Decisions

Marino John Ignatius Specogna, et. al. [Decision]

BCSECCOM #:
Document Type:
Decision
Published Date:
1996-03-09
Effective Date:
1996-02-29
Details:


IN THE MATTER OF The Securities Act, S.B.C. 1985, c. 83
AND IN THE MATTER OF Marino John Ignatius Specogna, Efrem
Mario Specogna, Lucia Specogna and Specogna Minerals
Corporation
Decision
J.C. Maykut, Q.C., H. Dunstan Browne, E.L. Lien
Heard:  June 20 to 23, 1994
Decision: February 29, 1996

Appearing:

Marino J.I. Specogna.
Wade D. Nesmith, for Commission staff.
DECISION OF THE COMMISSION

1.  INTRODUCTION

      This hearing concerns allegations set out in two notices of hearing issued by the Superintendent of Brokers on December 15, 1993, and March 10, 1994. The March 10 notice was amended on May 12, 1994.  The allegations in the two notices were considered at the same time and concern two separate sets of circumstances that took place at different times in the affairs of Doromin Resources Ltd.  Notice was given to Marino John Ignatius Specogna ("Marino Specogna"), Efrem Mario Maurizio Specogna ("E. Specogna"), Lucia Specogna ("L. Specogna") and Specogna Minerals Corporation that a hearing would be held before the Commission to consider whether it is in the public interest to make orders under sections 144, 144.1 and 154.2  of the Securities Act, S.B.C. 1985, c. 83, against any or all of them based on the allegations in the notices.

      The allegations in the notice of December 15, 1993, were that:

1.
Doromin Resources Ltd. is a reporting issuer incorporated under the Company Act R.S.B.C. 1979, c.59 and its common shares are listed for trading on the Vancouver Stock Exchange;
2.
Marino Specogna has been a director of Doromin since August 1988;
3.
in August 1989, Doromin signed a joint venture agreement with Teck Corp. to explore a property known as the Cimadoro property;
4.
in late October 1989, drilling commenced on the Cimadoro property;
5.
on or about November 1, 1989, Marino Specogna advised certain individuals that the drilling on the Cimadoro property had intersected massive sulphide deposits;
6.
on November 2, 1989, the publication Stockwatch reported in its "Street Wire" format a rumor that drilling on the Cimadoro property had intersected a sulphide zone that was significantly wider than had been expected and also reported that Marino Specogna had declined comment on the rumor;
7.
the rumors reported in Stockwatch and the statements made by Marino Specogna on November 1, 1989, were false and known to be false by Marino Specogna at the time;
8.
on December 1, 1989, Marino Specogna sent a facsimile transmission to a broker resident in Grand Rapids, Michigan containing what purported to be drill results obtained by Teck and forwarded to Doromin by Teck;
9.
the Fax was fabricated by Marino Specogna and the results contained therein were false and of significantly higher values than the actual drilling results subsequently achieved and reported;
10.
on December 1, 1989, as a result of the substantial increase in price and trading volume in the Doromin shares, the Exchange halted trading in the shares; and
11.
at least partly as a result of the misrepresentation referred to in paragraph 9, the shares increased in price on December 1, 1989 from $1.20 to $1.75 and 77,600 of the shares were sold through the Exchange at artificially inflated prices by Natalie Specogna and L. Specogna, wife and mother, respectively, of Marino Specogna.
        We have referred to these matters subsequently as the "Stockwatch Rumor and the Dissemination of the Doromin Fax."

    The allegations in the amended notice of May 12, 1994, were that:

12.
Specogna Minerals Corporation is a private company incorporated under the Company Act;
13.
E. Specogna, father of Marino Specogna, has been a director of Doromin since May 30, 1987, and a director of Specogna Minerals since June 18, 1979;
14.
L. Specogna, mother of Marino Specogna, has been a director of Specogna Minerals since June 18, 1979;
15.
at all times material to this matter, Specogna Minerals was an insider and a control person of Doromin;
      Specogna Minerals Distributions and Trading of Doromin Shares

16.
during the period from October 1, 1990, to December 31, 1993,  Marino Specogna, E. Specogna and L. Specogna caused Specogna Minerals to distribute Doromin shares through the facilities of the Exchange without a prospectus or an exemption, contrary to section 42 of the Act;
17.
during the period from October 1, 1990, to December 31, 1993, Marino Specogna, E. Specogna and L. Specogna caused Specogna Minerals to acquire at least 774,000 and dispose of at least 855,400 Doromin shares, and failed to file insider reports that reflected changes in their direct or indirect beneficial ownership of, or control or direction over, the shares, contrary to section 70 of the Act;
      Marino Specogna Trading of Doromin Shares

18.
during the period from June 1, 1991, to December 31, 1993, Marino Specogna acquired at least 2,771,500 and disposed of at least 3,297,500 Doromin shares and failed to file insider reports that reflected changes in his direct or indirect beneficial ownership of, or control or direction over, the shares, contrary to section 70 of the Act;
19.
the Marino Specogna trades created or resulted in a misleading appearance of trading activity in, or an artificial price for, Doromin shares, contrary to section 41.1 of the Act; and
      Required Filings

20.
the directors of Doromin, including Marino Specogna and E. Specogna, failed to cause Doromin to file Form 20 as required under section 132 of former Securities Regulation, B.C. Reg. 270/86 (now section 139 of the Securities Rules, B.C. Reg. 478/95) with respect to certain distributions of Doromin shares.
      On January 24, 1994, the Superintendent ordered under section 146 of the Act that Marino Specogna, L. Specogna and E. Specogna cease trading in the securities of Doromin until each has filed adequate complete and satisfactory information with respect to acquisitions and dispositions of Doromin shares for the period of time each was an insider of Doromin.

