Hi Supervalue
I have not been around much lately mainly due to the feeling that CWA is dead and forgotten in my my mind. However tonight I received an email. It deals with some of the dealers and brokers that were involved in the mess that occurred. What I found surprising is that the released seemed to come directly from Cartaway or that is the impression that I got from the heading. I have copied and pasted it for you. If you get a chance let me know your take on the matter. Have a great day.
Cartaway Resources Corporation - Street Wire
BCSC faces court challenge from Cartaway men
Cartaway Resources Corporation CWA
Shares issued 38,074,893 Mar 4/1999 close $0.04
Mon 6 Nov 2000 Street Wire
See B.C. Securities Commission (BCSEC) Street Wire
by Brent Mudry
Facing the prospect of harsh sanctions for his key role in the Cartaway
Resources scandal, former First Marathon Securities broker Blayne Johnson
has launched a court challenge to the British Columbia Securities
Commission's finding that he and partner Rob Hartvikson engaged in conduct
prejudicial to the public interest.
In a 21-page petition filed Friday in the Supreme Court of British
Columbia, Vancouver lawyers Howard Shapray and Francis Lamer of Shapray
Cramer & Associates seek court orders quashing the BCSC's Sept. 29 decision
and prohibiting the commission from making any penalty orders based on its
findings.
The petition claims the BCSC showed a reasonable apprehension of bias,
attacks the "key findings" in the commission's decision, and claims the key
findings were not only contrary to the principles of natural justice but
exceeded the jurisdiction of the commission.
"We feel that the grounds in the appeal and judicial review will be
successful ... otherwise the matter is before the courts and that is where
we will do battle," Mr. Lamer told Stockwatch. "We feel confident that at
the end of the day we will succeed and that Mr. Johnson will be
vindicated," says Mr. Lamer.
APPREHENSION OF BIAS
Of the four main grounds for appeal, the alleged apprehension of bias is
the thinnest. Mr. Shapray claims the commission directly showed its bias in
a media statement made by BCSC communications director Mike Bernard, and
indirectly showed an apprehension of bias by refusing to reveal its
submissions to the Hagg committee, an industry review of conflicts of
interest.
The veteran, and sometimes bombastic litigator takes issue with a BCSC
statement published in the Financial Post on July 21, 1998, referring to
the Cartaway case. "A clear message has to be sent that a broker owning a
security and promoting the issue won't be tolerated ... so we have no plans
to resolve this (Notice of Hearing) through negotiation," stated commission
spokesman Mr. Bernard.
Mr. Shapray also claims that the commission's refusal to disclose documents
relating to its submissions to the Joint Securities Industry Committee on
Conflicts of Interest gives rise to a reasonable apprehension of bias. The
Hagg committee, chaired by John Hagg, the chief executive of Northstar
Energy Corp., released its report in September, 1997.
In one of the ironies of the Cartaway case, Peter Brown of Canaccord, the
senior of Howe Street's two representatives on the Hagg committee,
testified during the BCSC's Cartaway hearing on his first-hand knowledge of
Cartaway and its pivotal seed financing.
In a private placement of seven million units at 12.5 cents in April of
1995, Canaccord was one of the largest buyers, with 800,000 units, an
11.4-per-cent share of the financing, and the only other significant
purchaser besides the brokers in First Marathon's Vancouver and Calgary
offices. Mr. Johnson, David Lyall and Eric Savics each took down 16.9 per
cent of the offering, while Mr. Hartvikson subscribed for 15.8 per cent,
with the four brokers accounting for 66.5 per cent of the private
placement.
"Canaccord's president (sic), Peter Brown, testified that when he was
approached to participate in Cartaway's private placement by Johnson and
Savics sometime in early April, 1995, he was told they were looking for
some seed capital to fund new areas of investment and a new management
team. The two areas Brown said were under consideration were a South
American oil play and an area play of Voisey's Bay claims," the commission
noted in its Cartaway decision.
"Brown conceded this did not accord with a memo he wrote to Canaccord's
compliance department on July 9, 1997, in which he stated that the purpose
of the private placement was to fund the acquisition of a major position in
the Voisey's Bay area. Brown testified that the memo was incorrect to the
extent he had forgotten to mention the prospect of doing a South American
oil play," stated the decision.
"Regardless, Brown said he only made the investment because he wanted to
encourage a relationship with the First Marathon team. As he noted in his
memo and as he emphasized in his testimony he believed that the group at
First Marathon had done a lot of first-class resource business," noted the
decision. Mr. Brown testified that at 12.5 cents and with the sponsorship
of First Marathon, he could not see much risk.
"He attributed the omission in the memo to the fact that he had dictated it
quickly and well after Cartaway had become one of three companies that had
accumulated a large land position in the area and he simply recalled it as
a Voisey's Bay play," stated the commission in its decision. The BCSC
thanked Mr. Brown for his helpful testimony. No allegations of wrongdoing
were ever made against Canaccord in the Cartaway matter.
The commission also reviewed evidence that Roy Homyshin, the manager of
listings at the Alberta Stock Exchange, had some initial concerns about the
private placement but he was satisfied nothing was wrong. Mr. Homyshin
testified that he reviewed the private placement questionnaire and
undertaking forms that placees were required to file with the ASE to help
him decide if anyone was "loading up on cheap stock."
"He determined that the purchasers of the big blocks of shares were four
brokers at First Marathon, Hartvikson, Johnson, Lyall and Savics. Homyshin
noted that with Canaccord also acquiring 800,000 shares for its own
account, almost all of the placement was going to pros. However once he saw
that the private placement questionnaire and undertakings indicated that
none of these placees owned other shares in Cartaway, he said he ceased his
enquiry," stated the commission in its decision.
