Decisions

DANNY FRANCIS BILINSKI, et. al. [Ruling]

BCSECCOM #:
2001 BCSECCOM 121
Document Type:
Ruling
Published Date:
2001-01-25
Effective Date:
2001-01-24
Details:


2001 BCSECCOM 121


COR #01/021

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

AND

IN THE MATTER OF DANNY FRANCIS BILINSKI, ROBERT PIERRE LAMBLIN,
LEONARD WILLIAM FRIESEN, DONALD BRIAN GORDON-CARMICHAEL,
GEORGE PRICE, LINDY ARNOT

AND

IN THE MATTER OF CANADIAN GLOBAL FINANCIAL GROUP LTD. CANADIAN GLOBAL INVESTMENT CORPORATION, GLOBAL CANADIAN FINANCIAL GROUP, GLOBAL CANADIAN INVESTMENT CORPORATION, PRIVATE VENTURES INVESTMENT LIMITED
AND PRIVATE VENTURES CAPITAL CORPORATION, CANADIAN GLOBAL REAL ESTATE HOLDINGS LTD.

AND

IN THE MATTER OF COLUMBIA OSTRICH (VCC) LIMITED


RULING
    Introduction

    [para 1]
    This is an application under section 171 of the Securities Act, R.S.B.C. 1996, c. 418 by Danny Francis Bilinski, Robert Pierre Lamblin and Lindy Arnot to vary temporary Commission orders made against each of them that prohibit them from using the trading exemptions as described in sections 44 to 47, 74, 75, 98 or 99 of the Act. Bilinski also seeks a variation of temporary orders made by the Commission against Canadian Global Real Estate Holdings Ltd. and Columbia Ostrich (VCC) Limited to permit trading in the securities of these two issuers.

    [para 2]
    The effect of the temporary orders are set out in the Third Further Amended Notice of Hearing issued December 20, 2000. The temporary orders removed all of the trading exemptions available to Bilinski and Lamblin. The temporary orders against Arnot permit her to use the exemptions described in sections 44 to 47, 74, 75, 98 and 99 of the Act to trade for her own account. The temporary orders cease trade the securities of Columbia Ostrich until the hearing is held and a decision rendered and prohibit all trading of Canadian Global Real Estate’s securities except that which is conducted by a person acting solely through a registered dealer other than Canadian Global Investment Corporation.

    [para 3]
    The application was first made on December 22, 2000. Additional submissions were made on January 4, 2001 followed by letters dated January 9, 10, 11 and 22, 2001. Except as noted below, we do not intend to detail all of the background to the various applications, rulings and orders made since these proceedings were initiated on September 30, 1999 with the issuance of the first notice of hearing, suffice to say we have considered them in dealing with this application.
    Similarly, although these respondents have referred in a very general way to the evidence given in these proceedings so far, which includes hundreds of documents and over 40 days of testimony, we do not intend to outline that evidence here.

    Submissions

    [para 4]
    Bilinski submits that the relief sought is necessary now because with the hearing being adjourned to February 2001, the Commission’s final decision will be delayed further resulting in more prejudice to existing projects, which are already at extreme risk because of these proceedings.

    [para 5]
    Bilinski submits that Commission staff’s attempt to portray the case against the respondents as another ‘Eron Mortgage’ debacle with investors’ funds being misappropriated has simply not been borne out in the evidence presented thus far. He submits that his, Lamblin’s and Arnot’s use of the trading exemptions is vital to the continued success of Canadian Global Financial Group’s business and to the protection of its investors and projects, in particular those in Canadian Global Real Estate and Columbia Ostrich.

    [para 6]
    Bilinski submits that he is no longer a registrant under the Act and that his use of all of the trading exemptions, but particularly the ‘private issuer’ exemption, should not be restricted. He submits that Commission staff has not proven that he personally abused these exemptions or that he poses a threat to the public interest, even though he admits there may have been some technical breaches. Bilinski argues that in considering the public interest, the approximately 200 existing investors must be considered as well as the projects and any future investors. He argues that the evidence so far shows that it is no longer, necessary, reasonable or fair for the temporary orders, which have been in place since October of 1999, to continue.

