Notices of Hearing & Temporary Orders

DANNY FRANCIS BILINSKI, et. al. [Further Amended Sec. 161]

BCSECCOM #:
Document Type:
Further Amended Sec. 161
Published Date:
2000-06-02
Effective Date:
2000-05-24
Details:


IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, c. 418

AND

IN THE MATTER OF DANNY FRANCIS BILINSKI,
ROBERT PIERRE LAMBLIN, LEONARD WILLIAM FRIESEN,
DONALD BRIAN GORDON-CARMICHAEL, GEORGE PRICE,
DOUGLAS ROBERT EUGENE WILSON, LINDY ARNOT

AND

IN THE MATTER OF CANADIAN GLOBAL FINANCIAL GROUP LTD. CANADIAN GLOBAL INVESTMENT CORPORATION,
PRIVATE VENTURES INVESTMENT LIMITED AND
PRIVATE VENTURES CAPITAL CORPORATION

AND

IN THE MATTER OF COLUMBIA OSTRICH (VCC) LIMITED

(COLLECTIVELY, THE “RESPONDENTS”)


Further Amended Notice of Hearing Under Section 161

1. WHEREAS the Executive Director issued a Temporary Order pursuant to section 161(2) of the Securities Act, R.S.B.C. 1996, c. 418 (the “Act”) on September 30, 1999, against Canadian Global Financial Group Ltd (“CGF”) and Envirosonics Technologies Inc. (“Envirosonics”), and against the trading in the securities of CGF and Envirosonics (the “Temporary Orders”), which Temporary Orders were extended by the British Columbia Securities Commission (the “Commission”).

2. AND WHEREAS on October 15, 1999, the Commission issued orders under the Act, against Canadian Global Investment Corporation (“CGIC”), Danny Francis Bilinski (“Bilinski”), Robert Pierre Lamblin (“Lamblin”), Lindy Arnot (“Arnot”), Donald Bruce Edward Wilson (“Donald Wilson”), Kevin Wall, and any other individual registered to trade on behalf of CGIC, referred to as the New Respondents, the orders having been subsequently varied to remove Donald Wilson and Kevin Wall as Respondents.

3. AND WHEREAS a further Commission order was made cease trading the securities of Columbia Ostrich (VCC) Ltd. (“Columbia VCC”).

4. AND WHEREAS the final effect of the Commission orders is:
      4.1 that the temporary cease trade order made against the securities of Columbia VCC was extended under section 161(3) of the Act;

      4.2 that the trading exemptions described in sections 44 to 47, 74, 75, 98 or 99 of the Act do not apply to the New Respondents;
          4.2.1 except that the New Respondents, with the exception of CGIC, Bilinski and Lamblin, are permitted to use the exemptions described in sections 44 to 47, 74, 75, 98 and 99 of the Act to trade for their own accounts; and

          4.2.2 except that the New Respondents, with the exception of Bilinski and Lamblin, are permitted to use the exemption described in section 44(2)(e) of the Act in connection with the purchase and sale of a mutual fund security, where a preliminary prospectus or simplified preliminary prospectus and a prospectus or simplified prospectus respecting the mutual fund security have been filed with the Executive Director and receipts obtained for them from the Executive Director;
      4.3 that the exemptions described in sections 44 to 47, 74, 75, 98 or 99 of the Act do not apply to Bilinski and Lamblin;

      4.4 that the surrenders of registration of Bilinski and Lamblin were accepted as of May 5, 2000;

      4.5 that the temporary cease trade order against the securities of CGF and Envirosonics remains in effect until a hearing is held and decision is rendered;

      4.6 that the exemptions described in sections 44 to 47 of the Act, except for section 45(2)(7),are not available to any person with respect to the trading of securities of Canadian Global Real Estate Holdings Ltd. (“CGRE”), Gorlan Trailer Technologies Inc. (“Gorlan”) and Pacific Bowling Centres, Inc. (“Pacific Bowling”); and

      4.7 that the exemption described in section 45(2)(7) of the Act is not available to any person with respect to the trading of securities of CGRE, Gorlan and Pacific Bowling, except where the trade in a security of these three issuers is by a person acting solely through a registered dealer other than CGIC.