The ASE official testified that he would have been concerned had he known
of the brokers' earlier shareholdings and of the extent of First Marathon's
involvement. "Homyshin testified that the pricing of the private placement
could have been affected had there been a material change in the affairs of
Cartaway between the date of the setting of the price of the private
placement and the May 5th closing," noted the BCSC.
THE KEY FINDINGS
A cornerstone of Mr. Shapray's current court challenge is a multipronged
attack on the BCSC's key findings in its decision against Mr. Johnson and
Mr. Hartvikson. The commission found that Mr. Johnson was a "director" or
"de facto director" of Cartaway under the Business Corporations Act and the
Securities Act, a "de facto officer," and a "promoter" of the company.
The BCSC also found that Mr. Johnson owed fiduciary duties and a duty of
care to Cartaway, and that he and Mr. Hartvikson "controlled Cartaway" and
"controlled how Cartaway's financing would proceed through First Marathon."
The decision further found that either Mr. Johnson or Cartaway had entered
into a binding agreement with property vendor representative Matthew Mason
to purchase the Kogaluk claims on either April 5, 1995, or at some time
prior to the First Marathon brokers' agreement to buy the 12.5-cent shares
in the contentious private placement.
The BCSC also found that Mr. Johnson knew on April 5, 1995, that Cartaway's
board would approve the acquisition of the Kogaluk claims, and that it was
he who "deliberately" misled the ASE in a notice filed two weeks later. In
addition, the BCSC found that Mr. Johnson knowingly committed a violation
of the Securities Act by engaging in an illegal distribution of shares; he
acted deceitfully regarding the affairs of Cartaway, and he acted contrary
to the public interest by participating in the April private placement.
The BCSC also made several other findings of behaviour prejudicial to the
public interest, including that Mr. Johnson acted in a conflict of interest
by acquiring cheap shares of Cartaway in advance of a private placement to
clients in July, 1995. In addition, the commission found that Mr. Johnson
made misrepresentations during interviews with staff investigators.
NATURAL JUSTICE
In the court petition, Mr. Shapray claims the key findings were made
contrary to principles of natural justice, fairness and due process in nine
stated issues.
"The commission's staff never provided any fair notice in the Notice of
Hearing of any allegation to be made at the hearing of its intention to
claim that the petitioner was an 'officer' or 'director' of Cartaway and
numerous findings of dishonesty, breaches of fiduciary duties and conduct
contrary to the public interest were based on the conclusion that the
petitioner was a director or officer of Cartaway," states the petition.
Mr. Shapray also claims that BCSC staff never provided any fair notice of
any allegation of its intention to claim that Mr. Johnson acted
fraudulently, in a deceitful manner or in breach of his fiduciary duties.
"The commission's prosecutor was requested to provide particulars of
allegations in the notice of hearing and did not provide sufficient
particulars to give fair notice of the allegations as they related to the
key findings," states the petition.
Mr. Shapray further claims that as no allegation was ever made either
before or during the hearing that Mr. Johnson was a de facto director of
Cartaway, his client was never provided with an opportunity to present
evidence or argument in his defence.
"Findings were made in the absence of notice to the witnesses called by the
commission's staff that their evidence, which was unchallenged by any other
evidence, would be impeached in argument, contrary to the principle of
fairness," states the petition.
"The only officer or director of Cartaway who gave evidence was Mr. Stuart,
who was called as a commission witness and who was, contrary to the rule in
Browne v. Dunn, given no notice that his testimony to the effect that the
petitioner (Johnson) had no authority to bind Cartaway might later be
impeached after his testimony was completed and the evidence closed,"
states the petition.
Mr. Shapray claims that the key findings made in this manner constitute
"gross violations" of the principles of natural justice which apply to
proceedings before the BCSC in a matter which clearly prejudiced Mr.
Johnson.
JURISDICTIONAL CHALLENGE
Mr. Shapray also make a strong attack on the commission's jurisdiction and
the foundation of its findings.
"The key findings which the commission made as they pertained to the
petitioner were unreasonable, capricious, perverse, without evidentiary
foundation and contrary to the only evidence in the record. The key
findings are contrary to the only evidence led by the commission's
prosecutor, and unsupported by any evidence to the contrary," states the
petition.
Mr. Shapray claims the BCSC's key findings are inconsistent with and
contrary to the uncontradicted evidence in the hearing. "There was
absolutely no agreement or understanding whatsoever by the petitioner or
any other broker at First Marathon Securities who owned Cartaway stock to
act jointly or in concert," states the petition.
The petition notes that neither Mr. Johnson nor his partner Mr. Hartvikson
had any official capacity whatsoever with Cartaway and neither had any
authority to bind the company to any deals regarding expenditures of funds
or issuances of stock.
Mr. Shapray notes that Cartaway's three directors were veteran
professionals: Michael Stuart, a chartered accountant and a director and
branch manager of First Marathon, and lawyers William DeJong and Charles
Mitchell.
"The petitioner and Hartvikson did not have anything to do or anything to
say with respect to the timing or content of Cartaway's disclosure of
material facts or material changes to the public and to regulatory
authorities," states the petition.
Mr. Shapray notes that unlike Mr. Johnson and Mr. Hartvikson, none of
Cartaway's directors resided in Vancouver. "There was no evidence to show
that either Johnson or Hartvikson were consulted or apprised of the nature
and content of the information disclosed to the public and regulatory
authorities prior to such disclosure," states the court challenge.
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