Boris W. Tyzuk, for the Superintendent of Brokers.

Kenneth W. Ball, for Harold Dale Baker.

Douglas R. Garrod, for Thomas Rodney Irving.

DECISION AND REASONS:-- The matters that were the subject of this hearing were first set out in a Notice of Hearing dated July 29, 1988. In this notice the Superintendent of Brokers sought an order under section 145 of the Securities Act (the "Act") to remove the trading exemptions of Harold Dale Baker ("Baker"), the corporate secretary of Greenwell Resources Corporation ("Greenwell"), and Thomas Rodney Irving ("Irving"), a director of Greenwell. The Commission was asked to determine whether, in connection with purchases of Greenwell's shares, Baker and Irving had breached section 68(1) of the Act, which prohibits a person in a special relationship with a reporting issuer from purchasing or selling securities of the issuer with knowledge of a material fact or material change in its affairs that he knows or ought reasonably to know has not been generally disclosed.

In an Amended Notice of Hearing dated October 26, 1988, the Commission was asked to consider whether a sale of Greenwell shares by Baker was also in breach of section 68(1). The Superintendent also sought additional orders in the Amended Notice, firstly, that Baker and Irving be prohibited from acting as directors or officers of an issuer under section 145.1 of the Act and, secondly, that they pay the costs of the hearing under section 154.2 of the Act. Sections 145.1 and 154.2 were added to the Act by an amendment which came into force in August 1988.

BACKGROUND

Greenwell was a reporting issuer listed on the Vancouver Stock Exchange ("the Exchange") throughout the period when the critical events took place between October 1986 and August 1987. Greenwell had completed a public financing in September 1986 to raise $194,000, of which $75,000 was spent on a Nevada gold property. Greenwell had three employees at that time.

On October 1, 1986 Greenwell issued a news release stating that a letter of intent had been signed for the acquisition of $100 million of assets in exchange for the issuance of convertible preferred shares (the "Acquisition"), subject to shareholder and regulatory approval. Further news releases confirming the Acquisition were issued on November 17, 1986 and February 12, 1987. These were followed up with a President's Message to Shareholders, dated March 2, 1987, issued in connection with Greenwell's annual meeting. This document provided no more detailed information about the Acquisition than the previous releases, other than to describe the assets as U.S. real estate.

Michael Gilley ("Gilley"), a listings officer at the Exchange, testified that on April 21, 1987 he advised Greenwell verbally that it was in breach of its listing agreement because it had failed to provide a Reverse Takeover Information Statement and back-up documentation in the required 30 days from the date of the letter of intent. This advice was confirmed in a letter from the Exchange dated May 12. Greenwell provided the required documentation to the Exchange on June 12.

The Acquisition contemplated the purchase of U.S. real estate assets, including a large ranch in Texas. Gilley reviewed the proposed transaction and was concerned about the value shown for the ranch. With Greenwell's agreement, the Exchange retained a consultant to review the appraisal reports. A report was received from the consultant on July 27,

In a letter dated July 28 Gilley posed to Greenwell a number of questions regarding the deficiencies he had identified in the Acquisition disclosure documents. Specifically he was concerned because the ranch had been appraised at a value which appeared to be excessive, it was not owned by Advance Capital ("Advance"), the proposed vendor, and it was encumbered with debt approximately equivalent to the appraised value.

Following further communications between Gilley and counsel for Greenwell, Gilley presented the Acquisition to the Exchange's Listings Committee on August 19. In a letter dated August 20 to Sobolewski Anfield, counsel for Greenwell, Don Gordon ("Gordon"), Manager of Policy and Planning for the Exchange, conveyed the Listings Committee's unanimous decision that the submission "be withdrawn from further review as the extent of the deficiencies that remain unresolved is so grave that it is impractical for further detailed comments to be issued by the Vancouver Stock Exchange." It was the Committee's opinion that Greenwell had failed to provide "full true and plain disclosure" of the Acquisition. Greenwell was instructed in the August 20 letter to immediately submit a news release disclosing that the Exchange had withdrawn the Acquisition and setting out Greenwell's plans to either proceed with or withdraw from the Acquisition. This decision is described as "the Initial VSE Position".

Gordon testified that it was the practice of Exchange personnel to phone when letters such as the August 20 letter were available for pick-up. He stated that Sobolewski - Anfield had offices two floors above the Exchange and had two pick-ups each day.