      On April 21, 1994, the Commission, with the consent of Marino Specogna, ordered under section 144(1)(c) of the Act that his statutory exemptions not apply until our decision is rendered.

      Affidavits of service confirm that Marino Specogna, E. Specogna, L. Specogna and Specogna Minerals received notice of these proceedings in accordance with section 156 of the Act. Marino Specogna made a preliminary application to have the proceedings dismissed as an abuse of process.  The preliminary application was dismissed by the Commission as being without merit and the hearing was held on June 20 to 23, 1994.

2.  BACKGROUND

      Doromin Resources Ltd. was  incorporated under the Company Act, R.S.B.C. 1979, c.59.  In the fall of 1989 and to the end of 1993, Doromin was a reporting issuer under the Act. Its common shares were listed for trading only on the Exchange and so it was an exchange issuer under the Act. George Beck and Marino Specogna and his father, E. Specogna, were the directors of Doromin since May 30, 1987.  Although  E. Specogna was the president of Doromin, Marino Specogna ran its day to day affairs.

      Doromin was in the business of exploring and developing mineral properties.  E. Specogna was a prospector and has been in the mineral exploration business for over 25 years, locating numerous mineral discoveries, including Doromin's Cimadoro property on the Queen Charlotte Islands.  Marino Specogna worked in the mineral exploration business with his father after having received a mining technology diploma at the British Columbia Institute of Technology in 1986.

      Specogna Minerals was a private company incorporated under the Company Act on June 18, 1979. At the time of incorporation, its only directors, E. Specogna and his wife, L. Specogna, held an equal number of shares.  A consent directors' resolution dated April 6, 1987,  gave E. Specogna power of attorney to sell securities registered in the name of Specogna Minerals. On December 20, 1989, Specogna Minerals held 898,000 Doromin shares, including 690,000 escrow shares. At the time, these holdings represented  35% of the issued and outstanding shares of Doromin. In 1991 and 1992 two brokerage accounts were opened in the name of Specogna Minerals.  Marino Specogna was given trading authority over these two accounts when the accounts were opened.

2.1 The Stockwatch Rumor and the Dissemination of the Doromin Fax

      In August 1989, Doromin and Teck Corporation entered into a joint venture agreement whereby Teck agreed to fund $1,225,000 of exploration on the Cimadoro property for an option to earn a 60% interest in the property through the acquisition of flow through shares of Doromin.   By October 19, 1989, Teck had commenced drilling on the Cimadoro property.

      Andy Betmanis was Teck's senior geologist in charge of the drilling program and was on the Cimadoro property from mid October to October 25.  During this time he had no contact with Doromin or Marino Specogna. On October 25, 1989, Marino Specogna issued a news release on behalf of Doromin that stated drilling had commenced on Doromin's Cimadoro property. Betmanis said Marino Specogna began calling him after October 25, specifically asking if the drilling program had hit any massive sulphides.  Betmanis testified that at no time did he ever tell Marino Specogna that massive sulphides or any significant mineralization had been intersected in Teck's drill core on the Cimadoro  property.

      In late October and early November 1989, Marino Specogna represented to several individuals connected with Doromin's affairs that Teck's drilling operation had intersected massive sulphides in the drill core on the Cimadoro  property. These individuals were Chris Bishop, Craig Steinke and Brian McClay.

      On November 2, 1989, Stockwatch, a securities market publication that publishes and comments on news releases issued by companies whose shares trade on the Exchange, reported a "streetwire" rumor regarding Doromin.  The reported rumor was that Teck had intersected a large sulphide zone on the Cimadoro property significantly wider than had been expected and had run out of drill core.  The news release went on to state that Marino Specogna would not comment on the rumor.

      We find that the representations made by Marino Specogna to Bishop, Steinke and McClay and that the rumor published in Stockwatch were false and known to be false by Marino Specogna at the time.  We find that Marino Specogna knowingly disseminated false information, and allowed false information to be disseminated, about Doromin's drilling program hoping it would have a positive effect on the market in Doromin shares. If this were not so, one would have expected him as a director and the person running the day to day affairs of Doromin, to deny the Stockwatch rumor when asked to comment on it.

      At 8:17 on the morning of December 1, 1989, a two page fax from Doromin's offices was sent to Craig Kellogg, an American broker in Grand Rapids, Michigan.  This "Doromin Fax" consisted of a Teck facsimile cover sheet and a handwritten page of assay results. The assay results were purported to be from Teck's drilling program on the Cimadoro property and indicated high gold and base metal results.  On December 1, 1989, the Doromin Fax was transmitted by Kellogg to brokers in Vancouver.