    [para 7]
    Lamblin’s and Arnot’s submissions in support of their variation applications were essentially the same as those made by Bilinski. In addition, Arnot submitted that she did not sell any of the exempt securities that are the subject of these proceedings nor did she use any of the trading exemptions during the relevant period. Furthermore she has no intention of being involved in any future sales of securities but rather seeks continuing involvement in the administration or ‘paperwork’ relating to existing and future investors, which she says conceivably could be considered to be an act in furtherance of a trade. Arnot is presently employed part time with Great Pacific Management and assists in organizing Canadian Global Investment Corporation client accounts, which were taken over by Great Pacific.

    [para 8]
    Bilinski described in a general way the status quo of Canadian Global Financial Group’s business, and its underlying projects, and his proposal for taking it forward. He states that the proposal is for Eurobel, through it’s subsidiary Eurobel Financial Corporation conducting a $10 million offering, to take up where Canadian Global Financial Group left off. At the moment Canadian Global Financial has a written agreement with Eurobel Capital Corporation under which Eurobel has agreed to manage Canadian Global Financial Group’s projects, including those in Canadian Global Real Estate and Private Ventures Investments Ltd. Although no documents were put before us relating to the agreement or status of the projects, Bilinski states that there has been no change in share ownership from Canadian Global Financial to Eurobel but simply an agreement for Eurobel to manage the projects. So far Eurobel has been advancing monies to help pay some of the office bills and expenses directly, such as light, heat and telephone. Eurobel has also advanced funds to Gorlan Technologies Inc.

    [para 9]
    Bilinski says he has been forced to turn over the reins to Eurobel in this fashion because he has been precluded by the Commission orders not to trade or do any act in furtherance of a trade. The proposal with Eurobel contemplates however that once the trading restrictions are removed against the individual respondents each of them will continue to participate in Eurobel’s business. Under the plan Bilinski would be vice-president of business development for Eurobel where he would assist in creating investment opportunities as well as raising capital in the exempt market. Lamblin would continue with Eurobel either raising funds or in some other aspect of sales. Arnot would continue to be involved in operations and administration. Bilinski states that other than the written agreement to manage the projects, the proposal relating to going forward with Eurobel is still at a conceptual stage and waiting the outcome of these proceedings before proceeding further.

    [para 10]
    Bilinski advises that in October 2000, a meeting was held where Eurobel made a presentation to former and existing clients of Canadian Global Investment Corporation. The purpose of the meeting was to introduce Eurobel’s business and principals and generally explain Eurobel’s current and future role as manager of the projects. Some of the clients of Canadian Global Investment may have been approached by Eurobel to invest pursuant to the Eurobel Financial Corporation’s offering memorandum, which was made available at the meeting. The offering memorandum discloses that Eurobel is a financial services and non bank lending institution engaged primarily in the business of providing financial, advisory and management services to a broad range of enterprises. Eurobel also discloses that it may enter into financial arrangements with these enterprises and their principals whereby it will provide capital financing by way of secured loans either directly by Eurobel or by facilitating funding provided by other lenders. By this time Eurobel had already provided financing to the Gorlan Trailer project.

    [para 11]
    Bilinski submits that the orders against Canadian Global Real Estate should be lifted upon completion of an updated offering memorandum, which would reflect a reorganization of the business with new directors, some of which would likely include principals of Eurobel. The projects still left in the Canadian Global Real Estate portfolio are Arrow Lakes, Harrison Lake and an interest in the Columbia Ostrich farms by way of a mortgage. Bilinski advises that all mortgages with outsiders in Canadian Global Real Estate are currently in foreclosure and agrees that the only equity available would be that created if the projects could be saved and developed on a going forward basis. He submits that the projects failed because he was precluded by Commission orders from raising the necessary funds to develop the projects as planned.

