COR#95/068

Heard:

November

29 and 30 and December 1, 2, 5 - 7, 1994. Reasons:  April 4, 1995.

R.S. Fleming, for Commission Staff; Brian Markus, for John W.S. Roeder; Ron Baconyi, for W. Gordon Buchanan, Veryan E. Thompson and Bernard E. Stang.

This is a hearing under sections 144 and 144.1 of the Securities Act, S.B.C. 1985, c. 83, into the affairs of Keywest Resources Ltd. and its directors, John Walter Scott Roeder, William Gordon Buchanan, Veryan Elizabeth Thompson and Bernard Ethelbert Stang (collectively, the "Respondents").  A notice of hearing was issued on July 19, 1993, and amended on January 14 and May 9, 1994.

The Commission has been asked to determine whether it is in the public interest:

			to make orders under section 144(1)(c) of the Act that any or all of the exemptions described in sections 30 to 32, 55, 58, 80 and 81 do not apply to any or all of the Respondents;
			to make orders under section 144(1)(d) of the Act that any or all of the Respondents be prohibited from becoming or acting as a director or officer of any issuer;
			to make orders under section 144.1 that an administrative penalty be paid by any or all of the Respondents;
			to make orders under section 154.2 of the Act that any or all of the Respondents pay prescribed fees or charges for costs of or related to the Hearing; and
			to make any other order as may be appropriate under the circumstances.

Prior to this hearing, a number of regulatory orders involving Keywest were issued under the Act.

On July 12, 1993, the Vice Chair of the Commission issued a direction to freeze property under section 135(1) of the Act, ordering Yorkton Securities Inc. to hold, and Keywest to refrain from withdrawing from its account at Yorkton, any of the net proceeds of its public offering completed in May 1992 or any proceeds from the sale of its oil and gas property in January 1993.

On July 19, 1993, the Superintendent of Brokers issued temporary orders ordering that all persons cease trading in the securities of Keywest.  The Keywest temporary orders have been extended from time to time by the Commission, by consent, and remain outstanding.

On September 3, 1993, the Superintendent issued temporary orders ordering that:

			Timothy James Pinchin, N.C.G. Capital Group Ltd. and N.C.G. Asset Management Ltd. cease all trading in securities for a period expiring on September 15, 1993;
			the exemptions described in sections 30 to 32, 55, 58, 80 and 81 do not apply to Pinchin, NCG Capital and NCG Asset for a period expiring on September 15, 1993; and
			Pinchin resign any position that he holds as a director or officer of a reporting issuer and that he is prohibited from becoming or acting as a director or officer of a reporting issuer for a period expiring on September 15, 1993.

On October 7, 1993, Keywest made an application to the Vice Chair of the Commission requesting a partial revocation of the Keywest temporary orders to permit the principals of Keywest to conduct negotiations with Pinchin and with other persons relating to trades in the securities of Keywest.  The application was denied by the Vice Chair.  Keywest applied to the Commission for a hearing and review of the Vice Chairs decision.  On March 3, 1994, this panel of the Commission confirmed the decision.

On November 26, 1993, the Vice Chair issued a variation order under section 153 to permit Keywest to withdraw up to $40,000 from its account at Yorkton to pay certain accounts payable and anticipated expenditures.

2.  BACKGROUND

John Roeder is a resident of Idaho.  After engaging in a series of unsuccessful private business ventures in the United States, he first became involved with reporting issuers in Canada in about 1987.  His first public company, Spiral Engineering, became listed on the Exchange in early 1987 and raised financing for two unsuccessful projects before it ceased to exist.  He has been involved in three "junior capital pool" issuers listed on the Alberta Stock Exchange. In each case, Roeder controlled the issuer as a shell company and sold control to a group that was vending a new business into the issuer.  Roeder currently controls and is president, a director and the sole employee of Interex, a company listed on the Alberta Stock Exchange.  Interex is in the business of doing contract mineral exploration work, but is currently not involved in any projects.  Roeder has been president and a director of Keywest since it was incorporated on January 25, 1988.