      McClay said  he came into the Doromin offices on the morning of December 1, 1989, and saw the Doromin Fax.  He then checked the office quotation machine and saw that Doromin was beginning to trade actively.  No one was in the Doromin offices at the time and McClay started fielding the incoming calls.  One of those calls was from Kellogg who said that he had received the Doromin Fax from Marino Specogna and that he wanted to know the significance of it.  McClay told him that the results were spectacular.  McClay said that many of the calls were from the Exchange and Doromin's lawyers looking for Marino Specogna, but McClay was not able to locate him until the following day.

     On December 1, 1989, 39 trades occurred on the Exchange in which 51,900 Doromin shares were sold at prices that increased from $1.25 to $1.75 a share. The following table shows the 33,200 shares sold and the 1,500 shares purchased in 19 trades by Marino Specogna, L. Specogna, E. Specogna and Natalie Specogna, Marino Specogna's wife. The table does not reflect the order in which the trading took place.

Buyer     Seller         Number of SharesPrice per Share
 Marino Specogna     1200 $1.30 to $1.50
 L. Specogna         14,500 $1.25 to $1.55
  E. Specogna         1,500 $1.75
  Natalie Specogna    16,000 $1.35 to $1.75
Marino Specogna               500 $1.20
E. Specogna                    1000 $1.45 to $1.60
     The price rise of $0.50 from $1.25 to $1.75 a share on December 1, represented a 40% increase.  In the four days prior to December 1, there were a  total of 12 trades totaling 9,500 Doromin shares.  On November 30, there was only one trade - Marino Specogna bought 500 shares at $1.20 a share.

      In the early afternoon of December 1, following the price rise from $1.25 to $1.75 a share, trading in the shares of Doromin was halted by the Exchange pending clarification of market activity.

      McClay said  that after the trading halt on December 1, the original Doromin Fax that he had seen disappeared. McClay, who was looking "to clear the air on this" arranged for Marino Specogna to meet with him and John Young, a prospector involved in the promotion of Doromin.  The three met on December 3 at which time Marino Specogna told them that Betmanis had faxed, from the Teck offices, the assay results from the first two drill holes and that he in turn sent the Doromin Fax to Kellogg.  Marino Specogna also told them that the Doromin Fax was in his father's  safety deposit box  but that he would bring it to the office on Monday, the next day.

      Steinke, Young and McClay became suspicious of the Doromin Fax after Betmanis denied that he had sent it and denied the accuracy of the assay results in it. Steinke, Young and McClay became increasingly concerned as Marino Specogna continued to break meetings with them, including a meeting they had arranged with Betmanis at Teck's offices to discuss the Doromin Fax. Young testified that he continued to pressure Marino Specogna to bring in the Doromin Fax, but that Marino Specogna continued to provide excuses as to why he couldn't. Finally, Young called E. Specogna who told him that they didn't have a safety deposit box and that he didn't know what Young was talking about.

      Betmanis testified that he never sent Doromin or Marino Specogna any handwritten assay results regarding the Cimadoro property, nor did he produce the Doromin Fax or send it to Doromin or Kellogg.  Betmanis said that the only assay results sent from the Teck offices to Doromin were sent by fax and courier on December 4, 1989.  These were xeroxed copies of Chemex certificates of analysis received by Teck on December 4, 1989, and they represented the first assays from the first drilling results on the Cimadoro property.  Betmanis testified that Teck drilled a total of six holes on the Cimadoro property and that none of them hit massive sulphides. He also testified that there were no high gold and base metal results in the assays.

      On December 5, 1989, E. Specogna, on behalf of Doromin, issued a news release stating that there was no material change in its affairs that would account for the increase in the price of its shares prior to the trading halt on December 1, 1989.  On December 6, 1989, the Exchange announced trading would resume following a company announcement.  On December 7, 1989, E. Specogna, on behalf of Doromin, issued a news release announcing that formal documented assay results from the first four drill holes on the Cimadoro property showed limited metallic content.

      We find that Marino Specogna created the Doromin Fax and sent it to Kellogg.  We find that the assay results contained in the Doromin Fax were false and known to be false by Marino Specogna at the time and that those false assay results were significantly higher than the actual assay results received and reported to Doromin by Teck on December 4, 1989.  We find that the dissemination of the false assay results in the Doromin Fax caused the significant increase in both the volume of trading in Doromin shares and the Doromin share price from $1.25 to $1.75.

      We find that Marino Specogna by disseminating the Doromin Fax, intended to, and did, effect an increase in the volume of trading in, and price of, Doromin shares on the Exchange - a result he had failed to achieve earlier with the dissemination of the false drilling information.

      We also find that on December 1, 1989, Marino Specogna bought and sold Doromin shares knowing that the false assay results had been disseminated.

2.2 Specogna Minerals Distributions and Trading of Doromin Shares

      The following table shows Doromin's issued and outstanding shares from 1990 through 1993 based on Doromin's transfer agent records.

Feb.23, 1990 2,556,077 shares
April 7, 1993 2,676,077 shares
July 26, 1993 2,809,000 shares
Nov. 9, 1993 2,949,077 shares
      Based on the last insider report filed by E. Specogna, Specogna Minerals held 898,000 Doromin shares in the spring of 1991. At this time, these holdings represented 35% of the issued and outstanding shares of Doromin.

