****Cartaway engineer seeks to avoid self incrimination****
Cartaway Resources Corporation CWA
Shares issued 37,914,563 Sep 15 close $0.075
Tue 15 Sept 98 Street Wire
Also First Marathon Inc (FMS.A)
by Brent Mudry
FIRST CARTAWAY BROKERS AND FAMILIES SOLD 3.4-MILLION SHARES
In a bid to stave off the potential of millions of dollars of fines or
disgorgements and irreparable damage to his reputation, former First
Marathon Securities broker Blayne Johnson is refusing to talk to regulators
about his key roles in the formation, structuring, distribution and
promotion of Cartaway Resources. In a petition filed Monday in the Supreme
Court of British Columbia, Vancouver lawyer Howard Shapray hopes to avoid
the potential for his client's self incrimination. The move came on the eve
of a scheduled meeting with British Columbia Securities Commission
investigators on Tuesday morning.
Court filings also reveal the Cartaway Eight, comprising four brokers each
in First Marathon's Vancouver and Calgary offices, sold millions of shares
of Cartaway. "The brokers and their families sold a net amount of
approximately 3.4 million shares through the facilities of the Alberta
Stock Exchange during the material period," states BCSC member Brent Aitken
in a confidential Feb. 25 investigation order. The order does not disclose
further details of the selloff, including prices and profits. These details
are not expected to be made public until the BCSC holds its hearing, set to
begin July 5, 1999, or when a negotiated settlement is reached.
First Marathon Securities' Cartaway fine tally stands at $5.1-million so
far, after major settlements with the Toronto Stock Exchange and the
Alberta Securities Commission. The damage is far from complete, however, as
the BCSC has not settled with any of the First Cartaway defendants yet. The
TSE started the ball rolling on July 20, assessing $4.84-million in
combined fines. In a consent agreement, the senior exchange imposed a
record $3.5-million fine and investigative costs of $500,000 against First
Marathon, a $250,000 fine against president and chief executive Lawrence
Bloomberg, a $485,000 fine against central internal compliance Stuart Henry
and a $110,000 fine against former Vancouver branch manager Bob Disbrow.
Ten days later, on July 30, the ASC imposed a $250,000 consent fine against
First Marathon, which admitted: (1) it committed more than six dozen
undeclared pro trades of Cartaway shares; (2) it aided Cartaway in making
an illegal share distribution; and (3) it failed to supervise its ring of
brokers involved in the share distribution.
While ASC proceedings against a number of respondents are not yet
concluded, the BCSC probe and prosecution of the Cartaway Eight is expected
to be especially detailed and broad. The BCSC is seeking disgorgement of
improper profits and losses avoided by the Vancouver four, the quartet of
First Marathon brokers who comprised half of the brokerage firm's Cartaway
Eight. The BCSC also seeks disgorgement of the money First Marathon saved
by not having a proper compliance department in Vancouver.
Mr. Johnson and partner Rob Hartvikson are the star targets of the BCSC,
along with brokerage co-founder Eric Savics, Vancouver colleagues David
Lyall and Mr Disbrow and First Marathon. Also named is Calgary broker
Christopher Michael Stuart, who moonlighted as vice-president of finance of
the brokerage firm while he served as president, secretary and director
Cartaway, beginning in October, 1994. The ASC action names Cartaway, First
Marathon, Messrs Hartvikson, Johnson and Stuart, as well as Cartaway
directors John Ivany, Charles Mitchell, William DeJong, Hugh Mogenson and
Walter Nash.
Of the eight alleged Cartaway co-conspirators, only three remain at First
Marathon: co-founder Mr Savics and David Lyall in Vancouver, and Charles
Fraser in Calgary. The other five left the firm in the wake of Cartaway's
collapse, led by alleged ringleaders Mr. Hartvikson and Mr. Johnson. The
Hartvikson-Johnson duo voluntarily took an early retirement from the
industry and set up shop as Adobe Capital, a small investment banking
boutique initially aimed at penny resource stocks.
Lawyer Shapray upped the ante in the Cartaway prosecution with Monday's
court challenge, which seeks to allow Mr Johnson to remain silent on the
Cartaway affair. The Howe Street litigator seeks a court order quashing the
BCSC's summons of the former broker for a meeting with regulators on Sept.
15. The commission issued the invitation to Mr. Johnson on Aug. 21,
requesting the Cartaway engineer attend before investigator John Porges to
answer questions stemming from an investigation order issued on Feb. 25,
1997.
