Joyce Maykut, Q.C., and Susan Ross, for Superintendent of Brokers.

   Al Basile, for Marathon Minerals Inc. and Earl MacRae.

   Frank R.C. Dorchester, for Buxton Placer Exploration Ltd. and Douglas R.G. Harris.

   Gordon A. Fulton and John C.R. Cumming, for Corcoran & Company Limited Partnership and Piers VanZiffle.

   David P. Church, for Neil W. Humphrey.

   John Rowan, Q.C., and Mark Rowan, for George Krueckl.

   Kenneth A. Cawkell, Donald A. Lyons and Lori Susan Becker, for J. Keith Judd, Michael D. Judd and Cathryn J. Garcia.

   Jack A. Adelaar and Barry Slutsky, for BJ Illingby.

   Marvin L. Judd, on his own behalf.

   REASON FOR DECISION:--

INTRODUCTION

   On January 11, 1988, the Superintendent of Brokers (the "Superintendent") made a temporary order under section 144(2) of the Securities Act, S.B.C. 1985, c. 83 (the "Act"), prohibiting all trading in the securities of Marathon Minerals Inc. ("Marathon"). The matter first came before the Commission on January 26. The temporary order was extended and the hearing required under section 144(1) was adjourned to allow the Superintendent time to complete his investigation into Marathon's affairs. On March 9 the Superintendent issued a supplementary notice under section 144 and a notice of hearing under section 145 seeking the removal of exemptions from a number of additional respondents who were joined in the proceedings.

   The hearing finally got underway on May 9 and was anticipated to take two days. It went on for twenty-one days, eventually concluding on September 23. During the hearing J. Keith Judd, Cathryn J. Garcia and Michael D. Judd reached Settlements with the Superintendent and the proceedings against them were discontinued. The Superintendent also advised the Commission during the hearing that he was discontinuing the proceedings against Corcoran & Company Limited Partnership ("Corcoran & Company"), Piers VanZiffle ("VanZiffle") and Neil W. Humphrey ("Humphrey"). At the final stage of the hearing, the Commission was advised that Marathon would consent to an order on the terms sought by the Superintendent. The remaining respondents (who, together with Marathon, will be referred to as the "Respondents") are Earl MacRae ("MacRae"), Marvin L. Judd ("Judd"), Douglas R.G. Harris ("Harris"), Buxton Placer Exploration Ltd. ("Buxton"), George Krueckl ("Krueckl") and BJ Illingby ("Illingby").

   Before the conclusion of the hearing, the Superintendent gave notice that he was seeking orders under section 145.1, prohibiting the Respondents, other than Marathon and Buxton, from acting as directors or officers of reporting issuers; under section 134, requiring the Respondents to pay prescribed fees or charges for the costs of the investigation; and under section 154.2, requiring the Respondents to pay prescribed fees or charges for the costs of or related to the hearing.

   The notices of hearing asked the Commission to consider whether certain of Marathon's disclosure documents contained statements that, at the time and in the light of the circumstances under which they were made, were misrepresentations within the meaning of the Act and, further, whether the Respondents authorized, permitted, acquiesced in, participated in or substantially assisted in the preparation, filing and publication of the documents when they knew, or ought to have known, that the documents contained statements that were misrepresentations. The documents in question consisted of news releases, quarterly reports and the annual audited financial statements for the year ended March 31, 1987.

   The Superintendent alleges that the documents were false and misleading because they failed to disclose (and in fact falsely disclosed otherwise) that Marathon had not incurred, by February 28, 1987, or at all, $1.5 million in exploration expenditures on its Spanish Mountain placer leases, and that at no material time had Marathon raised more than half of the $1.5 million in financing required for its proposed exploration program. The Superintendent's position is that the Respondents were at all material times aware that the funding had not been raised and the work had not been done.

   Two additional matters emerged during the course of the hearing, one involving undisclosed dealings in Marathon's escrow shares and the other concerning irregularities in the issuance of shares by way of private placement and in the exercise of directors' and employees' options.

   According to the Superintendent, the Respondents perpetrated an elaborate and continuing fraud, entailing intentional and gross disregard for and abuse of the continuous disclosure requirements in the Act.

BACKGROUND

   Marathon was incorporated on March 17, 1983, and by 1984 was listed on the Vancouver Stock Exchange ("the Exchange"). MacRae became a director and president of Marathon in January 1984. In late 1985 or early 1986 Marathon became interested in certain mineral leases held by Buxton on Spanish Mountain, near Likely in central British Columbia.

   Buxton was a non-reporting company controlled by Harris, a former steel fabricator and automotive repair operator who had been involved in placer exploration on Spanish Mountain on and off for almost 30 years. Buxton held or claimed to hold title to 21 placer gold leases on Spanish Mountain., The leases were in three groups known as the Hughes-Lyne leases, the Reid leases and the Harris leases.

   In early 1986, Marathon entered into a joint venture agreement with Buxton whereby Marathon would acquire from Buxton a 60% net cash flow interest in the six Hughes-Lyne leases and the Reid Corridor, a small unsurveyed strip of property sandwiched between the Hughes-Lyne leases. In exchange Marathon was to provide working capital and equipment to bring the leases into production.

   At about the same time, Harris secured a copy of a report concerning a test program on the Hughes-Lyne leases, which had been done by Krueckl in 1984 for Nor Dan Resources Inc. Krueckl was a professional engineer with twenty-four years experience in geological engineering. In January or early February 1986 Harris asked Krueckl to update the report and advised him that he had an interested investor, Marathon, who wanted to put the leases into production. Krueckl produced a feasibility report, dated February 26, 1986, recommending production.

   The initiative stalled during the Spring and Summer, however, as a result of litigation over the title to the Hughes-Lyne leases and difficulties encountered by Marathon in securing financing for the program. The person working on the financing was Ross Dion ("Dion"), who controlled Marathon through his beneficial ownership of 700,000 escrow shares. On October 22, after it had become apparent that Dion would not be able to deliver the financing, Harris went to see Judd.

   Harris and Judd had known each other for about twenty years. Judd was a financial and management consultant with considerable experience. Judd, his brother Keith Judd and Neil Humphrey together operated Puma Management Inc. ("Puma"), whose business was managing junior companies listed or trying to become listed on the Exchange. Judd advised Harris that a flow-through share arrangement was the only reasonable possibility for securing the financing he was seeking.

