the registrant. (1998, 7 ASCS 3691 #07/39

2 - 2 - Respondents; and, 1.5 such further or other order, ruling or decision as the Commission considers appropriate; 2. AND FURTHER TAKE NOTICE that the Staff of the Commission (the "Staff" alleges that: 2.1 on June 5, 1986, Cartaway Container Corporation ("Cartaway" was incorporated under the laws of Alberta. Its one wholly owned subsidiary was incorporated in the province of British Columbia and carried on the principal business activity of Cartaway, the leasing of residential garbage containers in and around Kamloops, British Columbia. Cartaway was listed on The Alberta Stock Exchange ("ASE" with the trading symbol, "CWA." By amalgamation, on August 15, 1996, Cartaway became Cartaway Resources Corporation; 2.2 Effective September 1, 1994, one non-registrant and eight registrants employed by First Marathon Securities Limited ("FMSL", four in Calgary, Alberta, four in Vancouver, British Columbia, took control of Cartaway by purchasing 46% of the issued shares of Cartaway at 10 cents a share; 2.3 Matt Aufricht, Larry Birchall, Charles Fraser and the respondent Christopher Michael Stuart ("Stuart" were the registrants in the Calgary office. Stuart was the Branch Manager of the Calgary office from April 24, 1995, to October 7, 1996; 2.4 David MacKenzie Lyall, Eric Savics and the respondents Robert Arthur Hartvikson ("Hartvikson" and Blayne Johnson ("Johnson" were the registrants in the Vancouver office; 2.5 Charles A. Mitchell ("Mitchell" of Kamloops, British Columbia, a director of Cartaway since 1989, continued on as a director. All other previous directors resigned and the Respondents William DeJong ("DeJong" and Stuart became new directors, effective October 17, Stuart became President and Secretary April 28, Stuart had completed a Uniform Application for Registration dated April 23, That Uniform Application did not reveal any outside business activity or any other gainful employment. No change was reported to the ASE by Stuart after he became a director of Cartaway on October 17, Stuart completed an Application for Change of Status dated April 10, 1995, and made no disclosure of his involvement with Cartaway. By letter dated May 9, 1995, Stuart advised the ASE that he was a director of Cartaway but made no disclosure of his officer position as President and Secretary. At no time did Stuart obtain authorization from FMSL to serve as a director of Cartaway. In his personal New Account Application Form ("NAAF", Stuart did not disclose that he was an insider of Cartaway; nor did he ever update his NAAF to disclose that information. Therefore, it is particularly alleged as follows:

3 - 3 - As against the Respondent Stuart, that: by serving as a director and officer of Cartaway, he contravened section 41(1 of the Alberta Securities Commission Rules; by failing to report within 10 days that he had become a director of Cartaway and, later, that he had become an officer of Cartaway, he contravened section 48 of the Alberta Securities Commission Rules; by failing to obtain authorization from FMSL to serve as a director of Cartaway, he contravened sections 8.16 (now, 8.19, 8.16A (now, 8.20 and 8.40 (now, 8.25 of the General By-Law of The Alberta Stock Exchange, thereby also offending section 1.1 of ASC Policy 3.3; 2.6 Between April 15, 1995, and May 5, 1995, Cartaway completed a private placement of 7,000,000 shares with special warrant attached, priced at $0.125 per unit. The Respondents Hartvikson, Johnson, Stuart and DeJong were all purchasers of the special warrant distribution; 2.7 Between April 4, 1995, and June 7, 1995, the Respondents Hartvikson, Johnson and Stuart pursued the acquisition of mining claims in the Voisey=s Bay area of Labrador, Newfoundland, on behalf of Cartaway, with a view to a change in business direction into mining and exploration. By a share exchange agreement between Cartaway and B.C. Ltd. executed June 7, 1995, the desired acquisition was accomplished and on June 29, 1995, Cartaway announced its change in business direction into mining and exploration; 2.8 During the time period in which the private placement was being subscribed, Cartaway was undergoing a material change of which the Respondents DeJong, Hartvikson, Johnson and Stuart were aware. Therefore, it is particularly alleged as follows: As against the Respondents Hartvikson and Johnson, that they failed to identify themselves as promoters as defined in section 1(q.1 of the Act and failed to file a certificate as required by section 90(1(c of the Act in the Cartaway Prospectus dated January 26, 1996; As against the Respondents Cartaway, Dejong and Stuart, that they failed to disclose a material change as required by section 118(1 of the Act, thereby also offending the Timely Disclosure requirements of National Policy 40; 2.9 On June 5, 1995, the Respondent John Ivany ("Ivany" became a director of Cartaway. On June 6, 1995, Stuart resigned as President and Secretary but remained a director. Ivany was appointed President, Secretary and Chief

