Heard:	September 21, 23, 27, October 3 and 6, 1988
		Decision:  November 25, 1988

A.G. Henderson and Boris Tyzuk, for the Superintendent of Brokers.

William Everett, for Capital Reserve Inc.

Winton Derby, Q.C., for Jerome Rak, Belmont Capital Corporation and Prairie Pacific Capital Inc.

Rosemary Basham, for Maureen MacNeill.

Mark Rowan, for Donald R. Stratton.

Mark L. Tweedy, for Christopher Bass.

R.C.C. Peck, Q.C., for Alan Charuk.

Leif Ostensoe, on his own behalf.

John Hall, Q.C., for Wayne Wile.

DECISION AND REASONS:-- This matter was brought before the Commission by the Superintendent through a notice of hearing dated September 7, 1988, (the "Notice") in connection with activities related to Capital Reserve Inc. ("Capital"). The Notice stated that the Commission would be asked to determine whether it would be in the public interest:

1.		to make orders under section 145(1) of the Securities Act (the "Act") removing the trading exemptions of Jerome Rak ("Rak"), Maureen MacNeill ("MacNeill"), Christopher Bass ("Bass"), Donald Stratton ("Stratton"), Leif Ostensoe ("Ostensoe"), Alan Charuk ("Charuk"), Wayne Wile ("Wile"), Belmont Capital Corporation ("Belmont") and Prairie Pacific Capital Inc. ("Prairie");
2.		to make orders under section 145.3(1) prohibiting Rak, MacNeill, Bass, Stratton, Ostensoe, Charuk and Wile from becoming or acting as directors or officers of Capital or any issuer;
3.		to make an order under section 154.2 that Capital, Rak, MacNeill, Bass, Stratton, Ostensoe, Charuk, Wile, Belmont and Prairie pay costs related to the hearing; and
4.		to make any other order as appropriate in the circumstances.

The Order was issued September 7, 1988, for a period expiring September 21. As it applies to Rak, Belmont and Prairie, the Order has been extended by the Commission under sections 145(3) and 145.1(3) pending this decision. The action against Wile was dealt with separately from the main proceedings and an order has been issued by the Commission under section 145(1) removing Wile's trading exemptions for three years.

On September 9, 1988, Capital applied to the Commission under section 147 for a review and stay of the Order, as it applies to Rak. A hearing in respect of the request for a stay was held on September 14 and the request was denied by a decision of the Commission dated September 21.

BACKGROUND

Capital is incorporated under the Company Act and its common shares are listed on the Vancouver Stock Exchange (the "Exchange"). It was originally incorporated as Laurie Resources Ltd. and its present name was adopted on March 27, 1987.

Rak is an individual who spent six years in the securities business, with three different brokerage firms, and has been involved for the past four years in the promotion and management of junior public companies. He is the president and sole owner of Belmont, a company that provides management and investor relations services for junior companies, and is the sole owner and director of Prairie, his private investment company. He is also a director and, in some cases, an officer of companies in the so-called Belmont group.

In the spring of 1987 a new board of directors was appointed for Capital, consisting of Bass, MacNeill, Stratton, Ostensoe and Charuk. At about the same time capital acquired from Prairie a California mineral property known as Big Silver, and a decision was taken to do a public financing and obtain a listing on the Exchange. A prospectus was prepared by Capital and a receipt was issued by the Superintendent on August 12, 1987. Capital was listed on September 24.

Also during the spring and summer of 1987, Rak was involved in discussions with a group in Los Angeles regarding the acquisition of a high technology venture which became known as Oculokinetics. On August 13 an agreement in principle was signed by Rak providing for Oculokinetics to be acquired by an unnamed public company in which the escrow position was said to be held by Prairie or its nominee. On November 9 Bass signed a letter of intent for Capital to acquire Oculokinetics.

In February and March 1988, there were some changes to the board of directors of Capital, with Bass, Stratton and Ostensoe being replaced by Rak and others. Rak also replaced Bass as president at this time. Following receipt of a negative geological report, Capital announced in March a decision to abandon the Big Silver property. In April, Capital concluded an agreement to acquire Oculokinetics, subject to regulatory approval. In July and August, while Capital was the subject of an aggressive investor relations program by Belmont, a large volume of Capital's shares was sold through Belmont's account. There was no advance or concurrent disclosure of this trading activity.

On August 23, 1988, the Exchange halted trading in Capital's shares, stating that "Circumstances may exist which in the opinion of the Exchange could materially affect the public interest. The Exchange will be reviewing the recent trading activity in the shares of the company."

Following some discussions and correspondence among Capital, the Exchange and staff of the Commission, the Superintendent issued a halt trading order under section 73(1) on September 1, 1988, to replace the halt by the Exchange. This order was effective until September 7, and it stated that the Superintendent "considers that circumstances exist or are about to occur that could result in other than an orderly trading of the common shares of Capital". Prior to the expiry of the halt trading order on September 7, the Superintendent issued the Notice and the Order. Capital's shares resumed trading on September 8 and the price dropped to slightly over half the pre-halt price.

At the hearing Mr. Henderson, counsel for the Superintendent, presented a case alleging extensive improprieties in disclosure and trading activity. Counsel representing the respondents argued that the Superintendent had only a theory, with no reliable evidence to support it. In attempting to weigh the evidence and reach a conclusion we have focused on several key aspects of the case: the involvement and activities of the directors; the Big Silver property and the financing; the Oculokinetics acquisition; the share ownership and trading; and the investor relations activities.

THE DIRECTORS

In early 1987 the affairs of Capital (then called Laurie Resources) appear to have been under the control of Basil Pantages ("Pantages"), an associate of Rak. According to witnesses at the hearing, Pantages was engaged in reactivating the company. In March 1987 he recruited Bass as president and director, MacNeill as corporate secretary and director, and Stratton and Charuk as directors. Ostensoe was recruited as a director at about the same time by Doug Barlee, an employee of Canarim Investment Corporation ("Canarim").

Bass had become acquainted with Pantages because they had adjacent lockers at an athletic club. He had about one year's experience as a registered representative with a national investment dealer and was looking for career opportunities in the junior resource field. He indicated that Pantages had selected him as president of Capital because of his honesty. From the time of his appointment until his departure in early 1988, Bass was employed full time as president of Capital, for which he received a salary of $500 per month plus options for 64,000 shares of Capital. He also testified to having acquired 750,000 escrowed shares of Capital for $7,500, which he initially borrowed from Pantages and then repaid shortly after buying the shares. Bass said he attended daily, from early morning until the close of trading on the Exchange, at Capital's corporate office. From the fall of 1987, Capital shared office space with Belmont. Bass described his daily activities as "presidential duties" -- dealing with lawyers, accountants, the business and the stock.