5. AND WHEREAS it appears to the Executive Director, on the advice of the Staff of the Commission that:


The Individual Respondents
      5.1 Bilinski was a registrant under the Act until May 5, 2000, when the Commission accepted his surrender of registration. Bilinski was registered as a mutual fund salesperson employed by Investors Group Financial Services Inc. from 1987 to 1990, by Vantage Securities Inc. from 1992 to 1995, and by CGIC from 1995 to May 5, 2000.

      5.2 While registered, Bilinski’s registration was restricted to trading in mutual fund securities. From January 31,1995, Bilinski was registered as a mutual fund salesperson with CGIC. On June 4, 1996, Bilinski’s registration was upgraded to a Trading Partner/Director and he was designated as the Compliance Officer of CGIC, pursuant to sections 60(2) and 65 of the Securities Rules, B.C. Reg. 194/97 (the “Rules”).
      5.3 Lamblin was registered under the Actas a mutual fund salesperson, employed by CGIC from 1996 until May 5, 2000 when the Commission accepted his surrender of registration.

      5.4 Leonard William Friesen (“Friesen”) is not currently a registrant under the Act. Friesen was registered as a mutual fund salesperson employed by CGIC from April 24, 1998 to April 23, 2000 when his registration lapsed. While registered, Friesen’s registration was restricted to trading in mutual funds.

      5.5 Donald Brian Gordon-Carmichael (“Gordon-Carmichael”) is a registrant under the Act. Gordon-Carmichael was registered as a mutual fund salesperson employed by Great Pacific Management Co. Ltd. from 1982 to 1990, by Fortune Financial Group Incorporated from 1990 to 1991, by Regal Capital Planners Ltd. from 1991 to 1993, by TWC Financial Corp. from 1993 to 1994, and by CGIC from 1997 to the present. While registered, Gordon-Carmichael’s registration was restricted to trading in mutual funds. Gordon-Carmichael’s registration is currently subject to the conditions noted in paragraph 4.2 herein.

      5.6 George Price (“Price”) is a resident of British Columbia and has never been registered in any capacity under the Act. At all material times, Price was a director and/or officer of Private Ventures Investment Limited and Private Ventures Capital Corporation.

      5.7 Lindy Arnot (“Arnot”) is a registrant under the Act. Arnot is registered as a mutual fund salesperson employed by CGIC from February 26, 1997 to the present. Arnot’s registration is currently subject to the conditions noted in paragraph 4.2 herein. At all material times Arnot was a director of CGIC.

      5.8 Douglas Robert Eugene Wilson (“Douglas Wilson”) is a registrant under the Act. Douglas Wilson was registered as a mutual fund salesperson employed by Investors Group Financial Services Inc. from 1994 to 1996, and by CGIC from 1997 to the present. Douglas Wilson’s registration was restricted to trading in mutual funds. As of May 12, 1999 Douglas Wilson was registered as a Trading Partner/Director/Officer with CGIC. Douglas Wilson’s registration is currently subject to the conditions noted in paragraph 4.2 herein.


      The Corporate Respondents

      5.9 CGIC was incorporated under the Canada Business Corporations Act, R.S.C. 1985, c. C-44 on June 27, 1994, and it has been registered under the Act as a mutual fund dealer since August 30, 1994. CGIC was extra-provincially registered in British Columbia on April 1, 1997. Bilinski, Lamblin and Arnot were officers and/or directors of CGIC during the Relevant Period.

      5.10 CGF is a British Columbia company incorporated in British Columbia on November 22, 1990, as Computax Tax Services Inc. On February 28, 1996, Computax Tax Services Inc. changed its name to Bilinski Lamblin & Company Ltd., and then to Dan Bilinski Inc. on March 25, 1998, and then to CGF on September 18, 1998. CGF is not registered in any capacity under the Act and is not a reporting issuer under the Act. During the Relevant Period, Bilinski, Lamblin and Arnot were officers and/or directors of CGF.

      5.11 Private Ventures Investment Limited (“PVIL”) is a British Columbia company incorporated on April 11, 1997 as Private Ventures Capital Corporation (“PVCC”). PVCC changed its name to PVIL on March 30, 1998. PVIL is not registered in any capacity under the Act and is not a reporting issuer under the Act. During the Relevant Period, Bilinski, Lamblin and Price and were officers and/or directors of PVIL.
.
      5.12 Columbia VCC is a British Columbia company, is registered under the Small Business Venture Capital Act, R.S.B.C. 1996, c. 429, and is not a reporting issuer in British Columbia. During the Relevant Period, Bilinski was the directing mind and de facto director of Columbia VCC.

