Decisions
DANIEL WILLIAM FISHER [Decision]
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BCSECCOM #:
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Document Type:
Decision
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Published Date:
1998-09-25
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Effective Date:
1998-09-18
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Details:
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COR#98/217
IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, c. 418
AND
IN THE MATTER OF DANIEL WILLIAM FISHER
HEARING
| PANEL: | ADRIENNE R. WANSTALL | MEMBER |
 | PETER A. MANSON, Q.C. | MEMBER |
| DATE: | NOVEMBER 5 and 6, 1997 |
| APPEARING: | PATRICK ROBITAILLE | FOR COMMISSION STAFF |
DECISION OF THE COMMISSION
INTRODUCTION
This was a hearing under sections 144(1) and 144.1 of the Securities Act, S.B.C. 1985, c.83 (the “Prior Act”), now sections 161(1) and 162 of the Securities Act, R.S.B.C. 1996, c.418 (the “Act”). A notice of hearing was issued on October 31, 1996, which alleged that:
- 1. Daniel William Fisher sold securities, being interests in oil, gas and mineral leases, through Western Horizontal Drilling Inc. (“WHD”) to purchasers in the province without complying with the registration and prospectus requirements of sections 20 and 42 of the Prior Act (now sections 34 and 61 of the Act); and
2. in the promotion of the sale of these securities, Fisher caused WHD to place an advertisement in the Vancouver Province newspaper of November 25, 1990, indicating a “700% RETURN in Invested Capital in LESS THAN 80 DAYS”, which was a misrepresentation.
The hearing was adjourned five times. Though Fisher had agreed to hearing dates of November 4 to 7, 1997, his counsel advised Commission staff on October 28, 1997, that neither he nor Fisher would attend the hearing. The hearing was held on November 5 and 6, 1997, and, as indicated, neither Fisher nor his counsel attended. The Commission did hear testimony from four investors in WHD and from an investigator from Commission staff.
BACKGROUND
Fisher has been in the oil and gas business since 1976 and has been a director of a company listed on the Vancouver Stock Exchange and of various public companies in Ontario. In 1993, the Ontario Securities Commission issued an order taking away Fisher’s trading rights due to his participation in an unlawful distribution of securities where the prospectus and registration requirements of the securities legislation were not complied with. He has never been registered to sell securities in any jurisdiction.
In November 1990, Fisher became sole shareholder, sole director and president of WHD. WHD was incorporated in 1988 under the Company Act, R.S.B.C., 1996, c.62 and was not a reporting company in British Columbia. WHD was in the business of purchasing interests in oil and gas leases. These leases gave the holders of the leases the right to revenues or royalties from the sale of oil and gas produced by the wells. WHD would then split its interest in each lease, selling fractions of it to individual investors.
In an interview under oath with Commission staff held on June 3 and 11, 1993, Fisher admitted that he placed advertisements in the Vancouver Province and the Vancouver Sun respecting the fractional interests in oil and gas leases sold by WHD. An advertisement in the Province of Sunday, November 25, 1990, read as follows:
MONTHLY OIL INCOME FOR 6-10 YEARS
700% RETURN on Invested Capital in LESS THAN 80 DAYS
1990 Track Record - 7 Wells all successfully
averaging over 800 BARRELS PER DAY
NO. 8 commences early DEC.’ 90
FREE INFORMATION
WESTERN HORIZONTAL DRILLING INC.
Vancouver, B.C. - Houston, Texas
(604) 685-6640
700% RETURN on Invested Capital in LESS THAN 80 DAYS
1990 Track Record - 7 Wells all successfully
averaging over 800 BARRELS PER DAY
NO. 8 commences early DEC.’ 90
FREE INFORMATION
WESTERN HORIZONTAL DRILLING INC.
Vancouver, B.C. - Houston, Texas
(604) 685-6640
A similar advertisement appeared in the the Vancouver Sun of February 9, 1991. That advertisement read as follows:
FOR SOPHISTICATED INVESTORS ONLY!
MONTHLY OIL INCOME FOR 6-10 YEARS
700% RETURN ON INVESTED CAPITAL
PREPAID IN LESS THAN 90 DAYS
1990 TRACK RECORD - 8 WELLS ALL SUCCESSFULLY
COMPLETED AVERAGING OVER 600 BARRELS PER DAY
FREE INFORMATION
WESTERN HORIZONTAL DRILLING INC.
Vancouver, B.C. - Houston, Texas
(604) 685-6640 - FAX 685-6642
This advertisement does not constitute an offer to sell nor a solicitation to buy a
security which can only be made by offering memorandum.
MONTHLY OIL INCOME FOR 6-10 YEARS
700% RETURN ON INVESTED CAPITAL
PREPAID IN LESS THAN 90 DAYS
1990 TRACK RECORD - 8 WELLS ALL SUCCESSFULLY
COMPLETED AVERAGING OVER 600 BARRELS PER DAY
FREE INFORMATION
WESTERN HORIZONTAL DRILLING INC.
Vancouver, B.C. - Houston, Texas
(604) 685-6640 - FAX 685-6642
This advertisement does not constitute an offer to sell nor a solicitation to buy a
security which can only be made by offering memorandum.
In his interview with Commission staff, Fisher admitted that the numbers in the Province advertisement related to the track record of another company that had interests in wells close to those in which WHD had an interest; WHD was not involved with the wells referred to in the advertisement. Fisher also admitted that the reference to the “700% Return on Invested Capital in less than 80 days” really meant that the investor would get his money back in 80 days and a 700% return over the next two to three years.