MacNeill is a former legal secretary who became involved with public companies in July 1986, when she was hired by Newport Venture Group Inc. ("Newport"). She worked very closely with Rak, whom she described as having a major role in Newport, although he was not "on the record". Evidence showed that MacNeill had filed a disclosure form with the commission in 1986 in which she described Rak as her superior and as president of Newport. At the hearing she said that the form she had filed was in error and that the only director and officer of Newport had been David Edgell. Since early 1987, MacNeill has been a director and full time employee of Belmont. She is also a director of several of the companies managed by Belmont.

Stratton is a Registered Industrial Accountant who indicated he was selected by Pantages, whom he had known previously, to provide financial input on the board.

Ostensoe is a geologist of some 30 years standing who understood himself to be on the board as the "required geologist". He had originally met Rak in 1986.

Charuk is a mining promoter and director of three public companies.

The directors conducted the business of Capital solely through consent resolutions. There were no meetings of the board of directors or the audit committee and, in fact, Stratton, Ostensoe and Charuk never met each other until the hearing. Resolutions were presented to the latter three directors, individually, by Bass or MacNeill.

Bass and Stratton continued as directors until February 29, 1988, when they both resigned. Ostensoe resigned in March 1988. MacNeill and Charuk were still directors at the date of the hearing.

THE BIG SILVER PROPERTY AND THE FINANCING

Concurrently with the selection of the new board in the spring of 1987, Rak made arrangements with Pantages to sell to Capital an interest held by Prairie in the Big Silver property. The directors, other than Bass, stated that they had no involvement in this acquisition.

Bass testified that he never visited the Big Silver property but did read reports on it. He was unable to recall how many reports he had read or by whom they were written. He claimed to be hopeful about the property because he was intrigued by the mining industry, was interested in silver and thought the property looked promising based on the enthusiasm of the reports.

During the summer of 1987, Capital proceeded with a public financing for a phase one testing program on the Big Silver property. There was no clear evidence as to how this decision was made. MacNeill stated that Bass was the "motivating force", but Bass stated that he had no direct involvement in the financing. Charuk stated that the directors decided that Big Silver was an exciting property that should be financed, but he had no recollection of a resolution to this effect.

Discussions leading to the financing were initiated by Rak in meetings with Tom Leska and Danny Harada, two registered representatives with Canarim. Subsequent meetings with Harada involved Charuk as well as Rak. Harada, Charuk and Rak all testified that Charuk attended to speak for Capital about the financing while Rak attended only as the vendor of the property. Rak also indicated, however, that he, rather than Bass, had met with the brokers because he already knew them.

Other than Charuk, the directors had no involvement in the financing until the prospectus was prepared. Bass suggested that there was little to do, other than find buyers, because it was only a $300,000 financing. He had no recollection of an agency agreement with Canarim. Charuk's involvement appears to have been limited to discussions with Rak, Harada and, possibly, Leska. Neither Leska nor Harada were involved in the agency agreement. Both indicated that the agreement for Canarim to underwrite was made, as was the normal practice, by Canarim's chairman, Peter Brown. The only person who gave evidence of having had a discussion about the Big Silver property with Brown was Rak.

The prospectus for the financing was signed by all five directors, and by Brown for the underwriter, and a receipt was issued by the superintendent on August 12, 1987. Bass stated that he had read the prospectus before signing. MacNeill also stated she had read the prospectus, and that she had looked at the financial statements and engineering report. Stratton stated he had checked the prospectus thoroughly, working with Bass and MacNeill. Charuk stated he had read the prospectus and technical report and put questions about the property, to Rak, and about the finances, to MacNeill. Ostensoe stated that he had signed the prospectus when it was presented to him by Bass or MacNeill.

Rak was disclosed in the prospectus only as the vendor of the Big Silver property.

Following the approval of the prospectus, Capital completed the financing and was listed on the Exchange on September 24, 1987. Rak "lined up" some of the purchasers on the primary distribution, accounting for about one-quarter of the total buying. Leska described Rak's involvement as having pre-sold expressions of interest, while Rak described it as having advised his friends that Capital was a good investment.

Drilling and testing work was then undertaken on the Big Silver property. There was some confusion among the directors in their evidence as to who had selected the driller for the program. MacNeill said Bass had handled it; Bass said it was left to Ostensoe; Ostensoe said he had had little to do with it as he had no knowledge of or interest in California.

In November some of the directors received oral reports from the property of results that were described, variously, as "inconclusive" or "so-so". There was no public disclosure of this information.

On January 7, 1988, an engineering report was received recommending no further work on the property. It was quickly decided that a second report was needed because, according to Bass, a consultant advised Capital that the first report would not be acceptable to the Exchange. A second report was received January 28 from R. Tim Henneberry, a consulting geologist. This report also recommended no further exploration.

Despite this negative development in what had been Capital's main business, the directors apparently gave no thought to making any immediate public disclosure of the findings by the geologists. Stratton and Charuk appear not to have been involved. Bass and MacNeill left things in limbo while Ostensoe arranged to have a further look at the property. Ostensoe was of the opinion that the exploration work had been "botched" and the geologist was inadequate. He sent two people to look at the property and was told by them that more work should be done on it.

On or about March 10, 1988, Ostensoe approached Rak, who had become president of Capital following Bass' resignation on February 29, to propose that Capital undertake further exploration on the Big Silver property. Rak said no and Ostensoe resigned a few weeks later. On March 31 a press release, signed by Rak, announced that Capital had decided to abandon the Big Silver property.

THE OCULOKINRTICS ACQUISITION

Oculokinetics is a California-based venture, which has developed a technology for testing individuals to determine the presence of alcohol and other drugs in their bodies. It has a business plan to develop, manufacture and sell a product, called the Drug and Alcohol Analyzer (the "Analyzer"), based on this technology.

Rak gave evidence that he first became aware of Oculokinetics in February 1987 from its owners, Ronald Waldorf ("Waldorf") and Charles Phillips ("Phillips"). Over the spring and summer of that year Rak developed an oral agreement to finance the business plan by having a public company acquire Oculokinetics. The agreement was reduced to writing in a letter dated August 13 (the "August Letter").

The August Letter described an agreement in principle for Prairie to finance Oculokinetics through a "public company vehicle", which was not named but was described in some detail, as follows:

"The Company is currently, or will shortly be trading on the Vancouver Stock Exchange (VSE). Its current capitalization is approximately:

2.3 million + shares outstanding; including 750,000 shares in escrow for Prairie Pacific Capital Inc. or its nominee. Balance of shares in a 90-day pool agreement with 25% each 90-day period eligible for sale to public investors."

Although Capital was the company ultimately used for the acquisition of Oculokinetics, Rak denied in his testimony that this was his plan on August 13. He said that when he wrote the August Letter he had in mind two other companies, Missile Resources and Texas Seven, not Capital. He claimed that the escrow shares of Capital were not held by Bass as nominee for Prairie. He could not recall whether there were, in fact, 750,000 shares of Missile or Texas Seven held in escrow for Prairie. He stated that both Missile and Texas Seven had about 2.6 million shares outstanding. However, both wore private companies and no prospectus had been filed for either of them.

