News Release

Released: 01/11/02 Contact: Andrew Poon
NR 02-02 604-899-6880 or
(B.C. & Alberta) 1-800-373-6393

Vancouver – Two B.C. men have been ordered to appear at a hearing before the British Columbia Securities Commission for their part in an alleged share-trading scheme in which people were promised they could "trade shares without cost."

From December 1995 to March 1996, Michael Lee Mitton is alleged to have carried out a trading scheme involving the short-selling of shares of a number of companies listed on the former Vancouver Stock Exchange, commission staff said in a notice of hearing made public today. Bradley Nixon Scharfe is alleged to have been one of the brokers that Mitton enlisted to carry out the scheme.

A short sale is the sale of a security which the seller does not own. It is a speculative practice done when the price of a stock is expected to fall. It is illegal for a seller not to declare a short sale at the time of placing the order. (If a seller does not own a stock, regulators fear that undeclared short sales may unduly influence downward pressure on the stock price.)

Mitton allegedly directed a group of investors to make undeclared short sales of shares through cash accounts at one brokerage firm with the short position to be covered through the subsequent purchase of shares of the same issuer at a lower price, through an account at another brokerage firm.

BCSC staff allege that Mitton violated the Securities Act by perpetrating a fraud on British Columbians through the trading scheme and that he acted as an adviser without registration and without an exemption from registration. He is also alleged to have breached a commission order issued in 1988 barring him from the securities markets for 20 years stemming from his admission to insider trading, market manipulation and failure to meet continuous disclosure filing requirements.

Mitton is currently serving a four-year jail sentence handed to him by the B.C. Supreme Court in December 2000. He was convicted after he entered guilty pleas to six counts of fraud related to a $2.4-million swindle he ran against investment dealers and a charity in B.C. and elsewhere.

BCSC staff allege that Scharfe, registered as an investment adviser since December 1987, failed in his responsibilities to establish the identity and reputation of his clients and failed to fulfil his gatekeeper duties by not identifying and preventing improper trading schemes.

Scharfe has already been disciplined by the Canadian Venture Exchange for his involvement in the trading scheme. In a March 26, 2001 settlement agreement with the CDNX, Scharfe admitted to his participation in various aspects of the short-selling scheme and he acknowledged that he ought to have known that the scheme violated the VSE’s short sale rules.

The B.C. Securities Commission is the independent provincial government agency responsible for regulating trading in securities and exchange contracts within the province. Copies of the notice of hearing can be viewed in the documents database of the commission’s website www.bcsc.bc.ca or by contacting Andrew Poon, Media Relations, 604-899-6880.