   A public company was necessary to make the flow-through funding work. Harris suggested Marathon. The agreement between Judd and Harris initially provided that they would together acquire control of Marathon from Dion. Buxton would be the operating company that carried out the work program for Marathon and it would also be jointly controlled by Judd and Harris. The agreement was later changed to give the appearance of an arm's length relationship between Marathon and Buxton. Judd would acquire control of Marathon and Harris would retain ownership of Buxton, and the two companies would share equally in any production profits made by Buxton on the leases.

   Accessing the flow-through money also necessitated some variations in the work program. Harris met with Krueckl in November, advised him that flow-through funding was being discussed with Knight's Mineral Exploration and Company, Limited Partnership ("Knight's") and requested changes to the February 26, 1986 report. Krueckl completed a draft of his amended report on November 25 and it was circulated amongst the various participants at a meeting at the offices of Marathon's lawyers on December 1. Further changes were suggested, additional drafts were prepared and the final version of the report was not completed until January 12, 1987, although it was dated December 3, 1986.

   The revised work program differed in several important respects from the one described in Krueckl's February 1986 report. The focus shifted from production to exploration and testing, in order to qualify for the flow-through money. The work schedule was changed to three months completing on February 28, 1987, so that the expenditures would be eligible for deduction in the 1986 taxation year. The target area was enlarged from the six Hughes-Lyne leases and the Reid Corridor to Buxton's entire property which, in addition to the six Hughes-Lyne leases, included the eleven Reid leases and the four Harris leases. The capital cost of the wash plant and other equipment increased from $1,215,000 to $2,745,000. The cost of the plant itself went from $300,000 to $1,250,000. The operating cost of the plant went from $2.30 per cubic yard to $9.69 per cubic yard.

   Some parts of the report did not change. The plant, called a processing plant in the February report and a bulk testing plant in the December report, was shown in both as having a capacity of 500 cubic yards per hour. However, the production rate for the purposes of determining operating costs was assumed to be 320 cubic yards per hour in the December report. The estimated average gold content was shown to be .01725 ounces per cubic yard in both reports, even though the December report covered a much larger area and included leases on which no previous testing had been done.

   The revised program called for thirty drill holes, fifteen to twenty test pits and bulk testing of approximately 160,000 cubic yards of material from six or seven sites, the location of which would be determined by the drilling and test pit results. The samples from the drill holes and test pits were going to be processed on site and the resulting concentrate sent to Vancouver for analysis. This was later changed so that both the processing and the analysis was to be done in Vancouver. The bulk test material was to be processed and analyzed at the site. The total operating budget for the revised program was $1,760,400.

   Throughout the period from October to December 1986, during which the report was being revised and amended, Krueckl kept up a steady flow of information to Jim Richardson, a geologist who was vice-president in charge of exploration for Knight's. Richardson had an office very near to Krueckl's. He knew Krueckl from a previous association and had a high regard for his integrity and professionalism. Richardson was responsible for reviewing the program and at some point, probably in early December, he was satisfied that he was sufficiently familiar with the important elements of the program and concluded that it was feasible. The report that he relied on in making this judgment was one of the drafts and it did not include some of the information that went into the final version which was completed in January. Richardson recommended acceptance to Knight's and signed a letter of intent dated December 1 confirming approval of the program.

   During this same period, Judd was negotiating the Knight's financing agreement with Bob Kramer who was on contract with Knight's to find such projects. The agreement that was ultimately made required Knight's to incur $1.5 million in mineral exploration expenditures on the property in exchange for Marathon issuing 500,000 common shares and 500,000 warrants to Knight's. Marathon would act as Knight's agent for the purpose of incurring the expenditures and would seek reimbursement after the expenditures were made. Money would be paid by Knight's and the shares and warrants would be issued by Marathon from time to time as the work program progressed.

   An unusual feature of the Knight's agreement was that each payment of the flow-through money by Knight's was contingent on Marathon, acting through its subsidiary 297705 B.C. Ltd., subscribing for and paying an amount equal to half the requested payment for retractable preferred shares in KRS Retraction Limited ("KRS"), a company owned by Knight's. KRS would then lend the money to Knight's to fund half the advance to Marathon. The warrants were exercisable at one cent per share and if they were exercised Marathon could require redemption of the KRS preferred shares. Moreover, if Marathon's shares traded for thirty consecutive days at a price in excess of $1.80, it could give notice requiring Knight's to exercise the warrants, and thirty days after the warrants were exercised Marathon could require KRS to redeem the preferred shares. In December 1986, Marathon's shares were trading at about 40 cents per share. Marathon thus had an opportunity, albeit a remote one, of recovering the $750,000 that was to be paid to KRS as a condition of receiving the $1.5 million from Knight's.

   The net result of the Knight's financing to Marathon was $750,000 in new money. The $1.5 million in write-offs that were to accrue to Knight's unitholders depended on Marathon incurring on behalf of Knight's $1.5 million in qualifying expenditures. Marathon therefore had to raise $750,000 in matching funds to complete the financing for the program.

   Knight's and Marathon executed an Exploration Agreement incorporating these terms and procedures. The document was expressed to be made as of December 1, 1986, although it was probably signed some time later.

   With the Knight's financing secured, Judd proceeded with the takeover of Marathon early in December. A press release dated December 5 announced a change of management. Neil Humphrey, Keith Judd and Michael Judd were appointed directors, joining MacRae who remained on the board. Humphrey was appointed president, replacing MacRae who became corporate secretary. Keith and Michael Judd received directors' and employees' stock options enabling them each to purchase 100,000 shares in Marathon at a price of forty cents per share.

   The 700,000 escrow shares controlled by Dion were still registered in the name of Chix Holdings Inc. ("Chix"), the previous owner. Dion had purchased the shares from Chix in September 1984 but bad never received shareholder or regulatory approval for the transaction, and the change in control had never been disclosed to the public. An agreement dated December 19, 1986 documented the sale of the escrow shares from Dion to the Judd group. It showed a sale to Keith Judd by Dyonn Dividend Corporation, a private company controlled by Dion. The actual share transfer forms were signed on January 29, 1987, by Chix and the transferees were Keith Judd and Michael Judd. This transfer was disclosed in a press release the same day, but Exchange approval was not sought until May 4 and was never received. According to a subsequent letter from Marathon's solicitor, the escrow position was split between Keith and Michael Judd so that neither would hold in excess of 20 percent of Marathon's shares and therefore, in the solicitor's opinion, shareholder approval would not be required for the transfer.

