***NEWS RELEASE***
Regulatory news awaited
Cartaway Resources Corporation CWA
Shares issued 37,914,563 Jul 17 close $0.12
Fri 17 Jul 98 Street Wire.
See First Marathon Inc (FMS.A) Street Wire.
PROSPECT OF SPEEDY SETTLEMENT MURKY
by Brent Mudry
The Cartaway stock trading scandal of 1996 and an internal compliance
controversy dating back to 1992 are returning to plague Lawrence
Bloomberg's First Marathon Securities; news of regulatory proceedings is
expected on Monday morning. First Marathon shares were halted Friday,
pending news. The stock last traded at $24, down 65 cents, after trading as
low as $23.55 on light volume.
The existence of final negotiations and the prospect of a speedy
resolution, however, depend on who you talk to. "Our hope is that we will
reach a resolution quickly," First Marathon spokesman Michael Walsh, v-p of
corporate administration, said in an interview. Mr Walsh notes the
Toronto-based brokerage hopes to reach a resolution with regulators on
Monday. "We chose the word resolution on purpose, because we are seeking a
final resolution on the matter," says Mr Walsh.
The true potential of a weekend settlement appears unlikely. The Toronto
and Alberta stock exchanges are expected to release a joint announcement
Monday morning. ASE compliance official Patti Johnson confirms the final
draft of the press release has already been prepared, and it should be
released about 8:30 a.m. Calgary time, or 10:30 a.m. Toronto time. The
announcement will likely signal the start, not the end, of formal
regulatory proceedings concerning First Marathon. "The press release will
just outline what we are doing," says Ms Johnson. "The announcement will
not be a 'result,' just what we are doing," the regulator confirms.
The status or existence of final negotiations also depends on who you talk
to. "We are in discussions. . . we are negotiating right now," Mr Walsh
told a reporter Friday afternoon, reiterating his position stated in a
press release issued earlier. "The company hopes to conclude these
negotiations as quickly as possible," stated the release. In a second call,
Mr Walsh confirmed the settlement talks are continuing, referring to "the
discussions now going on." Ms Johnson of the ASE offers a different view.
When asked about the status of the negotiations, her answer was simple and
blunt: "They haven't even started yet." The TSE declines to offer any
comment on the First Marathon affair. "All I am able to do is confirm the
press release issued by First Marathon today. . . I have nothing further to
comment," says exchange spokesman Steve Kee.
The regulatory interest focuses on two main contoversies: the Cartaway
scandal, probed by the ASE, and First Marathon's internal compliance,
probed by the TSE. Mr Walsh notes the brokerage outlined the cases in a
statement issued September 12, 1996. First Marathon largely exonerated
itself and its employees in a report it prepared on the Cartaway fiasco,
claiming there was "no evidence of market manipulation." The internal
review also found a "limited" number of regulatory and internal compliance
policy breaches, but concluded these were all "inadvertent."
The September, 1996, release also revealed that the TSE had notified First
Marathon, chief executive Mr Bloomberg and Stuart Henry, Mr Walsh's
predecessor, that it had initiated proceedings against them centering on
compliance and operational matters dating from 1992 to 1996. The TSE
alleges that Mr Henry, who headed the firm's compliance department, failed
to carry out his compliance duties and responsibilities. The exchange also
alleged that Mr Bloomberg and Mr Henry failed to make sure the brokerage
honoured promises made to the TSE to implement steps to clean up compliance
problems. "First Marathon is committed to the highest standards of
excellence and integrity in the investment business," Mr Walsh stated in
the release.
The current regulatory climax comes more than two years after the
controversial rise and fall of Cartaway Resources on the Alberta Stock
Exchange in May, 1996. The "Vancouver Five," a quintet of brokers at First
Marathon's Vancouver office including Bob Disbrow and Eric Savics,
co-founders of the brokerage, were key early-stage backers of a number of
profitable Vancouver Stock Exchange promotions for more than four years.
The group, except for Mr Disbrow, set up Cartaway, an Alberta Stock
Exchange listed company, and bought most of its seed shares at ten cents to
12 cents. Of the seven million seed units, Mr Savics, David Lyall, Blayne
Johnson and Rob Hartvikson acquired 4.6 million units. Another 800,000
units were acquired by Canaccord Capital, the largest dealer of VSE stocks.
<P> The Vancouver quartet, sans Mr Disbrow, were joined by First Marathon
colleagues Michael Stuart and Larry Birchall in Calgary, Richard Hallisey
in Toronto and Matt Aufricht in Vancouver. This octet, the "Cartaway Eight"
allegedly operated a de-facto but undisclosed control position.
California newsletter writer John Kaiser of the Kaiser Bottom-Fishing Guide
provided an early warning in August, 1995, grousing about the structuring
of the deal by the Cartaway Eight team of First Marathon brokers. The
controversial promotion subsequently sprang to national attention the next
spring, in May, 1996. The stock enjoyed a meteoric rise on eyeball results
from Cartaway's Voisey's Bay property, soaring from $2 to $23 in late May.
The stock plummeted from $20.22 to $2.78 in a single day of trading after
company geologists had a closer look at the real assays.
Mr Stuart, a First Marathon vice-president who served as a Cartaway
promoter on the side, made an estimated $1.7-million profit by selling
190,000 shares days before the negative results cratered the stock. Mr
Stuart revealed his trading in insider filings, but First Marathon has
declined to reveal the personal trading of the rest of the Cartaway Eight.
In the aftermath of the Cartaway fiasco, various probes were launched and
the Toronto, Alberta, Vancouver and Montreal stock exchanges, in
conjunction with the Investment Dealers Association of Canada, set up a
conflict-of-interest committee to examine the affair. The debacle also led
to much unfavourable publicity for First Marathon, as nicknames like "First
Cartaway" and "First Me" swirled for a while.
None of the Vancouver Four of First Marathon's Cartaway Eight could be
reached for comment on Friday. Two of the quartet, Mr Hartvikson and Mr
Johnson, voluntarily took early retirement from the industry four months
after the Cartaway affair and set up shop on their own as private
investors. The pair note they were cleared and vindicated by First
Marathon's internal review, and they felt it was a good time for a career
change. "I want to be a protected sheep instead of one of the wolves," Mr
Johnson told Stockwatch when he left the brokerage.
It remains unclear which First Marathon employees remain targets as the
regulatory matters reach a peak. Mr Walsh refused to offer any identities.
When asked for their names, or their number or which office they worked in,
the First Marathon spokesman repeatedly says: "I can't comment." "You are
asking me to disclose information that should be dealt with by the
regulators. . . it is not my prerogative. . . it is not appropriate for
me," says the brokerage spokesman. Mr Walsh also declined to eliminate Mr
Bloomberg's name from the list of targets. When asked if Mr Bloomberg was
not currently targeted, he replied "I did not say that." When asked if this
means Mr Bloomberg is indeed a target, he answered, "I can't comment on
that."
(c) Copyright 1998 Canjex Publishing Ltd. canada-stockwatch.com
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