British Columbia Securities Commission (BCSC)
Thursday, August 06, 1998
BCSC Re Cartaway Resources Corp. Notice of Hearing
BRITISH COLUMBIA SECURITIES COMMISSION ("BCSC,BCSOB,SOB") CARTAWAY RESOURCES
CORP ("CWA-Y") - BCSC Re Cartaway Resources Corp. Notice of Hearing IN THE MATTER OF THE
SECURITIES ACT R.S.B.C. 1996, c. 418 AND IN THE MATTER OF CARTAWAY RESOURCES
CORPORATION AND IN THE MATTER OF ROBERT ARTHUR HARTVIKSON, BLAYNE BARRY
JOHNSON, ROBERT JAMES DISBROW, ERIC SAVICS, DAVID MACKENZIE LYALL, CHRISTOPHER
MICHAEL STUART AND FIRST MARATHON SECURITIES LIMITED Notice of Hearing Under Section
161
1.
TAKE NOTICE that a hearing will be held at the 7th Floor Hearing Room, 865 Hornby Street, Vancouver,
British Columbia, at a date to be determined (the "Hearing") to give Robert Arthur Hartvikson, Blayne
Barry Johnson, Robert James Disbrow, Eric Savics, David MacKenzie Lyall, Christopher Michael Stuart
and First Marathon Securities Limited (collectively referred to as the "Respondents") an opportunity to
be heard before the British Columbia Securities Commission (the "Commission"). At the Hearing the
Commission will be asked by the Staff of the Commission to make the following orders in the public
interest:
1.1
any or all of the exemptions described in sections 44 to 47, 74, 75, 98 or 99 of the Securities Act,
R.S.B.C. 1996, c. 418 (the "Act") do not apply to Hartvikson, Johnson and Stuart, pursuant to section
161(l)(c) of the Act;
1.2
Hartvikson, Johnson, Stuart and Disbrow resign any position that they hold as a director or officer of any
issuer, pursuant to section 161(l)(d) of the Act;
1.3
Hartvikson, Johnson, Stuart and Disbrow be prohibited from becoming or acting as a director or officer of
any issuer, pursuant to section 161(l)(d) of the Act;
1.4
Hartvikson, Johnson and Stuart be prohibited from engaging in investor relations activities, pursuant to
section 161(l)(d) of the Act;
1.5
First Marathon Securities Limited ("FMSL"), Lyall, Savics, and Disbrow be reprimanded and conditions
be unposed upon their registration;
1.6
the Respondents pay administrative penalties, pursuant to section 162 of the Act;
1.7
an application be made to the Supreme Court of British Columbia for an order that the Respondents pay
into the consolidated revenue fund:
1.7.1 any moneys obtained by the Respondents directly or indirectly as a result of their failure to comply
with the Act; and
1.7.2 the amount of any payments or losses avoided by the Respondents directly or indirectly as a
result of their failure to comply with the Act;
under section 157(l)(b) of the Act;
1.8
each of the Respondents pay the prescribed fees or charges for the costs of or related to the Hearing,
pursuant to section 174 of the Act; and
1.9
such further and other relief as the Commission considers appropriate in the circumstances;
2.
AND TAKE NOTICE that the Commission shall be asked to consider the following facts and allegations
in making its determinations:
Introduction
2.1
Cartaway Resources Corporation ("Cartaway") is a company incorporated under the laws of the Province
of Alberta, under the name Cambridge Ventures Corporation on June 5, 1986. It changed its name to
Cartaway Container Corporation on September 29, 1989, and was registered extra-provincially in British
Columbia on July 25, 1995. It changed its name to Cartaway Resources Corporation on July 29, 1996.
