News Release

Vancouver – A British Columbia Securities Commission panel has dismissed a staff application for cease trade orders and other sanctions against a group of offshore companies and individuals for their alleged failure to comply with a staff demand for information about trades conducted through B.C. brokerage houses.

While it denied staff’s application, the panel directed a new hearing to determine whether the commission should order that the companies cease trading in B.C. because they may be trading on behalf of undisclosed clients, contrary to “know your client” rules.

In a notice of hearing issued May 20, 2004, BCSC staff alleged the companies and individuals acted contrary to the public interest by not disclosing the identities of beneficial owners of securities traded by the offshore companies. The notice cited as respondents: LOM (Holdings) Limited, LOM Securities (Bahamas) Limited, LOM Securities (Bermuda) Limited, LOM Securities (Cayman) Limited, Lines Overseas Management Limited, Donald P. Lines, Brian N. Lines, Scott G. S. Lines, Malcolm Mosely, David McNay, and J. Scott Hill.

BCSC staff demanded the information under section 144(1) of the Securities Act to assist its investigation of trades made by Lines Overseas through accounts at B.C. investment dealers in the shares of a TSX Venture Exchange-listed company.

The LOM companies did not respond directly to the staff demand, citing the secrecy laws in Bermuda, the Bahamas and the Cayman Islands where the companies are based.  However, BCSC staff did receive information, with LOM’s cooperation, through the regulators in those jurisdictions.  At the time of the hearing, staff had not yet determined whether the information it received matched the information it demanded.

In denying staff’s application for the cease trade orders, the commission panel confirmed an earlier commission decision that staff’s remedy to force compliance with a demand for information was to apply for a court order under the Act.

In its decision, the panel expressed concern about an additional issue arising from the evidence.  Noting that LOM is very active in Canadian securities markets with over 10,000 trades over the past year totalling over 800 million shares with a market value of over $1.2 billion, the panel said:

“The more significant issue surrounding LOM, it seems to us, arises from the account opening forms…which appear to show that at least some of this trading is being done by LOM on behalf of undisclosed beneficial owners. If so, this trading is being carried on without the dealers involved requiring or possessing the appropriate ‘know-your-client’ information.

“This issue was not before us, but we cannot turn a blind eye to the evidence,” the panel said about the missing “know your client” information.  “We believe LOM should show cause why it would not be in the public interest for the Commission . . . to order that LOM cease trading securities in British Columbia until it provides all dealers in British Columbia having accounts for LOM the appropriate know-your-client information about those having a financial interest in those accounts.”

Written submissions on this issue must be filed with the commission by Jan. 31, 2005.

The B.C. Securities Commission is an independent provincial government agency responsible for regulating trading in securities within the province. You may view the decision on our website www.bcsc.bc.ca by typing in the search box “2005 BCSECCOM 29”. If you have questions, contact Andrew Poon, Media Relations, 604-899-6880.