    [para 12]
    One of the projects Eurobel has not been engaged to manage is the Columbia ostrich farm. Bilinski submits that although he is not a director of Columbia Ostrich it has been alleged he has been acting as a de facto director and as a consequence he feels it is appropriate for him to bring forward the application on behalf of Columbia Ostrich to lift the cease trade order. Bilinski states that the Columbia ostrich lands are at extreme risk at this moment because an offer for sale of a section of the lands was being made to the court on January 18, 2001 further to a bank foreclosure action. Bilinski argues that if the court ordered sale goes through it will be a ‘fire’ sale and any equity the existing investors could recoup on a going forward basis will be lost. However, he argues that if the cease trade order is revoked and if he is allowed to use the exemptions to raise money, the ostrich farm lands can be saved and the ostrich business can be developed. Bilinski’s proposal involves meeting with the president of Columbia Ostrich, other investors and counsel for Columbia Ostrich, to discuss updating the offering memorandum to reflect a restructuring and reorganizing of the ostrich business with new directors. The revised offering memorandum would then be presented to staff. Bilinski’s intention would be to proceed thereafter to complete the original offering by raising the total $3.75 million and move forward with a multi-product ostrich business, a business that Bilinski believes will eventually be profitable. We are told that currently the farm workers are providing some capital to feed the birds to keep them alive. Bilinski says that it is his intention to give the farm workers some participation in any future ownership for their devotion to the project.

    [para 13]
    Bilinski submits that because of the negative publicity accorded to the Canadian Global Financial Group, it would be necessary to restructure its projects under new entities that could raise new capital to effectively preserve the assets of Canadian Global Real Estate and the Columbia ostrich farm. Bilinski submits he would need to be involved in outlining the vision, in assisting in the preparation of offering documents and in raising capital from investors.

    [para 14]
    As for the other projects, Bilinski advises that Pacific Bowling has been in foreclosure for some time and believes the original Pacific Bowling investors, with a new group of investors, have court approval to complete the project under a new entity called Bridgeview Bowling. Bilinski is not involved in this project. Bilinski also advises that there is a court appointed receiver for the Arc Sonics project and the foreclosure of the Sun Peaks project is complete, with Canadian Global investors having completely lost their investment in that project. Nonetheless, Bilinski believes that with new capital Canadian Global Real Estate still has the opportunity of getting back the Sun Peaks project, turning it around and giving back the investors their lost equity. According to Bilinski the opportunity is available because the lenders who foreclosed on the project don't want control of it, rather they simply wanted their money back.

    [para 15]
    Commission staff opposes the applications to vary. Staff submits that there is no new, cogent evidence put forward in these applications that demonstrates that it would not be prejudicial to the public interest to vary the orders as sought. Staff argues that Bilinski has failed to specify why the relief is necessary on an urgent basis, has failed to specify the business interests that are currently in jeopardy and has failed to specify why exactly it is necessary for him to be involved in trading these exempt securities. Staff argue that his abuse of the exemptions in the past should preclude him from having access to them now to raise more money in the exempt market.

    Ruling

    [para 16]
    Like all of the parties the Commission is very concerned about preserving the value of the assets for the benefit of investors. Bilinski, Lamblin and Arnot seek a variation of the temporary Commission orders that would in effect remove all restrictions against them to trade in securities, and in particular to raise more money from investors in the exempt market for the very same projects that are the subject of these proceedings.
      [para 17]
      The applications to vary, and the arguments in support, are similar to the applications made in early April 2000, and it is useful to refer to our April 13, 2000 ruling regarding those applications in some detail.