Rak stated that the Oculokinetics acquisition was later shifted to Capital because he could not meet the financial commitment personally. According to Rak's testimony, the sequence of events was as follows: In October Rak began to discuss with Bass the possibility of Capital taking over the Oculokinetics deal. He gave Bass a copy of a business plan and asked Bass to take it to Capital's board. Bass later told Rak that he had presented it to the board and that the board liked the deal and would take it over from Rak. Rak then gave Bass a copy of the August Letter, which Bass took to the board. Bass returned and again said the board liked the deal. There were no negotiations between Rak and Bass - Capital simply agreed to assume the deal, which involved an obligation to pay $1 million (U.S.) and to issue one million shares of Capital. Capital paid Rak the $20,000 that he had spent on Oculokinetics and was then on its own to structure a specific agreement with Waldorf and Phillips.

Bass testified that he had first heard of Oculokinetics, from Rak, in late October 1987. He stated that he had asked Rak "millions of questions", including whether the principals were credible and whether the product would work, and received satisfactory answers. At that time or shortly after, he received a copy of a technical report prepared by Erythana Ventures Ltd. He testified that he had done no further independent checking into Oculokinetics and that he had not considered it necessary to go to California to meet Waldorf and Phillips because he trusted Rak. He stated that he discussed the deal with the other directors and then, because he was interested in it, sent a letter of intent to Oculokinetics, dated November 9, 1987 (the "November Letter"). Bass testified that he was responsible for the preparation of this letter, although he used the August Letter as a basis for it.

The essential elements of the November Letter are virtually identical to those in the August Letter. Capital agreed to: raise $1 million (U.S.) to be provided to Oculokinetics on a prearranged schedule, including a payment of $25,000 on signing and advances of $25,000 per month beginning January 1988 until approval of the transaction by the Exchange; issue one million shares to persons named by Waldorf, of which 800,000 were to be held in escrow subject to earn out; grant a 100,000 share option to persons named by Waldorf; and arrange for 75,000 existing escrow shares to be transferred to persons named by Waldorf. In exchange Capital would acquire Oculokinetics and Waldorf and Phillips would agree to three year employment contracts. A termination clause provided that Capital would receive a reduced number of Oculokinetics shares for sums advanced prior to termination of the agreement for any reason.

On examination by Mr. Henderson, Bass displayed little knowledge of these terms. He recollected that the deal was for $1 million (U.S.) in cash and shares but could not remember any breakdown. He described the key element of the agreement as "benefits for both sides". He could not remember anything about the termination clause, although he stated that he was sure it was important. He could not recall how much Capital paid to Oculokinetics while he was president.

Two details in the November Letter raise particular questions. In the provision regarding transfer of 75,000 existing escrow shares, these shares are described as being "now held in Escrow by Prairie Pacific Capital, or its nominee". Bass stated that this was copied in error from the August Letter and should have been changed to indicate that he was the holder of the escrow shares. The November Letter also identified $20,000 that had been paid to Oculokinetics by Prairie and a further $65,000 that had been paid in three installments in August and October. Although the text of the letter implies that the $65,000 was paid by Capital, the payments were made prior to the date when Rak and Bass suggest that Capital became involved. No evidence was given that Rak paid or sought reimbursement of this amount and Bass claimed to have no knowledge of these previous payments.

MacNeill's involvement in the Oculokinetics deal was, according to her testimony, quite limited. She first met Waldorf in July 1987 when he attended Belmont's office to meet with Rak. She typed the August Letter on Rak's request and typed the November Letter on Bass' request, the terms of the latter being taken essentially from the former. She had not seen any financial statements of Oculokinetics when she typed the November Letter, nor had she taken any steps to have Capital's lawyers check the status of the patents Oculokinetics had pending. She stated that she had discussed the proposed acquisition with Bass and agreed it was a good opportunity.

While acknowledging that the capitalization of the company described in the August Letter was similar to that of Capital, she stated that it was also similar to that of Missile Resources and Texas Seven, two private companies that were not part of the Belmont group.

The other directors had even less involvement in the acquisition. Ostensoe said he first became aware of the acquisition in late January 1988. Stratton said he had general discussions about the deal in late October 1987 with Bass and MacNeill but did not discuss the price or terms. He professed no knowledge of the August Letter or of the advance payments to Oculokinetics. Charuk testified that he first heard about Oculokinetics, from MacNeill, in November or December. He recalled no details of discussions about the November Letter and no decision by the directors to approve the acquisition. He indicated that during this period he was in financial difficulty and was focusing his attention on Quinto Resources, a company of which he was a director and promoter.

The first public disclosure related to Oculokinetics was a press release dated November 10, 1987, and signed by MacNeill. It announced an agreement in principle for Capital to acquire Oculokinetics and stated that "Oculokinetics anticipates that its technology will enable it to become a dominant force in the market within the first three years of operation. Sales of test equipment - both drug and alcohol - are expected to exceed $1 billion by the early 1990's."

Over the ensuing six months there was some sporadic disclosure related to Oculokinetics, including announcement of a second acquisition said to complement the Analyzer and announcement that Oculokinetics had commenced preliminary testing for alcohol intoxication. In a press release dated April 25, 1988, and signed by Rak (who had by then become president and director), Capital announced completion of formal agreements for the acquisition. This related to a share acquisition agreement (the "Acquisition Agreement") dated April 15, 1988, which, with some minor modifications, incorporated the terms of the November Letter.

Subsequent press releases in June and July described further testing work and announced that agreement in principle had been reached with "a significant Japanese research company" concerning the manufacturing and distribution rights to the Analyzer for Japan.

At the time of the hearing, Capital had defaulted on its September monthly advance of $25,000 to Oculokinetics, giving Oculokinetics the right to provide 30 days notice of termination of the Acquisition Agreement.

SHARE OWNERSHIP AND TRADING

From the time of Capital's prospectus until trading was halted by the Exchange in August 1988, there was a significant level of activity, by persons connected with Capital, relating to trading in the company's shares. In particular there were questions raised in the hearing as to whether Bass acquired and held the escrow shares as nominee for Rak and whether the acquisition and disposition of a large block of shares by Rak and others violated statutory provisions concerning take-over bids and trades from control positions. In addition there was undisputed evidence presented that Rak, MacNeill and Charuk had failed to file insider trading reports within the legally required times or, in some cases, had not filed reports at all.

Effective June 7, 1988, Capital's shares were subdivided on a 3.5 for one basis. References to prices and volumes of trading after that date are therefore on a "post split" basis.

