Here's a news item. Looked like a decisive drop to current levels in
the last few days. How many companies have pulled out of this kind of
tailspin? It's getting to the point (did I hear Stephen Stills - I
have to stop posting when I am this tired) where only the most brutal
of rollbacks can make things look real. Recently these CWA PR's have
been long enough to elicit headaches. You need to rent an Imax theatre
to read this one.
Cartaway Resources Corporation
Thursday, August 13, 1998
ASC Re Cartaway and First Marathon Order
ALBERTA SECURITIES COMMISSION ("ALSC-Y") CARTAWAY RESOURCES CORP ("CWA-Y")
FIRST MARATHON SECURITIES LTD ("") - ASC Re Cartaway and First Marathon Order IN THE
MATTER OF the Alberta Securities Act (S.A. 1981, c. S-6.1, as amended) ("the Act") - and - IN THE
MATTER OF the General By-Law of The Alberta Stock Exchange -and- IN THE MATTER OF Cartaway
Resources Corporation (formerly Cartaway Container Corporation), First Marathon Securities Limited,
John Ivany, Christopher Michael Stuart, William DeJong, Charles Mitchell, Hugh Mogenson, Walter
Nash, Robert Arthur Hartvikson and Blayne Barry Johnson (collectively, "the Respondents") O R D E R
(in respect of First Marathon Securities Limited)
1
WHEREAS:
1.1
On July 20, 1998, the Staff ("Staff") of the Alberta Securities Commission ("ASC") issued a Notice of
Hearing ("Notice") seeking an order against the Respondents pursuant to sections 165 and 167.1 of the
Act;
1.2
one of the Respondents, First Marathon Securities Limited ("FMSL"), has entered into a settlement
agreement and undertaking ("Settlement Agreement") with Staff dated July 23, 1998, a true copy of
which is attached as Appendix "1" to this Order, which sets out, inter alia:
1.2.1
a recommendation by Staff and a consent by FMSL that all proceedings against FMSL based on the
matters giving rise to the allegations set forth in the Notice of Hearing be resolved and disposed of on
the basis of the terms and conditions provided therein; and
1.2.2
that FMSL consents to the making of this Order against it as provided for in the Settlement Agreement;
1.3
the ASC has considered the contents of the Settlement Agreement; and,
1.4
the ASC has concluded that it is in the public interest to make the following Order;
2
IT IS HEREBY ORDERED THAT:
2.1
The Settlement Agreement, a true copy of which is attached as Appendix "1", be approved; and,
3
IT IS HEREBY FURTHER ORDERED THAT:
3.1
FMSL, in the future, comply with the Act, the regulations and rules under the Act and the General
By-Law of The Alberta Stock Exchange, and continue to be vigilant in its affairs concerning compliance
matters required by all self-regulatory organizations which have jurisdiction over FMSL; and,
3.2
FMSL pay the following amounts:
3.2.1
$200,000 to the ASC in trust to be used for the education of the general public of Alberta concerning
investment in the capital markets; and
3.2.2
$50,000 to the ASC in reimbursement of its costs of the investigation and related proceedings in this
matter. Dated at the City of Calgary
(original signed by) in the Province of Alberta
William L. Hess, Q.C., Chair
this 30th day of July, 1998
(original signed by)
John W. Cranston, Member
APPENDIX 1 -
SETTLEMENT AGREEMENT
IN THE MATTER OF the Alberta Securities Act
(S.A. 1981, c. S-6.1, as amended) ("the Act")
- and -
IN THE MATTER OF the General By-Law of The Alberta Stock Exchange
-and-
IN THE MATTER OF Cartaway Resources Corporation (formerly
Cartaway Container Corporation), First Marathon Securities Limited,
John Ivany, Christopher Michael Stuart, William DeJong, Charles
Mitchell, Hugh Mogenson, Walter Nash, Robert Arthur Hartvikson and
Blayne Barry Johnson
(collectively, "the Respondents")
SETTLEMENT AGREEMENT WITH THE RESPONDENT
FIRST MARATHON SECURITIES LIMITED
I.
INTRODUCTION
1.