The price of Greenwell's common shares had remained close to $0.30 prior to March 1987. In March, when the annual meeting was held, there was a significant increase in volume and the price rose as high as $2.25. After increasing to $2.60 in May, it declined to $1.11 in June. However, by early August it had increased again to $2.80, dropping back to $2.40 when the Listings Committee held its meeting on August 19.

On August 21, by way of tickets time-stamped between 6:53 a.m. and 9:14 a.m., Baker sold 4,500 shares of Greenwell through his account at Levesque Beaubien Inc. at a price of $2.20 in four trades. According to Baker's August insider report filed with the Commission and dated September 15, these were the first shares he had sold since August 12 and were the last of some 7,500 shares he had owned at the end of July.

After the August 20 letter was issued, officers of Greenwell and Advance did not submit or issue the news release requested by the Exchange but instead contacted the Exchange to register their objection to the Initial VSE Position. As a result Gordon, who was then acting in the temporary capacity of Vice President, Listings, agreed to meet with Greenwell representatives to hear new information that he was told had become available.

The meeting took place during the afternoon of August 25 at the Exchange and was attended by Robert Palm of Advance, Alec Lenec, Baker and Irving from Greenwell and David Anfield of Sobolewski Anfield. Gordon was the only executive officer attending for the Exchange and was accompanied by a secretary to record the proceedings. At the meeting major problems were reviewed but no new information was presented, according to Gordon, who said a tense atmosphere developed and the Greenwell representatives threatened to delist Greenwell from the Exchange. Gordon then suggested an alternate approach which, if adopted, would permit the Exchange to give its approval. He suggested converting the deficiencies identified by the Exchange into risk factors to be included in the disclosure documents. This approach would have had the effect of reversing the decision of the Listings Committee but required the approval of the President of the Exchange. Gordon testified that he had said he would recommend this approach. The immediate response from those present, according to Gordon, was "an audible sigh of relief" and a reduction in tension. The effect of the August 25 meeting was to keep the file open and to breathe new life into the Acquisition. Gordon's alternate approach is described as "the Revised VSE Position."

On August 24 and 25, Greenwell's shares traded at prices between $2.21 and $2.50, closing at $2.30 on August 25. On August 26 the shares traded as high as $3.05 before trading was halted at 8:13 a.m. The last trade was at $2.95, an increase of $0.65 on the day, and 93,400 shares were traded during the short period before the stock was halted. This halt remained in effect until September 8.

One third of the trading on August 26 was accounted for by Baker and Irving. Levesque Beaubien Inc. entered a market buy order for Baker's account for 10,000 Greenwell shares at 6:25 a.m. The order was filled at prices between $2.40 and $2.60. At 6:58 a.m. West Coast Securities Ltd. entered a market buy order for Irving's account for 20,000 Greenwell shares. It was filled at prices ranging from $2.60 to $2.90. Baker reported the purchase of the 10,000 shares in his August insider report. Irving did not include his purchase of 20,000 shares in his August insider report filed September 23, nor in the September report filed on October 28, nor the October report filed on November 16.

Gordon documented the Revised VSE Position in a letter dated August 27 to Sobolewski Anfield. Greenwell subsequently prepared a draft news release dated August 31, which incorporated the elements of the Revised VSE Position. This draft news release was never issued.

When Gordon consulted the President of the Exchange about the Greenwell matter, the President advised him that he was not prepared to accept Gordon's recommendation and that the decision of the Listings Committee should stand. On September 8, 1987 Greenwell issued a news release stating that it had made application to have its shares voluntarily delisted from the Exchange and that it intended to proceed with the Acquisition. Greenwell also said that it was making application to list its shares on the Alberta Stock Exchange.

Trading in Greenwell's shares resumed at the market open on September 8, following the issue of the news release. During the four days of trading which remained in the week, trading volume was higher than it had been since the week ending July 31, 1987 and the closing price was $2.43, a decline of $0.52 from the pre-halt price. The price declined further over the following two weeks and closed at $1.85 on September 25.

DECISION

We have been asked to determine whether Baker and Irving have breached section 68(1) of the Act, which reads in part as follows:

"68(1)

No person in a special relationship with a reporting issuer shall

(a)

purchase or sell securities of the reporting issuer with knowledge of a material fact or material change in the affairs of the reporting issuer that he knows or ought reasonably to know has not been generally disclosed ..."

Section 3(1) of the Act states:

"a person is in a special relationship with a reporting issuer where he ...