The Escrow Shares

Capital's prospectus disclosed that the sole holder of the company's 750,000 outstanding escrow shares was Bass. Bass testified that he had purchased the shares with $7,500 borrowed from Pantages, which he repaid almost immediately. On December 22, 1987, Bass applied to the Exchange for a partial release of the escrow shares but this was never approved by the Exchange. He stated that he was the owner of the shares until he resigned as president and director on February 29, 1988. He had originally agreed in 1987 to surrender the escrow shares to Capital upon his departure, by way of gift for cancellation, but they were in fact redistributed to Rak, MacNeill and Gary Daradich. MacNeill testified that Bass had been the owner of the escrow shares and Rak testified that Bass had not held the shares for him.

The main evidence to the contrary is the reference in the August Letter, which was carried forward in the November Letter, stating that the escrow shares were held by Prairie or its nominee. Mr. Henderson submitted that the unnamed company in the August Letter was Capital and that the reference remained in the November Letter because it was true. A supporting piece of evidence for this position is found in Bass' insider report dated October 9, 1987, in which he described his ownership of the escrow shares, as well as 64,000 share options and 5,000 shares purchased off the prospectus, as indirect. When asked to explain his understanding of the term indirect ownership in this context, Bass said he thought this meant that shares were owned by someone else. In fact, he had gone so far as to cross out a note he had written on the insider report that the 750,000 shares were owned directly and beneficially my him.

Purchase and Sale of Pooled Shares

According to Rak's original testimony, Pantages approached himfLollowing the October 19, 1987, stock market crash with an offer to sell him some of the original seed capital shares in the company, which were still held in pool. Rak said he asked Pantages to put together a block of shares and agreed to find buyers for them. A block of 880,000 pooled shares belonging to six different persons, including Pantages and Charuk, was assembled and purchased in December by a group comprised of Rak, Gary Daradich, Dan Scammell, Cathy Scammell, Wile and Bob Slichter. Rak testified that he purchased only 220,000 of these shares himself but that all of them were placed in Belmont's trading account in order to maintain an orderly market. At the time of this acquisition, Capital had about 2.9 million shares outstanding.

Although the market price of Capital's shares at the time was about $1.75, the pooled shares were purchased for 31.5 cents per share. They were scheduled for release from pool in three batches on December 24, 1987, March 24, 1988 and June 24, 1988. As each batch was released from pool, it was picked up from the transfer agent by MacNeill and delivered to Belmont's broker.

Since this block of shares represented approximately 29 per cent of the total number outstanding at the time of purchase, the Commission raised in questioning the possibility that this acquisition might have constituted a take-over bid. Rak then changed his testimony to suggest that he had acted independently of the others in the purchasing group. He said that he had bought Pantages' shares and simply advised the other buyers that there were shares available, leaving them to make their own decisions.

A large number of the shares acquired in this transaction were sold through Belmont's account at McDermid St. Lawrence between July 25 and August 9, 1988. Rak stated that he had discussions daily with the other owners of the shares about the selling but did not regard himself and the others as a control group. He indicated that he was not familiar with the concept of acting in concert.

Insider Reports

Documentary evidence showed that Rak filed an initial insider report on April 19, 1988, some seven weeks after he became a director of record on February 29, 1988. The report disclosed a holding, through Belmont, of 290,483 shares of Capital, slightly less than 10 per cent of the shares then outstanding. On the same day he filed his report for the month of March, disclosing 39 trades involving the purchase and sale of approximately 300,000 shares. On June 27, he filed an amended report for March, primarily to disclose additional purchases. In both versions of the March report, the numbers of shares purchased and sold were roughly in balance.

On July 27, Rak filed his report for April, disclosing 50 trades involving sales and purchases totalling 260,000 shares. His net purchases for April amounted to 165,000 shares. On August 5, he filed a 20 page insider report for May, detailing 139 transactions totalling about 320,000 shares. Net sales for May amounted to 228,000 shares. On August 9, he filed his report for June, the most current report at the time of the hearing. It disclosed 125 purchases and sales for a total of approximately 1.4 million shares (on a post split basis). Net sales amounted to 100,000 shares.

Through this period trading was conducted mainly through Belmont, but also through Prairie. There were many days when shares were both bought and sold.

Rak acknowledged in his testimony that his insider reports had not been filed within the required period of ten days following the end of the month. He gave the excuse that he was too busy to complete the reports on time.

The only other director who disclosed a significant level of trading was MacNeill. While she never owned more than 65,000 shares, MacNeill reported more than 50 trades between September 1987 and May 1988. Her purchases and sales totalled some 200,000 shares, and were roughly in balance over the period.

Her report for November 1987 was filed on March 31, 1988; that for December on April 4; and those for January, February and May on July 27. MacNeill also indicated that her reports were filed late because she was busy.

Charuk filed one significant insider report during the period under review, for October 1987, in which he reported sales of 34,400 shares and the purchase of 4,700 shares. The report was filed on February 8, 1988. There was no report covering the sale of his seed capital shares in December 1987.

INVESTOR RELATIONS ACTIVITIES

During the hearing there were frequent references to activities described as investor relations. Rak, in particular, characterized much of his involvement with public companies as investor relations activity. With respect to Capital there was a considerable investor relations effort carried on by Belmont, through as many as five employees in Belmont's office as well as through articles and advertisements in investor oriented magazines published in the United States.

The investor relations effort appears to have begun shortly after Capital was listed in the fall of 1987. It was stepped up in April 1988 and by July there were four or five investor relations employees working in Belmont's office, all working on Capital.

Employee options in Capital were provided to the investor relations personnel, although most of them were actually employed by Belmont, not Capital. These options were disclosed in press releases over the period October 9, 1987, to June 24, 1988. Recipients of employee options included Brent Soleway, Christina Scott, Murray Polischuck, Larry Wong, Dan Scammell, and Wile, all of whom were employed in Belmont's office, as well as Roberto Veitia, a resident of Orlando, Florida and publisher of a magazine called "Money World". Options were also granted to Margy Klems, the receptionist in Belmont's office.

The number and timing of the options given to each of these recipients was as follows:

Recipient	# of options	Price	Date Announced
---------	-------------	-----	--------------
Margy Klems	5,000	$2.42	October 9, 1987
Murray Polischuck	7,500	$2.42	October 9, 1987
Larry Wong	15,000	$2.42	October 9, 1987
Christina Scott	35,000	$2.42	October 9, 1987
Wayne Wile	15,000	$1.35	October 29, 1987
Dan Scammell	50,000	$2.15	January 8, 1988
Roberto Veitia	62,500	$2.52	March 4, 1988
Brent Soleway	50,000*	$0.92*	June 24, 1988

The press releases in which these options were announced gave no indication of the nature of the work these employees were performing for Capital. In Scammell's case, however, there was a subsequent release on April 13, 1988, which announced his appointment as a director and stated, "Mr. Scammell has been involved with the company since its inception and has worked in the capacity of Investor Relations".