In October 1987, Roeder purchased from Saba Energy Ltd. of Calgary an undivided interest in a property comprised of four oil and gas leases and five gas wells and related equipment on the leased property, for $192,500.  The property was located in the Birley-Pickell area, north of Fort St. John, British Columbia. Saba had recently acquired the leases from British Petroleum.

In January 1988, Roeder had Keywest incorporated and assigned to it the property interest he had purchased from Saba.  The $192,500 he had paid to Saba was recorded by Keywest as a shareholder loan. Roeder later exchanged this loan for 770,000 shares, most of which were registered in the names of Larry and James Mashburn, two residents of Idaho. The accrued interest on the $192,500 up to the date of exchange, in the amount of $22,330, remained outstanding as a shareholders loan from Roeder.

During the winter of 1987-88, Keywest produced gas from the "B-84-I" well on the property, which generated gross sales of between $100,000 and $150,000. Keywests share of the net proceeds, after expenses, was between $15,000 and $20,000. However, by January 1989, Keywest determined that the B-84-I well was no longer economically viable. There were no other producing wells on the property.

The only remaining prospect on the property was the "C-88-I" well.  This well had been drilled in 1961 and tested in 1978.  It had never been in production and Roeder did not know whether it could produce sufficient gas flow to be economically viable.

Keywest filed a prospectus and attempted but failed to arrange a public offering in 1990. In January 1992, Keywest again filed a prospectus.  It completed a public offering in May and became listed on the Vancouver Stock Exchange on May 4, 1992.  Up to this point, no work had been done on the property since January 1989.

The prospectus certificate was signed by Roeder, as chief executive officer, Veryan Thompson, as chief financial officer, and Ronald Bruce Carson and William Gordon Buchanan, as directors. Roeder also signed the prospectus as the promoter of Keywest.

Carson, who was a resident of Calgary, is a long time friend of Roeders.  He was the only director or officer of Keywest who had significant experience in the oil and gas industry.  Buchanan, a resident of High Prairie, Alberta, is also a long time friend of Roeders.  He owns a sawmill. Thompson shares office space with Roeder in Vancouver and keeps the books for Interex and Keywest.  Roeder chose her because he needed a British Columbia director for Keywest.

The prospectus described Keywests business as follows:

	The Issuer is engaged in the exploration and development of oil and natural gas reserves.  It holds working interests of between 44% and 55% in certain proved and probable gas reserves in wells located in the Birley-Pickell area of northeastern British Columbia.
	The Issuer intends to tie-in currently shut-in reserves contained in well C-88-I.
	The Issuer will continue to concentrate its activities in Western Canada and will place particular emphasis on participation in natural gas prospects.
	Priority will be given to developing prospects in areas of easy road access, moderate drilling depth, multiple gas horizons, reasonable drilling and or completion costs and access to existing pipelines and refineries.
	The issuer intends to continue its practice of acting as Operator on producing prospects.  The Issuer will rely on the business experience of its [sic] directors for its [sic] daily operation and will rely specifically on the operating oil and gas experience of Mr.Bruce Carson.
	While the issuer intends to utilize the experience of Mr. Carson, the Issuer has relied on independent contractors specializing in development and maintenance of oil and gas properties, pursuant to accepted industry practice. The Issuer will continue to rely on such contractors and contractors have been and will continue to be chosen based on their experience, reputation and cost effectiveness.

The proceeds of the offering ($550,000) were to be used to pay commissions and offering expenses ($75,000), to cover Keywests working capital deficiency ($57,000), to pay the costs to tie-in the C-88-I well ($350,000) and to provide unallocated working capital ($68,000). The prospectus went on to say that:

The foregoing represents the Issuers best estimate as to how the proceeds of this Offering will be expended.  The Issuer reserves the right to redirect any portion of the funds in such manner as management considers to be in the best interests of the Issuer.  However, funds allocated for the tie-in and recompletion of the C-88-I Well will not be redirected without the written recommendation of the Issuers consulting engineer.

