For those who do not read the G&M:
ASC looks to unplug Internet 'stock exchange'
Saturday, October 10, 1998
RICHARD BLACKWELL
The Globe and Mail
Alberta securities regulators are trying to close down an Internet site they say is acting as a pseudo stock exchange, accepting listings and selling shares to people around the world.
The site, originally based on a computer in Edmonton but now offshore, solicits companies that want to have their shares listed electronically on the "World Stock Exchange." Investors would then use the Web site to buy and sell the shares.
The Alberta Securities Commission (ASC), which will set a hearing date for the case on Oct. 22, said this is one of the first Internet cases to be taken to a formal hearing before a Canadian regulator.
But it won't be the last, as Internet securities fraud is expected to proliferate. Canadian securities regulators are so worried about it that their national body, the Canadian Securities Administrators, has set up a special Internet committee to deal with the problem.
The ASC first went after the World Stock Exchange site and its alleged creators, Thomas Kim Seto and Orest Rusnak, last November.
The site's designers were asked to remove the pages from the Internet, because the World Stock Exchange had not applied to the commission to be recognized as an exchange.
The designers complied, but then the Web site reappeared, based at an Internet service provider in the Cayman Islands, according to the ASC. The commission was still unhappy, because the promoters continued to talk to Alberta companies about listing on the exchange. And because none of the companies that appeared on the Web site had filed a prospectus, any share purchases by Albertans were illegal, the ASC said.
"We don't want them, at least in this jurisdiction, inviting people to list and to sell the securities outside of our requirements for reporting issuer status," said Charles Blakey, director of market standards at the ASC.
The World Stock Exchange outlines listing fees ranging from $5,000 (U.S.) to $20,000, depending on the size of the firm.
The site was moved from the Cayman Islands in March, the ASC said, because authorities were worried that it would be mistaken for the Cayman stock exchange. The site's next stop was a service provider in Antigua and Barbuda.
"They've been picking places that aren't well known for co-operating with securities regulators," Mr. Blakey said.
The World Stock Exchange's Web site includes a photograph of a certificate that suggests it is still incorporated in the Cayman Islands. Of the eight companies the site lists as "being considered for listing," five are described as having subsidiaries or operations in Canada.
One of the Canadian firms on the list is B.C. gold miner Big Valley Resources Inc., a company that is already listed on the Alberta Stock Exchange. The site says the firm "is interested in the added exposure to investors that the World Stock Exchange can offer."
Big Valley Resources director John Enns, who also handles investor relations for the firm, said in an interview yesterday that he has never heard of the World Stock Exchange. "We've been with [the Alberta exchange] for 13½ years and we have a good reputation with them. Why would we go with something like this?"
According to a brief description on the site, one of the non-Canadian firms listed plans to raise capital to organize a national lottery in Russia.
A disclaimer on one of the site's pages says, "to ensure that there will be no infringement on any securities laws of any other jurisdiction, all transactions of the World Stock Exchange must be concluded offshore."
If the site's alleged designers don't agree to shut down their Web page permanently, the ASC can order them to kill it, take away their right to trade securities and prevent them from serving as directors and officers of companies. It can also force them to pay the costs of the investigation. The ASC can take action against the individuals, but it's not clear what the commission can do against the site itself if it's located offshore.
If they still persist in running the site, Mr. Blakey said, they will be taken to provincial court.
Securities commissions may become much busier with Internet-related cases in the months to come. Mr. Blakey said all provincial securities regulators are investigating cases, some as blatant as a situation in British Columbia where a brokerage's Web site was duplicated, but the name was changed and investors were invited to open accounts and send money to a different address.
Chris Mathers, president of KPMG Corporate Intelligence Inc. and a former RCMP officer, has described the Internet as "the greatest place to perpetuate a securities fraud."
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