Evidence presented at the hearing included a copy of an article in the July 1988 edition of "Money World" entitled "Drug Buster" and subtitled "Could this be one of the best investments of all time?" The same article was included in the July-August edition of "Personal Investing News", another magazine published in the United States. The two page article described the Analyzer and Capital's business plan in very positive language and concluded that Capital "could eventually offer investors a return of more than 100-1 on their money".

According to Brent Soleway, who gave evidence at the hearing, he was employed by Belmont beginning in January or February 1988 and, after a two month period in which he learned about the Belmont companies, he concentrated on investor relations for Capital. From April to July he was responsible under Rak's daily direction for keeping investors informed about Capital's activities. He indicated that interest in Capital increased greatly in June and July of 1988. During that period he talked over the telephone with twenty to twenty-five investors per day, most of whom were responding to advertisements in "Money World". He was aware that there was heavy trading volume in Capital's shares at this time with little movement in the price, but claimed not to be aware that Belmont was selling heavily.

Rak testified that he had hired the investor relations employees and that they began work on Capital in the spring of 1988. He stated that the options were provided as an incentive to work hard for Capital. He described Veitia as an employee of Capital as well as being publisher of "Money World", and stated that Capital had paid for advertisements in "Money World" but not for the favourable article.

Bass testified that, although the investor relations employees were employed by Belmont, the options were provided only for work done for Capital. He stated that he had "checked very, very thoroughly" and observed the employees on the telephone to ensure that this was so. However, in response to Mr. Henderson's questions, he stated that he had "no idea" who the employees were calling or where they obtained the names of the persons they called.

MacNeill was clearly aware of the investor relations activities, as they took place largely in Belmont's office. She knew about the stock options given to the investor relations employees, as she had approved at least some of them, including Veitia's. She was aware of Veitia's connection with Money World but did not consider disclosing this relationship in the press release announcing his options. She claimed to have provided no information to Veitia for use in Money World.

MacNeill contradicted Soleway's evidence that he was employed by Belmont beginning in January or February. She testified that the employee records showed Soleway's employment beginning April 11, 1988 but provided no documentary evidence to support this.

Of the other directors, only Stratton professed any knowledge of the investor relations activities. Ostensoe said he had no involvement and Charuk said he was only vaguely aware of the activity.

During the four days from July 26 to July 29, 1988, 1.5 million of Capital's shares were traded on the Exchange, representing a sharp increase over previous trading volume. The price of the shares declined over this period from 95 cents to 84 cents. Evidence showed that Belmont sold 450,000 shares of Capital from its account at McDermid St. Lawrence during this sax .ne period.

On July 29, 1988, Capital issued a press release, signed by Rak, which included the following paragraph:

"The Company feels the volume of shares traded this week has been due to the fact that a brokerage firm in California and a public relations firm in Florida have been advising their clients to invest in the Company. The Company is not aware of any additional reasons for the volume."

During the following six trading days, from August 2 to August 9, 1.3 million shares were traded and Belmont sold 510,000 shares from its account at McDermid St. Lawrence. The price fluctuated between 87 cents and 80 cents during this period.

Rak testified that between $680,000 and $700,000 was raised through the sale of Capital shares in July and August. He indicated that $500,000 was needed to meet a commitment for "Jerome Rak and his associates" to take down that much of a proposed financing by Capital, as stated in the statement of material facts ("SMF") filed with the Exchange and the Superintendent. The additional sales, he said, were required to maintain an orderly market.

When asked by Mr. Henderson whether he had considered "toning down" the investor relations effort, rather than selling additional shares, to relieve the upward pressure on the price, Rak responded that he had not done so because the investor relations activities had nothing to do with the buying pressure. He supported this contention by stating that the investor relations employees had been told not to call non-shareholders of Capital. However, he admitted that there had been no direction not to encourage existing shareholders to purchase more shares.

FINDINGS

The behaviour surrounding Capital from the spring of 1987 to the summer of 1988 can be viewed on two levels. At a detailed level there is clear evidence, some direct and some circumstantial, of numerous violations of the Act. These include late filing of insider trading reports, an illegal take-over bid, illegal distributions from a control position, failure to make timely disclosure of material changes, misrepresentations in the prospectus and press releases, and so on. On a higher level, however, the evidence reveals an even more disturbing picture. We saw here a pattern of activity that is inimical to the public interest in a fair and open market where investors and potential investors receive adequate disclosure of material information about the affairs of a reporting issuer.

Prospectus Disclosure

On reviewing all of the evidence we are satisfied that Rak was the moving force behind Capital throughout the period in question. Public disclosure in the prospectus and press releases, and assertions by a number of witnesses at the hearing, tried to portray a different picture. We were asked to accept that Rak was only a vendor of the Big Silver property and later simply passed over to Capital his interest in Oculokinetics. The real power in Capital until March 1988, we were told, was Bass. Only when Bass resigned, it was suggested, did Rak become involved in the management of Capital. This story is simply not credible.

We observed Bass testifying at the hearing and saw a man of limited experience and ability in business matters. He displayed virtually no knowledge or understanding of the activities undertaken by Capital during the period when he was the full time president. He admitted to no involvement in arranging the prospectus financing. He did not know who had selected the driller for the Big Silver testing program. He knew virtually nothing about the Oculokinetics agreement. He knew very little about the activities of the investor relations employees. Bass was nothing more than a nominee president and director.

Of the other directors, only MacNeill played any significant role in the management of Capital, and her involvement was primarily of an administrative not an executive nature. Charuk played a minor role in the arrangement of the financing but after that was a passive director. Stratton indicated that he had some involvement in vetting the prospectus. Ostensoe had no active involvement until the geological reports were received on the Big Silver property. He resigned after his attempt to influence Capital's direction was rebuffed by Rak.

When we contrast the relative non-involvement of the directors of record with the activities of Rak, bringing both Big Silver and Oculokinetics to Capital, meeting with the underwriter, hiring investor relations employees, and so on, we have no difficulty concluding that Rak was both a director and promoter of Capital, as those terms are defined in the Act.

We also conclude that Rak's intention at the time the prospectus financing was being arranged was to use Capital as a vehicle for financing Oculokinetics. The August Letter clearly described a company that resembled Capital in every major characteristic. Rak's discussions regarding Oculokinetics with Waldorf and Phillips took place over the same period as the arrangements to reactivate Capital and take it public. Oral agreements made over this period were reduced to writing the day after Capital was given its prospectus receipt. We do not believe that this was a mere coincidence.

Rak specifically denied that he was considering Capital when he wrote the August Letter and he and MacNeill named two other companies, Missile Resources and Texas Seven, that were being considered for the Oculokinetics acquisition. However, they admitted that both were private companies and neither had even filed a prospectus. Furthermore, we were given no documentary evidence to support the assertions that these companies fit the description. We must draw an adverse inference from Rak's inability to present any credible alternative explanation of the evidence.