   Another event apparently incidental to the takeover of Marathon involved the issuance of shares by private placement to Trans-Atlantic Capital Services Ltd. ("Trans-Atlantic") and Star Trek Agencies Ltd. ("Star Trek"). Marathon had issued a news release on July 18, 1986, announcing that it had arranged, subject to regulatory approval, a private placement of 300,000 shares at a price of thirty-five cents per share, with attached warrants to purchase a further 300,000 shares at a price of forty cents per share. The private placement was later reduced to 200,000 units, one-half to be issued to each of Trans-Atlantic and Star Trek. The "payment" of the subscription price of the shares involved a complicated maneuver devised by Dion and Judd at the time of the takeover. A series of seven monthly invoices each in the amount of $10,000 was prepared by Buxton covering "management and operating services" supposedly rendered to Marathon on the Spanish Mountain property from March 1 to September 30, 1986. On January 23, 1987, cheques were exchanged between Marathon and Buxton which purported to settle the account and pay for the shares. Six months later, on July 19, the attached warrants were exercised and paid for by a credit note from Buxton, purporting to reduce an amount owing to Buxton from Marathon by $80,000.

   The two placees, Star Trek and Trans-Atlantic, were private companies said by Harris to be controlled by Dion. Harris stated that half the Marathon shares held by Star Trek and Trans-Atlantic belonged to Dion and the other half were his. Marathon's quarterly reports and financial statements indicated that the shares had been issued for cash. Marathon and Buxton entered into two formal agreements for the Spanish Mountain project: an Operating Agreement and a Joint Venture Agreement. Both were dated as of January 12, 1987. Under the Operating Agreement, Marathon engaged Buxton to carry out the exploration program on the leases and appointed Buxton to be its agent in incurring the expenditures related to the program. The program was defined by reference to the December Krueckl report.

   Under the Joint Venture Agreement Marathon acquired a fifty percent interest in the leases and both parties agreed to participate in a joint venture to carry out the continued exploration and development of the leases. Marathon agreed to incur on behalf of the joint venture $1.5 million in initial costs. If it failed to do so or if it did not contribute sufficient funds to commence commercial production by December 31, 1987, Marathon would relinquish its interest in the leases, provided that if it incurred costs of at least $750,000 by the deadline Marathon would retain a royalty interest equal to five percent of net profits until it recovered its costs.

   With all the agreements now in place, Judd turned his mind to covering Marathon's obligation to provide $750,000 in matching funds. At a directors' meeting on January 13, 1987, Marathon authorized the creation of $750,000 in convertible debentures. On January 29 Marathon issued a news release, signed by Humphrey, announcing the issuance of the debentures to match the Knight's funding and advising that the debentures would be issued to a group of private investors in thirty units of $25,000 each.

   Judd may have intended to purchase half the debentures himself, but any such plans were scuttled when his loan application to Canada Trust for $375,000 was turned down in late January. It is clear that by February 2 the plan called for Harris to take down $375,000 in debentures and cover the purchase price with Buxton's anticipated profit under the Operating Agreement. Some time between February 2 and February 9 the plan was varied again and now called for Judd and Harris each to borrow $375,000 from Buxton and take down the entire $750,000 in debentures from Marathon. Marathon would then advance the $750,000 through its subsidiary to Buxton as an advance on account of the Operating Agreement.

   Buxton had no money to lend to Judd or Harris but that problem was solved by means of a $50,000 "day light" loan from Burrard Corporate Services to Harris. The plan was executed on February 9. Judd, Keith Judd, Harris and MacRae all gathered at Canada Trust and made a series of deposits and transfers involving five different bank accounts. The money travelled in circles, from Harris to Marathon to 297705 B.C. Ltd. to Buxton and back to Harris until he ran up a total of $375,000. The $50,000 was then passed to Judd who did exactly the same thing. The point of the exercise was to create the appearance of Harris and Judd each advancing $375,000 to Marathon in exchange for convertible debentures, and of Marathon paying $750,000 through its subsidiary to Buxton. When it was all over Burrard Corporate Services received back its $50,000, Marathon had issued $750,000 in convertible debentures and could show on paper at least that it had paid $750,000 in matching funds to Buxton. However, Buxton, instead of $750,000 in real money, could only show loans receivable from Harris and Judd which were secured by a charge against their Marathon debentures.

   On February 11, Marathon issued a press release under MacRae's signature announcing the resignation of Neil Humphrey as president and the completion of the placement of the convertible debentures. It was not disclosed that the debentures were taken up by Judd and Harris. Humphrey testified that he had been asked to resign because he had disagreed with Judd and others connected with Puma and Marathon over the propriety of the February 9 transaction.

   The $750,000 in flow-through money from Knight's was paid to Marathon in three instalments: $40,000 on February 16, $185,000 on February 24 and $525,000 on March 2. In each case the procedure involved the submission of invoices by Buxton to Marathon, certification of the invoices by Krueckl, preparation of an actual expenditure certificate signed by Marathon and certified by its accountants, Corcoran & Company, submission by Marathon to Knight's of a request for payment together with supporting documentation, which included the shares and warrants, and approval of the package by Knight's. All this was followed by the issuance of a cheque from Knight's covering the net amount payable to Marathon. Marathon then paid the money to its subsidiary, which in turn paid the money to Buxton on account of the invoices. The procedure varied slightly from that prescribed by the Exploration Agreement. Instead of advancing a total of $1.5 million and requiring Marathon to pay half the amount of each advance to KRS, Knight's simply deducted the amount due to KRS from its payments to Marathon.

   There was conflicting testimony as to how the Buxton invoices were prepared and presented to Marathon. According to Harris, all the invoices were done up in advance by an accountant he had engaged for that specific purpose. Harris said the invoices were then delivered to Judd who used them as the work progressed through its various phases. Harris denied even seeing the invoices until they were put to him during the Superintendent's investigation. The evidence of several other witnesses, however, conflicted with Harris' story and suggested that he was much more directly involved in the preparation and approval of the invoices.

