Decisions

Ronald Bruce Bieber [Decision]

BCSECCOM #:
Document Type:
Decision
Published Date:
1988-12-15
Effective Date:
1988-12-15
Details:


Bieber v. Vancouver Stock Exchange

IN THE MATTER OF the Securities Act, S.B.C. 1985, c. 83, as am. AND IN THE MATTER OF the Vancouver Stock Exchange and Bankit Resource Corporation, Caliente Resources Ltd., Draw International Resources Corp., Flow Resources Ltd., High Rise Resources Ltd., Longboat Resources Inc., Midnapore (1979) Resources Inc., Nu-Start Resource Corp., and Shallow Resources Inc.

Between
Ronald Bruce Bieber, Applicant, and
The Vancouver Stock Exchange, Respondent
Reasons and Decision
D.M. Hyndman, M. Jawl, J.P.H. McCall
Heard:  October 13, 1988
Decision:  December 15, 1988

COUNSEL:

10Kenneth W. Ball, for Ronald Bruce Bieber.

Robert W. Brewer and Mary Clare T. Baillie, for the Vancouver Stock Exchange.

Joyce Maykut, for the Superintendent of Brokers.

REASONS AND DECISION:-- This is a hearing and review of a decision of the Vancouver Stock Exchange (the "Exchange") pursuant to section 15 of the Act. The decision under review was contained in a letter dated June 7, 1988 from the Exchange (the "Decision") to counsel for Mr. Ronald Bieber.

The Decision followed an order dated May 27, 1988 in which the Exchange halted trading in the shares of nine companies, namely Bankit Resource Corporation, Caliente Resources Ltd., Draw International Resources Corp., Flow Resources Ltd., High Rise Resources Ltd., Longboat Resources Inc., Midnapore (1979) Resources Inc., Nu-Start Resource Corp., and Shallow Resources Inc. (the "Halted Companies"), with which Bieber was associated either as an officer or a director. The Decision set out the terms under which the Exchange would permit a resumption of trading in the shares of the Halted Companies. The Exchange essentially required a new board of directors for each company and the "voluntary resignation" of Bieber as a director and officer. He would be permitted to continue providing support services of an administrative nature subject to the Exchange's approval. The Decision also set out at some length its reasons, which arose out of Bieber's role with companies involved in the so called Carter/Ward scheme, including the Halted Companies.

BACKGROUND

The Carter/Ward scheme has been documented in the British Columbia Supreme Court judgment of Madam Justice Southin in United Services Funds (Trustees) v. Lazzell et al.; united services Funds (Trustees) v. Ward et al; United Services Advisors, Inc. v. Carter et al. (unreported, S.C.B.C., May 17, 1988). Two stock promoters named Edward Carter and David Ward conspired with the manager of the Prospector Fund, a Texas mutual fund (the "Fund"), to defraud the Fund. in a complex series of transactions between May 1984 and May 1985 the Fund purchased shares in 17 companies listed on the Exchange at a cost of approximately $27 million. Almost $23 million of this amount represented the cost of shares purchased from Carter, Ward and their various nominee accounts. Losses ultimately realized by the Fund totalled approximately $17 million (U.S.). A number of civil actions, as well as criminal proceedings, were initiated as a result of these losses. The Southin judgment was the first major decision rendered for a civil action related to the scheme and dealt extensively with the liability of Cheryl Hennessey and Marsha Lundy, both daughters of Edward Carter.

In the reasons given for its decision, the Exchange appeared to rely heavily on the Southin judgment. The trading halt was initiated immediately after release of the judgment in May 1988, following which a meeting was held between Bieber and officials of the Exchange to hear his representations and explanations regarding his role in the management of the Carter/Ward companies. The Decision was issued following this meeting. In its Decision the exchange acknowledged Bieber's representations that he was Ignorant of the actions perpetrated by Carter and Ward. It further acknowledged that no criminal or civil liability had been found against Bieber. The Exchange emphasized that its role was not to find guilt or liability but rather to determine whether companies complied with its listing requirements and whether, in certain instances, it was in the public interest for the securities of a company to be delisted. The Exchange took the view that the primary issue in this instance was the public's perception of the role played by a man who was the president and a director of a number of the Carter/Ward companies. The Exchange held that the public would expect a person of Bieber's securities background and experience, who had occupied a sensitive position in each company, to have known about the scheme. Additionally, public confidence would expect board members to accept responsibility for the misconduct which had occurred. It was noted that Carter's two daughters and his son, who also held directorships in Carter/Ward companies, had volunteered their resignations. The Exchange expected no less of Bieber, and therefore imposed conditions, including Bieber's resignation as a director and officer, to be met prior to any resumption of trading in the Halted Companies. The Decision included specific reference to those rules of the Exchange on which it was based as well as the clause in the listing agreement whereby each listed company agrees to be bound by the rules.