      E. Specogna opened two brokerage accounts in the name of Specogna Minerals on April 24, 1991, and September 17, 1992. From the time the first account was opened to  September 2, 1993, the last day in 1993 that Specogna Minerals traded Doromin shares,  Specogna Minerals acquired 774,000 Doromin shares and disposed of 855,400 Doromin shares on the Exchange through these accounts. During that period there were no more than 2,809,000 Doromin shares issued and outstanding and Specogna Minerals held not less than 29% of Doromin's issued and outstanding shares.  On the basis of the purchases and acquisitions, Specogna Minerals held 816,000 Doromin shares, including the escrow shares, on September 2, 1993.  On September 2, 1993, Specogna Minerals held at least 29% of Doromin's issued and outstanding shares. Commission staff testified that none of the Doromin shares owned by Specogna Minerals and disposed of during this period were sold under a prospectus receipted under the Act and that no notice of intention to sell   Doromin shares was filed by Specogna Minerals in compliance with former Securities Regulation section 129. Specogna Minerals' brokerage statements show that for the 90 day period preceding many of the trades, Specogna Minerals traded more than five per percent of Doromin's issued and outstanding shares

      Specogna Minerals did not file any insider reports. Marino Specogna's last Doromin insider report filed with the Commission was on June 10, 1991, reporting trades in Doromin conducted  in May 1991.  None of the trading of Doromin shares in the Specogna Mineral accounts was reported in Marino Specogna's insider reports. The only insider reporting relating to Specogna Minerals' trades in Doromin shares was in E. Specogna's last insider report filing of April 1990.

      No insider reports had been filed by L. Specogna relating to transactions in Doromin shares. L. Specogna did not appear at the hearing but her affidavit sworn June 17, 1994, was produced at the hearing.  Attached to her affidavit was a letter dated May 4, 1994, to Commission staff, in which  L. Specogna indicated that she was enclosing her outstanding insider reports. The reports were not introduced into evidence.  Brokerage statements for the account of L. Specogna show that between October 1, 1989, and February 28, 1990, L. Specogna disposed of over 80,000 Doromin shares. In L. Specogna's letter of May 4, 1994, she indicates that she was of the belief, based on legal advice received with respect to another issuer and the fact that she did not have direction or control over the securities of Specogna Minerals, that she was not required to file insider reports regarding the trading of Specogna Minerals even though it was a control person of an exchange issuer.

2.3 Marino Specogna Trading of Doromin Shares

      Client account opening documentation and brokerage account statements indicate that between January 1 and December 31, 1993, Marino Specogna had trading authority over at least 13 separate brokerage accounts at eight Exchange member firms (the "Group Accounts ").  Nine accounts were in the name of Marino Specogna, two accounts were in the name of Specogna Minerals, and accounts were in the name of Gold Coast Agency Ltd. and Giovanni Trinco, an uncle of Marino Specogna. Gold Coast was a private company owned by Marino Specogna.

      Commission staff produced three reports produced by a computer program developed by the Exchange called Analyzer. The first, the "D" report, was a matched trade report that analyzed all of the Doromin trading on the Exchange by all of the member firms during 1993.  The second,  the "T" report, analyzed all of the Doromin trading by the Group Accounts. The "T" report showed for each day the total number of shares bought and sold by the Group Accounts, and the percentages as a buyer and seller  of the total number of shares traded.  The third, the "G" report, matched buying and selling of Doromin shares between the Group Accounts.

      Analyzer processes information about the trading that occurs in the shares of an issuer through the computerized trading system of the Exchange. It matches each trade with the accounts of the buyer and seller.  Analyzer uses information from trading  surveillance reports maintained by the Exchange and trading blotters maintained by each member firm.  Blotters are a daily record of all trades by the firm for the issuer's shares and are required to be maintained by firms  under Exchange rules and the Act.  For each trade, the blotter shows the broker, the client, the number of shares, the price, and whether the trade was a buy or sell.

      The Exchange inputted information from the trading surveillance reports and the trading blotters of Exchange member firms using the Exchange computerized brokerage package, which electronically inputs the information from the brokerage trading blotters into the Analyzer program. Commission staff obtained the blotters of the member firms not using the Exchange computerized brokerage package and manually inputted the information from those blotters into the Analyzer program.

      In considering the Analyzer's  reports, we also have had the benefit of reviewing all of the brokerage accounts statements for the Group Accounts during 1993.

      In its decision, In the Matter of Eugene Sirianni et al (1991), BCSC Weekly Summary, Volume 91:40 Page 7, the Commission found that reports produced by Analyzer regarding trading through the Exchange are reliable and accurate and can be accepted as evidence in hearings before the Commission.

      We are satisfied that all the relevant information from the trading surveillance reports and the trading blotters regarding trading in Doromin shares on the Exchange in 1993 was inputted into the Analyzer program.  Therefore, we accept that the reports of  Analyzer produced by Commission staff regarding trading of Doromin shares in 1993 through the Exchange are reliable and accurate.

      Analyzer reports showed that during 1993, in 791 trades, 4,435,000 Doromin shares were traded on the Exchange and that the Group Accounts dominated this trading. Of these 791 trades, there were only 165 trades that did not involve a Group Account. The 165 trades involved  800,200 shares which represented only 18% of the Doromin shares traded on the Exchange.

      In 626 trades, the Group Accounts purchased 2,794,500 and sold 3,182,000 Doromin shares in 1993, making them net sellers of over 300,000 shares.  The purchases represented 63.01% of the shares purchased through the Exchange and the sales represented 71.75% of the total shares sold through the Exchange.