In his filing, Mr. Shapray also claims the commission and its investigators
have no right, power or jurisdiction to compel his client "to testify to
incriminate himself." In addition, Mr. Shapray asserts that under the
Canadian Charter of Rights and Freedoms, Mr. Johnson "has the right to
remain silent and to refuse to answer questions, the predominant purpose of
which are to incriminate" him. If successful, the petition will ironically
also deprive Mr. Johnson of the opportunity to prove his innocence before
regulators, apparently of secondary importance.
Besides tackling the BCSC and its powers, Mr. Shapray is also taking on the
Investment Dealers Association. The Vancouver lawyer seeks a court
declaration that bylaw 29.1 of the IDA and sections 161(1)(b) to (f) and
162 of the Securities Act are of no force and effect. In his petition, Mr
Shapray claims the disputed sections are "so lacking in precision as to be
constitutionally vague and thus inconsistent" with the Constitution of
Canada insofar as they create penalties and sanctions which are imposed
upon individuals whose conduct is found to be detrimental to the public
interest or permit the commission or the executive director to impose
sanctions, prohibitions and administrative penalties if they deem it to be
in the public interest to do so."
The petition is especially broad, as it tackles the very underpinnings of
securities regulation in Canada. Mr Shapray intends to argue that there is
nothing in the Securities Act, its regulations or any of the commission's
decisions that define the term "public interest." The lawyer also claims
the term cannot be given a "constant or settled meaning" by the courts. Mr
Shapray further claims that punitive sanctions and restrictions imposed
under the above-cited sections of the Securities Act "interfere" with the
common law and statutory rights of individuals such as his clients.
Court-filed documents trace a progressively deteriorating state of
cooperation between Mr. Johnson and his lawyers with the commission. The
probe was officially launched in February, 1997, with an investigation
order empowering four investigators, Martin Eady, John Porges, John Pyrik
and Robert Verhelst to examine the Cartaway affair. The order, a secret
document until now, notes that the First Marathon brokers purchased 45.5
per-cent of Cartaway's outstanding shares on Oct. 17, 1994. The brokers
boosted their holdings in a private placement on May 5, 1995.
The investigation order reveals that some of the brokers' shares were
placed in accounts in the names of their family members. The BCSC notes
that Cartaway shares rose from 18 cents on Apr. 18, 1995, to $26 on May 16,
1996, before collapsing five days later to $2.78. The order reveals the
brokers and their family accounts sold a net 3.4 million shares at
undisclosed prices.
Three days after issuing the investigation order, Mr Porges issued a
summons to Mr Johnson to give evidence under oath. The First Cartaway
engineer chatted that day with Mr Porges and Mr Verhelst. Mr Johnson later
attended a second interrogation on Sept. 26, 1997, with the two
investigators. The petition notes the commission sought a third examination
of Mr. Johnson, issuing a summons on June 2 for a June 26 meeting. The
interview was delayed while Mr. Johnson switched lawyers, abandoning Dwight
Harbottle and hiring Mr. Shapray. Mr. Shapray notes he was retained on July
6. The lawyer notes that 11 days later, on July 17, the BCSC issued a
notice of hearing. This notice, released to the media and public three days
later, alleges that Mr. Johnson and his co-engineer Mr Hartvikson lied to
regulators by making "untrue" statements in their February 1996 and
September 1997 formal interviews.
In the current petition, Mr. Shapray notes the commission seeks assorted
sanctions against his client Mr. Johnson for various alleged violations of
the Securities Act. "Should such findings be made, Johnson will be exposed
to both administrative penalties and severe monetary sanctions involving
potentially millions of dollars, personal sanctions depriving him of
certain statutory rights, prosecution under the provisions of the
Securities Act, and irreparable damage to Johnson's professional and
personal reputation," states Mr. Shapray in his court filing. The lawyer
argues that the sole purpose of the interview, which had been set for
Tuesday, is to obtain evidence to incriminate Mr. Johnson.
In its latest summons, the commission also requested the former broker to
bring all cancelled cheques he wrote in favour of 489895 British Columbia
during April, May and June of 1995. Mr. Johnson and Mr. Hartvikson set up
the shell company to acquire the Voisey's Bay claims.
(c) Copyright 1998 Canjex Publishing Ltd. canada-stockwatch.com
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