Cartaway was at all material times a reporting issuer in Alberta trading on the Alberta Stock Exchange,
and became a reporting issuer in British Columbia on November 3, 1995;
2.2
by an agreement in writing dated September 1, 1994, Larry Birchall, Stuart, Hartvikson, Johnson, Lyall,
Savics, Matt Aufricht and Charles Fraser acquired a controlling interest in Cartaway through the
purchase of 45.5% of the issued and outstanding shares of Cartaway for $0.10 per share. The resulting
shareholding is set out below:
Purchaser Shares Purchased Cost Percent of
Total Shares
Outstanding
Michael Stuart and Family 490,000 $49,000 7.6
Charles Fraser and Family 245,000 $24,500 3.8
Larry Birchall and Family 490,000 $49,000 7.6
MattAufricht 245,000 $24,500 3.8
Rob Hartvikson 370,000 $37,000 5.7
Blayne Johnson 370,000 $37,000 5.7
David Lyall 370,000 $37,000 5.7
EricSavics 370,000 $37,000 5.7
Total: 2,950,000 45.5
Total Outstanding Shares 6,483,079 100.0
2.3
during the period from September 1, 1994, to at least May 12, 1995, Birchall, Stuart, Hartvikson,
Johnson, Lyall, Savics, Aufricht and Fraser acted in concert with respect to the control of Cartaway and
were each control persons of Cartaway for the purposes of the Act;
2.4
the purchasers referred to in paragraph 2.2 bought a controlling interest in Cartaway with the intention of
using Cartaway as the vehicle for some potential business venture;
2.5
Birchall, Stuart, Aufricht, and Fraser were employed at all material times by FMSL, in its Calgary office,
and were at all material times registered under the Securities Act (Alberta);
2.6
FMSL is an investment dealer registered pursuant to the Act and it has its head office in Ontario, and is
a member of the VSE, ASE, and the TSE;
2.7
Hartvikson, Johnson, Lyall and Savics were employed at all material times by FMSL, in its Vancouver
office, and were registrants under the Act;
2.8
Disbrow was the Branch Manager of FMSL in Vancouver, and was a director and a Vice-Chairman of
FMSL. He was at all material times the person who had the responsibility of supervising the FMSL
employees in the Vancouver office;
2.9
Stuart was at all material times a vice president of corporate finance of FMSL in Calgary and became
president, director and secretary of Cartaway on October 17, 1994;
Private Placement
2.10 on April 19, 1995, Cartaway issued a press release announcing a brokered private placement of up
to seven million (7,000,000) units of Cartaway securities priced at $0.125 per unit, each unit consisting
of one common share and one share purchase warrant entitling the holder to purchase an additional
common share at $0.20 for a period of two years from closing (the "Private Placement"). The Private
Placement was to close on May 5, 1995. The stated purpose of the financing was to raise up to
$875,000.00 to expand Cartaway's operations into new business ventures;
2.11 FMSL acted as agent for the Private Placement, pursuant to a written agreement dated May 5,
1995, between FMSL and Cartaway. Stuart signed the agreement for both contracting parties;
2.12 the Private Placement closed on May 5, 1995, and was fully subscribed. The purchasers of the
Private Placement were as follows:
Purchaser Number of Shares Percentage of Offering
Purchased
David Lyall 1,180,000 16.9
Rob Harvikson 1,104,000 15.8
Eric Savics 1,180,000 16.9
Blayne Johnson 1,182,000 16.9
Birchall Family 500,000 7.1
Stuart Family 500,000 7.1
Charles Fraser 80,000 1.1
Aufricht Family 16,000 0.2
Canaccord Capital Corp. 800,000 11.4
Other employees from
Calgary FMSL office 224,000 3.2
Others 234,000 3.4
Total: 7,000,000 100%
2.13 at the conclusion of the Private Placement, FMSL employees and their families owned
approximately 66% of the issued and outstanding common shares of Cartaway;
Purchase of Claims
2.14 in or about September, 1993, Diamond Fields Resources Inc. discovered a nickel, cobalt and
copper deposit in Voisey's Bay in Labrador. A staking rush in the area resulted in early 1995, including
March, April, May, 1995. The Hunter Group, a B.C.-based mining exploration group, participated in the
staking rush and staked 1,102 claims (the "Kogaluk claims"), on or about April 3, 1995;
2.15 on or about April 5, 1995, Hartvikson and Johnson met with representatives of the Hunter Group to
discuss buying the Kogaluk claims. On or about April 8, 1995, Hartvikson and Johnson agreed to buy
the Kogaluk claims from the Hunter Group;
2.16 Hartvikson and Johnson agreed to purchase the Kogaluk claims with the intention that the claims
would be acquired by Cartaway;
2.17 prior to April 18, 1995, Hartvikson and Johnson, after consulting Stuart, decided to vest ownership
of the Kogaluk claims in a private company, until such time as it was expedient to transfer them to
Cartaway;
2.18 on or about April 18, 1995, Hartvikson and Johnson acquired a shelf company, 489895 B.C. Ltd.