By Notice of Hearing issued July 20, 1998, each of the Alberta Securities Commission ("ASC"), British
Columbia Securities Commission ("BCSC") and Toronto Stock Exchange ("TSE") announced its
intention to hold a hearing into allegations of breaches of its respective securities legislation and Stock
Exchange By-Laws by a number of respondents. First Marathon Securities Limited ("FMSL") was
named as a Respondent in each of the three Notices of Hearing. FMSL is a registrant within the
meaning of section 1(s.1) of the Act, an investment dealer within the meaning of the British Columbia
Securities Act and a member of the TSE. Each of the three Notices of Hearing contained allegations
against FMSL of breaches arising from the relationship between FMSL (and its employees) and the
Respondent Cartaway Resources Corporation ("Cartaway").
2.
In the TSE Notice of Hearing, seven of the fifteen allegations against FMSL concerned FMSL's
relationship with Cartaway and, in summary, alleged conduct unbecoming a member of the TSE by
failing to supervise its officers, directors and employees, failing to maintain required records and failing
to identify issues in the relationship with Cartaway and respond appropriately. The TSE and FMSL
announced on July 20, 1998, that an agreement had been reached to settle all issues between the TSE
and FMSL, and between the TSE and certain of FMSL's employees. The final terms of that agreement
must be ratified by a TSE hearing panel.
3.
In the BCSC Notice of Hearing, the allegations against FMSL all related to its relationship with Cartaway
and were allegations of acting contrary to the public interest, breaching conflict of interest rules and
failing to supervise its employees. The return date for the BCSC Notice of Hearing is August 21, 1998.
4.
In the ASC Notice of Hearing, the Staff of the ASC ("Staff") announced that it was seeking a hearing
pursuant to section 165 of the Securities Act, S.A. 1981, c. S-6.1, as amended ("the Act"), to consider:
a.
whether, pursuant to subsection 165(1)(a) of the Act, the Commission should order that the
Respondents cease trading in all securities as defined in the Act;
b.
whether, pursuant to subsection 165(1)(c) of the Act, the Commission should order that any or all of the
exemptions contained in sections 65, 66, 66.1, 107, 115, 116, 132, and 133 of the Act or in the Alberta
Securities Commission rules under the Act (the "rules") shall not apply to the Respondents;
c.
whether, pursuant to subsections 165(1)(d) and 165(1)(e), the Commission should order that any of the
Respondents resign from any positions that each may hold as a director or officer of any issuer, and be
prohibited from becoming or acting as a director or officer or both of any issuer;
d.
whether, pursuant to subsection 56(1), the Commission should suspend, cancel, restrict or impose
terms or conditions or both on the registration of any of the registrant Respondents, or reprimand any of
the registrant Respondents; and,
e.
such further or other order, ruling or decision as the Commission considers appropriate.
5.
Staff and the Respondent FMSL have agreed to a full and final settlement to resolve the allegations and
proceedings in this matter against FMSL on the basis of the terms and conditions set out in this
Settlement Agreement, subject to the approval of the ASC.
6.
Pursuant to this Settlement Agreement, Staff agrees to recommend to the ASC that all proceedings
against FMSL based on the matters giving rise to the allegations herein be resolved and disposed of on
the basis of the terms and conditions set out in this Agreement. FMSL consents to the terms of
settlement as provided in this Agreement.
II.
FACTUAL BACKGROUND
FMSL admits the following facts for the purpose of this hearing:
7.
On June 5, 1986, Cartaway Container Corporation was incorporated under the laws of Alberta. Its one
wholly owned subsidiary was incorporated in the province of British Columbia and carried on the
principal business activity of Cartaway, the leasing of residential garbage containers in and around
Kamloops, British Columbia. Cartaway was listed on The Alberta Stock Exchange ("ASE") with the
trading symbol, "CWA." Cartaway Container Corporation and its subsidiary amalgamated on August 15,
1996, under the name, "Cartaway Resources Corporation".
8.
Effective September 1, 1994, one non-registrant and eight registrants employed by FMSL, four in
Calgary, Alberta, four in Vancouver, British Columbia, acquired 46% of the issued shares of Cartaway at
10 cents a share.
9.
Matt Aufricht, Larry Birchall, Charles Fraser and the Respondent Christopher Michael Stuart ("Stuart")
were the registrants in the Calgary office. Stuart was the Branch Manager of the Calgary office from April
24, 1995, to October 7, 1996.
10.
David MacKenzie Lyall, Eric Savics and the Respondents Robert Arthur Hartvikson ("Hartvikson") and
Blayne Johnson ("Johnson") were the registrants in the Vancouver office.
11.
