Settlements

Thomas Bodnarchuk [Sec. 144]

BCSECCOM #:
Document Type:
Sec. 144
Published Date:
1991-02-18
Effective Date:
1991-02-18
Details:


Bodnarchuk (Re)

IN THE MATTER OF the Securities Act, S.B.C. 1985, c. 83
AND IN THE MATTER OF Thomas Bodnarchuk, a.k.a. Thomas Barnard


Orders under Section 144

W.D. Nesmith

February 18, 1991

ORDERS:-- WHEREAS an Agreed Statement of Facts and Undertaking was executed by Thomas Bodnarchuk, a.k.a. Thomas Barnard ("Barnard") and the Superintendent of Brokers (the "Superintendent"), a copy of which is attached as Schedule "A";

NOW THEREFORE the Superintendent, considering that it would be in the public interest to do so, orders BY CONSENT:

1.that pursuant to section 144(1)(c) of the Securities Act, S.B.C. 1985, c. 83 (the "Act"), the trading exemptions contained in sections 30 to 32, 55, 58, 80 and 81 of the Act do not apply to Barnard for a period of two (2) years from the date of these Orders; and
2.that pursuant to section 144(1)(c) of the Act, Barnard is prohibited from becoming or acting as a director or officer of any reporting issuer for a period of five (5) years from the date of these Orders.
W.D. NESMITH, Superintendent of Brokers

Schedule "A"

IN THE MATTER OF THE SECURITIES ACT
S.B.C. 1985, c. 83
AND IN THE MATTER OF RAINFOREST MUSHROOMS LTD.
AND IN THE MATTER OF G. GERRY HARGITAI, JOHN CZINEGE,
THOMAS BARNARD AND JOHN GAETZ

Agreed Statement of Facts and Undertaking

The following agreement has been reached between Thomas Bodnarchuk, a.k.a. Thomas Barnard ("Barnard") and the Superintendent of Brokers (the "Superintendent"):

