Decisions

Northridge Energy Optimizer Corp., et al. [Decision]

BCSECCOM #:
Document Type:
Decision
Published Date:
1994-07-29
Effective Date:
1994-07-22
Details:

COR#94/189
IN THE MATTER OF The Securities Act, S.B.C. 1985, c. 83
AND IN THE MATTER OF Northridge Energy Optimizer Corp.
AND IN THE MATTER OF Roy Carter and David Tang
Decision
J.C. Maykut, Q.C., E.L. Lien, A.R. Wanstall
Heard:  May 12, 1994
Reasons:  July 22, 1994

Counsel:

Kathleen A. Reilly, for the Commission staff. Roy Carter, on his own behalf.
DECISION OF THE COMMISSION

INTRODUCTION

On January 24, 1994, a notice of hearing was issued to give Northridge Energy Optimizer Corp., Roy Carter and David Tang an opportunity to be heard before the British Columbia Securities Commission considered whether it is in the public interest to make orders under sections 144(1)(a), (c) and (d), 144.1 and 154.2 of the Securities Act, S.B.C. 1985, c. 83. Commission staff alleged that Northridge, Carter and Tang failed to comply with orders issued by the Superintendent of Brokers and by the Commission.

Tang and Northridge did not appear at the hearing.  The notice of hearing was sent by fax and regular mail to the registered and records office of Northridge and by fax and regular mail to the last known address filed by Tang with the Commission and to another more recent residential address of Tang known to Commission staff.  Commission staff also made additional attempts to personally serve Tang, including leaving the notice of hearing with Tang's adult son, with whom he appears to be in regular contact.  On the evidence regarding service provided by Commission staff, it appears to us that Tang was avoiding personal service of the notice of hearing.  We ruled that Tang and Northridge had received notice of the hearing in accordance with section 156 of the Act.

BACKGROUND

Northridge was incorporated under the Company Act, R.S.B.C. 1979, c. 59, in December 1987. Its business was the developing and marketing of an energy saving device called the Optimizer. Tang is the President of Northridge and, while records with the Registrar of Companies indicate that Carter and Tang are its only directors, Carter testified that he resigned as director in March 1991.

Under an offering memorandum filed with the Commission on April 6, 1988, Northridge offered to sell units to immigrant investors under the Immigration Act (Canada).  Ten units were offered, each unit consisting of 25,000 common shares, for an aggregate price of $250,000 per unit.

Although securities issued under immigrant investor offerings were exempt from registration and prospectus requirements, the policy in effect at the time Northridge filed its offering memorandum required that these issuers be designated reporting issuers under the Act. This provided the assurance of continuous disclosure and the possibility of future liquidity to the immigrant investors.  Issuers of immigrant investor offerings were also subject to requirements set out by both Employment and Immigration Canada and the British Columbia Ministry of Economic Development.

On April 7, 1988, Northridge was designated as a reporting issuer under the Act.

Northridge failed to file the financial statements required under the Securities Regulation, B.C. Reg. 270/86.  As a consequence, on June 27, 1991, the Superintendent ordered under section 146(1) of the Act that all trading in the securities of Northridge cease until audited comparative financial statements for its 1988, 1989 and 1990 financial years and interim financial statements for the three, six, and nine month periods of 1988, 1989 and 1990 are filed as required under sections 136 and 135(1), respectively, of the Regulation.

Despite the cease trade order, Northridge did not file any financial statements.  On May 13, 1992, the Superintendent ordered under section 125.1 of the Act that Northridge produce certain records and information, including the financial statements, referred to in the cease trade order.  Northridge failed to comply with the section 125.1 order and, on August 14, 1992, the Superintendent gave notice to Northridge, Tang and Carter of a hearing to be held before the Commission determined whether it was in the public interest to make certain orders under the Act against them.

A hearing was held before the Commission on August 26, 1992, at which Tang appeared and testified.  Northridge's accountant, Ismail Barakat, also testified.  Carter did not appear. Although Carter was not personally served with the notice of hearing, the Commission ruled that he had received notice of the hearing in accordance with section 156 of the Act.

The Commission concluded that Tang as President and director of Northridge was unable to provide any reasonable excuse for Northridge's failure to comply with the section 125.1 order. At the conclusion of the hearing on August 26, 1992, the Commission issued oral orders followed by a written decision dated October 2, 1992, requiring: that Northridge comply, and that Tang and Carter cause Northridge to comply, with the section 125.1 order and deliver information to the Commission staff in a specified time frame; that Northridge pay an administrative penalty of $5,000; and that Northridge pay the costs of or related to the hearing.

On August 26, 1992, in a separate order, the Commission ordered under section 135 (1) of the Act that any funds, securities or other property of Northridge, Tang and Carter be frozen.

Some of the information required to be produced by Northridge was delivered to Commission staff subsequent to the Commission order of August 26, 1992.  The information provided included several directors' resolutions, a schedule of shareholders, a schedule of payments made to directors and officers, an audited balance sheet for the financial year ended January 31, 1989, and an unaudited balance sheet for the financial year ended January 31, 1990.