Charles A. Mitchell of Kamloops, British Columbia, a director of Cartaway since 1989, continued on as a
director. All other previous directors resigned and the Respondents William DeJong ("DeJong") and
Stuart became new directors, effective October 17, 1994. Stuart became President and Secretary April
28, 1995.
12.
Between April 15, 1995, and May 5, 1995, Cartaway completed a private placement of 7,000,000 shares
with special warrant attached, priced at $0.125 per unit. The Respondents Hartvikson, Johnson, Stuart,
Mitchell and DeJong were all purchasers of the special warrant distribution.
13.
In the spring of 1995, the Respondents Hartvikson, Johnson and Stuart pursued the acquisition of mining
claims in the Voisey's Bay area of Labrador, Newfoundland, on behalf of Cartaway, with a view to a
change in business direction into mining and exploration. By a share exchange agreement between
Cartaway and 489895 B.C. Ltd. executed June 7, 1995, the desired acquisition was accomplished and
on June 29, 1995, Cartaway announced its change in business direction into mining and exploration.
14.
On June 5, 1995, the Respondent John Ivany ("Ivany") became a director of Cartaway. On June 6, 1995,
Stuart resigned as President and Secretary but remained a director. Ivany was appointed President,
Secretary and Chief Executive Officer.
15.
On June 6, 1995, the Respondent Charles Mitchell ("Mitchell") resigned as a director and the
Respondent Hugh Mogenson ("Mogenson") became a director. The Respondent Walter Nash ("Nash")
was appointed Vice-President, Exploration, on June 6, 1995.
16.
Between June 29, 1995, and July 11, 1995, Cartaway traded in securities with 42 Alberta residents,
raising $655,000, where the trades were distributions, claiming reliance on section 107(1)(z)(v) of the
Act. In 13 of those cases, the exemption from the prospectus requirement contained in section
107(1)(z)(v) was improperly claimed. The 13 trades in question, which resulted in $175,500 being raised,
were made by FMSL registrants under the supervision of the Respondent Stuart. Therefore, FMSL,
having a duty to conduct its business in compliance with the relevant securities legislation,
a.
by aiding Cartaway to make a distribution in improper reliance on section 107(1)(z)(v), contravened
section 81 of the Act; and,
b.
by allowing its employees to make a distribution in improper reliance on section 107(1)(z)(v), failed
adequately to supervise the conduct of FMSL employees as required by sections 8.40 (now, 8.26) and
8.41 (now, 8.27) of the General By-Law of The Alberta Stock Exchange.
17.
Between May 1 and May 8, 1996, inclusive, FMSL conducted 239 pro trades of Cartaway stock, of
which 67, or 28%, were not designated as pro trades. Therefore, FMSL, by failing to designate pro
trades as such, contravened section 11.20 (now, 11.13) of the General By-Law of The Alberta Stock
Exchange.
18.
FMSL conducted an extensive internal review into the trading by its employees of Cartaway shares
during the period of July 1994 to May 1996. The report of that review, dated September 10, 1996, was
provided to Staff and to the other appropriate self-regulatory organizations, Exchanges and
Commissions.
19.
FMSL cooperated fully with the ASC and The Alberta Stock Exchange investigations of this matter.
20.
In June 1996, an independent committee of the FMSL Board of Directors, with independent counsel,
was constituted; its mandate was to examine the Cartaway matter. This committee is now a permanent
Board-level compliance committee and, accordingly, compliance is treated by FMSL as a matter of
corporate governance. The compliance committee's mandate includes the review and overseeing of all
compliance-related matters at FMSL, including a direct reporting relationship with the Vice President of
Compliance of FMSL.
21.
In October 1996, FMSL's compliance committee engaged a senior industry expert to conduct a
thorough independent review of compliance procedures at FMSL. The resulting report was submitted,
FMSL management acted on and responded to the report, and both the report and response were
submitted to the compliance committee, the Board of Directors and, in the fall of 1997, to the TSE,
Investment Dealers Association and Ontario Securities Commission.
22.
In August 1996, FMSL developed and implemented firm wide, first, on a trial basis and then,
permanently, new policies with respect to employee investments. The First Marathon Employee
Investment Policy was approved by FMSL's Board of Directors and, in September 1997, provided to the
TSE. The First Marathon Employee Investment Policy exceeds prevailing industry standards.
23.