      The Analyzer reports indicate that on 46 of the 192 days in which Doromin traded during 1993, the Group Accounts were on both the buy and sell side of every trade during the day. Frequently, a Marino Specogna account was the only one buying and selling Doromin shares for the entire day. For example, on August 31, 1993, there were 8 separate trades where for each trade, a Marino Specogna account sold 5,000 shares at $0.21 a share to another Marino Specogna account at a different brokerage house.

      There were 362 intra-group trades where one Group Account was the seller and one Group Account was the buyer.  2,327,500 Doromin shares were traded in the 362 intra-group trades and represented a value of $869,750.  Many of these intra-group trades, like the eight trades on August 31, were wash trades - simply transfers between accounts with no change in beneficial ownership.

      Of the 626 trades, 264 were between a Group Account and a third party. In these trades, the Group Accounts purchased 46,700 shares and sold 854,500 shares.  On some days, the Group Accounts purchased and bought shares where the prices for the shares purchased were higher than the prices for the shares sold. In addition, there were shares bought and sold by the Group Accounts at the same price on the same day.

      The Group Accounts were also the price leaders in trading of Doromin shares  during 1993. 119, or 74%, of the 160 upticks in the price of Doromin shares were on purchases by the Group Accounts and the majority of the new highs for Doromin shares during 1993 occurred on purchases by the Group Accounts.  For most of the trades, the Group Accounts were on both sides of the trade.

      Marino Specogna's last Doromin insider report filed with the Commission was on June 10, 1991, reporting trading in Doromin shares conducted in May 1991.  Brokerage account statements for Marino Specogna, including Coast Gold, indicate that from June 1, 1991, to December 31, 1993, Marino Specogna acquired at least 2,771,500 Doromin shares and disposed of at least 3,297,500 Doromin shares.  Marino Specogna did not file any insider reports reflecting his trading including the trading in the other Group Accounts.  Prior to the filing of the report on June 10, Marino Specogna had received letters from Commission staff  with respect to late and deficient filings.  He was also advised that future breaches of section 70 of the Act might incur regulatory sanction.  As of the date of the hearing, Marino Specogna had not brought his insider filings up to date. In his submissions, Marino Specogna stated that he refused to file any more insider reports as a sign of protest against his perceived persecution by Commission staff in this matter.

2.4  Other Required Filings

      The records of Doromin's transfer agent and Commission records indicate that on several occasions Doromin issued shares from treasury in reliance on the statutory exemption for shares issued to directors and employees.  Specifically, between April 7 and July 26, 1993, 120,000 shares were issued to Marino Specogna and 127,000 shares were issued to E. Specogna, on November 1, 1993, 140,000 shares were issued to Luca DiBenedetto, an employee, and on January 14, 1994, 140,000 shares were issued to George Beck.  On May, 24, 1994, shortly after the notice of hearing was issued, Doromin filed three reports of exempt distribution  reporting the issuance of these shares.

3.  FINDINGS AND ANALYSIS

3.1 The Stockwatch Rumor and the Dissemination of the Doromin Fax

      Misrepresentation is defined in section 1(1) of the Act to include an untrue statement of a material fact or an omission to state a material fact that is necessary to prevent a statement that is made from being false or misleading in the circumstances in which it was made.

      Material fact is defined in section 1(1) of the Act to mean, "where used in relation to securities issued or proposed to be issued, a fact that significantly affects, or could reasonably be expected to significantly affect, the market price or value of those securities".

      Section 41.1 of the Act provides that "no person directly or indirectly, shall engage in or participate in a transaction or scheme relating to a trade in or acquisition of a security... if the  person knows or ought reasonably to know that the transaction or scheme (a) creates or results in a misleading appearance of trading activity in, or an artificial price for, any security listed ...on a stock exchange in the Province...".

      We have found that the representations made by Marino Specogna on November 1, 1989, and the rumor reported in Stockwatch on November 2, 1989, to the effect that Teck's drilling program on the Cimadoro property had intersected massive sulphides were false and known to be false by Marino Specogna at the time they were made. Betmanis testified that Teck drilling program had not intersected any massive sulphides. We find that the facts underlying the representations and rumor were material as they could reasonably be expected to significantly affect the market price of Doromin shares.

      We therefore find that the representations and the Stockwatch rumor, which Marino Specogna did not deny, were misrepresentations within the meaning of the Act and that Marino Specogna was responsible for these misrepresentations.

      We found that on December 1, 1989, Marino Specogna created and sent a fax to an American broker containing false assay results that were significantly higher than the actual assays results received from Teck's drilling program on the Cimadoro property. The Doromin Fax contained assay results which were purported to be from  Teck's drilling program on the Cimadoro property and indicated high gold and base metal results.  McClay described these results as spectacular. Betmanis testified that were no high gold and base metal results in the assays.  The limited metallic content was subsequently confirmed by E. Specogna in a Doromin news release.

      We find that the false assays results in the Doromin Fax were material facts that significantly affected the market price of Doromin shares. We therefore find that the Doromin Fax contained misrepresentations within the meaning of the Act and that Marino Specogna was responsible for these misrepresentations.