GROUNDS FOR REVIEW

In his grounds for a hearing and review, counsel for the applicant argued firstly that the Exchange had no jurisdiction to depose a corporate director. In the event the Exchange was found to have jurisdiction, counsel argued that the Exchange had exercised its discretion based on fundamental errors of law and fact and also that the Exchange had denied the applicant due process, so that its decision was contrary to natural justice.

The jurisdictional argument was not elaborate. Counsel merely stated that nothing contained in the Vancouver Stock Exchange Act, the By-laws and Rules of the Exchange or the Listing Agreement between the Exchange and an issuer provided authority for the Exchange's action.

The alternate argument presented by counsel for the applicant relied heavily on the record, which essentially consisted of the Decision and the Southin judgment. In arguing that there had been an error in law in the way the Exchange reached its decision, counsel's approach was to identify certain statements in the Decision and show that there was no documentary basis for them.

In the statement of points filed for the applicant, his counsel stated that the reasons contained in the Decision demonstrated a misreading of the Southin judgment and isolated two statements in particular which could not be substantiated by a reading of the judgment. First the Decision stated: "Evidence heard also indicated that the Carter/Ward accounts included not only their personal accounts, but also those of their nominees, which included Ronald Bieber." Counsel stated that no such evidence in respect of Bieber was given at the trial and no mention was made of this in the Southin judgment.

Secondly, the Decision included the following statement: "The judgment of the B.C. Supreme Court rendered on May 17, 1988 opined that Ronald Bieber was inextricably connected and implicated as an instrument of Carter/Ward in that for the scheme to work, the companies had to have a tame board of directors." Counsel pointed out that Bieber was not a party to the action at the time judgment was rendered (he had been initially) and that the judgment specifically stated that nothing in the reasons constituted any finding against persons not a party to the proceedings. Counsel emphasized that there had never been any suggestion that Bieber knew about the bribery and that the references in the judgment to a "tame board of directors" referred to Carter's two daughters who were found to be liable in the judgment.

In Bieber's subsequent testimony before us he reiterated the points made by counsel on his behalf. He stated that he had taken his own independent decisions regarding trading in securities and had not been a nominee. He claimed that he had not been a tame director and that, from time to time, he had actually fought with Carter and Ward.

In arguing that Bieber had been denied due process counsel claimed that Bieber had had no opportunity to know the particulars of any allegation against him or to answer such allegations before an impartial tribunal. This was contrary to fundamental fairness. The record did not include any reference to the meeting held at the Exchange between the applicant and Exchange officials.

ADDITIONAL EVIDENCE

A full hearing was held before the Commission during which Bieber gave considerable evidence about the nature of his involvement in the Carter/Ward companies and responded to the allegations contained in the Decision. He described his extensive background in finance and securities. He had been a trust officer with a trust company for two years and then spent over three years in the listings department at the Exchange, dealing extensively with listed companies. He had taken the Canadian Securities course and worked with three other stock promoters before becoming associated with Carter and ward in 1983.

Bieber then detailed his relationships at the time of the scheme with each of the nine Halted Companies (of which four were involved in the lawsuit). For the majority of them he had been an officer, generally president, as well as being a director in all of them. Nominal control had usually resided with the principal holder of the escrow shares which varied between Bieber, Carter's two daughters and others and had been generally different in each case. He said there had been no particular driving force behind any of the companies. Business decisions were usually made by the directors, typically in a telephone conference call.

Bieber went on to describe how he and his management company had shared a long narrow office with David Ward and his staff, with a partition between the two areas. He said he had had no access to information regarding the Ward trading accounts and no knowledge of who was buying shares in the Halted Companies during the critical months of the scheme. He had no stock monitor in his part of the office. Ward had a monitor but Bieber was not in the habit of using it and would do so only with Ward's permission. Such had been Bieber's ignorance regarding the extra-ordinary purchasing activity and price volatility in the shares of the Halted Companies that he had been able to tell Doug Garrod, then Vice-President, Listings, of the Exchange, at a meeting in July 1985 that he knew nothing about the extensive buying by the Fund. The meeting had been called by Garrod because insider reports indicated that the Fund held up to 20% of the shares in certain of the Halted Companies and, in the case of Tye Explorations Inc. ("Tye"), another company of which Bieber became a director and officer in early 1985, the Fund owned all the free trading shares.