The due date on the shareholder loan was shown in the prospectus as October 31, 1992. Roeder chose this date, rather than an earlier date, to ensure that the loan would not be recorded as a current liability, which would have resulted in Keywest having less than the minimum working capital required under Exchange listing rules.  The prospectus disclosed that the shareholder loan would be repaid only if the other participant in the oil and gas property (Saba) contributed its proportionate share of 45 per cent to the estimated $350,000 cost of completing the C-88-I well.

On May 5, 1992, immediately after completion of the offering, Keywest paid off the $12,000 owed to Interex and paid Roeder $25,000 on the shareholder loan. Roeder  says he thought this would be reasonable as it was paid from unallocated working capital. He later discussed the payment with Andrew Chamberlain, Keywests counsel in Edmonton, who advised him to pay the $25,000 back to Keywest because the prospectus said the shareholder loan would not be repaid before October 31, 1992. Roeder paid $25,000 back to Keywest on June 5, 1992.

A few months after the offering, Carson resigned as a director of Keywest.  He was replaced by Ben Stang, a friend of Roeder and a resident of Edmonton.  Stang had been a director of several reporting issuers but had no experience in the oil and gas business.

The directors other than Roeder played little role in Keywests affairs. Veryan Thompson was secretary, chief financial officer and a director of Keywest. She kept Keywests books, but she never attended a directors meeting and had never met Buchanan or Stang prior to the hearing. Roeder asked her to become a director in 1991 because Keywest needed a director resident in British Columbia. Thompson said she was not consulted on decisions related to Keywests business and affairs but was informed afterwards. She relied completely on Roeder and brought no independent judgment to bear on corporate decisions.

Stang said he talked with Roeder about once per week, although they did not always discuss Keywest on these occasions. He relied on Roeders expertise but claimed he was consulted and gave his opinions on major decisions with respect to Keywests affairs. He said he regularly checked these matters with Chamberlain and never had concerns. Stang attended only one directors meeting, with Roeder and Chamberlain in July or August 1993. He knows Buchanan but could recall no specific discussions with him about Keywest. He never spoke with Thompson.

Buchanan did not testify, so we do not have his evidence as to his involvement in Keywests affairs. If he did play any role, it clearly did not involve discussing matters with Thompson or Stang. Unlike Thompson and Stang, Buchanan was a shareholder of Keywest.

On July 20, 1992, Roeder chartered a helicopter for Frank Monahan, whom he had retained to test the C-88-I well for Keywest, to fly from Fort St. John to the property. Monahan attempted to do a test flow on the well but it was unsuccessful as there was insufficient gas pressure to blow the water out of the well. Roeder says that they decided they would have to wait for freeze up to test the well again. Keywest made no disclosure of the results of this test.

Roeder claims he hired Murray Robertson, a petroleum landman in Vancouver recommended by Monahan, some time between April and June 1992 to look after administrative matters related to the property. These matters had previously been handled by Rick Clements, who had resigned as the Secretary of Keywest prior to the public offering. Roeder says that Robertson worked on bringing the property tax payments up to date and on the novation agreements for the leases.

Roeder knew that annual lease payments to the Ministry of Energy, Mines and Petroleum Resources were due some time in mid summer. Roeder acknowledges that the Ministry normally sends out notices of lease payments coming due but says Keywest did not receive any notice. He was not sure what address the Ministry had for Keywest, because the lease payments were previously handled by Saba. Roeder claims that he asked Robertson on at least three occasions through the summer and early fall of 1992 whether he had checked on the status of the leases, and that Robertson told him each time that he had not yet done so. Despite the importance to Keywests business plan of the leases, Roeder made no effort to ensure that the leases were maintained.