   The invoices submitted by Buxton referred to the work program contemplated by Krueckl's December report. In actual fact there was a substantial discrepancy between the work that was invoiced and what had really been done at the site. By February 28, 1987 Buxton had invoiced Marathon for approximately $1.65 million. The Knight's portion of the program had supposedly been finished. A statutory declaration signed by Keith Judd confirming completion had been delivered to Knight's on February 26. On March 3 Marathon issued a news release announcing completion of the work program. The reality of the situation was far different.

   Mike Twyman ("Twyman"), a geologist hired by Krueckl to supervise the drilling program at the site, arrived there on February 24 or 25. A tour of the site during his first week revealed no evidence of any significant land clearing or bulk sampling, some minimal road building which represented less than a day's work for a person with a D8 or D9 and only two drill holes. There was one small wash plant on the property. It had a capacity of between 200 and 400 yards per day but it was not functioning properly. There was no sign of the bulk testing plant referred to in Krueckl's report and no sign of any test pitting having been done. In Twyman's estimation approximately $20,000 worth of work had been done by the end of February.

   Krueckl testified that, prior to Twyman's going to the site, he had relied on assurances from Harris that the work was proceeding on schedule. He signed the certifications for the first two sets of invoices without any independent verification that the work had been done. Prior to reviewing the third set of invoices, which covered the bulk of the work, Krueckl became aware of the situation and knowingly signed the false certificate confirming completion of this work.

   The March 3 news release, which announced completion of the work program, went on to state that Marathon "anticipated that positive results ... will permit a production decision in the near future". On April 6 another news release stated that the results from the work program "are positive thus far". On May 7 a news release stated that "technical data provides a conservative estimate of the potential reserves to be 5 to 10 million cu. yds.". All three news releases were signed by Keith Judd. The information which they contained was far from the truth.

   Some test holes were drilled under Twyman's supervision with negative results, both in the field and at the Pacific Rim Research lab in Langley. Access to the Hughes-Lyne leases was precluded as a result of the litigation and the geological conditions on the other leases in the test area were different. There was a deep cover of overburden which consisted of glacial till and contained very little gold. Krueckl conveyed the negative results to Judd and Harris near the end of April when they asked him for a report confirming five million tons of proven reserves. Judd and Harris said they needed a positive report to raise the money required to complete the work program. Krueckl refused to falsify the test results and no report was prepared.

   The bulk plant never left Chilliwack. Indeed, it is extremely unlikely that it could ever have been completed in time to be used in Krueckl's work program. The plant had only reached the stage of an approved design by the middle of December 1986. Walter Plummer of R.M.S. Ross Corporation, who designed and was to build the plant, quoted Harris a price of $295,000. The plant was to be built using a chassis from a soil conditioning plant which Plummer had found and Harris had purchased for approximately $40,000. A design change introduced later added two nine-foot circular jigs which increased the cost by $165,000. The work on the plant did not even start until the middle of February when Harris advanced $50,000. At the time of the hearing the plant was still not finished, its progress having been interrupted several times by Harris' failure to come up with more money.

   Although Harris and Buxton were usually short of funds, such was not the case in early March 1987. Buxton had just received $525,000, the final instalment of Knight's flow-through money. Harris had frequently complained that Buxton was impeded in getting on with the work program because of the lack of funds, but even when he did receive money not all of it went into the program. Buxton advanced $52,819 to Kalbar Sawmills in March to cover the cost of a feasibility study for a sawmill in Indonesia. The project was being promoted by Bob Kramer and Harris thought it might be good politics to supply the money. Buxton lent $37,000 to Judd, also in March, to, in Harris' words, help him get something going on the Marathon shares. Only $20,000 was paid back. Between January and July 1987 Buxton spent a total of $389,540 on purchasing equipment, of which $100,000 was paid on account of the plant. These were capital outlays and not expenditures that would qualify under the work program.

   Judd continued his efforts to raise money for the Spanish Mountain project through the Spring and into the Summer of 1987. However, he was unable to sell the debentures that he and Harris had taken down to third party investors. He explored the possibility of preselling the gold, but he needed a report confirming there was gold in the ground.

   Marathon was getting desperate for money. On June 2 Judd negotiated the sale of 100,000 shares of Marathon to Dion for $40,000. Dion was to advance the money to Keith and Michael Judd to enable them to exercise the balance of their directors' and employee options. The shares thus obtained from Marathon were to be turned over to Dion. Dion did not have a bank account so MacRae delivered a $40,000 cheque drawn on his account to Marathon with instructions to hold it until he received the money from Dion. The shares were issued on June 2. MacRae's cheque was held until July 3 and when it was presented it bounced. In an effort to repair the situation, Judd was able to secure assignments of Marathon debt from Buxton covering $30,000 and from Norman Miller for $10,000, in favour of Keith and Michael Judd. The indebtedness was then cancelled to cover the purchase price of the shares.

   Unable to come up with any more financing and under pressure from Harris, Judd decided at the end of July that it was time to move on. Judd assigned his $375,000 in convertible debentures to Buxton in Settlement of his debt from the February 9 transaction. As part of the deal, he obtained a commitment from Buxton to pay him five percent of the net production revenues from the project until the death of the survivor of Judd and his wife. Keith Judd and Cathryn Garcia, Judd's daughter who had replaced Michael Judd as a director on June 30, both resigned their positions with Marathon. Judd negotiated the sale of the 700,000 escrow shares back to Dion for $20,000, although the purchase price was never paid. No approval for the transfer was obtained from the Exchange and no public disclosure of the change in beneficial ownership was made. MacRae became president again and Dion reassumed control and direction of Marathon from behind the scenes.

   On July 31 Marathon issued a news release, signed by MacRae, announcing the change in management, although Dion's role was not mentioned. It went on to advise that 200,000 shares of the company had been purchased pursuant to the terms of a 1986 private placement. The reference was to the private placement to Star Trek and Trans-Atlantic and the 200,000 shares covered by the warrants. The purchase price of $80,000 for the 200,000 shares was "paid" for by a credit note issued to Marathon by Buxton on August 25.