Sales of Exempt Product
      5.13 During the period January, 1997 forward (the “Relevant Period”), investors in British Columbia were solicited by Bilinski, Lamblin, Friesen and Gordon-Carmichael to invest in securities of CGF, PVIL, Pacific Bowling Inc. (“Pacific Bowling”), Gorlan Trailer Technologies Inc. (“Gorlan”), Eagle Court Pinnacle Lodges Ltd. (“Eagle Court”) and Columbia Ostrich (VCC) Ltd. (“Columbia VCC”) through CGIC.

      Distributions of Securities of CGF
      5.14 During the Relevant Period, Bilinski, Lamblin and Friesen sold investments in CGF to members of the public in British Columbia.

      5.15 Investors were sold the following investments in CGF:
          5.15.1 Class B Non-Voting Common Shares (the “Class B Shares”) of CGF and Class C Non-Voting 8% Dividend Common Shares (“Class C Shares”) (collectively, the “CGF Securities”);

          5.15.2 Lamblin sold promissory notes for a six-month term during which the investor would receive interest at the rate of two percent per month during the term of the note and both the principal and an amount of five percent at the end of the term. (the “CGF Promissory Notes).

      5.16 CGIC was the sales agent for the distribution of the CGF Securities and received a 10% commission on the distributions. Additionally, CGIC was the “administrator” of the offering of CGF Securities and was entitled to a 10% administration fee.

      5.17 In excess of $4.4 million was raised through the distribution of CGF Securities and CGF Promissory Notes.

      5.18 The solicitation of investment into CGF was made on the basis that the individual investors would purchase the CGF Securities and CGF Promissory Notes and CGF would direct the proceeds of the investments into issuers related to CGF and CGIC (the “Related Party Issuers”). The Related Party Issuers were related to CGF and CGIC either through shareholding of CGF in the issuer or through common directors and officers in CGF and the issuer.

      5.19 CGF did not qualify its securities for distribution to the public under section 61 of the Act. Rather, the CGF Securities and CGF Promissory Notes were sold under various exemptions from the registration and prospectus requirements of sections 34 and 61 of the Act.

      5.20 The CGF Securities were sold in reliance upon the private issuer exemption contained in sections 46(j) and 75(a) of the Act, as well as in reliance on exemptions from the registration and prospectus requirements that required the use of an offering memorandum.

      5.21 However, the CGF Securities were offered for sale to the public without an offering memorandum. In the result, there was no exemption from the registration and prospectus requirements available to allow the distribution of the CGF Securities to the public.

      5.22 As a result, Bilinski, Lamblin and Friesen sold the CGF Securities and Lamblin sold the CGF Promissory Notes to clients of CGIC contrary to sections 34 and 61 of the Act.

      5.23 A CGF Business Plan was made available to investors, which stated amongst other things:

          5.23.1 CGF was formed for the purpose of developing or acquiring a controlling interest in companies within the financial services/investment industry.

          5.23.2 CGF intended to develop or acquire significant interests in other companies in various sectors of the marketplace, including real estate, new technology, industrial agriculture, recreation and entertainment and other businesses.

          5.23.3 The proceeds received from the sale of the CGF Securities would be used by CGF to “establish a financial pool for the purpose of maintaining and building existing subsidiary companies and investments” and further to expand CGIC, a wholly owned subsidiary of CGF operating as a mutual fund dealer.

          5.23.4 CGF established an experienced and dedicated Board of Directors and Management Team consisting of individuals with corporate and project expertise.

          5.23.5 CGF was in the process of development and/or acquisition of a Public Company and further to market public shares of the Public Company at approximately $2.50 per share, which it was anticipated would occur “within two years from the time of the last investor.” This representation was contrary to section 50(1)(c) of the Act.

          5.23.6 The investment in CGF Securities provided profitability by way of capital gains. The capital gain would be achieved in part by the ability to find replacement investors once the CGF Securities went public.

          5.23.7 The CGF Securities were RRSP eligible for those shareholders that held less than 10% of the issued shares.

          5.23.8 The CGF Securities had attached to them a “preferred dividend” of 8%. A “dividend fund” would be established within CGF, which would be funded by cash flows from the companies and projects invested in to provide an ongoing reserve for distribution purposes.