(b)

is a director, officer or employee of

We find that Baker and Irving were in a special relationship with Greenwell, Baker as corporate secretary and Irving as a director.

We will next consider whether the Initial VSE Position was a material fact or material change and, if so, whether Baker contravened section 68(1) when he sold Greenwell securities on August 21. Material change and material fact are defined in section 1 of the Act as follows:

"material change" means, where used in relation to the affairs of an issuer, a change in the business, operations, assets or ownership of the issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the issuer and includes a decision to implement that change made by

(a)		senior management of the issuer who believe that confirmation of the decision by the directors is probable, or
(b)		the directors of the issuer;

"material fact" means, where used in relation to securities issued or proposed to be issued, a fact that significantly affects, or could be reasonably expected to significantly affect, the market price or value of those securities;

	"That the Company shall give to the Exchange prompt notice of each proposed material change in the general character or nature or organization of its business, property or affairs, and, without limiting the generality of the foregoing, this shall include:
	...

(c)

every proposed acquisition or disposition (by one transaction or a series of transactions) of real or personal property at (i) a cost or for a price exceeding $50,000 where the cost or price requires payment in shares ...

The Company shall not proceed with any of the foregoing transactions without the prior acceptance of the Exchange."

Mr. Tyzuk further submitted that the price of Greenwell's shares, since it began climbing from $0.30 in February to the $2.20 level prevailing in August, had become primarily a function of investor expectations of Greenwell's prospects after the Exchange's approval of the Acquisition. He argued that a rejection of the Acquisition would reasonably be expected to have a significant effect on price.

Mr. Garrod, counsel for Irving, argued that the Initial VSE Position was neither an acceptance nor a rejection of the Acquisition, since the Exchange simply requested Greenwell to withdraw its submission, nor was it a withdrawal on the part of the Exchange. We disagree, and find the meaning of the Exchange's letter of August 20 to be quite clear: "...it was unanimously decided... that the Company's submission be withdrawn from further review..." Although the wording does not accord with that used in Greenwell's listing agreement, which requires that Greenwell shall not proceed with a transaction of this type without the prior acceptance of the Exchange, the Initial VSE Position was clearly a decision not to accept the Acquisition.

Mr. Garrod further argued that the Initial VSE Position was not a material change since it did not result in the issuance of an Exchange notice nor did the Exchange halt trading in Greenwell's shares. No evidence was placed before us that an event such as the Exchange's decision to withdraw the Acquisition from review requires a notice to members. The Exchange's position on halting trading is set out in Greenwell's listing agreement in paragraph 12, which states that at any time and without notice the Exchange may suspend or halt trading in Greenwell's shares. It is evident that the Exchange chose not to exercise its discretion in this case and instead elected to order Greenwell to issue a news release. We do not consider the fact that the Exchange did not issue a notice or halt trading relevant to whether the Initial VSE Position was a material change in the affairs of Greenwell.

The Initial VSE Position was a decision of the Exchange to deny the required regulatory approval for a proposed transaction that was the major business interest of Greenwell. There can be no doubt that the Initial VSE position was a change in the business, operations and assets of Greenwell that would reasonably have been expected to have a significant effect on the market price of Greenwell's securities. We therefore find that the Initial VSE Position was a material change in the affairs of Greenwell.

The Initial VSE Position was communicated to Greenwell's solicitors, Sobolewski Anfield, by a letter dated August 20. By normal practice, the Exchange telephones to advise that such letters are available for pick up by the solicitors. Sobolewski Anfield has offices in the Exchange Tower and normally makes two pick-ups per day. On the morning of August 21, Baker sold all of his remaining shares of Greenwell.

Based on this evidence, we find, on a balance of probabilities that Sobolewski Anfield received the August 20 letter on August 20, that Baker learned of the Initial VSE Position from Sobolewski Anfield on August 20 and that Baker knew, or ought reasonably to have known, that the Initial VSE Position had not been generally disclosed.

We therefore find that, in selling Greenwell shares on the morning of August 21, while he was in a special relationship with Greenwell, Baker breached section 68(1).

Next, we will consider whether Baker and Irving breached section 68(1) when they purchased Greenwell shares on August 26.

The Revised VSE Position was developed by Gordon during the August 25 meeting to provide an alternative approach for dealing with the concerns raised by the Listings Committee. Unlike the Initial VSE Position it was not a decision of the Exchange. To become a decision, it would require the approval of the President of the Exchange.