   On August 12 Marathon issued a news release announcing the appointment of Illingby as a director, and a contract between Marathon and Illingby's company, N P Electrical Services Ltd., to issue shares in exchange for electrical work on the bulk plant in Chilliwack.

   There was a concern surfacing about this time that Marathon might be delisted if it did not complete the audit of the annual financial statements for the year ended March 31, 1987 and hold its annual general meeting. VanZiffle had prepared his audit report, but it was being held pending receipt of an engineering report from Krueckl summarizing the exploration expenditures. Krueckl prepared a "progress report" on September 4 at the request of Dion and gave it to MacRae. The report was an undated letter which described the work that had been done at the site and spoke in terms that suggested it had been written some time in March or April. The work described included additional work that Buxton had done on the property after Marathon's year end, up to the date that the report was actually written. The report contained no information as to the amounts expended by Marathon, but it was accepted by the auditor and he released his auditor's report.

   In September 1987, the Superintendent requested that Marathon clarify the status of its claims in the Spanish Mountain area. The basis of the Superintendent's concern was that by failing to refer to the other Spanish Mountain leases in its quarterly reports Marathon was creating the misleading impression that its work program was on the Hughes-Lyne leases, which were still the subject of litigation. The boundaries to the Reid Corridor had been established, but Marathon was prohibited access to the Hughes-Lyne leases pending the outcome of the dispute over title. MacRae filed a revised quarterly report for the period from April 1 to June 30, 1987 signed by himself and Illingby. It contained particulars of some of the other placer leases in which Marathon had an interest, but in all other respects was the same as the report previously filed. Even the revised report identified only six of the eleven Reid leases.

   In conjunction with the revised quarterly report, Marathon issued a news release under MacRae's signature on October 14, 1987, acknowledging that certain of the company's quarterly reports had been incorrect and incomplete insofar as certain aspects of the Spanish Mountain leases were concerned, and that Marathon had as a consequence agreed to accept a reprimand from the Superintendent and to pay the costs of his investigation in the amount of $5,000. At the time of the hearing, this payment has not yet been made. The news release also expressly represented that $1.5 million in flow-through funding had been raised by the company and applied to exploration and development on the Reid and Harris leases, but not on the Hughes-Lyne leases as they were subject to litigation. It stated that the Reid leases were being equipped for mining forthwith at a design production rate of 5,000 cubic yards per day. Marathon anticipated mining to commence in October and was hoping for one month of operation before freeze-up.

   On December 11, 1987, Marathon issued a news release under MacRae's signature announcing that, due to weather conditions, operations at Spanish Mountain had shut down for the season. It went on to say that the project should be in a position to commence operations by mid-April 1988. One month later, on January 11, 1988, the Superintendent issued his temporary cease trade order, initiating these proceedings.

ADDITIONAL FACTS AND FINDINGS BY THE COMMISSION

   Although this matter involves a long and complicated series of events, certain facts are clear from the evidence. Marathon most certainly did not incur $1.5 million in exploration expenditures on its Spanish Mountain properties. Nor did Marathon ever raise the matching funds required under the Knight's agreement, notwithstanding the facade created by the issuance of the debentures and the rotation of money at Canada Trust. The Commission is satisfied that Judd, Harris, Krueckl and MacRae all participated in the perpetration of a fraudulent scheme, one that we suspect was devised at the very outset of Judd's involvement in Marathon's affairs and executed step by step with only minor variations along the way. The scheme involved a stream of false and misleading news releases, quarterly reports and financial statements, improper trading in escrow shares and serious irregularities in the issuance of shares from Marathon's treasury. The degree of involvement of each Respondent varied from Judd and Harris at one extreme to Illingby at the other, with Krueckl and MacRae somewhere in between.

Judd

   Judd was the mastermind behind the fraudulent scheme from the moment he was brought in by Harris in October 1986 until he departed in July 1987. He made a superficial effort to conceal his involvement by having his relatives serve as directors of record, but Judd was clearly a de facto director of Marathon and was the person primarily directing the affairs of Marathon during this period.

   Judd did not deny that $1.5 million in work had not actually been done on the property. His explanation was that, to qualify an expenditure as an exploration expense, it was not necessary for the work to which the expenditure relates to have actually been done, so long as the work had been contracted to be done. So far as Judd was concerned, Marathon had paid Buxton $1.5 million by February 28, half from Knight's and half through the February 9 debenture transaction, and although the work had not been physically done, Buxton was under a contractual obligation to do it. He admitted under cross examination that he might have been wrong about his interpretation of the tax law, but maintained that it had been his understanding at the time. We cannot accept that a man as intelligent as Judd would ever have believed this ridiculous explanation. Furthermore, it is totally inconsistent with the story Marathon was presenting in its news releases at the time, which clearly stated that the work had actually been done.

   Judd must bear responsibility for the numerous violations and irregularities in the disclosure documents and share transactions that occurred during his tenure. Although Judd did not sign any of Marathon's news releases or quarterly reports, he was directing those who did and he clearly knew that they contained false and misleading statements. Judd also devised with Dion the escrow transfers in December 1986 and July 1987 that took place without proper disclosure or regulatory approval, the private placement to Star Trek and Trans-Atlantic that was done without consideration or proper disclosure, and the improper assignment to Dion of directors' and employees' options exercised by Keith and Michael Judd in July 1987, again without consideration or proper disclosure.

Harris

   Harris denied being a party to the deception. He would have us believe that he was a naive but innocent victim of Judd's scheme. This we cannot accept. Although it was clearly beyond his ability to conceive of the plan or indeed to understand some of its complexities, we find that Harris was aware of what was going on and was a willing participant from the very outset.

   Harris acknowledged that the work had not been done but said he did what he could with the money he had. He disputed Twyman's estimates of the value of the work done. Harris maintained that $800,000 in work had been completed by the end of May, not $320,000 as suggested by Twyman. He blamed Judd for not coming up with the matching funds needed to complete the program. Harris portrayed himself as the "dirt in the jeans" man, who was involved only in operational matters, while maintaining that Judd was paid to be in charge of the money.