          5.23.9 CGF was classified as a Canadian Active Small Business and as such investors that qualified were entitled to up to $500,000.00 Capital Gains Exemption provided the shares were held for a minimum of 24 months.

      5.24 Investors were not given full disclosure about the use of the dividend fund or about the pooling of funds.
      5.25 The CGF Securities and CGF Promissory Notes were risky, illiquid and speculative and as a result were unsuitable investments for many of the investors. Bilinski, Lamblin and Friesen did not advise investors that the CGF Securities were unsuitable, contrary to section 14 and 48 of the Rules.


      The Distributions of PVIL
      5.26 PVIL is a 100% wholly owned subsidiary of CGF.

      5.27 Investors were told that PVIL was incorporated for the purposes of providing due diligence and strategic audits for issuers that CGIC intended to promote to its clients. During the Relevant Period, Price, as President of PVIL provided an information sheet to members of the public that described nature of PVIL’s business as follows:
            PVCC performs a due diligence process that endevours (sic) to identify all risks associated with a specific investment project: to determine if the projected returns to the investors are acceptable within those risk parameters; to provide ongoing administrative and financial management expertise; and to ensure that the interests of the investor and the protection of their investment is our primary objective.
      5.28 PVIL’s information sheet further represented that PVIL did not charge fees for its due diligence service and it did not receive a commission from sales to investors. However, PVIL did charge an administration fee to the issuers for whom the due diligence was performed.

      5.29 The CGIC trial balance for the year ended May 31, 1999, disclosed that employees of CGIC earned sales commissions in the amount of $125,051.00 in respect of sales of Envirosonics.
      5.30 Envirosonics is a British Columbia company incorporated on October 1, 1998. Envirosonics is not registered in any capacity under the Act and is not a reporting issuer under the Act.
      5.31 It appears that what is recorded on the trial balance of CGIC as commissions earned from the sale of Envirosonics was in fact commissions earned as a result of sales of an investment in PVIL/PVCC.

      5.32 From in or about the late summer or early fall of 1998, Bilinski, Lamblin and Friesen sold an investment in PVIL to members of the public who were residents of British Columbia.

      5.33 The investment in PVIL was in the form of a promissory note in PVIL (the “PVIL Notes”). The solicitation of investment into PVIL was made on the basis that the individual investors would purchase promissory notes and PVIL would in turn provide those funds torelated issuers, including Envirosonics, Gorlan and Arc Sonics International Ltd. (a British Columbia company of which Bilinski and Price were directors).
      5.34 In some cases investors were advised that the investment was in the Related Party Issuers when that was not the case, which was a misrepresentation, contrary to section 50(1)(d) of the Act.

      5.35 In excess of $900,000.00 was raised through the distribution of PVIL Notes from members of the public in British Columbia by Bilinski, Lamblin and Friesen.
      5.36 PVIL did not qualify its securities for distribution to the public under section 61 of the Act. Rather, the PVIL Notes were sold under various exemptions from the registration and prospectus requirements of sections 34 and 61 of the Act. The PVIL Notes were sold in reliance upon the private issuer exemption contained in sections 46(j) and 75(a) of the Act, as well as in reliance on exemptions from the registration and prospectus requirements that required the use of an offering memorandum. However, because PVIL did not comply with sections of the Act referred to above, there was no exemption from the registration and prospectus requirements available to allow the distribution of the PVIL Notes to the public.

      5.37 In the result, Bilinski, Lamblin and Friesen sold the PVIL Notes to clients of CGIC contrary to sections 34 and 61 of the Act.
      5.39 The PVIL Notes were risky, illiquid and speculative and as a result were unsuitable investments for many of the investors. Bilinski, Lamblin and Friesen did not advise investors the PVIL Notes were unsuitable, contrary to section 14 and 48 of the Rules.
      Distributions of Securities of Other Exempt Market Products
      5.40 During the Relevant Period Bilinski, Lamblin, Friesen and Gordon-Carmichael sold the following securities (the “Exempt Market Securities”) to members of the public in British Columbia:
          5.40.1 Bilinski, Lamblin, Friesen and Gordon-Carmichael sold the securities of Pacific Bowling (the “Pacific Bowling Securities”);

          5.40.2 Lamblin, Bilinski and Gordon-Carmichael sold the securities of Gorlan (the “Gorlan Securities”);

          5.40.3 Lamblin, Bilinski and Friesen sold the securities of Eagle Court (the “Eagle Court Securities”);
      5.41 In some instances, investors did not receive the offering memorandum at the time they purchased the Exempt Market Securities although the offering memorandum did exist.

