Regulators probe claims parked in numbered company
Cartaway Resources Corporation CWA
Shares issued 37,914,563 Sep 16 close $0.07
Wed 16 Sept 98 Street Wire
Also First Marathon Inc (FMS.A)
FIRST MARATHON BROKERS ALLEGEDLY USED FRIENDLY NOMINEE AS FRONT
by Brent Mudry
As regulators intensify their probe into the Cartaway Resources activities
of First Marathon Securities' Vancouver brokers, a numbered B.C. company is
emerging as a key element of interest. The special focus on the shelf
company, used to acquire Cartaway's Voisey's Bay claims, comes to light
amid former broker Blayne Johnson's heated bid to block the British
Columbia Securities Commission's investigation. Mr. Johnson, who served as
the engineer of Cartaway's structuring along with former First Marathon
partner Rob Hartvikson, filed a petition Monday in the Supreme Court of
British Columbia.
In court filings, Vancouver lawyer Howard Shapray claims his client Mr.
Johnson faces the potential of millions of dollars of penalties, fines and
sanctions, and irreparable damage to his professional and personal
reputation. Mr. Shapray hopes to avoid Mr. Johnson's potential for self
incrimination, in a bid to prevent regulators from questioning his client
further.
In a confidential summons dated Aug. 21, now filed in court, BCSC
investigations manager John Porges, one of four investigators handling the
commission's Cartaway probe, invited Mr Johnson for an interview on
Tuesday. The summons also required the former broker to bring all cancelled
cheques he wrote in favour of 489895 British Columbia Ltd. during April,
May and June of 1995. Investigators hope the cancelled cheques will provide
a clearer picture of Mr. Johnson's role with the numbered company, evidence
which could either further implicate or possibly exonerate him. The BCSC
claims that in earlier formal interviews, in February 1996 and September
1997, Mr. Johnson and Mr. Hartvikson lied to regulators by making "untrue"
statements about the numbered company.
The numbered company was a critical element in the structuring of Cartaway.
The stock structuring began in September 1994, when the Cartaway Eight,
comprising four brokers each in First Marathon's Vancouver and Calgary
offices, acquired control of Cartaway by buying 2.95 million shares, a 45.5
per-cent stake, at ten cents each. The Vancouver four, consisting of Mr.
Johnson, Mr. Hartvikson, David Lyall and Eric Savics, each bought 370,000
shares, while their Calgary colleagues split the remaining 1.47 million
shares. The next month, on Oct. 17, Calgary broker Christopher Stuart, who
served as First Marathon's vice-president of corporate finance, became
president, director and secretary of Cartaway.
With the initial seed stock in place in the fall of 1994, Mr. Johnson and
Mr. Hartvikson set up the next stage, the acquisition of mining claims, the
next spring. According to the BCSC's notice of hearing, the Hunter Group, a
B.C.-based mining exploration group, participated in the Voisey's Bay
staking rush in early 1995. The Hunter Group staked 1,102 claims, known as
the Kogaluk claims, on Apr. 3, 1995. Two days later, on Apr. 5, Mr.
Hartvikson and Mr. Johnson met with representatives of the Hunter Group to
discuss buying the Kogaluk claims, according to the commission. After a few
days of negotiations, the pair of First Marathon brokers agreed to buy the
claims on Apr. 8, allegedly with the intention to vend the claims into
Cartaway.
The BCSC claims that sometime before Apr. 18, 1995, Mr. Hartvikson and Mr.
Johnson, after consulting Mr. Stuart, decided to vest ownership of the
Kogaluk claims in a private company until they were ready for a transfer to
Cartaway. On this date, Apr. 18, the First Marathon duo acquired 489895
B.C., a shelf company. The numbered company had been incorporated a few
months earlier, on Feb. 1, by Maitland and Company, a Vancouver law firm.
Investigators claim that Mr Johnson picked a friend, Stuart Bethune, who
was unfamiliar with the mining business, as the front man. Mr. Bethune was
appointed as the sole director and shareholder of 489895. Mr. Johnson and
Mr. Harvikson allegedly directed all of the numbered company's affairs, and
Mr. Bethune served merely as their nominee.