We also conclude that Bass was holding the escrow shares in Capital as a nominee for Rak. We did not find Bass' evidence reliable on this point. Our conclusion is clearly supported by the August letter and the November letter, as well as the reference to indirect ownership in Bass' insider report. The fact that Bass applied to the Exchange for a partial release of the escrow shares provides no support for the contention that he was not a nominee.

Section 44(1) of the Act states that, "A prospectus shall provide full, true and plain disclosure of all material facts relating to the securities issued or proposed to be distributed". We conclude that Capital's prospectus dated August 12, 1987, should have disclosed as material facts that Capital intended to acquire Oculokinetics and that Rak was a promoter and de facto director and the beneficial holder of the escrow shares.

Disclosure of the Big Silver Results

The evidence showed that oral reports from the Big Silver property, indicating that testing results were not positive, were made to some of the directors as early as November 1987. In January 1988 two geological reports were received, both recommending that no further exploration be undertaken. The first public disclosure of the results was made on March 31, when Rak announced in a press release that Capital was abandoning the property.

Section 67(1) of the Act requires that a reporting issuer disclose a material change in its affairs through a press release "as soon as practicable" and file with the commission a material change report "as soon as practicable, but in any event no later than 10 days after the date on which the change occurs". There is no question that the negative results represented a material change in the affairs of Capital that should have been disclosed immediately after the first report was received in January, if not when the oral reports were received in November.

The Take over Bid

The evidence indicated that in December 1987 Rak and several associates acquired a block of 880,000 pooled shares of Capital, representing in excess of 20 per cent of the shares then outstanding, from a group of six shareholders assembled by Pantages.

Under Part 11 of the Act, a take over bid is defined as an offer to acquire securities that would result in the offeror holding 20 per cent or more of the issuer's outstanding securities of the same class. An offer to acquire includes an offer to purchase, a solicitation of an offer to sell and an acceptance of an offer to sell. The Act requires that, in calculating the percentage of the issuer's securities that would be held by the offeror, there must be included all the securities owned or to be acquired by each person in a group of persons acting jointly or in concert.

Mr. Derby, counsel for Rak, argued that the acquisition of the pooled shares was not a take over bid by Rak, because he acted independently of the other purchasers. If Rak's portion of the shares alone is considered, the 20 per cent threshold was not breached.

We do not accept that Rak was not acting jointly or in concert with the other purchasers. His original evidence, given before he realized that he might have violated the take over bid rules, indicated clearly that he had put together the group of people to buy the shares. Furthermore, he stated that the shares of all six purchasers were then deposited in Belmont's account at McDermid St. Lawrence and were managed collectively. With this evidence we find that Rak and the other purchasers were acting jointly or in concert and that the acquisition of the pooled shares was a take over bid.

Mr. Derby's second line of defence was that if there was a takeover bid, it was exempt by virtue of section 81(1)(c), which exempts from the formal requirements of Part 11 a take over bid made to not more than 5 persons. The take over bid in this case, however, was made to 6 persons, so the exemption did not apply.

We therefore find that Rak participated in a take over bid that was not done in compliance with Part 11 of the Act. It could be suggested that this was a relatively minor transgression, in that it was so close to qualifying for the exemption. This is true if the transaction is viewed in isolation. In this case, however, it must be viewed as part of a general pattern of disregard for the requirements of the Act.

The Control Position

After Rak and the other purchasers acquired the block of 880,000 shares, Rak arranged for MacNeill to pick them up from the transfer agent each time there was a release from pool and deliver them to McDermid St. Lawrence for Belmont's account. The final release was on June 24, 1988, shortly before the sell off began. Rak stated that the shares were owned individually, even though they were all held in Belmont's account, and that, although they were managed collectively, he had daily discussions with the owners concerning the selling of the shares. Rak testified that the shares were sold in order to raise funds to purchase shares under Capital's planned offering on the Exchange. The SMF stated that Rak "and his associates" had agreed to purchase up to 500,000 units at the offering price of $1 per unit.

Section 1 of the Act defines control person to include "each person in a combination of persons, acting in concert by virtue of an agreement, arrangement, commitment or understanding, which holds in total 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, 20 per cent of the voting rights represents a sufficient number to materially affect control.

Mr. Derby argued that Rak and his associates did not hold the voting rights to the pooled shares because they were transferred by power of attorney and continued to be registered on Capital's books in the names of the original holders. We do rot accept this narrow interpretation of the control person definition. It would frustrate the intent of the Act if a beneficial owner of securities could avoid the control person restrictions simply by having his securities registered in the names of nominees. Rak and his associates were clearly the beneficial owners of the shares and the holders of the voting rights.

Based on the evidence, we find that Rak and his associates were acting in concert by virtue of an agreement, arrangement, commitment or understanding and that, by virtue of the group's holding in excess of 20 per cent of Capital's common shares, Rak was a control person of Capital after the acquisition in December 1987.

Section 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". Any trade of Capital's shares by Rak during the period he was a control person was therefore 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 given a receipt by the Superintendent. There was no evidence that a prospectus was filed in relation to Rak's trading in capital shares in the summer of 1988.

Section 125.1(2) of the Securities Regulation, as it then was, provided an exemption from section 42 of the Act for a distribution from the holdings of a control person, subject to several conditions. Among these conditions are a requirement that the seller file in advance a notice of intention to sell and a requirement that no unusual effort be made to prepare the market or create a demand for the securities. There was no evidence of the required notice being filed by Rak and it is our finding that the investor relations activity represents an unusual effort to create a demand for Capital's shares,

We find that, in selling shares of Capital while he was a control person without filing a prospectus or meeting the conditions for the exemption, Rak repeatedly violated section 42 of the Act.

Insider Reparts

Section 70 of the Act requires that an insider of a reporting issuer, which includes a director, file a report within ten days of becoming an insider detailing his beneficial ownership of securities of the issuer. It also requires filing of a report within ten days of the end of any month in which a change in those holdings occurs, providing details of the changes.

The evidence showed clearly that Rak and MacNeill had consistently filed insider reports after the statutory deadline, and in most cases several months after. At the time of hearing, Rak had filed no reports for July and August when Belmont was engaged in a massive volume of trading. It is also clear that Rak did not file insider reports for the period when, we have found, he was a de facto director of Capital.

The insider reporting requirement is a long-standing and important part of the system of continuous disclosure in respect of reporting issuers. It ensures that there is a complete and current public record, available to any interested investor, of the trading activities of the insiders and control persons of an issuer.

The failure of Rak, in particular, to disclose his trading in a timely mariner denied to investors an important source of information about Capital. We find it extremely detrimental to the market for this activity to have remained undisclosed for so long.