("489895"), incorporated on February 1, 1995, by Maitland and Company, a law firm in Vancouver;
2.19 Stuart Bethune ("Bethune"), a friend of Johnson who was unfamiliar with the mining business, was
appointed as the sole director and shareholder of 489895. Johnson and Hartvikson directed all of
489895's affairs, and Bethune served merely as their nominee;
2.20 between April 9 and 12, 1995, the Hunter Group staked more properties in Labrador and presented
those claims to Hartvikson and Johnson. These additional claims, along with the Kogaluk claims, were
subsequently acquired, through 489895, for Cartaway, on the basis of cash payments and commitments
to deliver shares of an issuer identified as "Pubco", which was always intended to be Cartaway;
2.21
the acquisition by Cartaway of the mineral claims held on its behalf by 489895 was deferred by
Hartvikson, Johnson and Stuart until after the completion of the Private Placement, in order to allow
Hartvikson, Johnson, Stuart and the other participants in the Private Placement to benefit from the lower
price for the units issued before disclosure of the acquisition of the claims;
2.22 Cartaway did not disclose to the ASE or otherwise, prior to the completion of the Private
Placement, that Hartvikson and Johnson had acquired the mineral claims through 489895 nor that the
claims were shortly to be transferred to Cartaway. On April 19, 1995, the ASE accepted the price for the
Private Placement of $0.125 per unit;
Sale to Canaccord Capital Corporation
2.23 in or about mid to late April, 1995, Savics and Johnson, on behalf of Cartaway and FMSL, met with
Peter Brown, the Chairman of Canaccord Capital Corporation, to encourage him to have Canaccord
purchase 800,000 units of Cartaway, pursuant to the Private Placement, which Canaccord did buy. To
promote the purchase, Savics and Johnson represented to Brown that Cartaway would become a mining
company, focused on the Voisey's Bay area;
Trading Halt
2.24 on or about May 12, 1995, trading in the shares of Cartaway was halted on the ASE at the request
of the company, pending an announcement;
2.25 trading in the shares of Cartaway did not resume until July 4,1995;
2.26 During the period of the trading halt:
2.26.1 Cartaway engaged in a distribution by way of an offering memorandum dated June 23, 1995, (the
"Offering Memorandum") of 4,000,000 special warrants at $1 per share for Series A warrants and $1.50
per share for Series B warrants.
The Offering Memorandum was filed with the Commission and the offering completed on July II, 1995;
2.26.2 FMSL acted as underwriter for the distribution;
2.26.3 on June 29, 1995, Cartaway issued a press release disclosing that John Ivany had joined the
company as President and a director and Walter Nash had joined as Vice President in charge of
exploration and as a director. Stuart resigned as President but remained a director; and
2.26.4 on June 29, 1995, Cartaway announced the acquisition of a number of mining claims, including
the Kogaluk claims, and others, and a change in business direction for Cartaway into mining;
Trading in Cartaway in April and May 1996
2.27 on April 30, 1996, Cartaway issued a press release disclosing the commencement of drilling on
property known as the Cirque property in Voisey's Bay. On that day, the closing share price for
Cartaway was $3.76;
2.28
on May 8, 1996, Cartaway issued a press release disclosing that significant mineralization had been
encountered in the first two drill holes on the Cirque property. The news release further disclosed that
the mineralization included significant visible chalcopyrite, which is a copper indicator. In the five trading
days after May 8, Cartaway's share price increased to $13.90;
2.29 on May 16, 1996, Cartaway issued a further press release disclosing visual results from the third
drill hole on the Cirque property, giving a percentage estimate for chalcopyrite and stating that
pentlandite, a nickel indicator, had been encountered. Cartaway's share price peaked at $26.00 and
closed at $23.00 on that date;
2.30 on May 17, 1996, Cartaway issued a press release disclosing assay results for the Cirque property
drill holes that did not support the earlier indications of mineralization. The heavy trading volume that
followed the press release caused a system failure at the ASE and trading did not reopen in Cartaway's
shares until May 21, 1996. By the close of business on May 21, 1996, the common shares of Cartaway
were trading at a price of $2.78;
The Allegations Against the Respondents are as follows:
Breaches of the Public Interest
2.31
based on the facts as alleged, the Respondents committed breaches of the public interest as follows:
2.31.1
by buying control of Cartaway and continuing thereafter to act as brokers and agents in the sale of