Much was made by his counsel of the fact that Bieber had continued to support the Halted Companies from May 1985 to June 1988 and that, as a result, he and his management company were owed some $280,000. He stated that he had also exercised some stock options through this period to generate funds for the companies and in doing so he had exposed himself to a potential income tax liability.

Under cross-examination Bieber gave evidence about his role with Tye, a company which played a significant role in the Carter/Ward scheme since it involved the Fund in trading losses of approximately $1.5 million (U.S.). Bieber could not recall whether or not he had been president of Tye, but stated that he had become a director and officer in January 1985. Prior to that he had already had some involvement with the company during a distribution of 100,000 shares through Tye's initial public offering in late 1984. He participated in the nominal distribution of 50,000 shares to his two brothers-in-law, the Bates brothers, by paying for 5,000 shares out of tbis allocation. The balance of 45,000 shares was paid for by Ward, and those shares were subsequently signed off by the Bates brother in favour of ward. It was evident that this transaction had been structured by Ward and Bieber, with the assistance of the Bates brothers, to disguise the identity of a significant purchaser of the public offering.

Bieber also acknowledged that shortly after this episode 35,000 shares of Tye were registered in Carter's name using Bieber's home address. When asked to explain this arrangement he claimed that the shares were being held in trust for him by Carter, that the shares were an unsolicited gift from Carter, and that the arrangement was subsequently rescinded.

Evidence was provided by Jim Mackie, the Exchange's Manager of Filings and Listings, who had been personally involved with a number of reviews of the Carter/Ward companies carried out by the Exchange and in particular the investigation into the Tye distribution. He said he had been horrified to discover that the veracity of the Tye distribution statement was not as originally represented to the Exchange, due to the transactions related to the Bates brothers which substantially amounted to a distribution to Ward. Mackie went on to describe how option shares were set aside for directors and employees of Tye on February 12, 1985, just one day before the company entered negotiations to acquire a revolutionary new paving process. These options were not approved by the Exchange since they amounted to trading on inside information.

Mackie also said that news releases by the Carter/Ward companies were not generally forthcoming unless initiated by the Exchange's surveillance section. Enquiries made of Bieber during early 1985 generally received the response that either nothing was known or that a news release was in preparation. Tbe lack of any correlation between the volatile trading prices of their shares and news releases issued by the Carter/Ward companies caused considerable concern among senior staff at the Exchange in the spring of 1985. The Exchange's Vice President of Listings had instructed Mackie to discuss the quality of news releases with Bieber. Mackie had advised Bieber that the releases originated by him frequently appeared to stretch the truth. In his own evidence Bieber failed to recall this meeting at the Exchange and claimed that there had been, in almost all cases, a close relationship between the trading patterns and the news releases.

Mackie described the strong perception held by Exchange staff during the operation of the Carter/Ward scheme that the companies involved were not controlled by management and that directors were nominees, appointed only to fulfill the statutory requirements. There was a strong sense that the real power lay behind the appointed boards in the persons of Carter, who was not a director of any of the ten companies of major concern to the Exchange, and Ward, who was a director of a minority of the companies.

When the severity of the problems became apparent in the summer of 1985 the Exchange took the decision to take no action against directors and officers of the carter/ward companies, including the Halted Companies, until the Royal Canadian Mounted Police and the Securities and Exchange commission completed their investigations. In Mackie's words, the Exchange felt there would be no useful purpose to be served by "tripping along behind them" with its limited powers. However, he said that the Decision had been brewing for a long period of time and it was based on a great deal of information derived from a variety of sources. Accordingly to Mackie, the Decision was not just a reaction to the Southin judgment.

Mackie acknowledged that it was difficult for even a good investigator to find out who owned stock of any of the companies being investigated at any given point in time. Although the Exchange is usually able to determine the beneficial ownership of shares with the co-operation of its members, the Carter/Ward scheme went undetected by the Exchange for a long time. Nevertheless, he said that if anyone such as Bieber had been genuinely concerned about the price and ownership of the shares of issuers managed by him all he had to do was contact the Exchange to express his concern and obtain its assistance. There was no evidence of any such initiative.

DECISION

In reviewing a decision of the Exchange, the Commission follows the principles set out in Lafferty, Harwood & Partners Ltd. and Board of Governors of the Toronto Stock Exchange (1975) 8 O.R. (2d) 604. The Commission will not interfere with a decision of the Exchange unless the Exchange has proceeded on some incorrect principle, has erred in law, or has overlooked some material evidence or some new and compelling evidence that is presented to the Commission.