      We found that the false assay results had the effect of creating a significant increase in trading volume and in price, from $1.25 to $1.75, in the Doromin shares on December 1, 1989.  We also found that Marino Specogna, by disseminating the false assay results on December 1, 1989, intended them to, and they did, effect a significant increase in the volume of trading in, and price of, Doromin shares on the Exchange - a result he had failed to achieve in the beginning of November with the dissemination of the false drilling information.  We find, that Marino Specogna, intended to create, and did create, a misleading appearance of trading activity in, and an artificial price for, the shares of Doromin traded through the Exchange on December 1, 1989, contrary to section 41.1 of the Act.

3.2 Specogna Minerals Distributions and Trading of Doromin Shares

      Commission staff alleged that during the period from October 1, 1990, to December 31, 1993, Marino Specogna, E. Specogna and L. Specogna caused Specogna Minerals to distribute Doromin shares through the facilities of the Exchange without a prospectus or an exemption, contrary to section 42 of the Act.  Commission staff also alleged that during this period, Marino Specogna, E. Specogna and L. Specogna caused Specogna Minerals to acquire at least 774,000 and dispose of at least 855,400 Doromin shares, and failed to file insider reports that reflected changes in their direct or indirect beneficial ownership of, or control or direction over, the shares, contrary to section 70 of the Act.

      Section 1(1) of the Act defines control person to include "a person who holds a sufficient number of the voting rights attached to all outstanding voting securities of an issuer... to affect materially the control of the issuer..."  The definition goes on to deem that, in the absence of evidence to the contrary, where a person holds more than 20% of the voting rights attached to all outstanding voting securities of an issuer, the person shall be deemed  to hold a sufficient number of the voting rights to affect materially the control of the issuer.

      We find that by December 20, 1989, Specogna Minerals became a control person of Doromin by holding over 35% of Doromin's issued and outstanding shares. We find that Specogna Minerals continued to be a control person throughout the period from April 24, 1991, to September 2, 1993, the last day in 1993 that Specogna Minerals traded Doromin shares.  During that period, Specogna Minerals acquired 774,000 Doromin shares and disposed of 855,400 Doromin shares on the Exchange. On September 2, 1993, Specogna Minerals held at least 29% of Doromin's issued and outstanding shares.

      Section 1(1) of the Act defines distribution to include "a trade in a previously issued security of an issuer from the holdings of a control person." Therefore, we find that any trade of Doromin shares by Specogna Minerals while it was a control person was a distribution.

      Section 42(1) of the Act states that, "Unless exempted under this Act or the regulations, a person shall not distribute a security" unless a prospectus has been filed with and a receipt obtained for it from the Superintendent.  No prospectus was filed in relation to trading by Specogna Minerals in Doromin shares from 1991 through to the end of 1993.

      Section 117(d) of the former Securities Regulation, provided an exemption from section 42 of the Act for a distribution of securities of an exchange issuer from the holdings of a control person subject to several conditions. Among these conditions are requirements that the seller file in advance a notice of intention to sell and that no unusual effort be made to prepare the market or create a demand for the securities. The notice must be filed in compliance with section 129 of the former Securities Regulation.  No notice was filed by Specogna Minerals. We find that Marino Specogna's trading through the Group Accounts represents an unusual effort to create a demand for Doromin shares.

      A further exemption from the section 42 of the Act was found in section 117(e) of the former Securities Regulation. The control person could trade securities of an exchange issuer acquired through the Exchange where the security traded, together with the securities traded by the control person under the exemption during the 90 day period preceding the trade, did not exceed five per cent of the securities outstanding at the date of the trade. We find that this exemption was not available to Specogna Minerals for many of the trades in Doromin shares. We find that Specogna Minerals repeatedly contravened section 42 of the Act  when, as a control person, it distributed Doromin shares during April 24, 1991, to September 2, 1993, without filing a prospectus and without an exemption under the Act or former Securities Regulation.

      We find that E. Specogna and L. Specogna, as directors of Specogna Minerals, were responsible for managing its business and affairs, including ensuring that Specogna Minerals complied with the Act when it traded Doromin shares.  We find that L. Specogna did not fulfill her duties as a director of Specogna Minerals when she failed to satisfy herself that her husband, to whom she had given authority to deal with shares held by Specogna Minerals, was dealing with the Doromin shares owned by Specogna Minerals in accordance in that Act.  We find that E. Specogna did not fulfill his duties and responsibilities as a director of Specogna Minerals when he failed to satisfy himself that his son, to whom he had given trading authority over the brokerage accounts of Specogna Minerals, was dealing with the Doromin shares in accordance with the Act.  We find that both E. Specogna and Marino Specogna knew that Specogna Minerals was a control person of Doromin.  Accordingly, we find that each of E. Specogna and Marino Specogna caused Specogna Minerals to contravene section 42 of the Act.

      Commission staff alleged that E. Specogna and Specogna Minerals were insiders of Doromin and failed to file insider reports as required by section 70 of the Act.

      We find that as a director of Doromin, E. Specogna is an insider of Doromin. We find that by December 20, 1989, Specogna Minerals was an insider of Doromin when it held Doromin shares carrying more than 10 per cent of the voting rights attached to all Doromin shares.  We find that E. Specogna and L. Specogna are insiders of Doromin as a consequence of being directors of Specogna Minerals, itself an insider of Doromin.