      5.42 The Exempt Market Securities were risky, illiquid and speculative and as a result were unsuitable investments for many of the investors. Bilinski, Lamblin, Friesen and Gordon-Carmichael did not advise investors that the Exempt Market Securities were unsuitable, contrary to section 14 and 48 of the Rules.

      Distributions of Columbia VCC Securities

      5.43 During the Relevant Period, Columbia VCC sold the securities of Columbia VCC (the “Columbia VCC Securities”) to members of the public in British Columbia.

      5.44 An offering memorandum dated December 1, 1999, was issued by Columbia VCC (the “Offering Memorandum”), indicating a maximum offering of $3,775,000, of which $2,296,000 was said to have been already subscribed pursuant to earlier offerings. The Offering Memorandum provided for the issuance of up to 2,836,700 common shares of Columbia VCC at prices ranging throughout the various offerings from $1.00 to $3.00 per share.

      5.45 The Offering Memorandum contained misrepresentations and contradictions including inaccurate statements about the number of livestock on the farm, the potential revenues of the farm, the associations of Columbia VCC with related parties, the use of funds raised by Columbia VCC and a related issuer, Rocky Mountain II Ostrich Farms (“Rocky Mountain II”), and the valuation of the ostrich farms owned by Rocky Mountain II and Columbia Ostrich.
      5.46 Form 20 Reports of Exempt Distribution were not filed by Columbia VCC as required by sections 135 and 139 of the Rules. The Offering Memorandum was not in the required form as required by section 133 of the Rules and therefore, any distribution made under it was contrary to sections 34 and 61 of the Act and was in breach of the Commission Orders in place at the time that required the distribution to be in accordance with the Act.
      5.47 In December 1999, Friesen and Lamblin sold approximately $135,000.00 of Columbia VCC Securities to clients of CGIC on the basis of the Offering Memorandum.
      5.48 Friesen and Lamblin traded in the Columbia VCC Securities knowing of the deficiencies in the Offering Memorandum and participated in the illegal distribution of those shares contrary to section 61 of the Act.
      5.49 Bilinski, as a de facto director of Columbia VCC, failed to ensure that the Offering Memorandum was in proper form and thereby participated in an illegal distribution of those shares, contrary to section 61 of the Act.


      Undisclosed Conflicts of Interest

      5.50 CGF, PVIL, Pacific Bowling, Gorlan, Columbia VCC and Eagle Court (the “Issuers”) had a relationship with CGIC and with Bilinski, Lamblin, Friesen and Gordon-Carmichael who were related parties of CGIC, such that a reasonable prospective purchaser would question whether CGIC and the Issuers were independent of each other. In the premises, the Issuers and CGIC were connected parties, within the meaning of section 75 of the Rules.

      5.51 CGIC traded in securities of the Issuers, who were related parties of CGIC. The securities of the Issuers were issued in the course of an initial distribution, without disclosing, orally or otherwise, substantially all the information required by sections 77(1) and 77(3)(a) of the Rules, in breach of sections 79 and 81 of the Rules.

      5.52 CGIC did not file the written confirmation of the transaction required by section 36 of the Rules and therefore did not disclose that the securities of the Issuers were issued by related parties of CGIC, and CGIC thereby failed to comply with the requirements of section 80(1)(a) of the Rules in connection with the initial distribution by the Issuers.

      5.53 CGIC acted as an adviser in respect of an initial distribution of Issuers’ securities, when the Issuers were related parties of CGIC, without disclosing the relationship between CGIC and the Issuers to clients, contrary to section 81(1)(a) of the Rules.

      5.54 CGIC made recommendations to its clients that they purchase the Issuers’ securities in the circumstances where in some cases the Issuers were connected parties of CGIC, contrary to section 83(1)(a) of the Rules.

Suitability of Investment
      5.55 During the Relevant Period, Bilinski, Lamblin, Friesen and Gordon-Carmichael frequently recommended that their clients purchase and then sold to those clients the securities of the Issuers, which were of a risky, illiquid and speculative nature. In some cases, the clients had an unsuitably high percentage of such holdings in their portfolios.