Counsel argued that the Exchange does not have jurisdiction to depose a director. It is perhaps a fine point but the Exchange, in its decision, did not in fact claim to have such authority. Rather it cited its authority to halt or suspend trading and to delist a company's securities. Rule C. 1.03, which gives the Exchange broad powers with regard to trading halts, states that when "circumstances exist in the opinion of the Exchange which could materially affect the public interest, the Exchange may halt trading in its securities until the circumstances giving rise to the halt have been settled to the satisfaction of the Exchange." It is this power which the Exchange exercised through its decision to require a new board of directors for each of the halted companies before trading in its shares is resumed. This authority is agreed to by each issuer when it signs a listing agreement with the Exchange. We therefore consider the Exchange has the authority to take the type of action set out in its decision.

Counsel also argued that the Exchange erred in law in attributing to the Southin judgment conclusions about Bieber which were not in fact contained in the judgment, specifically that he was a nominee for share trading by Carter and Ward and that he was, by implication, a tame director. Following our review of the Southin judgment, we have not been able to find any direct substantiation of the statements in question. In this respect we conclude that the Exchange, if it had evidence to back up these statements, failed to put such evidence on the record associated with its decision, and incorrectly attributed to the Southin judgment statements about the applicant which it considered to be the case.

Counsel asserted that the Exchange denied his client due process by failing to advise him of the allegations against him and by not giving him an opportunity to be heard before an impartial tribunal. From the record placed before us we simply cannot make a determination as to whether Bieber had an opportunity to respond to the concerns raised by the Exchange.

In the Decision, the Exchange went to considerable pains to point out that its role was not to find guilt or liability but rather to maintain public confidence in the Exchange as an institution. Public confidence, it said, "would expect that a person of Bieber's securities background and experience, coupled with the sensitive positions he occupied in each Carter/Ward company, to either to have known or ought to have known of Carter's and Ward's schemes ..." From this flowed the conclusion that Bieber should not continue as a director or officer of the Halted Companies.

We agree with the motives underlying the Decision as articulated in the Exchange's June 7 letter and we consider the Decision to have been made in good faith. However, we are concerned with the incorrect attribution of statements regarding Bieber in the Decision as well as the obvious omissions in the record. Furthermore, we have some trouble with the notion that the Exchange can rely merely on its interpretation of the public's perception of an individual's role in determining that person's fitness to continue as a director and officer of a public company. Because of these concerns we propose to review the evidence and the submissions and arrive at our own conclusions. The commission's powers in this regard are set out in section 147(4) of the Act which states: "On a hearing and review, the commission may confirm or vary the decision under review or make another decision it considers proper." To exercise these powers in this case the Commission's considers it appropriate to assume the role of the Exchange in administering Rule C. 1.03 with regard to the Halted companies.

The applicant has been given ample scope to respond to the allegations against him and we have given careful consideration to the matters which came out in the testimony of both Bieber and Mackie. We see Bieber as a man with considerable experience in the workings of the Exchange, who was in a unique position to be aware of the existence and execution of the Carter/Ward scheme. He was constantly at the receiving end of Exchange enquiries about price volatility and trading activity in shares of his companies, and yet displayed no interest or willingness to assist the Exchange in finding out what was really going on. Based on this view of his role, Bieber either completely lacked the common sense one would normally expect of a senior officer in a public company or he was purposely keeping his head in the sand.

We also heard evidence that Bieber had co-operated with ward by having his two brothers-in-law give the appearance of having purchased more shares in the Tye distribution than was really the case, so that the Exchange did not receive an accurate record of the distribution. This suggests that Bieber collaborated at least to some extent with Carter and Ward in parts of their scheme.

The question before us is whether it is in the public interest for Ronald Bieber to continue as a director and officer of the Halted Companies. There are occasions when determination of the public interest is a difficult task. We do not consider it to be so in the case at hand. We have concluded that Bieber played, at best, a passive and unhelpful role in detecting a stock market fraud of monumental proportions, despite the sensitive position he occupied in relation to the perpetrators of the scheme. He collaborated in measures aimed at masking the true ownership of securities of companies under his management. We conclude that it is not in the public interest for Bieber to continue to be associated with the Halted Companies in his capacity as a director or officer.

It is our decision that the Exchange Decision, dated June 7, 1988, be confirmed and that the shares of the Halted companies not resume trading until the Exchange has approved a restructured board of directors and new management for each company.

D.M. HYNDMAN, Chairman
M.S. JAWL, Member
J.P.H. McCALL, Member