The importance and potential impact of the Revised VSE Position is clear. Had it been subsequently approved as an Exchange decision it would have allowed Greenwell to proceed with the Acquisition, its major business interest, and would undoubtedly have had a significant effect on the price or value of Greenwell's shares. It is also important to note that Gordon's intention to recommend the Revised VSE Position to the appropriate levels of authority at the Exchange was perceived very positively by those attending the August 25 meeting. We have Gordon's evidence that there was a relaxation of the tension that had been present when the meeting began and a general air of relief. It was evident that the company representatives, Baker and Irving among them, perceived it to be a reversal of their misfortune or, as Gordon put it, as breathing new life into the Acquisition. That the Greenwell representatives saw it as a credible proposal is further evidenced by the draft news release which they proceeded to prepare. This was dated August 31 and contained full disclosure of the matters which Gordon had proposed should be dealt with as risk factors.

Gordon's decision to recommend the Revised VSE Position is critical to our determination. Even though the Revised VSE Position could not be implemented without further approval, the fact that it would be recommended by Gordon, a senior official of the Exchange, would undoubtedly be perceived by the market as a positive development in the attempt to get approval for the Acquisition. It was therefore a fact that could reasonably be expected to significantly affect the market price or value of Greenwell's shares. Accordingly, we find that Gordon's decision to recommend the Revised VSE Position, was a material fact in the affairs of Greenwell.

That Baker and Irving had knowledge of Gordon's decision there can be no doubt. They were in the room and it was the focus of the meeting. Nor can there be any doubt that they knew it had not been generally disclosed when they purchased Greenwell shares during the first hour of trading the very next day.

We therefore find that Baker and Irving, while in a special relationship with Greenwell, purchased its securities with knowledge of a material fact in the affairs of Greenwell which they knew had not been generally disclosed. As a result they breached section 68(1) on August 26.

The Superintendent of Brokers has requested that the Commission issue an order under section 145 of the Act to remove the trading exemptions of Baker and Irving for a period of between two and five years. The Superintendent has also requested that Baker and Irving be removed as officers and directors of all issuers and be prohibited from so acting for a similar period by way of an order under section 145.1 of the Act. In addition the Superintendent sought an order for costs under section 154.2 of the Act.

Counsel for the respondents argued against the imposition of orders under section 145.1 and 154.2 on the ground that the sections came into force after the events that were the subject of the hearing and after the original notice of hearing and, therefore, that the requested orders would be retrospective in effect. The Commission has previously addressed this question in a decision in the matter of Marathon Minerals et al. (British Columbia Securities Commission, Weekly Summary, March 17, 1989, pages 24 to 26). The panel in that hearing decided in similar circumstances to impose orders under section 145.1 on the basis that the purpose of such orders is to protect the public interest, not to penalize past actions. The panel did not impose orders under section 154.2, because it determined that such orders would be unfair in view of the fact that the hearing began before the enactment and coming into force of the new section. There is no such concern in this case, as the hearing began after the amendments came into force and the amended notice of hearing stated that orders would be sought under sections 145.1 and 154.2.

Section 68(1) is one of the key provisions of the Act. It is intended to make the market operate more fairly by prohibiting trading in securities by certain persons having possession of certain information that has not been disclosed to the public. We have found that there were two breaches of section 68(1) by Baker and one by Irving. Although their trading did not involve large sums of money, the violation of this fundamental prohibition requires that the Commission make appropriate orders to protect the public interest in a fair trading market. These orders should serve as a clear message to other participants in the marketplace about the activities the legislation is intended to prevent.

We order, under section 145(1), that the exemptions described in sections 30 to 32, 55, 58, 81 and 82 of the Act do not apply for a period of two years from the date of this decision to Baker or Irving, provided that, for a period of 30 days from the date of this order, Baker or Irving may trade, through a registered dealer, securities that they hold at the date of this order, for the sole purpose of liquidating their holdings, and all such trades shall be reported to the Secretary of the Commission.

We order, under section 145.1(1), that Baker and Irving resign any positions that they hold as directors and officers of reporting issuers and that they are prohibited from becoming or acting as directors or officers of any reporting issuers for a period of two years from the date of this decision.

We order, under section 154.2, that Baker and Irving pay prescribed fees or charges for the costs of or related to the hearing, the amounts to be determined following further submissions by the parties to be made within thirty days of the date of this decision.

D.M. HYNDMAN, Chairman
E.L. LIEN, Member
J.P.H. McCALL, Member