Decisions

EVC RESOURCES LTD., et. al. [Decision]

BCSECCOM #:
Document Type:
Decision
Published Date:
1999-12-17
Effective Date:
1999-12-14
Details:


IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, c. 418

AND

IN THE MATTER OF EVC RESOURCES LTD., KENNETH ARTHUR ERICKSON AND MAURICE JOHN CALF

HEARING


PANEL: JOYCE C. MAYKUT, Q.C. VICE CHAIR
BRENT W. AITKEN MEMBER
JOAN L. BROCKMAN MEMBER


DATE OF HEARING: DECEMBER 7, 1999


DATE OF DECISION: DECEMBER 14, 1999


APPEARING: JAMES A. (SASHA) ANGUS FOR COMMISSION STAFF
PATRICIA A.A. TAYLOR

MAURICE CALF FOR HIMSELF AND
EVC RESOURCES LTD.

DECISION OF THE COMMISSION

We released our findings in this matter on September 30, 1999. On December 7, we reconvened to hear submissions with respect to the terms of orders to be made by the Commission under sections 161 and 162 of the Securities Act, R.S.B.C. 1996, c. 418. This decision should be read in conjunction with our findings of September 30, 1999.

We found that each of EVC Resources Ltd., Maurice John Calf and Kenneth Arthur Erickson:

§ traded in securities of EVC without being registered and without an applicable exemption contrary to section 34(1)(a) of the Act;
    § distributed securities of EVC without filing and obtaining a receipt for a prospectus and without an applicable exemption contrary to section 61(1) of the Act; and
      § contravened sections 50(1)(a),(b),(c) and (d) of the Act when, with the intention of effecting the sale of EVC securities to investors, each represented that:

      § projected returns on an investment in EVC would be 150%;
      § an investment in EVC would be guaranteed with the delivery of gold;
      § EVC would be taken public and listed on the Vancouver Stock Exchange or the Alberta Stock Exchange;
      § EVC had the rights to the ‘Amtek process’, a proprietary method of extracting gold from mine tailings and ‘complex ores’; and
      § materials collected by EVC from properties under its control contained significant amounts of gold, which would be extracted by the Amtek process.
        As a consequence, EVC investors were deprived of material information regarding the securities of EVC before they decided to invest. Furthermore, EVC investors were encouraged to purchase EVC securities on the basis of representations that either were prohibited under the Act or were misrepresentations under the Act. Finally EVC investors purchased EVC securities without the benefit of advice of a registrant. As a consequence of the respondents’ conduct, members of the public who invested in EVC including Calf and his family lost $1.2 million. There is no reasonable prospect that they will recover any of it. Clearly the public was seriously prejudiced because EVC securities were sold in contravention of fundamental provisions of the Act, namely the prospectus and registration requirements.

        This Commission and the courts have emphasized again and again the significance of the registration requirements in the Act to the protection of the investing public. The comments of the Commission in The Matter of Armstrong [1999] 8 B.C.S.C. Weekly Summary 10, in which it refers to the Commission decision of The Matter of Aatra Resources [1993] 22 B.C.S.C. Weekly Summary 37 at page 4, bear repeating here.
            A registrant holds a special position in the securities market and regulatory system. Subject to certain exemptions, trading in securities can only be done by or through a registered dealer. A registered salesman of a dealer is required to meet educational requirements and to conduct business in accordance with regulatory standards. The purpose of the registration requirement in the Act has been described as follows by the Supreme Court of Canada in Gregory & Co. v. Quebec Securities Commission, [1961] S.C.R. 584, where Fauteux J. observed at p. 588:

                The paramount object of the Act is to ensure that persons who, in the province, carry on the business of trading in securities or acting as investment counsel, shall be honest and of good repute and, in this way, to protect the public, in the province or elsewhere, from being defrauded as a result of certain activities ...
            The regulatory registration regime is intended to ensure that the investing public receives advice and ethical treatment from persons engaged in the securities business by imposing levels of competence and minimum standards of conduct.
        Similarly, the prospectus requirements of the Act, including the prohibitions contained in section 50 of the Act, are intended to ensure that the investing public has equal access to full, true and plain disclosure of all material facts. Investors were deprived of material facts relating to EVC securities and encouraged to invest based on representations that the respondents should not have made or that were misrepresentations.

        We have carefully considered the additional evidence filed, and the submissions made, with respect to what orders ought to be made in the public interest in light of our findings of September 30, 1999. That additional evidence included the affidavit of Langley Evans, Acting Deputy Director of Enforcement with the Commission, sworn October 15, 1999. Evans confirmed that on August 4, 1972, Erickson had plead guilty in a United States District Court to the offence of having employed a device, scheme and artifice to defraud in relation to the sale of securities. We also have considered that temporary orders made under section 161(2) of the Act cease trading EVC securities, prohibiting Calf and Erickson from acting as directors and officers, prohibiting Calf and Erickson from relying on statutory trading exemptions and prohibiting Calf and Erickson from engaging in investor relations activities have been in effect since August 7, 1997.