The annual payments on three of the leases on the property were due July 4, 1992. Following a 60 day grace period in early September, the three leases expired and reverted to the Crown. The C-88-I well was located on one of these leases.

On September 21, 1992, Keywest announced that it proposed to conduct a distribution to its shareholders of the shares of two private companies, Rex Furs Inc. and an unformed company related to Gordon Buchanan Enterprises, a company controlled by the respondent Buchanan, who was a director and shareholder of Keywest. According to Roeder, this proposed dividend in specie was intended to create a public share distribution for each of these two companies so that they could then seek listings on the Alberta Stock Exchange. The Exchange halted trading in Keywest shares on September 28 "pending clarification of the Companys affairs including a News Release received September 21, 1992." Keywest wrote to the Exchange on September 29 to seek approval of the Rex Furs and Gordon Buchanan Enterprises transactions. By letter dated October 7, 1992, the Exchange rejected these transactions. The letter, from Shaun Wylde of the Listings Department, contained a warning to Roeder that a comment he had made in a telephone conversation about Keywest possibly delisting if the transactions were not approved "is not taken lightly. We suggest that a review of the terms of the Listing Agreement by this director may be appropriate, and point out that acceptability of this individual for other directorships in public companies may be questioned by the Exchange."

Meanwhile, according to Roeder, Robertson found out and told him on September 29, 1992, that the leases had expired. On September 30, Roeder contacted the Ministry and sent in the overdue payment. Roeder says he was subsequently advised that the Ministry could not reinstate the leases and that he should request to have them posted for auction. Robertson sent in a request on Roeders behalf on October 6, and the leases were put up for public auction on January 13, 1993.

On October 9, 1992, Keywest issued a news release announcing that the Rex Furs and Gordon Buchanan Enterprises proposal had not been approved and would not proceed. The release also announced the "non-renewal" of the leases as follows:

Also, three of Keywests petroleum and natural gas leases have not been renewed. Keywest will be assessing the mineral potential of these leases to determine the companys intentions concerning which portions of these leases will be suitable for re-acquisition. Keywest intends to continue with its development program following the winter freeze-up, anticipated to be in early December.

On October 13, 1993, the Exchange resumed trading in Keywest shares.

On October 31, 1992, Keywest paid Roeder $83,328.40 in repayment of his shareholder loan. This turned out to be an overpayment of $11,413.35, which Roeder repaid in November and December.

In November 1992, Keywest paid Robertson $500 for his services. This is the only payment Keywest made to Robertson. Keywest took no action against Robertson for the loss of the leases.

After the three leases were posted for auction, a company named Blue Range from Calgary expressed interest in them and in some of the equipment on the property. Blue Range held a 20 per cent interest in the fourth lease and had other wells in the area. Roeder says he told Blue Range that Keywest was not interested in selling the equipment and claims that Blue Range said it would not bid on the leases.

Roeder had never participated in an oil and gas lease auction. He says he learned how from the Ministry staff. He also claims that he relied on the advice of Robertson, who (according to Roeder) had just lost the leases, and Monahan, whose experience in bidding was not known to Roeder, to decide on the appropriate bid. In deciding how much to bid for the leases, Roeder did not retain an outside expert to advise him and did not consult the other directors of Keywest.

Keywest bid a total of $34,675 for the three leases, including $18,200 for the lease encompassing the C-88-I well, which was Keywests only significant asset. Saba made no contribution to the bid, because it had no interest in reacquiring the leases.

Keywests bids were unsuccessful. The lease encompassing the C-88-I well was purchased by Co-enerco and the other two leases were purchased by Blue Range. Roeder claims he contacted Co-enerco to attempt to acquire an interest in the lease but was refused. On January 21, 1993, Keywest accepted an offer from Blue Range and sold its interest in the fourth lease and all wells and equipment on the property for a net recovery of $121,000. No prior shareholder approval was sought or received for this transaction.