Northridge did not pay the administrative penalty ordered by the Commission.  Apart from the audited balance sheet for the year ended January 31, 1989, Northridge has not filed any of the financial statements required under the Regulation since it became a reporting issuer.

In light of this substantial non-compliance with the Commission's and the Superintendent's orders, the Superintendent issued the notice of this hearing.

At the hearing, Carter testified that he first became aware of these proceedings by reading about them in the press, a short time before this hearing was set to commence.  As a result, he said, he contacted Commission staff and provided what assistance he could in locating Tang.

Carter stated that he became involved in Northridge as a result of being approached by a Mr. Peter Khean, C.G.A. when Carter was on welfare and living in Khean's rooming house.  Carter stated that, at that time, he was suffering from a spinal injury and consequently unable to work at his previous job. Wanting to go back to work, Carter took a secretarial course and began working for Khean in the immigration business. Carter said his primary responsibility  was to interview prospective immigrants and help them fill out the forms required by Immigration Canada.  He also acknowledged providing bookkeeping and secretarial services.

Carter stated that Khean was Tang's business partner and the directing mind behind several related companies, including Northridge.  Although a director of Northridge, Carter said he perceived his role as that of an employee and he merely did what he was told by Khean and Tang as their proxy.  Carter stated that, while he was a director of Northridge, he didn't really know what was going on in the company even though he acknowledged signing the offering memorandum, share certificates and several directors' resolutions.  The offering memorandum describes Carter as an accountant by profession, with over 15 years of management and marketing experience. Carter stated that he never saw a physical unit of the Optimizer, although Khean and Tang went to Asia several times to promote it and to hire distribution agents.  Carter stated that sometime in late 1990 or early 1991, he became suspicious of the conduct of Khean and Tang.  After speaking to a lawyer, he began to think seriously about his responsibilities as a director and he wrote to Khean and Tang on March 18, 1991, advising them of his resignation as officer and director of the various related companies he was involved with, including Northridge.

Carter stated that, after he resigned as a director of Northridge, Tang locked up all of Northridge's documents in his office.  Carter said he has no idea where Tang or the corporate records of Northridge are now and, consequently, cannot personally comply with the section 125.1 order or the Commission's subsequent order of August 26, 1992.  Carter testified he has been named as a defendant, along with Tang, Northridge and others, in civil suit initiated in Supreme Court by one of the immigrant investors in Northridge.  Carter is currently unemployed and receiving social assistance.

DECISION

Apart from the audited balance sheet for the year ended January 31, 1989, Northridge has not filed the financial statements required under the Regulation since it was designated a reporting issuer on April 7, 1988.  Carter and Tang, as Northridge's directors, were responsible for ensuring that Northridge complied with its regulatory obligations. Northridge, Carter and Tang failed to comply with the section 125.1 order issued by the Superintendent and of the subsequent order and decision of the Commission, dated August 26 and October 2, 1992 respectively.

Non-compliance with the continuous disclosure requirements of the Act, in and of itself, seriously undermines the integrity of our securities markets.  However, the repeated and flagrant disregard of regulatory orders directed at ensuring compliance with these requirements, as demonstrated by Tang, is highly prejudicial to the public interest and will not be tolerated.

Such conduct naturally raises the alarm that more disturbing evidence will be revealed once all the facts are known. Questions and concerns regarding Northridge's use of the immigrant investor funds have multiplied as a result of Carter's testimony and the limited documentary evidence available to us.  However, these issues have not been raised in the notice of hearing and are not before us now. Accordingly, the orders we make today relate to only those matters set out in the notice of hearing, namely Northridge's, Tang's and Carter's non-compliance with the orders of the Superintendent and Commission.

We have determined that it is in the public interest to order:

1.
under section 144(1)(c) of the Act, that the exemptions described in sections 30 to 32, 55, 58, 80 and 81 of the Act do not apply to Northridge, Tang and Carter for a period of 5 years following compliance, satisfactory to Commission staff, with the Superintendent's section 125.1 order and the Commission's order of August 26, 1992;
2.
under section 144(1)(d) of the Act, that Tang and Carter are prohibited from becoming or acting as directors or officers of any reporting issuer, other than Northridge, for a period of 5 years following compliance, satisfactory to Commission staff, with the Superintendent's section 125.1 order and the Commission's order of August 26, 1992;
3.
under section 144.1 of the Act, that Tang pay an administrative penalty of $15,000; and
4.
under section 154.2 of the Act, that Northridge, Tang and Carter pay prescribed fees or charges for the costs of or related to the hearing incurred by the Commission.
The cease trade order issued on June 27, 1991, under section 146 of the Act against Northridge remains in effect.

J.C. MAYKUT, Q.C., Vice Chair
E.L. LIEN, Member
A.R. WANSTALL, Member