Cartaway's shares, Hartvikson, Johnson, Lyall and Savics put themselves in a position where their
interests were in conflict with their duties to their clients and to Cartaway. They did nothing to resolve
the conflicts, but, rather, acted in their own interests and not in the best interests of their clients and
Cartaway;
2.31.2
by purchasing their shares in the Private Placement prior to disclosing the acquisition of the mineral
claims as alleged, and then selling shares to their clients at higher prices after disclosure of the
acquisition, Hartvikson and Johnson transferred much if not all of the risk of investing in Cartaway from
the participants in the Private Placement to their clients, and ensured that they and not their clients
would have the opportunity of earning the largest return from investing in Cartaway;
2.31.3
the Private Placement allowed the participants in it to acquire many shares at a low price prior to
disclosing acquisition of the mineral claims. Cartaway could have issued shares upon disclosure of the
acquisition of the mineral claims at a higher price per share, thereby avoiding diluting the interests of the
then present shareholders unnecessarily. In so arranging the Private Placement, Harvikson, Johnson,
and Stuart acted in their own interests to the exclusion of duties owed to Cartaway;
2.31.4
Stuart, as a director and promoter of Cartaway, facilitated the scheme which led to the conflicts of
interest described above;
2.31.5
FMSL, as broker of the Private Placement and underwriter of the Offering Memorandum, and as
employer of the control persons, directors, and the President of Cartaway, put itself in a position where
its interests were in conflict with the duty it owed to Cartaway and its other clients. It did not take any or
any reasonable steps to ensure that the interests of Cartaway and its other clients were adequately
protected;
2.31.6 as registrants, and as employees of FMSL, Hartvikson and Johnson had a duty in their capacity
as gatekeepers in the financial industry to refuse to engage in transactions which would tend to bring
the integrity of the capital markets into disrepute. This they failed to do, and instead acted in their own
financial interests;
2.31.7 as registrants and gatekeepers, Lyall, Savics, and Disbrow, once they learned of the facts in this
matter, should have refused to cooperate and should not have participated in the scheme, but failed to
do so;
2.31.8 Harvikson, Johnson, Lyall, Savics and FMSL, by their actions as set out, breached VSE Rule
F.2.08 and F.2.10, and By-law 29 of the Investment Dealers Association;
Breach of Conflict of Interest Rules
2.32 Cartaway had a relationship with FMSL and with Stuart, Disbrow and Savics, who were related
parties of FMSL, such that a reasonable prospective purchaser would question whether FMSL and
Cartaway were independent of each other. In the premises, Cartaway and FMSL were connected
parties, within the meaning of section 75 of the Securities Rules, B.C. Reg. 194/97, (the "Rules"):
2.32.1 FMSL acted as an underwriter for Cartaway in connection with the initial distribution of securities
pursuant to the Offering Memorandum. The securities were issued without a prospectus or other
document containing the disclosure required by Division II of the Rules, even though FMSL and
Cartaway were at all material times connected parties, in breach of section 78 of the Rules;
2.32.2 FMSL traded in securities of Cartaway, a connected party of FMSL, issued in the course of an
initial distribution, without disclosing, orally or otherwise, substantially all the information required by
section 77(1) and (3)(a), in breach of section 79 of the Rules;
2.32.3 FMSL did not disclose in the written confirmation of the transaction required by section 36 of the
Rules that the security was being issued by a connected party of FMSL, and FMSL thereby failed to
comply with the requirements of section 80(l)(a) of the Rules in connection with the initial distribution
pursuant to the Offering Memorandum;
2.32.4 FMSL acted as an adviser in respect of an initial distribution of securities issued by Cartaway, a
connected party of FMSL, without disclosing the relationship between FMSL and Cartaway in breach of
section 81(l)(a) of the Rules;
Redistributing the Private Placement
2.33 in the course of investing in Cartaway through the Private Placement, the participants in the Private
Placement caused, or acquiesced in, Cartaway relying upon the exemptions contained in section
74(2)(4) of the Act, and section 129(1) of the Rules, which requires, first, that the purchaser purchase as
principal, and, second, that the trade must have an aggregate cost to the purchaser of not less than
$97,000;