      5.56 Bilinski, Lamblin, Friesen and Gordon-Carmichael recommended borrowing or leveraging strategies to the client that were unsuitable given the investment needs and objectives of the client. In some cases clients were not advised of the risks of leveraging.
      5.57 In making recommendations to purchase investments, Bilinski, Lamblin, Friesen and Gordon-Carmichael were required to advise the client that the investment was unsuitable, given the investment needs and objectives of the client, if that were the case. They failed to do this, contrary to section 48(2) of the Rules.

      5.58 Bilinski, Lamblin, Friesen and Gordon-Carmichael failed to deal fairly, honestly and in good faith with their clients, contrary to section 14 of the Rules and the public interest, by, amongst other things:

          5.58.1 advising clients to purchase unsuitable investments;

          5.58.2 failing to recommend against the investment where it was unsuitable;

          5.58.3 failing to properly understand the client’s net worth and in some cases, calculating the net worth of the investor in such a manner that the client could then claim to be a “sophisticated investor”. In particular, Lamblin and Friesen considered the value of a future inheritance and the value of a potential pension to be relevant to the calculation of a client’s net worth;

          5.58.4 failing to act in accordance with the client’s investment objectives; and

          5.58.5 failing to inform adequately the client concerning the nature, return on and risks of the investments.
      5.59 By exercising control of the Related Party Issuers and continuing thereafter to act as agents in the sale of the Related Party Issuer’s securities, Bilinski and Lamblin put themselves in a position where their interests were in conflict with their duties to their clients and to the Issuers. They did nothing to resolve the conflicts, but, rather, acted in their own interests and not in the best interests of their clients and the Related Party Issuers.


      Exempt Product Advising
      5.60 Bilinski, Lamblin, Friesen and Gordon-Carmichael specifically advised a number of their clients to invest in certain of the Issuers without being registered to do so, contrary to s. 34 of the Act.
      5.61 Bilinski, Lamblin, Friesen and Gordon-Carmichael specifically advised a number of their clients to invest in certain of the Related Party Issuers without being registered to do so, contrary to section 34 of the Act.

      5.62 Bilinski, Lamblin, Friesen and Gordon-Carmichael could not rely on the exemptions from registration as advisers contained in section 44(2)(e) of the Act because the advice they gave was not reasonably in fulfillment of their duty to ensure the suitability of the proposed purchase for the client as required by section 44(3)(b) of the Act but rather the advice was given to induce the investors to make the investment.

      5.63 Some of the clients were unsophisticated investors and relied heavily upon the professional advice and judgment of Bilinski, Lamblin, Friesen and Gordon-Carmichael as registrants.
      5.64 In some instances, the clients redeemed other securities, including mutual funds, in order to complete some of the exempt product sales recommended to them by Bilinski, Lamblin, Friesen and Gordon-Carmichael.
      5.65 The average commission payable to Bilinski, Lamblin, Friesen and Gordon-Carmichael for the exempt product sales effected was 10%, compared to the usual commission on mutual funds of 4%-8%.
      5.66 According to the May 31, 1999 audited financial statements of CGIC, 92% of CGIC’s gross profits were generated from the sale of exempt products to its clients.


      Improper Supervision by CGIC
      5.67 During the Relevant Period, Bilinski was the Trading Director/Partner and Compliance Officer of CGIC, Douglas Wilson was a Trading Director of CGIC and Arnot was a Director of CGIC.

      5.68 At the time they acted as Compliance Officer and Trading Director of CGIC, Bilinski and Douglas Wilson failed to comply with section 65 of the Rules that required them to ensure compliance with the Act and the regulations by CGIC and its employees. Bilinski and Douglas Wilson failed to ensure that new client accounts were approved and further failed to supervise the transactions of CGIC and its employees, contrary to section 47 of the Rules.

      5.69 CGIC, as the employer of Bilinski, Lamblin, Friesen, Gordon-Carmichael and Douglas Wilson and as a registrant under the Act, failed to review the account opening documentation and the suitability of the investments for the clients of CGIC, which review would have revealed the unsuitable nature of the investments being made and the role of the employees in the investments.
      5.70 CGIC, as a registrant, was required to establish and apply proper compliance and supervision procedures. With proper compliance procedures in place, and properly applied, CGIC should have detected the extent of the activity in the exempt market and the investor accounts and should have been able to detect the unsuitable nature of the investments for the investors. CGIC’s failure to put in place proper compliance procedures in this regard allowed the sale of exempt product to continue unabated.