      E. Specogna's last insider report relating to Doromin was filed on April 9, 1990.  In it, and in previous reports, he provides details of Doromin shares held by him directly and indirectly, through Specogna Minerals.  No insider reports had ever been filed by Specogna Minerals in relation to transactions in Doromin shares.  We find that Specogna Minerals breached section 70 of the Act.

      As of March 10, 1994, no insider reports had been filed by L. Specogna regarding her trading in Doromin shares.  L. Specogna's letter of May 24, 1994, indicated that she enclosed her outstanding insider reports with respect to her personal trading in Doromin shares.  Unfortunately there are no reports before us.  The evidence shows that between October 1, 1989, and February 28, 1990, L. Specogna disposed of over 80,000 Doromin shares and any insider reports filed in May of 1994, would be well outside the time period allowed under section 70 of the Act.  Accordingly we find that L. Specogna contravened section 70 of the Act.

3.3 Marino Specogna Trading in Doromin Shares

      Commission staff alleged that during the period from June 1, 1991 to December 31, 1993, Marino Specogna acquired at least 2,771,500 and disposed of at least 3,297,500 Doromin shares and failed to file insider reports that reflected changes in his direct or indirect beneficial ownership of, or control or direction over, the shares, contrary to section 70 of the Act.  Commission staff also alleged that Marino Specogna's trading during this time created or resulted in a misleading appearance of trading activity in, or an artificial price for, Doromin shares, contrary to section 41.1 of the Act.

      During 1993, in 791 trades, 4,435,000 Doromin shares were traded on the Exchange.  The Group Accounts dominated that trading by purchasing 2,794,500 shares, or 63.01% of the shares traded through the Exchange, and by selling 3,182,000 shares, or 71.75% of the shares traded through the Exchange in 1993.  We find that the Group Accounts engaged in 362 intra-group trades, many of which were wash trades and others of which were done for no economic purpose.  The Group Accounts, through price leadership on purchases, created a rise in Doromin's share price that was artificial.

      We find that the trading in Doromin shares during 1993 by the Group Accounts  created a misleading appearance of trading activity in, and an artificial price for,  Doromin shares contrary to section 41.1 of the Act.  We also find that Marino Specogna, in directing all of the trading in the Group Accounts, intended to create a misleading appearance of trading activity in, and an artificial price for, Doromin shares during 1993.

      In the Securities Exchange Commission case of Re Edward Mawod & Co. 46 SEC 865, (1977), aff'd., 591 F.2d 588 (10th Cir. 1979), the  SEC said at 871-872:

When investors and prospective investors see activity, they are entitled to assume that it is real activity. They are also entitled to assume that prices that they pay and receive are determined by the unimpeded interaction of real supply and real demand so that those prices are the collective marketplace judgments that they purport to be. Manipulations frustrate these expectations. They substitute fiction for fact ... the vice is that the market has been distorted and made 'into a stage-managed performance.'
      One of the purposes of securities regulation is to develop and maintain a fair and efficient market that warrants public confidence. Where a person trades in a security and knows that the trading activity creates a misleading appearance of trading activity, and an artificial price, for a security traded on the Exchange, this purpose is frustrated. Fiction is substituted for fact. In the words of the SEC, the market for Doromin shares was distorted by Marino Specogna and made into a  stage-managed performance'.  The trading by the Group Accounts had an enormous illusory effect on the reported trading activity in Doromin. We find that Marino's Specogna's trading of Doromin shares through the Group Accounts in 1993, seriously prejudiced the public interest.

      Commission staff also alleged that Marino Specogna, as an insider of Doromin, failed to disclose any of his trading in Doromin shares after June 1991 contrary to section 70 of the Act.

      The relevant statutory provisions are as follows:

        Section 1(1) of the Act defines an insider of an issuer as,  inter alia,  a director or senior officer of the issuer, a director or senior officer of a person, including a corporation, that is itself an insider or subsidiary of the issuer, and a person that has direct or indirect beneficial ownership of, control or direction over, or a combination of ownership and of control or direction over securities of the issuer carrying more than 10% of the voting rights attached to all that issuer's outstanding voting securities.

Section 70(2) of the Act requires that an insider of a reporting issuer file an insider report within 10 days of becoming an insider disclosing any direct or indirect beneficial ownership of, or control or direction over, securities of the issuer.

      Section 70(4) of the Act requires an insider to file an insider report within 10 days after the end of a month in which there is any change in his holdings, disclosing the changes and disclosing his holdings at the end of the month, so long as he was an insider of the reporting issuer at any time during that month.

      Marino Specogna as a director of Doromin was an insider of Doromin.  None of Marino Specogna's trading in Doromin shares since May 1991, including the trading  through the Group Accounts, was disclosed in insider reports.

      The evidence established that from June 1, 1991, to December 31, 1993, Marino Specogna personally acquired at least 2,771,500 Doromin shares and disposed of at least 3,297,500 Doromin shares.  Marino Specogna did not file any insider reports reflecting these transactions.  Nor were insider reports filed reflecting trading in Doromin shares in Group Accounts over which he had direction and control.

      We find Marino Specogna, as an insider of Doromin, failed to file insider reports disclosing changes to his holdings in Doromin shares after May 1, 1991 as required by section 70 of the Act.  As a director of a reporting issuer, he ought to have known, and we find that he did know, that he was required to report any changes to holdings in Doromin.  Indeed, he had been warned in letters from Commission staff about an insider's duty to comply with section 70 of the Act and the possible consequences of the failure to do so.  The evidence shows that Marino Specogna deliberately ignored his obligation to file insider reports for trading in Doromin shares after May 1991.