Beginning in the fall of 1995, FMSL significantly strengthened its compliance department personnel,
retaining two former directors of compliance and registration of the TSE, as well as other experienced
compliance personnel.
24.
The TSE has recognized and endorsed the new FMSL compliance programme and procedures, which
the TSE has said reflect current "best practices" in the field, and has determined that additional
remedial steps to address shortcomings in FMSL's compliance programme are unnecessary.
III.
JOINT SUBMISSION OF STAFF AND FMSL
25.
The actions of FMSL as described in paragraphs 16 and 17 were contrary to the Act, the regulations,
the rules, the General By-Law of The Alberta Stock Exchange and the public interest.
IV.
TERMS OF SETTLEMENT
26.
FMSL undertakes to the ASC that it shall in the future comply with the Act, the regulations and rules
under the Act and the General By-Law of The Alberta Stock Exchange, and that it shall continue to be
vigilant in its affairs concerning compliance matters required by all self-regulatory organizations which
have jurisdiction over FMSL.
27.
FMSL agrees to pay the following amounts:
a.
$200,000 to the ASC in trust to be used for the education of the general public of Alberta concerning
investment in the capital markets; and,
b.
$50,000 to the ASC in reimbursement of its costs of the investigation and related proceedings in this
matter.
V.
STAFF COMMITMENT
28.
If the ASC accepts the Settlement Agreement, Staff will not initiate any complaints to the ASC or
request that the ASC hold a hearing or issue any order in respect of any conduct or alleged conduct of
FMSL in relation to any facts that have, to date, come to the attention of Staff pursuant to its
investigation in respect of this matter.
29.
If the ASC accepts the Settlement Agreement, Staff will not initiate any prosecutions or other
proceedings against FMSL in respect of any possible breaches of the Act in relation to any facts that
have, to date, come to the attention of Staff pursuant to its investigation in respect of this matter.
VI.
PROCEDURE FOR APPROVAL OF SETTLEMENT
30.
The approval of the settlement as set out in the Settlement Agreement shall be sought at a public
hearing before the ASC on Thursday, July 30, 1998, in accordance with the procedures described herein
and such further procedures which may be agreed upon by Staff and FMSL.
31.
If the Settlement Agreement is approved by the ASC, it will constitute the entirety of the evidence to be
submitted respecting FMSL in this matter, and FMSL agree to waive their rights to a full hearing and
appeal of this hearing.
32.
Staff and FMSL agree that, if the Settlement Agreement is approved, they will not make public
statements that are inconsistent with the Settlement Agreement.
33.
If the Settlement Agreement is not approved by the ASC:
(a)
Staff and FMSL will each be entitled to all available remedies and challenges, including proceeding to a
hearing of the allegations in the Notices of hearing and Statement of allegations, unaffected by this
Settlement Agreement or the settlement negotiations; and,
(b)
Staff and FMSL further agree that they will not raise in any proceeding the Settlement Agreement or the
negotiation or process of approval thereof as the basis for any remedies in or challenges to this
proceeding that may otherwise be available.
34.
If, prior to the approval of this settlement, there are new facts or issues of substantial concern, in the
view of Staff, regarding FMSL or the facts set out in Part II of the Settlement Agreement, Staff will be at
liberty to withdraw from the Settlement Agreement. Notice of such intention to withdraw will be provided
to FMSL in writing. In the event of such notice being given, the provisions of paragraph 33 will apply as if
the Settlement Agreement had not been approved in accordance with the procedures set out herein.
VII.
DISCLOSURE OF SETTLEMENT AGREEMENT
35.
The terms of the Settlement Agreement will be treated as confidential by all parties hereto until
presented to the ASC.
VIII.
ENTIRE AGREEMENT
36.
This Settlement Agreement constitutes the entire agreement between FMSL and Staff of the ASC and
replaces and supersedes all prior agreements pertaining thereto.
IX.
EXECUTION OF SETTLEMENT AGREEMENT
37.
The Settlement Agreement may be signed in one or more counterparts which together shall constitute a
binding agreement and a facsimile copy of any signature shall be as effective as an original signature.
Dated effective this
FIRST MARATHON SECURITIES LIMITED 23rd day of July, 1998.
By: __________________________________ ALBERTA SECURITIES COMMISSION By: (original
signed by)
David C. Linder, Executive Director TEL: (403) 427-5201
Alberta Securities Commission Ref: Cartaway Resources
First Marathon Securities
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