4 - 4 - Executive Officer; 2.10 On June 6, 1995, Mitchell resigned as a director and Hugh Mogenson ("Mogenson" became a director. The Respondent Walter Nash ("Nash" was appointed Vice-President, Exploration, on June 6, 1995; 2.11 On July 4, 1995, two of the vendor parties to the June 7, 1995, acquisition, Thistle Creek Resources Inc. ("Thistle Creek" and B.C. Ltd. ("455699" entered an agreement to swap their escrowed shares for free-trading shares. In May 1995, Stuart had discussed orally and in correspondence with Gerry Romanzin, Executive Vice-President of the ASE, the feasibility of such a share swap arrangement. In June 1995, Stuart had been the signing authority for Cartaway on the escrow agreement under which the shares of Thistle Creek and (among others were escrowed. Neither Mr. Romanzin nor any other representative of the ASE gave the written consent necessary to trade in the escrowed shares. Disclosure of the share swap agreement was not made in either the Cartaway preliminary prospectus filed November 24, 1995, or in the Cartaway final prospectus dated January 26, Therefore, it is particularly alleged as follows: As against the Respondent Stuart, that by allowing the share swap of escrowed shares for Thistle Creek and without obtaining the written consent of a representative of the ASE, he breached the terms of the escrow agreement and thereby contravened Exchange Requirements, as defined in section 1.01 of the General By-Law of The Alberta Stock Exchange, and that by breaching Exchange Requirements and, further, by failing to disclose the terms of the share swap agreement in Cartaway prospectuses, he acted in a manner contrary to the public interest; 2.12 Between June 29, 1995, and July 11, 1995, Cartaway traded in securities with 13 Alberta residents, where the trades were a distribution, improperly claiming reliance on section 107(1(z(v of the Act. The trades in question were made by FMSL registrants under the supervision of the Respondent Stuart. Therefore, it is particularly alleged as follows: As against the Respondents Cartaway and FMSL, that by making a distribution in improper reliance on section 107(1(z(v, they contravened section 81 of the Act; As against the Respondents Ivany, Stuart and DeJong, that by causing Cartaway to make a distribution in improper reliance on section 107(1(z(v, they contravened section 81 of the Act; As against the Respondent Cartaway, that by filing a

5 - 5 - Form 20 claiming improper reliance on section 107(1(z(v, it made a misrepresentation, thereby acting in a manner contrary to the public interest and contrary to section 161(1(b of the Act; As against the Respondent Stuart, that by causing Cartaway to file a Form 20 claiming improper reliance on section 107(1(z(v, he made a misrepresentation, thereby acting in a manner contrary to the public interest and contrary to section 161(1(b of the Act; As against the Respondent FMSL, that, by allowing its employees to make a distribution in improper reliance on section 107(1(z(v, it failed adequately to supervise the conduct of FMSL employees as required by sections 8.40 (now, 8.26 and 8.41 (now, 8.27 of the General By-Law of The Alberta Stock Exchange; and, As against the Respondent Stuart, that, in his capacity as Branch Manager, by allowing registrants under his supervision to make a distribution in improper reliance on section 107(1(z(v, he failed adequately to supervise the conduct of FMSL employees as required by sections 8.40 (now, 8.26 and 8.41 (now, 8.27 of the General By-Law of The Alberta Stock Exchange, thereby making himself subject to disciplinary action pursuant to sections (now, 21.19; 2.13 Between October 17, 1994, and May 9, 1996, the Respondent Stuart executed one purchase and twelve sales of the securities of Cartaway and failed to file within 10 days of the transfers an insider report with the Executive Director. Therefore, it is particularly alleged as follows: As against the Respondent Stuart, that he contravened sections 147(1 and 147(2 of the Act; 2.14 On April 30, 1996, the Respondent Nash announced in a press release that Cartaway was going to start drilling on the geophysical anomaly called the Cirque property; 2.15 Between May 1 and May 8, 1996, inclusive, FMSL conducted 239 pro trades of Cartaway stock, of which 67, or 28%, were not designated as pro trades. Therefore, it is particularly alleged as follows: As against the Respondent FMSL, that by failing to designate pro trades as such, it contravened section (now, of the General By-Law of The Alberta Stock Exchange;

