Brings back memories?
Regulators, Naxos boss reach ban settlement
David Baines Vancouver Sun
B.C. securities regulators have reached a settlement with the president of a Vancouver exploration company who used the centuries-old alchemy of turning dirt into gold as the basis for a long-running stock promotion.
The B.C. Securities Commission announced Tuesday that Jimmy John, president of Naxos Resources Ltd., admitted to "wanton disregard for the necessity of issuing accurate press releases."
He agreed not to trade stock, or to act as a director of officer, of any B.C. reporting issuer for the next 10 years.
This is the same penalty imposed by the Alberta Securities Commission last year in a decision that was widely criticized as anemic and inadequate.
Like its Alberta counterpart, the B.C. commission imposed no financial sanctions against John, and it did not impose sanctions whatsoever against his fellow directors, even though they were sitting on Naxos' board when the offending releases were issued and actively ran interference with reporters who criticized those releases.
Those directors included two Vancouver professionals, securities lawyer Sidney Kemp and chartered accountant Ian M. Gordon. The case dates to 1996, when Naxos issued a series of spectacular assay results based on samples from the company's property near Death Valley, Calif.
Those assays drove the company's stock price to a high of $10.625. Then The Sun raised questions about company's "proprietary" assay methods and the veracity of those results.
Naxos responded by filing a lawsuit alleging the Sun reporter was shorting against the stock. Even though there was no evidence to support the allegation, Gordon dutifully repeated the allegations in a widely circulated news release.
Meanwhile, Alberta Stock Exchange officials hired an independent consultant, Associated Mining Consultants Ltd., to review Naxos' methodology and results. AMC reported it could find no significant amounts of gold or platinum using conventional methods, and that any gold values produced by Naxos' proprietary methods "can be completely explained by the presence of gold in the wash fluxes."
It further stated Naxos' methodology "changed continuously, which suggests there is no such thing as a proprietary process as claimed by Naxos."
The Alberta commission cited Naxos and his fellow directors for securities violations. After a lengthy hearing, it issued a decision stating that Kemp and Gordon "appeared to have exercised poor judgement from time to time in that they should have brought more discipline to the process of press releases and material change reports."
The hearing panel noted their conduct "was somewhat surprising" in view of the fact Kemp was counsel to Naxos and Gordon is a chartered accountant, but concluded, with no explanation, that they were not responsible for the misleading information in the releases. The panel further stated the Naxos board was not a "working board" in day-to-day operations: "It appears the board was satisfied the controls placed on the issuance of press releases were sufficient even if in hindsight it was not."
John Woods, editor of Canada Stockwatch, said this finding, and the fact the B.C. commission did not try to over-ride it, "shows it is far better to be an aider or abettor of a stock promotion than the person who actually signs the news releases."
With regard to John, the Alberta panel found he had "displayed, over a long period of time, a wanton disregard for the necessity of issuing accurate press releases. A number of press releases either contained exaggerated language, misleading information or omitted to publish unfavourable results."
The panel suspended him for 10 years. In its settlement with John, the B.C. commission simply adopted the Alberta commission's findings and penalty.
Although Naxos traded on the Alberta exchange, its office was located in Vancouver, John lived in Vancouver and Victoria, and nearly all his fellow directors were B.C. residents. They also exercised their options and sold the underlying shares -- often for great personal gain -- in B.C.
However, Naxos was listed on the Alberta exchange, and Alberta was therefore viewed as the "lead jurisdiction."
B.C. commission executive-director Steve Wilson said Tuesday it is regulatory convention to follow the lead jurisdiction.
He conceded he knows little about the Naxos case, which occurred before he assumed his position, but said he is satisfied with the resolution.
"This matter has been dealt with to our satisfaction and we are considering no further action against Jimmy John and his fellow directors," he said.
dbaines@pacpress.southam.ca
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