2.33.1 Hartvikson, Johnson, Lyall, and Savics, having purchased the shares, then redistributed some of
these shares to other FMSL employees without the benefit of an exemption or a prospectus, in breach
of section 61 of the Act; and
2.33.2 Hartvikson, Johnson, Lyall and Savics did not purchase the shares as participants, in breach of
section 61 of the Act;
2.33.3 Disbrow, who was the branch manager of FMSL in Vancouver, was aware of the redistribution
and did not prevent it, but rather encouraged it and participated in it;
Failure to Supervise
2.34 Disbrow failed to supervise Hartvikson, Johnson, Lyall, and Savics properly or at all, in breach of
section 66 of the Rules;
2.35 FMSL failed to supervise its employees properly or at all, and failed to put in place proper business
procedures to ensure proper supervision of its employees, in breach of its duties and the public interest
set out in sections 44(1) and 47 of the Rules, and in breach of IDA Reg. 1300 and VSE Rule F.1.01;
Full-Time Employment
2.36
section 63 of the Rules requires that a salesperson registered under the Act must be employed full time
as a salesperson;
2.36.1 by promoting Cartaway and engaging in its business, Hartvikson and Johnson were not employed
full-time with FMSL, in breach of section 63 of the Rules, VSE Rule F.2.21 and IDA By-law 18.5;
2.37 the Offering Memorandum:
2.37.1 failed to disclose, as required by item 13 of Form 43, that Hartvikson and Johnson were
promoters of Cartaway; and
2.37.2 failed to disclose existing and potential conflicts of interest among Cartaway, FMSL, Hartvikson,
Johnson and other FMSL employees, as required by item 14 of Form 43;
Lack of Disclosure
2.38 as a result, the Offering Memorandum was false and misleading and not in the required form, in
breach of section 133 of the Rules;
2.38.1 because the Offering Memorandum was not in the proper form, the distribution of shares was
illegal and in breach of section 61 of the Act;
2.38.2 Hartvikson, Johnson, Lyall and Disbrow sold shares of Cartaway to their clients knowing of the
deficiencies of the Offering Memorandum and participated in the illegal distribution of those shares
contrary to section 61 of the Act;
2.38.3 Stuart, as a director of Cartaway, failed to ensure that the Offering Memorandum was in proper
form and thereby participated in an illegal distribution of those shares, contrary to section 61 of the Act;
Misrepresentations
2.39 Johnson made statements in evidence given under the Act, which were misrepresentations under
section 155(l)(a) of the Act as follows:
2.39.1 in the course of his initial interview in this matter held on February 28, 1997, Johnson stated that
he had no contact with the Hunter Group until after the Private Placement closed and he denied any
knowledge of 489895, which was untrue;
2.39.2
in the course of his second interview held on September 26, 1997, Johnson stated that he did have
contact with the Hunter Group prior to the closing of the Private Placement, but that the mineral claims
offered by the Hunter Group were purchased by 489895 for the benefit of Hartvikson and Johnson and
not for Cartaway, which was untrue; and
2.39.3
also in the course of his second interview, Johnson stated that he did not contact Stuart about the
claims until May, 1995, which was untrue; and
2.40 Hartvikson made statements in evidence given under the Act which were misrepresentations under
section 155(l)(a) of the Act as follows:
2.40.1 in the course of his first interview on February 28, 1997, Hartvikson stated that his first contact
with the Hunter Group was in late April, 1995, which was untrue;
2.40.2 in the course of his second interview on September 26, 1997, Hartvikson stated that he did have
contact with the Hunter Group prior to the closing of the Private Placement, but that the mineral claims
offered by the Hunter Group were purchased by 489895 for the benefit of Hartvikson and Johnson and
not for Cartaway, which was untrue; and
2.40.3 also in the course of his second interview, Hartvikson stated that Cartaway was only one of a
number of options that he and Johnson considered to purchase the claims, from 489895, which was
untrue;
3.
AND TAKE NOTICE that the Respondents or their counsel are required to attend at the 7th Floor
Hearing Room, 865 Hornby Street, Vancouver, British Columbia, on August 21, 1998, at 10:00 a.m., if
they wish to be heard before the Commission fixes a date for the Hearing;
4.
AND TAKE NOTICE that determinations may be made in this matter if the Respondents or their counsel
do not appear at the Hearing; DATED at Vancouver, British Columbia, on July 17, 1998. Michael J.
Watson A/Executive Director TEL: (604) 899-6500 British Columbia Securities Commission FAX: (604)
899-6506 REF: Cartaway Resources Corp |