      5.71 CGIC’s failure to establish and apply proper compliance and supervision procedures included the following:
          5.71.1 the Compliance Officer did not approve KYC forms in the client files;

          5.71.2 the blotter did not provide sufficient detail to perform a suitability review;

          5.71.3


          5.71.4 CGIC did not maintain a complete and accurate set of records at its chief place of business; and

          5.71.5 the business procedures manual was incomplete, and the section for “sale of exempt product” was blank.
      5.72 CGIC failed to comply with sections 29 and 47 of the Rules which would have enabled ready detection of large dollar value transfers between different types of funds and enable the compliance officer to distinguish a sale from a purchase transaction.
      5.73 CGIC did not review the blotter on a consistent basis.

      5.74 CGIC failed to supervise its employees properly or at all, and failed to put in place proper business procedures to ensure proper supervision of its employees, in breach of its duties and contrary to the public interest set out in sections 44(1) and 47 of the Rules.

      5.75 CGIC acted in a manner contrary to section 39 of the Rules when it failed to ensure books and records, and in particular, accounting records and blotters were complete and accurate, contrary to section 27 of the Rules.

      5.76 CGIC failed to include all sales by the registrant on the registrant’s books as outlined in NIN 98/56, contrary to sections 27 and 29 of the Rules.

      5.77 CGIC failed to maintain an accurate record of exempt product sales, contrary to section 27 of the Rules.

      5.78 CGIC filed a subordination agreement in the required form in accordance with section 25 of the Rules. However the subordinated debt was repaid without obtaining prior written permission from the Commission contrary to section 5 of the standard subordination agreement (Form 60).

      5.79 CGIC appointed a new audit firm to act as auditors for the year ended May 31, 1999 and did not notify Commission staff, contrary to section 72(2) of the Act. In addition, a current direction to auditor was not filed to reflect the change in auditor.

      5.80 CGIC has previously advised the Commission that it does not hold client funds or securities in accordance with section 24 of the Rules, the result of which was that CGIC was required to maintain working capital of only $25,000 (plus maximum deductible on any bond). In fact, CGIC did hold client funds, which required an increased working capital amount to be maintained.

6. TAKE NOTICE that a hearing will be held at the 7th Floor Hearing Room, 865 Hornby Street, Vancouver, British Columbia, on May 23, 2000, (the “Hearing”) to give the Respondents an opportunity to be heard before the Commission. At the Hearing the Commission will be asked by the Staff of the Commission to make the following orders in the public interest:
      6.1 that any or all of the exemptions described in sections 44 to 47, 74, 75, 98 or 99 of the Securities Act, R.S.B.C. 1996, c. 418 (the “Act”) do not apply to the Respondents, pursuant to section 161(1)(c) of the Act;

      6.2 that Bilinski, Lamblin, Friesen, Gordon Carmichael and Douglas Wilson be prohibited from becoming or acting as a director or officer of any issuer, pursuant to section 161(1)(d) of the Act;

      6.3 that the Respondents be prohibited from engaging in investor relations activities, pursuant to section 161(1)(d) of the Act;

      6.4 that the Respondents are required to disseminate to clients of CGIC any orders or other records that the commission considers must be disseminated, pursuant to section 161(1)(e) of the Act.

      6.5 that the registrations of CGIC, Friesen, Gordon-Carmichael and Douglas Wilson be suspended, cancelled or restricted or that conditions be imposed upon them, pursuant to section 161(1)(f) of the Act,

      6.6 that the Respondents each pay an administrative penalty, pursuant to section 162 of the Act;

      6.7 that the Respondents pay prescribed fees or charges for the costs of or related to the Hearing, pursuant to section 174 of the Act; and

      6.8 such further and other relief as the Commission considers appropriate in the circumstances.


7. AND TAKE NOTICE that determinations may be made in this matter if the Respondents or their counsel do not appear at the Hearing.


    DATED at Vancouver, British Columbia, on May 24 , 2000.




    Steve Wilson
    Executive Director
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