3.4 Required Filings

      Staff alleged that the directors of Doromin failed to cause Doromin to file Forms 20 as required under section 132 of the former Securities Regulation where Doromin distributed shares relying on a statutory exemption.  Section 1(1) of the Act defines security to include an option.  Section 132 of the former Securities Regulation requires an issuer, where it distributes securities in reliance on a statutory exemption, to file a report in the required form, not later than 10 days after the distribution.

      The evidence established that Doromin failed to file in the prescribed form and time, reports of exempt distributions regarding the issuance of shares to directors and employees between April 7, 1993 and January 14, 1994, contrary to section 132 of the Regulation.

4.  DECISION

      Although we have found that Specogna Minerals, E. Specogna and L. Specogna have failed to meet certain regulatory requirements, this case centers primarily around the egregious conduct of Marino Specogna.  As a director and de facto officer of a reporting issuer he must bear responsibility for that conduct.  We have found Marino Specogna responsible for a number of significant violations of securities regulatory standards, many of which were intentional.  In summary Marino Specogna:

-
disseminated misrepresentations, and allowed misrepresentations to be disseminated in Stockwatch, in early November 1989, regarding Doromin's drilling program on the Cimadoro property;
-
by disseminating the Doromin Fax, which contained misrepresentations regarding the assays results, created a misleading appearance of trading activity in, and an artificial price for, the shares of Doromin traded through the Exchange on December 1, 1989 contrary to section 41.1 of the Act; Marino Specogna bought and sold Doromin shares knowing the misrepresentations in the Fax had been disseminated;
-
in directing the trading in the Group Accounts, created a misleading appearance of trading activity in, and an artificial price for, Doromin shares in 1993, contrary to section 41.1 of the Act;
-
failed to file insider reports contrary to section 70 of the Act;
-
caused Specogna Minerals to contravene section 42 of the Act; and
-
failed to ensure that Doromin met its regulatory responsibilities by  reporting,  in a timely fashion, all exempt distributions contrary to section 132 of the former Securities  Regulation.
      A temporary order withdrawing Marino Specogna's exemptions has been in place since April 21, 1994.  The Commission considers it to be in the public interest to remove Marino Specogna from the market for a substantial period of time and to impose a significant administrative penalty under section 144.l of the Act.

      E. Specogna was much less involved in the activities that gave rise to these proceedings.  He nonetheless, must be held accountable for his failure to meet his regulatory responsibilities as a director and insider of a reporting issuer and as a director of a control person.  It concerns us that, as the president and a director of Doromin, he took no steps to immediately correct the false information about Doromin's drilling results that was obviously in the public domain.  If he chose to rely on his son in discharging his regulatory responsibilities, he did so at his peril.  The Commission considers to be in the public interest to remove E. Specogna from the market and to impose an administrative penalty under section 144.1 of the Act.

      L. Specogna was even less involved in the subject matter of these proceedings than her husband.  She became an insider of Doromin as a result of being a director of Specogna Minerals, itself an insider and control person of Doromin.  It appears that she may have updated her insider filings after Commission staff brought the matter to her attention. Nonetheless we found that she breached section 70 of the Act. As a director of Specogna Minerals she also had an obligation to ensure that it met all of its regulatory obligations. This she failed to do, no doubt relying on the legal advice she believed she received and the fact that she gave her husband power of attorney to sell the securities of Specogna Minerals. In the circumstances, we are of the view that it is in the public interest to remove L. Specogna from the market for a shorter period of time and to impose an administrative penalty under section 144.1 of the Act.

      The Commission considers that it is in the public interest to order:

1.
under section 144(1)(c) of the Act, that the exemptions described in sections 30 to 32.1, 55, 58, 80 and 81 of the Act do not apply to:
(a)
Marino Specogna and Specogna Minerals for a period of 20 years from the date of this decision;
(b)
E. Specogna for a period of four years from the date of this decision; and
(c)
L. Specogna  for a period of one year from the date of this decision;
2.
under section 144(1)(d) of the Act, that each of Marino Specogna, E. Specogna and L. Specogna is prohibited from becoming or acting as a director or officer of a reporting issuer until each has successfully completed a course of study satisfactory to the Executive Director concerning the duties and responsibilities of directors and officers;
3.
under section 144(1)(d) of the Act, that Marino Specogna is prohibited from becoming or acting as a director or officer of a reporting issuer until a period of 20 years has elapsed from the date of this decision and that E. Specogna is prohibited from becoming or acting as a director or officer of a reporting issuer until four years has elapsed from the date of this decision;
4.
under section 144.1 of the Act, that within 60 days of this decision, each of the following respondents pay, an administrative penalty in the amount affixed opposite their name:
(a)Marino Specogna
$ 35,000
(b)E. Specogna
$  5,000
(c)L. Specogna
$  1,000
5.
under section 154.2 of the Act, that the respondents pay prescribed fees and charges for the costs of or related to the hearing incurred by the Commission and the Executive Director, the amounts to be determined following further submissions from the parties.
J.C. MAYKUT,Q.C., Vice Chair
H. DUNSTAN BROWNE, Member
E.L. LIEN, Member