      [para 18]
      In the April 2000 application Bilinski submitted that:

      · the consequence of the Commission’s orders had been to place all of the Canadian Global Financial companies, in particular Canadian Global Real Estate and Columbia Ostrich on the brink of financial ruin;
      · interim relief would permit the applicants to raise some financing to keep these two issuers from declaring bankruptcy;
      · the restriction requiring all trading to be conducted through an independent registered dealer was simply unrealistic because no other registered dealer was interested in participating in any of these issuers while these companies are the subject of Commission proceedings and these two issuers cannot use traditional methods of raising financing while the Commission proceedings are outstanding;
      · his and Lamblin’s personal involvement was necessary to raise any financing because of their intimate knowledge of these companies; and
      · audited financial statements for the Canadian Global Financial Group of companies, which includes Canadian Global Real Estate and Columbia Ostrich, are in the process of being prepared and would be ready to be filed with the Commission staff within a matter of days.
        [para 19]
        In our April ruling we recognized that the orders issued by the Commission to date were based, in part, on our conclusion that there was prima facie evidence that mutual fund salespersons registered under the Act and employed by Canadian Global Investment, primarily Bilinski, Lamblin and Arnot, had sold over $4.4 million worth of securities of Canadian Global Financial contrary to sections 34 and 61 of the Act, to clients of Canadian Global Investment in circumstances:

        · that bring into question the suitability of the securities for these clients;
        · where the money raised from investors has not yet been accounted for;
        · where the money was invested in Canadian Global Financial, the parent of Canadian Global Investment, and in other related companies, including Canadian Global Real Estate and Columbia Ostrich;
        · where there were significant conflicts of interest arising as a consequence of the many related party transactions and where it appears that all the money raised from investors went to related parties;
        · where Canadian Global Investment, just over two years ago, entered into a settlement with the Executive Director for failure to maintain proper books and records;
        · where some of the evidence indicates that a typical investor targeted for an invitation to Canadian Global Investment seminars was “over 55” and where a significant portion of investor funds appear to have been transferred from clients’ RRSP accounts for purchases of securities of Canadian Global Financial; and
        · where offering memoranda for Canadian Global Real Estate and Columbia Ostrich, indicate that the business of each of these issuers is new and has no operating history and the securities issued by them are highly speculative, illiquid and involve a high degree of risk.

        [para 20]
        In the April 13, 2000 ruling, we concluded that although we understood Real Estate and Columbia Ostrich were in difficult financial circumstances, we did not have sufficient information at that time to conclude that the public interest would not be prejudiced if the orders were varied as sought.

        [para 21]
        The Commission went on to state that it would permit the sale of Columbia Ostrich and Canadian Global Real Estate securities to go through Canadian Global Investment rather than an independent registered dealer if it could be demonstrated that:

        · offering memoranda were prepared in compliance with the legislation;
        · Canadian Global Investment, could meet its ‘know you client’ obligations, including investor ‘suitability’;
        · have the capacity to conduct adequate due diligence of Canadian Global Real Estate and Columbia Ostrich; and
        · have the capacity to cover potential liabilities should investor losses relate to a failure to comply with the due diligence and suitability requirements.

        [para 22]
        However since our April 13, 2000 ruling there have been some changes in the circumstances that merit comment and consideration. Other significant factors have remained the same. Some of the key factors relevant to this application are as follows:

        · Canadian Global Investment is not a mutual fund dealer through which exempt securities related to the Canadian Global Financial group of companies could be sold if the conditions referred to in the April 13, 2000 ruling were met;
        · the audited consolidated financial statements for the Canadian Global Financial Group of companies have been filed accounting for the funds raised from investors;
        · there is prima facie evidence that Bilinski, Lamblin and Arnot were responsible either directly, or indirectly as management, for securities of the Canadian Global Financial group being sold contrary to sections 34 and 61 of the Act, to clients of Canadian Global Investment in circumstances:
            · that bring into question the suitability of the securities for the clients; and
            · where all the money raised from investors went to related parties, including Canadian Global Real Estate and Columbia Ostrich; and
            · where conflicts of interest were not adequately disclosed;
        · there is evidence to support the further allegation that Bilinski and Lamblin, directly or indirectly, sold exempt securities in contravention of the Commission’s temporary orders;
        · Bilinski, Lamblin and Arnot are still principals, directors or officers of Canadian Global Financial and Canadian Global Real Estate and Bilinski, as principal of Columbia Ostrich Farms Ltd., is still involved directly, or indirectly, directing the affairs of Columbia Ostrich;
        · Bilinski’s proposal, whether it proceeds through Eurobel or another entity, contemplates that Bilinski and Lamblin will continue to be involved in raising funds for these projects by selling exempt securities;
        · existing investors may have been solicited by Eurobel to invest in Eurobel on the basis that Eurobel will manage the Canadian Global Financial group of projects and may assist in financing them further in circumstances that raise concerns about whether the temporary orders were complied with;
        · existing investors may be solicited to invest further in the Canadian Global Financial group of projects, including Canadian Global Real Estate and Columbia Ostrich or in any restructured entities;
        · all of the projects in Canadian Global Real Estate are in foreclosure, including a portion of the Columbia Ostrich farmlands;
        · according to Bilinski there is no investor equity in Columbia Ostrich and in Canadian Global Real Estate, other than that which can be recouped on a ‘going forward’ basis;
        · any securities issued by Canadian Global Real Estate and Columbia Ostrich would be highly speculative, illiquid and involve a high degree of risk; and
        · no current audited financial statements, business plans or other documents have been produced regarding Canadian Global Real Estate and Columbia Ostrich.

        Furthermore, we note that Bilinski has made several submissions, all of which will not be referred to here, that were not supported by evidence or are submissions that ought to be brought and determined at the conclusion of the hearing. For example, there is no evidence to suggest that a court in approving the sale of real property under foreclosure proceedings will not consider the relevant interests and attempt to realize fair market value for the subject property. Similarly, Bilinski’s submission that he did not personally abuse the exemptions is one of the very issues to be determined at the conclusion of the hearing.

        [para 23]
        As a consequence we have come, for the most part, to the same conclusion as in our April 13, 2000 ruling.However having said that, if there is a proposal for acquiring these projects, with Eurobel or any other entity, that can be adequately described and documented, including the specific relief necessary to allow the transaction to complete, the Commission will consider an application to vary Commission orders on short notice. Preferably corporate counsel familiar with these transactions and the requirements of the Act will be involved in preparation of any application to the Commission.

        [para 24]
        Furthermore, considering the roles of Bilinski, Lamblin and Arnot in management of these companies, we are of the view that it is not prejudicial to the public interest to vary the outstanding Commission orders so as to permit each to participate in the preparation of offering documents relating to any restructuring or reorganization of Canadian Global Real Estate and Columbia Ostrich.

        [para 25]
        In addition, if offering documents relating to any restructuring or reorganization of Canadian Global Real Estate and Columbia Ostrich are prepared any distributions must be made through an independent investment dealer registered under the Act. This specifically does not include a mutual fund dealer. We must also emphasize that our variation does not go so far as to allow any of Bilinski, Lamblin and Arnot to otherwise use the trading exemptions in sections 44 to 47, 74, 75, 98 and 99 of the Act to raise money from investors for these or any other exempt products.

        [para 26]
        Therefore considering that it is not prejudicial to the public interest under section 171 of the Act we order that the temporary orders made by the Commission against Bilinski, Lamblin, Arnot, Canadian Global Real Estate and Columbia Ostrich are varied to permit:

        1. Bilinski, Lamblin and Arnot to do any act in furtherance of a trade provided those acts only relate to the preparation of offering documents relating to any restructuring or reorganization of Canadian Global Real Estate and Columbia Ostrich; and

        2. Canadian Global Real Estate and Columbia Ostrich to offer securities under revised offering memoranda prepared in compliance with the legislation on the condition that the exemption described in section 45(2)(7) of the Act is not available to any person with respect to the trading of securities of Canadian Global Real Estate and Columbia Ostrich except where the trade in a security of these issuers is by a person acting solely through an independent investment dealer registered under the Act.
        January 24, 2001

        [para 27]
        FOR THE COMMISSION





        Joyce C. Maykut, Q.C., Vice Chair





        John K. Graf, Commissioner





        Roy Wares, Commissioner
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