        Calf

        When Calf testified at the hearing, he said he felt a serious obligation to the investors he brought into EVC and is making every effort to recoup for them the money they have invested. There was no evidence indicating that any EVC investors received any money back. On the basis of the evidence we found that EVC investors lost all their money, there is no reasonable prospect of them getting any money back and their loss is directly attributable to Erickson’s and Calf’s conduct. It is this latter point that Calf simply refuses to acknowledge and is most concerning to us. Indeed Calf is of the view that he did nothing wrong and that it is the Commission’s findings that are wrong and are not based on the “truth”.

        Calf’s testimony and the manner in which he gave it, demonstrated a single minded commitment to the stated “wider purpose” of the joint venture agreement between EVC and JMS, namely “to demonstrate to the regulatory authorities and the investing public the authenticity and superiority of the Amtek process for extracting and refining, efficiently and economically, the precious metals locked into complex ores in the earth’s surface”.

        That he initially believed so strongly in Erickson and his Amtek process is one thing, although we do not agree that it was reasonable even then to hold that belief. That he continued to do so in the face of the evidence and events as we have found them, including the most recent evidence of Erickson’s background, is not. Calf cannot be faulted for investing his own money in EVC and Erickson’s schemes. However, when other people’s money was solicited for the purpose of investing in EVC and Erickson’s schemes, certain securities legislation requirements arose that the respondents, including Calf, were obliged to meet. We found that Calf breached, and caused EVC to breach, fundamental provisions of the Act to the serious prejudice of EVC investors.

        Accordingly, we consider it to be in the public interest to order:

        1. under section 161(1)(c) of the Act, that all of the exemptions described in sections 44 to 47, 74, 75, 98 or 99 of the Act do not apply to Calf, except for any trades conducted for his own account which must be through a registrant under the Act, for a period of fifteen years;
          2. under section 161(1)(d)(ii) of the Act, that Calf is prohibited from becoming or acting as a director or officer of any issuer for a period of fifteen years;
            3. under section 161(1)(d)(iii) of the Act, that Calf is prohibited from engaging in investor relations activities, including the provision of any administrative, management or investor relations services, for any issuer for a period of fifteen years; and
              4. under section 174 of the Act that Calf pay 20% of the prescribed fees or charges for the costs of or related to the hearing incurred by, or on behalf of, the Commission and the Executive Director.

              Erickson

              We have found that Erickson breached, and caused EVC to breach, fundamental provisions of the Act. He chose not to attend the hearing to explain his conduct. Although Erickson did not attend the hearing he did file a written submission with the Commission on October 29, 1999. That submission for the most part does not address what orders ought to be made in light of our findings. Instead Erickson challenges our findings and continues, not surprisingly, to claim that the Amtek process “not only works, but from an extracted (sic) basis was superior to anything on the market and was in fact revolutionary in many respects”. Like Calf, Erickson continues to denounce all who claim otherwise, including Sergeant Rogers and James Herbst. His background indicates that the Amtek story is one he has pitched in the past and unless stopped will continue to pitch in the future to the serious detriment of the investing public. Erickson was aware of the need to comply with securities legislation when raising money from investors in these circumstances.

              We find that Erickson showed a total disregard for the regulatory regime and the public investors it attempts to protect. It was not lost on us that he never invested any substantial amounts of money into EVC or into the advancement of his own schemes. We do not need to know the intentions that motivated his conduct. His conduct speaks for itself. He is responsible in large part for the loss of the EVC investors’ funds. Despite his assertions that he will pay back EVC investors their principle and interest including a bonus, we find there is absolutely no reasonable basis for believing that the EVC investors will receive any money back. Erickson must be held to account and the public deserves to be protected from him.

              Accordingly, we consider it to be in the public interest to order:

              1. under section 161(1)(c) of the Act, that all of the exemptions described in sections 44 to 47, 74, 75, 98 or 99 of the Act do not apply to Erickson for the rest of his natural life,
                2. under section 161(1)(d)(ii) of the Act, that Erickson is prohibited from becoming or acting as a director or officer of any issuer for the rest of his natural life;
                  3. under section 161(1)(d)(iii) of the Act, that Erickson is prohibited from engaging in investor relations activities, including the provision of any administrative, management or investor relations services, for any issuer for the rest of his natural life;
                    4. under section 162 of the Act, that Erickson pay an administrative penalty of $100,000; and
                      5. under 174 of the Act, that Erickson pay 80% of the prescribed fees or charges for the costs of or related to the hearing incurred by, or on behalf of, the Commission and the Executive Director.

                          EVC

                      In our view, we consider it to be in the public interest to order under section 161(1)(b) of the Act that all persons cease trading in the securities of EVC permanently.

                      We direct Commission staff to file an application for costs with the Commission by January 7, 2000.


                      DATED on December 14, 1999


                                FOR THE COMMISSION



                      Joyce C. Maykut, Q.C. Brent W. Aitken
                      Vice Chair Member



                      Joan L. Brockman
                      Member
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