   Harris based much of his defence on his assertion that he had not participated in the presentation of the false invoices. According to Harris, the invoices were prepared in advance by Casey Forward, an accountant who shared office space with Dion and MacRae. Harris testified that, after agreeing with Judd on the procedure, he instructed Forward in December 1986 or January 1987 to prepare invoices based on the work program laid out in Krueckl's December report and to send them to Judd by courier. The cover letters for the invoices, according to Harris, were prepared in blank form and signed by him all at one time in Judd's office. Harris claimed that he had been in Likely and on the property for much of January and February and that he had never seen the invoices until the Superintendent's investigation.

   The plan, as described by Harris, was for Judd to process the invoices periodically when Harris called from the site to advise that the work had been done. He testified that this procedure had been followed for the first two sets of invoices but that he had returned to Vancouver on March 4 and discovered to his horror that Judd had processed the third set of invoices and deposited $525,000 to Buxton's account. Despite his concern, Harris said, he decided to keep the money and use it to get the work done on the property.

   This story by Harris was contradicted in testimony by Judd, Cathryn Garcia, Krueckl and Casey Forward, is in direct conflict with Harris' own previous sworn testimony to the investigator, and is inconsistent with the physical evidence of the invoices and cover letters. Judd testified that Harris had personally delivered each set of invoices to his office, and Judd's personal diary showed that he had met with Harris very frequently through this period. Judd dismissed Harris' evidence on the invoices and the $525,000 deposit as complete nonsense. Cathryn Garcia testified that Harris had personally delivered at least one set of invoices and that she had typed the cover letter for them at his request. Krueckl testified that Harris had personally brought all three sets of invoices to him for certification. He said that he and Harris had discussed them and, with respect to the first two sets of invoices, Harris assured him the work had been done. Casey Forward was in England and unavailable when Harris testified, but returned later and gave evidence that he had never prepared any invoices for Harris, had never assisted Harris in drafting any invoices and had never seen any completed invoices.

   We conclude on the basis of this overwhelming evidence that Harris' evidence concerning the invoices is completely false. He participated directly in the presentation of the false invoices.

   Harris admitted that he participated in the preparation of one Marathon news release, the one issued on October 14, 1987 at the insistence of the Superintendent. In cross examination he acknowledged that he had attended two meetings in August at the Superintendent's office when the text of the news release was being discussed and had confirmed at both meetings that the Knight's program had been completed. He said that be knew the statement in the final news release that $1.5 million from the Knight's program was spent on exploration and development was false, but explained that he did not disclose the truth because Judd did not want it to be known that Marathon had not put up the matching funds. He admitted that he and the others had misled the Superintendent. On re-examination, however, his story changed. He said that the draft news release he had been working on was one dated September 2, not October 14 and that he had been in Likely when the October 14 news release was issued. There was nothing in the September 2 draft about the completion of the Knight's program and he could no longer recall sitting through a meeting where it had been represented that $1.5 million was expended on the exploration program. The Commission accepts Harris' first account of his participation and finds that he knowingly participated in misleading the Superintendent and in preparing a false news release.

   Harris was also involved in the Star Trek and Trans-Atlantic private placement. Here Harris offers three different explanations of what actually happened. First he said the 200,000 shares were received for some work he had done for Marathon in 1985 which had nothing to do with the Spanish Mountain project. Then he said the issuance of the shares was part of the deal between Dion and Judd concerning the takeover of Marathon and he just signed the papers that were put in front of him. The next day, following an overnight adjournment, he said the $70,000 in invoices reflected a bona fide debt. He had been working on the Spanish Mountain project in Likely and Dion had been searching for financing during the same period in Vancouver. They had $70,000 coming to them from Marathon. The Commission concludes that there was no bona fide debt. The indebtedness was fabricated for the purpose of covering the purchase price of the shares.

   Harris was not a director or officer of Marathon but he was an integral part of the fraudulent scheme and he worked closely with both Judd and Dion when each was in control of Marathon.

Krueckl

   Krueckl was also a key participant in the fraudulent scheme. His reports and certifications were essential for Marathon to obtain the commitment from Knight's, to get the $750,000 paid by Knight's, and to complete the audited financial statements, which falsely represented that the program had been completed.

   Krueckl's approach to giving testimony was somewhat different. Unlike Judd and Harris, he did not try to pretend that he had done nothing wrong. However, he did try to portray his involvement in the best possible light. He admitted that he relied totally on Harris and did no independent checking prior to his certification of the first two sets of invoices submitted by Buxton; that he certified the final set of invoices covering the bulk of the work program after he knew that the work had not in fact been done; that he provided misleading information and assurances to Jim Richardson who was relying on his integrity and professionalism; and that he knowingly signed a misleading progress report which he knew would be relied on by Marathon's auditors. He insisted that he was not aware of the deception by Judd and Harris until after he had certified the first two sets of invoices, and that he only went along after that because these false certifications had placed him in a bind, because he was assured the work would eventually get done and because he believed in the property. We have concluded that his involvement was much deeper.

   Krueckl's reports of February and December 1986 provided the foundation for the financing efforts of first Dion and then Judd. In preparing the reports, Krueckl readily adapted his recommendations to Harris' requests and relied primarily on data and information supplied to him by Harris and not on independent inquiries and his own professional judgment. The February report recommended production on the Hughes-Lyne leases, even though Krueckl thought more testing would have been appropriate. In December the focus shifted to testing in order to accommodate the flow-through share financing plans. The December report also added the Reid and Harris leases to the program but did not mention that Buxton did not have access to the Hughes-Lyne leases at that time because of litigation over the title. This was a serious omission as the Hughes-Lyne leases were the only ones with established mineralization. For the February report, Krueckl accepted Harris' suggestion of a bulk plant with a capacity of 5,000 cubic yards per day even though it was twice the size of anything he had previously come across. This huge plant was retained in the December report even though it was clearly inappropriate for a testing program. The December report also recommended a massive testing program in a very short period in the middle of winter, with no provisions to deal with the significant problems of bulk sampling and testing in frozen conditions. Krueckl ought to have known, and we believe actually did know, that this program could not possibly have been completed in the time suggested. Perhaps most revealing of Krueckl's involvement in the deception is the fact that in the December report he assumed the same mineralization, to the fifth decimal point, as in the February report, even though the December report included a large area on which there had been no previous exploration work.