The Investor Relations Activity

The most difficult, and most insidious, aspect of this case is the investor relations activity. Our finding on the evidence is that Rak conceived in the spring of 1987 a plan to obtain a listing for Capital based on the financing of the Big Silver property and to subsequently acquire Oculokinetics. In December 1987, shortly after the acquisition was announced, Rak and his associates purchased the block of pooled shares scheduled for release over the ensuing six months. At about the same time, the pieces were put in place for the promotion that was to follow.

Through the fall, winter and spring, Capital announced a series of stock options for the investor relations employees. It was not clear from the evidence when the investor relations activity started but, given that options were granted to three investor relations employees in October 1987 and that a later press release described Dan Scammell as having been involved with Capital since inception in the capacity of investor relations, we conclude that preparations began when capital became listed, if not sooner.

In any event, the promotion was stepped up significantly through the spring and summer of 1988 with the article and advertisements in Money World and other publications. The article in Money World suggested that the Analyzer could create a new industry and generate huge returns for investors in Capital. It neglected to mention that the publisher of Money World, Roberto Veitia, was a holder of employee options in Capital or that most of Capital's employees were involved in investor relations, not the production, testing and marketing of the Analyzer.

As the investor relations efforts bore fruit, the trading volume in Capital's shares increased sharply and Belmont began to sell into the market. This reached a crescendo in the period from July 25 to August 9, when Belmont sold almost one million shares (on a post split basis). This selling was characterized by Rak as being necessary to maintain an orderly market as well as to raise funds needed for him to take down one-half of the planned public offering under the SMF. As in the preceding stages of this case, there was a woeful lack of disclosure respecting these activities.

Rak testified that he did not regard himself as a control person of Capital, and therefore he did not consider giving the notice required before securities are sold from a control position. However, even when prompted by Commission staff to issue the press release of July 29, 1988, he failed to come forward with any disclosure of his activities. The statement attributing the volume, in part, to a public relations firm in Florida advising its clients to invest in Capital was extremely misleading. It failed to disclose that the president of that firm was the same Roberto Veitia who had been named in a March 4 press release as a recipient of employee options in Capital. The statement that Capital was not aware of any other reasons for the volume was patently false.

Nor was there any disclosure of the plan to sell off shares to finance the purchasing of one-half of the public offering. The SMF disclosed that Rak and his associates would be taking 500,000 shares. This would create a public impression that Rak was putting his own money into Capital. There was clearly no plan to mention to potential investors that Rak had recently sold twice that number of shares in the market.

We have assessed this behaviour by reviewing the nature of the investor relations activity in the context of the public interest in maintaining a fair and open market for trading in securities. It is extremely detrimental to the public interest to have the person who controls a public company actively promoting the company's shares while at the same time, and without any disclosure, selling a large volume of shares. The concern is exacerbated. where the promotion of the stock is the major business activity of the company. It is this type of activity that securities legislation is intended to prevent.

On reviewing the evidence, it is clear to us that the entire scheme, from the reorganization and the acquisition of the Big Silver property, through the initial public offering, the acquisition of Oculokinetics, the investor relations activity, and the sell off in July and August 1988, was conceived by Rak as a plan for his personal enrichment at the expense of innocent investors.

The investor relations activity was the key element in this plan. It involved selling to investors a dream of earning massive returns by investing in a new technology that was about to take off. The investors' money, however, went into Rak's pocket while the efforts of the company were devoted primarily to attracting more investors.

In saying this we are not suggesting that Oculokinetics is a fraud. We have no evidence one way or the other on the substance of the technology or the business prospects. it is clear, however, that its main attraction to Capital was not future sales prospects but immediate promotability.

EVIDENTIARY ISSUES

In their closing arguments, counsel for the respondents made much of the fact that many of the Superintendent's allegations were contradicted by the oral evidence of the respondents. They suggested that the Superintendent's case was just a theory, supported only by conjecture and contradicted by the evidence. They also argued that, where two different inferences could be drawn from the evidence, the Commission is compelled to draw the inference that is more favourable to the respondents. Finally, they argued that the Superintendent was making very serious allegations and seeking very severe penalties and, therefore, that a very high standard of proof was required. The standard suggested was one much higher than the balance of probabilities required in a normal civil case and approaching the criminal law requirement of proof beyond a reasonable doubt.

Although many of the findings we have made would constitute offences if found by a court, this Commission is not a court of law but an administrative tribunal. The purpose of our proceedings is to make determinations in the public interest. We do not have the power to convict persons of offences or to impose the penalties for those offences, which include fines of up to $100,000 and imprisonment of up to five years. The potential consequences in this case are not, as they were characterized by counsel, taking away the respondents' right to earn a living. The penalties suggested by the Superintendent would simply preclude the respondents from participating in certain aspects of a regulated industry.

Accordingly, we reject the suggestion that we must have proof beyond a reasonable doubt. The basic test in our proceedings is the balance of probabilities. It may be that in serious matters, like the present case, we require a relatively high degree of proof within that standard. We consider that the evidence we have relied on in this case has met any reasonable standard of proof that would be applied in proceedings under our jurisdiction.

On the same basis, we reject the argument that, where two inferences are possible from the evidence, we must choose the inference more favourable to the respondents. We believe that our duty is to choose the inference that best fits the evidence. If two possible inferences appeared to be equally likely, or in a serious case appeared even close to being so, we might be inclined to give the benefit of the doubt to the respondent. In the present case, where our findings are based on inference, the inferences we have made are clearly the most probable explanations of the evidence.

Ms. Basham, counsel for MacNeill, argued that we must accept any oral evidence given by a witness where there is no evidence to the contrary. In our view, this argument does not apply in this case. There was a great deal of evidence to contradict the oral evidence of the witnesses, not on every single point of testimony but on the key elements of the story they attempted to portray. We therefore consider that it is indeed open to us in this case to reject much of the oral evidence as being not credible.

DUTIES OF DIRECTORS

The culpability of several of the respondents in this case arises primarily from their positions as directors of Capital. The legal obligations of directors are set out in section 142 of the Company Act, which reads:

142.

(1) Every director of a company, in exercising his powers and performing his functions, shall

(a)		act honestly and in good faith and in the best interests of the company; and
(b)		exercise the care, diligence and skill of a reasonably prudent person.

(2)

The provisions of this section are in addition to, and not in derogation of, any enactment or rule of law or equity relating to the duties or liabilities of directors of a company.

With respect to the signing of a prospectus, the duties of directors are those set out in sections 114 and 116 of the Act. Section 114 provides a defence against liability for a misrepresentation in a prospectus where a director has conducted "a reasonable investigation to provide reasonable grounds for a belief that there had been no misrepresentation". Section 116 provides that "the standard of reasonableness shall be that required of a prudent person in the circumstances of a particular case".