6 On May 8, 1996, Cartaway stock traded in a range of $3.20 to $4.20 and closed at $4.20 on a volume of 523,975 shares. After the market close, Cartaway requested a halt in trading and the Respondent Nash announced in a press release the visual results of the first two holes drilled on the Cirque property. On May 9, 1996, Cartaway stock traded in a range of $7.60 to $9.50 and closed at $9.50 on a volume of 4,078,813 shares; Between May 8 and May 13, 1996, the Respondents Nash, Ivany and Johnson viewed and handled drill core sample from the Cirque property. They also made drill core sample available for viewing by various mining and brokerage industry professionals in the FMSL Toronto and Vancouver offices; On May 13, 1996, the Respondent Nash exercised options and purchased 50,000 Cartaway shares at a share price of $0.72; he then sold all his Cartaway shares at an average price of $9.15, for a profit of approximately $422,000; On May 16, 1996, the Respondent Ivany announced in a press release the visual results of the third hole drilled on the Cirque property. Included in the press release was a report of "heavy concentrations of sulphide mineralization (pyrrhotite, pentlandite and chalcopyrite." No observations of pentlandite had been recorded by the on-site geologist, James Sharpley, in his drill logs, which drill logs were reviewed before preparation of the press release. Also included in the press release was the information that the assay results of the first two holes would be released May 17, 1996; On May 16, 1996, Cartaway stock traded in a range of $14.90 to $26.00 and closed at $23.00 on a volume of 2,877,739 shares; On May 17, 1996, the Respondent Nash announced in a press release the assay results of the first two holes. The assay results showed significantly less chalcopyrite than the visual results; 2.22 The trading after the May 16 press release was so heavy that the ASE system crashed and remained inoperative until after the assay results had been announced. When trading resumed on May 21, 1996, Cartaway stock re-opened at $2.76 per share. Therefore, it is particularly alleged as follows: As against the Respondents Ivany, Nash and Johnson, that by viewing, handling and/or allowing viewing by a select number of people drill core sample before receiving assay results, they were informed of a material fact before that material fact had been generally disclosed, thereby contravening section 119(3 of the Act and offending National Policy 40 on Timely Disclosure; As against the Respondent Nash, that by selling his

7 - 7 - Cartaway shares on May 13, 1996, given his special relationship to Cartaway, with full access to the drill logs, information from the on-site geologist, inspection of drill core, etc., he traded on inside information, thereby contravening section 119(2 of the Act; As against the Respondents Ivany, Nash, Dejong and Stuart, that by causing Cartaway to issue the May 16, 1996, press release containing a misrepresentation as to the presence of pentlandite, they acted in a manner contrary to the public interest and contrary to section 161(1(b of the Act; and, 2.23 as a result of the foregoing, the Respondents acted in a manner contrary to the Act, the Rules and the public interest; 3. AND FURTHER TAKE NOTICE that at the hearing the Staff may apply for an Order that the Respondents pay: 3.1 the costs of the investigation of the Staff into the affairs of the Respondents which were the subject of the hearing; and 3.2 the costs of or related to the hearing that are incurred by or on behalf of the Executive Director, including the costs of expert witnesses, if any, all pursuant to section 167.1(1 of the Act; 4. AND FURTHER TAKE NOTICE that the Commission may order the Respondents to pay the costs of or related to the hearing that are incurred by or on behalf of the Commission, pursuant to section 167.1(2 of the Act; 5. AND FURTHER TAKE NOTICE that at the hearing the Commission will follow the rules of procedure provided for in section 19 of the Act including: 5.1 the right of the Respondents to be represented by legal counsel; 5.2 that the hearing may be adjourned from time to time and to such place or places as is reasonably necessary in the opinion of the Commission in order to expedite and conclude the hearing, provided that if the hearing is not concluded on the date set out above, the Commission may grant an interim order pursuant to Section 21 of the Act with respect to any of the matters set out in paragraphs 1.1, 1.2 and 1.3 thereof, said interim order to remain in effect until the hearing has been concluded; and 5.3 that the laws of evidence applicable to judicial proceedings do not apply; 6. AND FURTHER TAKE NOTICE that the Respondents may obtain further particulars of the facts and allegations contained herein prior to the hearing by contacting Anne J. Brown, Senior Enforcement Counsel, c/o Staff of the Alberta Securities

8 - 8 - Commission, 4th Floor, Alberta Stock Exchange Tower, Ave SW, Calgary, Alberta, telephone ( , facsimile ( ; 7. AND FINALLY TAKE NOTICE that upon the failure of the Respondents to attend at the said time and place, and upon proof satisfactory to the Commission of service of this Notice upon the Respondents, the hearing may proceed in the absence of the Respondents, and without further notice to them, the Commission may grant such order, decision or ruling as it deems appropriate. Dated at the City Of Calgary In the Province of ALBERTA this 23rd day of September, 1998 ALBERTA SECURITIES COMMISSION Original Signed By D.C. Linder Executive Director \257005\ \169796\