   Krueckl testified that, in approving the first two sets of invoices, he relied on Harris who assured him that the program was going ahead as planned. Krueckl agreed that he should have had a person at the site to monitor the work, but said that there was no money available from Marathon to cover the cost. However, Krueckl certified some invoices which duplicated charges and others which were inconsistent with the budget in his own report. We believe he knew even then that the invoices had been falsified.

   Prior to certifying the final set of invoices, Krueckl said he attended a meeting with Judd and Harris at Marathon's office around the middle of February, where he expressed concern that there was no one at the site monitoring the work. He learned in the course of the general discussion that followed that the bulk plant was not at the site. Harris had lied to him. He then proceeded to certify the final set of invoices, even though he knew the work had not been done. His attempted justification of this serious abrogation of professional responsibility is not credible. If he had truly not been aware of the deception before this point, there would have been no reason for him to join the conspiracy by knowingly certifying false invoices. We believe he was simply continuing his practice of signing whatever Harris and Judd asked him for.

   Krueckl admitted that he continued to provide assurances to Richardson that the work referred to in the invoices had been done, even after he knew that it was not so. He denied that there had been any deception at the earlier stage when Richardson was reviewing the program, but even then he allowed Richardson to assume the Hughes-Lyne leases were available for testing and to base his recommendation to Knight's on a program that could not possibly be completed.

   Krueckl's "progress report" for Marathon's auditor was done at the request of Dion, who told Krueckl he was trying to secure financing to complete the exploration program, but needed the auditor's report completed first. Krueckl demanded and received $8,000 which he paid to Twyman to cover back wages to obtain Twyman's field notes, which Krueckl needed to do his report. He testified that there was no advantage to him other than relieving some of the pressure he felt from Dion and MacRae. He acknowledged that the information he gave was misleading and intended to be so.

   As a professional engineer, Krueckl held a special position of trust and responsibility, which he abdicated through his conduct in this case. By compromising his professional integrity, Krueckl assisted Judd and Harris in deceiving Knight's and falsely representing to the public that the testing program had been done. He also assisted MacRae and Dion in obtaining an auditor's report for the false and misleading financial statements. He was at least negligent in the preparation of the December report and the certification of the first two sets of invoices. In certifying the third set of invoices and signing the "progress report" he knowingly participated in the fraudulent scheme.

MacRae

   MacRae's involvement in Marathon pre-dated its interest in the Spanish Mountain leases and continued at the time of the hearing. He was president before and after Judd's period of control and corporate secretary during that period. His involvement was primarily as a nominee for Dion and he claimed not to be actively involved in Marathon's day-to-day affairs during the Judd period. However he continued to attend meetings and sign news releases and other documents while Judd was in control and subsequently participated in covering up the fraudulent scheme.

   MacRae testified that he first learned that the Knight's program had not been completed when he saw the documentary on the "Fifth Estate" television program in early 1988. When he signed the news release on October 14, 1987, he claims, he did not know that $1.5 million had not been spent.

   MacRae stated that he was not aware of the nature or purpose of the money transfers which occurred on February 9 at Canada Trust, although he knew they somehow related to the debentures. He said he arrived a little late and the operation was already underway, so he just joined the others in writing cheques and making deposits. He said he was assured that it had been approved by Marathon's lawyer and had no reason to believe that it involved anything improper.

   He did acknowledge that the news release that he signed on February 11, 1987, which announced the completion of the placement of the convertible debentures without stating that they had been purchased by Judd and Harris was inaccurate and misleading. He could offer no explanation as to why he signed it.

   MacRae admitted that he was aware of Dion's acquisition of 700,000 escrow shares from Chix in September 1984. He knew that the shares represented a control position and that under the terms of the escrow the shares could not be sold without the prior approval of regulatory authorities. There was no public disclosure and no approval of the sale. MacRae was also aware of what was going on in December 1986 when Dion sold the escrow shares to Keith Judd. On this occasion there was public disclosure but no regulatory approval. MacRae agreed that all this was improper but appeared not to be unduly concerned, notwithstanding his position as an officer and director of Marathon.

   As of the date of the hearing the 700,000 escrow shares were still registered in the name of Chix. The shares were purchased by Dion from the Judds for $20,000 in late July 1987. According to MacRae, Dion then agreed to transfer the shares to him for $1. We reject this evidence. If MacRae held any interest in the escrow shares it was in trust for Dion. MacRae acted as Dion's front man from the days of his very first involvement with Marathon. The role was varied slightly when Judd took control of Marathon. Control over MacRae seemed to pass with about the same frequency as ownership of Marathon's escrow shares.

   MacRae was involved in the arrangement in June 1987 under which Dion agreed to put up $40,000 to enable Michael and Keith Judd to exercise their directors' and employees' options. MacRae wrote the cheque which later bounced. He claimed that he did not know why Dion was taking down the options for Michael and Keith Judd. We doubt that. A man of MacRae's experience would have little difficulty in recognizing such a transparent arrangement that amounted to an improper assignment of directors' and employees' options.

   Marathon's quarterly reports and its audited financial statements for the year ended March 31, 1987 show the 100,000 shares issued to Michael and Keith Judd on June 2 and the 200,000 shares issued to Star Trek and Trans-Atlantic as shares issued for cash, even though in both cases the shares were paid for not by cash but by the Settlement of "accounts" with Marathon. The fact that cheques were exchanged in the case of the Star Trek and Trans-Atlantic shares does not change the character of the transaction.

   MacRae was a director and officer of Marathon, and as a member of the audit committee worked with VanZiffle in August and September 1987 in an effort to complete the audited statements. He received from Krueckl the "progress report" requested by Dion, and used it to satisfy VanZiffle that the Knight's program had been completed. He was, or ought to have been, sufficiently familiar with Marathon's affairs to have known that this information was false and misleading.

   The December 11, 1987, news release announcing that operations at Spanish Mountain had been shut down for the season due to weather conditions was in Illingby's words a "crock". The operations never got started and there was nothing to shut down. The only parts of the plant that ever made it to the mine site were the ones that Harris hijacked from R.M.S. Ross' yard in Chilliwack. Illingby's evidence, and we accept it on this point, is that MacRae issued the news release knowing that it was false and misleading.