One of the wells in which WHD held an interest was the Johnson No. 2 in Texas. Between December 1990 and November 1991, WHD sold fractional interests in the Johnson No. 2 to 28 investors, 24 of whom were residents of British Columbia. WHD raised between US $300,000 and US $400,000 from these investors. All four of the investors who attended the hearing testified that they dealt with Fisher and that he appeared to be in charge of WHD. They also testified that they had never met Fisher before this time and that they did not receive a prospectus or offering memorandum (though one of the investors was unclear as to exactly what documents he had been given by Fisher). No prospectus or offering memorandum was filed with respect to the sale of these fractional interests, despite the reference to an offering memorandum in the Sun advertisement. Some of the investors in the Johnson No. 2 received very small cheques (for $1,000 or less) soon after the investments were made. Then the payments ceased. In 1994, the Johnson No. 2 lease was cancelled, due to payment default, and all of the investors lost their entire investment.
In his interview with Commission staff, Fisher told them that he did not think that the fractional interests in oil and gas leases sold by WHD were securities. He claimed to have gotten a verbal legal opinion to that effect, but did not get confirmation of that opinion in writing. He also told Commission staff that, as he did not believe these fractional interests to be securities, he did not discuss with anyone the availability of exemptions or refer to exemptions in any of the materials.
ISSUES
The issues before us are:
- 1. Did Fisher distribute securities of WHD without complying with the registration and prospectus requirements of the Act?
2. In the promotion of the sale of these securities, did Fisher cause WHD to place advertisements that contained misrepresentations?
“Security” is defined in section 1(1) of the Prior Act (section 1(1) of the Act) to include “an oil or natural gas royalty or lease or a fractional or other interest in either”. We therefore find that the fractional interests purchased by the WHD investors were securities.
“Trade” was defined in section 1(1) of the Prior Act (section 1(1) of the Act) to include a disposition of securities for valuable consideration and any act, advertisement, solicitation or conduct in furtherance of such a disposition. “Distribution” was defined in section 1(1) of the Prior Act (section 1(1) of the Act) to include a trade in a security of an issuer that has not been previously issued. Section 20 of the Prior Act (now section 34 of the Act) provided that a person must not trade in a security without being registered, while section 42 of the Prior Act (now section 61 of the Act) provided that a person must not distribute a security unless they have filed a prospectus with, and obtained a receipt for it from, the Superintendent (now the Executive Director).
Fisher, as sole shareholder, sole director and president, was the directing mind of WHD. He caused WHD to place the advertisements in the Vancouver Province and Vancouver Sun newspapers. All of the investors who testified at the hearing had dealt with him. Fisher did not cause WHD to file a prospectus or an offering memorandum with respect to the distribution of its securities. As well, Fisher did not claim in his interview with Commission staff that WHD had acted in reliance on any of the exemptions from the registration and prospectus requirements of the Act. Further, it appears to us that no exemptions were available to WHD, given that none of the investors who testified knew Fisher prior to purchasing the securities, that the securities were advertised, and that no offering memorandum was filed. Consequently, we find that Fisher carried out acts in furtherance of trades in the securities of WHD and therefore himself traded in those securities without registration, contrary to section 20 of the Prior Act. Further, we find that Fisher caused WHD to distribute securities in contravention of the prospectus requirements of section 42 of the Prior Act.
Issue 2 The Advertisement
“Misrepresentation” is defined in section 1(1) of the Prior Act (section 1(1) of the Act) as an untrue statement of a material fact, or an omission to state a material fact that is required to be stated, or necessary to prevent a statement that is made from being false or misleading in the circumstances in which it was made. A material fact is defined in section 1(1) of the Prior Act (section 1(1) of the Act) as a fact that significantly affects, or could reasonably be expected to significantly affect, the market price or value of a security.
In his interview with Commission staff, Fisher admitted that he had placed advertisements in the Vancouver Province and the Vancouver Sun. He also admitted that WHD did not have any interest in the wells referred to in those advertisements and that the promised 700% return would be earned over a few years rather than in 80 or 90 days. In fact, investors received, at most, returns of a few hundred dollars and ultimately all lost their entire investment when WHD lost its interest in the Johnson No. 2. We are of the view that the interests owned by WHD and the projected rates of return to be derived from those interests were material facts and that the statements made in the advertisements respecting these material facts were false and misleading in the circumstances. Therefore, we find that Fisher caused WHD to place advertisements containing misrepresentations respecting the securities of WHD.
DECISION
Fisher was the directing mind of WHD and must be held responsible for the company’s complete disregard for the requirements of the Act. He dealt with the investors who purchased WHD’s securities and he caused the company to place advertisements respecting its securities that contained blatant misrepresentations, including ludicrous projected rates of return. As a result of Fisher’s actions, 28 investors lost between US $300,000 and US $400,000, and the capital market in British Columbia was brought into disrepute. Therefore, considering it to be in the public interest, we order:
- 1. under section 161(1)(c) of the Act that the exemptions described in sections 44 to 47, 74, 75, 98 and 99 do not apply to Fisher for a period of 15 years from the date of this decision;
2. under section 161(1)(d) of the Act that Fisher resign any position that he holds as a director or officer of an issuer and is prohibited from becoming or acting as a director or officer of any issuer and from engaging in investor relations activities until
- a) he has successfully completed a course of study satisfactory to the Executive Director concerning the duties and responsibilities of directors and officers; and
b) a period of 15 years has elapsed from the date of this decision;
- 3. under section 162 of the Act that Fisher pay the Commission an administrative penalty in the amount of $25,000 on or before October 31, 1998; and
4. under section 174 of the Act that Fisher pay prescribed fees or charges for the costs of or related to the hearing incurred by the Commission and the Executive Director, the amount to be determined following further submissions from the parties.
Dated at Vancouver, British Columbia on September 18, 1998.
| Adrienne R. Wanstall | Peter Manson, Q.C. |
| Member | Member |