1.As the basis for orders made under section 144 of the Securities Act, S.B.C. 1985, c. 83 (the "Act") withdrawing the statutory exemptions of Barnard and prohibiting Barnard from becoming or acting as a director or officer of any reporting issuer, Barnard acknowledges that the following facts are correct:
a)Rainforest Mushrooms Ltd. ("Rainforest") is a reporting issuer incorporated in British Columbia under the Company Act, R.S.B.C. 1979, c.59, and its common shares were listed, posted and called for trading on the Vancouver Stock Exchange (the "Exchange") on September 21, 1989;
b)G. Gerry Hargitai ("Hargitai") was the President and a director of Rainforest from February 5, 1987 until June 18, 1990;
c)Barnard was the Secretary-Treasurer and a director of Rainforest from February 5, 1987 until September, 1990;
d)John Csinege ("Csinege") is a director of Rainforest and has been since February 5, 1987;
e)John Gaetz ("Gaetz") is a director of Rainforest and has been since June 18, 1990;
f)Rainforest filed a prospectus (the "Prospectus") dated February 27, 1989, with the Commission and obtained a receipt therefor dated March 13, 1989, with respect to the distribution of 765,000 common shares at a price of $0.50 (the "IPO shares");
g)2,178,200 common shares of Rainforest were issued and outstanding as at September 21, 1989, including the 765,000 IPO shares;
h)The Prospectus indicated that:
(i)Rainforest was in the business of growing and marketing mushrooms and had achieved commercial production in Britannia Beach from August 1, 1985 to July 31, 1987, with revenues of $51,366 during this period;
(ii)commercial production had ceased subsequent to July 31, 1987, due to production problems and lack of working capital;
(iii)Rainforest was to resume production at its Britannia Beach facility upon completion of the public offering;
(iv)Rainforest's primary market for mushrooms was to be local, although it had a letter of intent with Madame Mushrooms Natural Foods to sell the oyster mushroom in export markets;
(v)Rainforest's business operations in Britannia Beach were the subject of a technical report prepared by Carob Management Ltd. (the "Technical Report");
(vi) the net proceeds of $351,900 from the public
offering, together with cash on hand at February 27,
1987, were to be expended as follows pursuant to the use
of proceeds" on page 3 of the Prospectus:
- estimated costs of issue     $20,000
- accounts payable and other    71,814 liabilities
- facility start-up costs       12,500
- direct production costs       16,800 for 4 months
- production facility overhead  17,580 for 12 months
- marketing expenses            53,600
- general and administrative    30,000 overhead
- unallocated working capital  130,116 reserve                       -------
TOTAL$352,410
i)Hargitai used $149,000.00 from the account into which $285,511.00 of the initial public offering funds were paid from Pacific International Securities on September 15, 1989 to Rainforest, to purchase shares in Rainforest prior to September 15, 1989;
j)Barnard on September 21, 1989, was a signatory to an affidavit declaring that there had been no material changes in the statements of facts in the Prospectus, which he ought to have known at the time and in light of the circumstances under which it was made was a misrepresentation within the meaning of section 138 of the Act;
k)Between September 26, 1989 and October 6, 1989 Hargitai transferred a further $59,000.00 of Rainforest funds to his own personal use. Hargitai did not disclose to Barnard that any funds flowing from Rainforest were being used to purchase shares in Rainforest, but advised him, several months after the withdrawal of these funds, that they had been forwarded to Hungary in furtherance of an investment opportunity in the mushroom business;
l)Most of the funds transferred from Rainforest bank accounts in September and October 1989 were authorized by the signature of one director whereas a corporate resolution of September 6, 1989 and the listing agreement with the Exchange required two directors' signatures;
m)in the Quarterly Report filed by Rainforest with the Commission on January 29, 1990 for the period ending September 30, 1989 it was stated that within a period of 10 days from the completion of the public offering Rain forest had entered discussions with a European Group regarding a partnership in order to set up and operate a mushroom production and distribution facility in Europe (the "European Project") and that Rainforest had advanced $174,000.00 towards the European Project;
n)In the Quarterly Report filed by Rainforest with the Commission on March 1, 1990 for the period ending December 31, 1989 it was stated that Rainforest had advanced $221,510 towards the European Project;
o)Barnard ought to have known at the time and in light of circumstances under which they were made that statements regarding advances towards the European Project were misrepresentations within the meaning of section 138 of the Act;
p)The Superintendent on April 10, 1990, made a temporary order pursuant to section 144(2) of the Act that all persons cease trading in the shares of Rainforest;
q)The Commission on April 18, 1990, adjourned the hearing, by consent, 'sine die' and extended the temporary cease trade order under section 144(3) of the Act until a hearing is held and a decision rendered;
r)On April 12, 1990 staff of the Commission by letter to solicitors for Rainforest required return of the funds represented to be in Hungary;
s)On April 16, 1990 Czinege advanced $160,000 to Rainforest which he obtained from Gaetz, Oakmont Financial Corp. and Janmor Holdings Ltd. ("Janmor") and on April 18, 1990 advanced a further $10,000 from Janmor to Rainforest;
t)On April 20, 1990, Hargitai and Czinege purchased on behalf of Rainforest two Guaranteed Investment Certificates (the "G.I.C.'s") from the Toronto Dominion Bank (the "T-D Bank") in the amounts of $150,000.00 and $20,000.00;
u)The G.I.C.'s were pledged as security for a $170,000.00 personal loan from the T-D Bank to Hargitai on April 20, 1990. A legal opinion was provided to the T-D Bank that Rainforest could pledge the GIC's as security;
v)Hargitai deposited the loan proceeds into his personal bank account and purchased three bank drafts in the amounts of $65,000.00, $60,000.00 and $45,000.00 which were then used on April 20, 1990 to repay the loans referred to in paragraph 1(s) hereof;
w)On April 23, 1990 Rainforest represented through its solicitors that the monies required to be returned from Hungary were now in the form of G.I.C.'s held by the corporate solicitors;
x)On July 31, 1990 Barnard executed a statutory declaration stating that the T-D Bank was holding Guaranteed Income (sic) Certificates on Rainforest's behalf which he had no reason to believe did not belong to the Company or were subject to third party claims.  Barnard ought to have known at the time and in light of circumstances under which they were made these statements were misrepresentations within the meaning of section 138 of the Act;
y)On August 3, 1990 Hargitai deposited four cheques totalling $21,000.00 to his TD Bank account from which he then drew a $20,000.00 cheque to the T-D Bank for a loan payment;
z)The T-D Bank on August 3, 1990 released the hypothecation on the $20,000.00 G.I.C. upon receipt of the loan payment and Hargitai then deposited the G.I.C. proceeds with interest into a Rainforest account;
aa)Hargitai and Czinege signed a counter cheque on August 3, 1990 on Rainforest's account paying $12,000.00 to Hargitai;
bb)The Commission on August 14, 1990 made freeze orders under section 135 of the Act with respect to any funds, securities or other property of Rainforest;
cc)On August 20, 1990 Czinege through Janmor paid $150,000.00 to Hargitai which he used to retire the remaining $150,000.00 loan to him from the T-D Bank releasing the $150,000 G.I.C.;
dd)The proceeds of the matured $150,000.00 G.I.C. with interest were rolled over on August 20, 1990 into another G.I.C. on behalf of Rainforest.
2.Barnard waives any requirement of a hearing under section 144(1) of the Act and consents to orders pursuant to section 144(1)(c) and 144(1)(d) of the Act in the form annexed hereto as Exhibit "1".
3.Barnard waives his right to a hearing and review or appeal under section 147 and 149 of the Act in connection with the Order.
4.Barnard agrees to pay to the order of the Minister of Finance and Corporate Relations the sum of $2,000.00 towards the investigation costs in this matter.
Dated at Vancouver, British Columbia thisday of February,
1991.
----------------- Thomas Bodnarchuk
Dated at Vancouver, British Columbia thisday of February,
1991.
------------------------- Wade D. Nesmith Superintendent of Brokers