   MacRae may not have been a direct participant in the planning and execution of Judd's fraudulent scheme but he was the only person involved in Marathon throughout the period in question and he signed news releases, quarterly reports and financial statements containing serious misrepresentations. Some of these he clearly knew about. Others he either knew or ought to have known about. He was also directly involved in the misrepresentations and irregularities associated with transfers of the escrow shares and the exercise of directors' and employees' options. This type of behaviour is not acceptable for a director of a reporting issuer.

Illingby

   Illingby was a minor character in the story. He had the advantage of arriving late. He became involved with Marathon through Dion in the Spring of 1987 and became a director in early August.

   Illingby signed the revised quarterly report for the period ended June 30, 1987 and the audited financial statements for the year ended March 31, 1987. In both cases he relied to a large extent on assurances from MacRae. He said he spent two and a half hours reviewing the audited statement and was satisfied. He stated that he had no idea that the $1.5 million program had not been completed, and the inquiries that he made suggested that it had. We have some reservations about this evidence, but they are not sufficient to base a finding that Illingby knew or ought to have known that the statements were false when he signed them.

APPLICATION OF SECTIONS 145.1 AND 154.2

   The Commission adjourned the hearing on August 18 to facilitate the calling of additional evidence in late September. We requested the parties to prepare and submit written arguments during the adjournment. The Superintendent's written argument was filed on or about August 31 and in it he gave notice to the Respondents that he intended to seek orders under sections 145.1 and 154.2 of the Act.

   Section 145.1 provides that where the Commission considers it to be in the public interest, it may, after a hearing, order that a person resign any position that he holds as a director or officer of an issuer, and prohibit a person from becoming or acting as a director or officer of an issuer. Section 154.2 gives authority to the person presiding at a hearing to order a person whose affairs are the subject of the hearing to pay prescribed fees or charges for the costs of the hearing. Sections 145.1 and 154.2 were part of a series of amendments enacted in June 1988 and took effect August 11, 1988, after the commencement of the hearing, but before it had concluded.

   The Respondents argued amongst other things that they did not receive adequate notice of the Superintendent's intention to seek orders under these sections, and have not been accorded a fair hearing in respect of these matters. The criticism of the notice was primarily aimed at its timing, being too late in the proceedings to give the Respondents an opportunity to respond. The hearing that began on May 9 was a hearing under sections 144 and 145. According to the Respondents, it could not be properly enlarged on September 22 to encompass sections 145.1 and 154.2.

   The Commission is of the opinion that the Respondents were not unduly prejudiced by the procedure followed by the Superintendent and the Commission in connection with the application of sections 145.1 and 154.2. None of the Respondents was denied the opportunity to give further evidence when the hearing reconvened on September 22. Nor were they in any way restricted in making argument with respect to the application of the sections. At the conclusion of the hearing the Commission requested supplementary written argument on this issue from all the parties.

   The alternative argument made by the Respondents is that sections 145.1 and 154.2 could not apply to them as to do so would give retrospective effect to the amendments. The general rule is that the courts will not ascribe retrospective force to new laws affecting rights, unless by express words or necessary implication it appears that such was the intention of the legislature (Phillips v. Eyre (1870) L.R. 6 Q.B. at p. 23).

   The Superintendent's position is that sections 145.1 and 154.2 are not retrospective but rather prospective in nature, and that there is no retroactivity in the orders which he is seeking. if the application of the section had the effect of imposing a new penalty on past conduct it would, in our view, be retrospective and the presumption would normally arise. We agree with the Superintendent, however, that there is a distinction between court proceedings dealing with offences and penalties, and tribunal proceedings whose focus is on the regulation of an industry in the public interest. The distinction was recognized by the Alberta Court of Appeal in Re Barry et. al. and Alberta Securities Commission [(1986), 25 D.L.R. (4th) 730]. The presumption against retrospectivity does not apply where the intention of a statutory provision is regulatory and protective. Section 145.1 allows the Commission, upon a review of the course of conduct of an officer or director of an issuer, to order that the person cease to act as a director or officer if such an order is in the public interest. The primary purpose is to protect the public who would be vulnerable if the person held the office, not to punish or penalize the person who is prohibited from holding it.

   Section 145.1 specifically directs the Commission to consider the public interest. In determining what is in the public interest the Commission must be able to consider all the relevant facts, including activities before and after the effective date of the amendment.

   With respect to the application of section 154.2, the Superintendent's position is that since he is only seeking costs of the hearing from August 11, 1988 onward, the order sought cannot be said to be retrospective in its application. When the hearing began the Respondents were not exposed to the risk of an order as to costs except under section 134, which relates to costs of the investigation as opposed to costs of the hearing. The hearing began in January and ended in September. The introduction of section 154.2 on August 11, cannot, in fairness, apply to a hearing that is already in progress, even though the order sought asks for costs only from the effective date of the amendment.

DECISION

   The Commission is of the view that the conduct of the Respondents in this case has been such as to require that their further participation in the securities market and in the affairs of any reporting issuer should be severely restricted. Accordingly we order:

1.		Under section 144(1) that the cease trade order against Marathon's securities continue until Marathon files and obtains a receipt for a prospectus, and pays $5,000 pursuant to the terms of its previous agreement with the Superintendent;
2.		Under section 145(1) that the exemptions described in sections 30 to 32, 55, 58, 81 and 82 do not apply to Judd, Harris and Buxton for a period of twenty-five years, to Krueckl for a period of twenty years and to MacRae for a period of fifteen years provided that, for a period of 30 days from the date of this order, Judd, Harris, Buxton, Krueckl and MacRae may trade, through a registered dealer, securities that they hold at the date of this decision, for the sole purpose of liquidating their holdings;
3.		Under section 145.1(1) that Judd, Harris, Krueckl and MacRae resign any positions they hold as directors or officers of any reporting issuer and be prohibited from becoming or acting as a director or officer of any reporting issuer for twenty-five years in the case of Judd and Harris, twenty years in the case of Krueckl and fifteen years in the case of MacRae; and
4.		Under section 134 that Judd, Harris, Buxton, Krueckl and MacRae be required to pay prescribed fees or charges for the costs of the Superintendent's investigation, the amount of which will be determined on further application to the Commission if the parties are unable to settle the issue.