Mr. Henderson referred us to a publication called "Duties and Responsibilities of Directors in Canada" (Wainberg, J.M. & Mark I. Wainberg, CCH Canadian Limited, 6th edition, 1987). In describing the Common Law duty of diligence, the authors state that a director "must be aware of the functions and acts of the officers and have a general knowledge of the manner in which the business is conducted, the source of its revenue and the employment of its resources". They further state that "A director cannot shirk his responsibilities by leaving everything to others. He relies on other directors at his own risk. The reliance on his co-directors and officers should not be unquestioning".

It is clear from the authorities that, although there are limits to the legal duties of directors, there ii an obligation for a director to maintain contact and inform himself as to significant activities of the company. This is normally focused through the process of board meetings but, if a director fails to attend meetings or if, as in this case, no meetings are held, the director is obliged to inform himself in some other way.

DECISION

The respondents in this matter are Rak, his two private companies, Belmont and Prairie, and the five directors who signed Capital's prospectus, Bass, MacNeill, Stratton, Ostensoe and Charuk.

It is clear from our findings that Rak was the moving force behind Capital throughout the period under examination, and he must bear the primary responsibility for the serious breaches of the Act and other actions contrary to the public interest that have been revealed in these proceedings. The arguments involving subtle distinctions in the standard of care expected of directors are not relevant to Rak. His activities reflect a blatant disregard of securities law and exemplify the practices which can bring securities markets into disrepute. We believe that the public must be protected from this type of behaviour and that a significant deterrent is necessary to demonstrate to others that similar behaviour will not be tolerated. We order

(a)		under section 145(1) of the Act that the exemptions described in sections 30 to 32, 55, 58, 81 and 82 do not apply to Rak, Belmont or Prairie for a period of eight years from the date of this order,
(b)		under section 145.1(1) that Rak resign any position that he holds as a director or officer of a reporting issuer and is prohibited from becoming or acting as a director or officer of a reporting issuer for a period of eight years from the date of this order, and
(c)		under section 154.2 that Rak pay fees or charges for costs related to the hearing, the amount to be determined following submissions from counsel.

Bass must be held accountable for allowing himself to be used as a nominee by Rak and for his failures as a director. He signed the prospectus which failed to disclose that he was holding the escrow shares as nominee for Rak. He took no steps to ensure that the Big Silver results were disclosed on a timely basis after the oral reports were received in November 1987 or after the geological reports were received in January 1988. Despite his assertions to the contrary, he had very little knowledge of the activities performed by the investor relations employees in exchange for their stock options.

MacNeill was the most involved of the nominee directors. Although we can not be certain that she knew of Rak's intentions at the time of the prospectus, we reject her statement that Bass was the motivating force in the decision to proceed with the Big Silver property and that Bass initiated Capital's move from mining to high technology. That position was consistent with the story presented by the respondents in their attempt to discredit the Superintendent's allegations, but it does not stand up in light of the documentary evidence and in light of our observation of Bass in giving his evidence. MacNeill typed the August Letter, which contained a description of a company virtually identical to Capital, and ought to have known, if she did not actually know, that Rak was intending to use Capital for the acquisition of Oculokinetics. She took no steps to disclose the Big Silver results either in November or January, despite the fact that she was responsible for signing all of Capital's press releases during that period. Furthermore, despite her obvious competence in administrative matters, she consistently failed to file her insider reports on a timely basis. Clearly, MacNeill has failed to meet the standards required of a director.

Bass and MacNeill bear secondary responsibility. Their active participation was necessary for Rak to execute his scheme. Bass served his function by pretending to be president, while MacNeill was Rak's knowing accomplice. An appropriate penalty is needed to protect the public and provide an effective deterrent to others who might be similarly inclined. We order

(a)		under section 145(1) that the exemptions described in sections 30 to 32, 55, 58, 81 and 82 do not apply to Bass or MacNeill for a period of four years from the date of this order,
(b)		under section 145.1(1) that Bass and MacNeill resign any positions that they hold as directors or officers of reporting issuers and are prohibited from becoming or acting as directors or officers of reporting issuers for a period of four years from the date of this order, and
(c)		under section 154.2 that Bass and MacNeill pay fees or charges for costs related to the hearing, the amount to be determined following submissions from counsel.

All three signed the prospectus and failed to recognize that Rak's role in Capital should have been disclosed. If they were not aware of his involvement it was because they failed to make adequate inquiries. They had virtually no involvement in or awareness of Capital's business affairs through the period of the Oculokinetics acquisition, which represented a major change in direction from the business plan disclosed in the prospectus. Charuk is the most culpable of the three because he remained a director through the period when the investor relations program was accelerated and the massive selling took place. He either acquiesced in or turned a blind eye to these activities.

Counsel argued that these directors were entitled to rely, and did rely, on their fellow directors and the officers of Capital. It was further suggested that imposition of the duties proposed by Mr. Henderson would deter people from serving as directors and would therefore inhibit business and harm society. We can not accept that directors may blindly rely on others with whom they have very little contact. Nor can we accept that, by insisting that directors perform their legal duties, society will be harmed. The real harm to the public interest arises from directors who fail to take seriously the duties and responsibilities that accompany their appointments.

The cooperation of persons willing to serve as directors without asking too many questions allowed Rak to hide his involvement in Capital for almost a year. Suitable penalties are required to protect the public interest and to demonstrate that directors who abdicate their responsibilities are not acceptable.

For Stratton and Ostensoe, we believe the penalty should be mitigated to acknowledge their early departure from Capital and to reflect the novelty of these proceedings in respect of directors duties. We order

(a)		under section 145(1) that the exemptions described in sections 30 to 32, 55, 58, 81 and 82 do not apply to Stratton or Ostensoe for a period of one year from the date of this order, and
(b)		under section 145.1(1) that Stratton and Ostensoe resign any positions that they hold as directors or officers of reporting issuers and are prohibiting from becoming or acting as directors or officers of reporting issuers for a period of one year from the date of this order.

(a)		under section 145(1) that the exemptions described in sections 30 to 32, 55, 58, 81 and 82 do not apply to Charuk for a period of two years from the date of this order, and
(b)		under section 145.1(1) that Charuk resign any positions that he holds as a director or officer of a reporting issuer and is prohibiting from becoming or acting as a director or officer of a reporting issuer for a period of two years from the date of this order,

With respect to our orders under section 154.2, the Commission requests that the Superintendent make submissions within two weeks of the date of this decision as to the total assessable costs and the amounts that should be paid by each of the affected respondents. Submissions on behalf of Rak, Belmont, Prairie, Bass and MacNeill are requested by two weeks following receipt of the Superintendent's submissions.

In his closing submissions, Mr. Henderson noted that this was the first case of its type to come before the Commission and, for that reason, he suggested that the penalties applied to the respondents should be ameliorated from what would otherwise be appropriate. That suggestion has been reflected in the penalties we have ordered. It should now be clear to market participants that behaviour of the type exhibited in this case will not be tolerated. Penalties in any similar future case will reflect the fact that notice has been provided.

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