In addition to the original claims dealt on Apr. 8, the Hunter Group staked
more Labrador properties between Apr. 9 and 12, which were presented to Mr.
Hartvikson and Mr. Johnson. The commission notes that these additional
claims, in addition to the original Kogaluk claims, were subsequently
acquired, through the numbered company, for Cartaway, on the basis of cash
payments and commitments to deliver shares of a company called "Pubco,"
which was always intended to be Cartaway.
The numbered company was especially important, because it allowed the
claims to be parked while the Cartaway stock structuring continued. On Apr.
19, 1995, the day after Mr. Johnson and Mr. Hartvikson acquired 489895
B.C., Cartaway issued a press release disclosing a brokered private
placement of up to seven million units at 12.5 cents. Each unit consisted
of one share and a warrant, exercisable at 20 cents for two years. With
First Marathon acting as agent, the financing closed on May 5, fully
subscribed. Mr. Stuart's presence was convenient, as he signed the May 5
agreement for both First Marathon and Cartaway. In this second seed stock
financing, the Vancouver four bought the lion's share, sharing 4.64 million
units. Messrs Johnson, Hartvikson, Savics and Johnson each bought about 1.1
million units.
The other big buyer was Canaccord Capital, with 800,000 units. The
commission notes that in mid to late April, after acquiring the claims, Mr.
Johnson and Mr. Savics met with Canaccord chairman Peter Brown to encourage
him to have Canaccord buy the 800,000 units. "To promote the purchase,
Savics and Johnson represented to Brown that Cartaway would become a mining
company, focused on the Voisey's Bay area," states BCSC executive director
Michael Watson in the notice of hearing. Although the First Marathon
brokers, Cartaway's directors and others are being targeted in regulatory
proceedings, Canaccord and Mr. Brown are not named.
According to the commission, Messrs Hartvikson, Johnson and Stuart parked
the claims in the numbered company until after the completion of the
private placement in order to allow themselves and the other private
placement investors to benefit from the lower price for the units, which
were issued before the claims acquisition was disclosed.
On May 12, 1995, a week after this financing was completed, trading in
Cartaway was halted on the Alberta Stock Exchange, pending news. Trading
resumed on Jul. 4, after a third financing and various disclosures.
Cartaway sold four million special warrants at $1 to $1.50 through an
offering memorandum dated June 23, with First Marathon acting as
underwriter. On June 29, a week after this document was dated, Cartaway
finally revealed to the general public its change of business from garbage
containers to mining exploration, its acquisition of Voisey's Bay claims
and its appointment of industry veterans John Ivany as president and Walter
Nash as exploration vice-president.
The next spring, in April and May, 1996, Cartaway shares skyrocketed. The
shares levitated from 18 cents on Apr. 18, 1995, to a brief peak of $26 on
May 16, 1996, before collapsing five days later to $2.78. A confidential
BCSC investigation order reveals the First Marathon brokers and their
families sold a net 3.4 million shares at undisclosed prices. The details
of who sold when, and at what prices, are not expected to be revealed until
the BCSC holds its hearing, set to begin July 5, 1999, or when a negotiated
settlement is reached.
BCSC investigators now want to probe more closely into the paper trail of
the numbered company in which Cartaway's Voisey's Bay claims were briefly
parked. The commission alleges that Mr. Johnson and Mr. Hartvikson made a
number of misrepresentations in previous interviews. In his initial
interview on the matter on Feb. 28, 1997, Mr. Johnson stated he had no
contact with the Hunter Group until after the April 1995 private placement
closed. He also denied any knowledge of 489895 B.C., the numbered company.
In his second interview, on Sept. 26, 1997, Mr. Johnson changed his story
slightly. This time, he admitted he had contact with the Hunter Group
before the financing closed, but he claimed the mineral claims were
purchased by the numbered company just for the benefit of himself and Mr.
Hartvikson, not for Cartaway. Also in this second interview, Mr. Johnson
told investigators he did not contact Mr. Stuart about the claims until May
1995. The BCSC alleges that these statements, and similar statements made
by Mr. Hartvikson, were untrue.
(c) Copyright 1998 Canjex Publishing Ltd. canada-stockwatch.com
|