Following these transactions, Keywest had no assets other than cash. It had over $400,000 in its treasury, including about half of the proceeds of the public offering. Almost all of this money was held in Keywests account at Yorkton Securities.

Keywest issued a news release on January 21, announcing that it had failed to reacquire the three leases, that it had sold the wells and equipment on the property and that it was pursuing other business opportunities "both within and outside the oil and gas industry." The news release did not specifically mention the fourth lease and did not state that Keywest had no assets other than cash.

Between May and December 1992, Keywest paid a net amount of about $99,000 to Roeder and Interex. A further $6,000 was paid to Interex in April 1993 for the rental of a dozer on the property. Some of the $99,000 was in repayment of short term loans or money paid for expenses on Keywests behalf. However, about $72,000 was in repayment of a shareholder loan and $12,000 was in repayment of a loan by Interex, which was included in the shareholder loan disclosed in Keywests prospectus.

Although most of the $105,000 paid to Roeder and Interex represented related party transactions, there was no review of the transactions by Keywests directors. Furthermore, the prospectus had disclosed that the shareholder loan would be repaid only if the other participant in the oil and gas property (Saba) contributed its proportionate share of 45 per cent to the estimated $350,000 cost of completing the C-88-I well. Saba, of course, made no such contribution.

Shortly after the sale of Keywests remaining assets, Roeder began seeking buyers for his  control block of Keywest stock.

In February of 1993, Keywest came to the attention of Shelly James, the supervisor of listed company surveillance with the Exchange. James was concerned that Keywest had not spent the proceeds of its offering as stated in its prospectus and that it appeared to be undergoing a change of business. She also noted the warning sent to Keywest by Shaun Wylde on October 7, 1992, which she described as an unusually strong letter for the listings department to send. On February 19, James wrote a letter to each of Keywests directors, the individual respondents in these proceedings, warning them that any change of control, change in business undertaking or disposition of the proceeds of its public offering would require the scrutiny of both the Exchange and the Commission. James also warned the directors that their suitability as directors was in issue.

Roeder called James about the letter. She told him to respond in writing. Keywest ultimately responded on April 23, 1993, through Andrew Chamberlain. The response letter explained the loss of the three leases as described above, and said that "Without doubt any new business ventures, whether taken on by way of acquisition, reverse take-over, or otherwise, would be made subject to regulatory approval, and applications would be made to your office in that regard."

Meanwhile, Roeder had been negotiating to sell Keywest to Pinchin, a promoter, whose name he had gotten from a shell vendor. Pinchin wanted to purchase control of Keywest to use it as a vehicle to acquire a U.S. company named National Applied Computer Technologies, or NACT. Keywest issued a news release on April 7, 1993, announcing that it was "engaged in negotiations respecting the potential acquisition of a company." On April 20, Keywest announced that it was "still engaged in negotiations respecting a potential acquisition." Then Pinchin told Roeder that he was no longer interested in the NACT deal. Pinchin subsequently came back and told Roeder he wanted to buy control of Keywest to pursue other options. One possible acquisition Pinchin mentioned was Atlantic Telcom, a company with operations in the eastern United States.

On April 27, 1993, Keywest issued a news release announcing that its negotiations had broken off and the acquisition (of NACT) would not proceed. The news release also stated that "the Company is advised that the principal shareholders are engaged in discussions respecting the disposition of a controlling interest in the Company, which could result in a change in control of the Company."

On April 29, 1993, Roeder, Buchanan and Larry and James Mashburn entered into a share purchase agreement with Pinchin which provided for the sale to Pinchin of approximately 85% of the issued shares of Keywest, comprised of 701,150 free trading shares and 1,088,850 escrow shares, for the sum of $850,000. The agreement was announced the same day by the following news release:

Keywest announces that Tim Pinchin, on behalf of himself and as agent for others, has entered into an agreement to acquire 1,790,000 Common Shares of Keywest Resources Ltd. from certain of its shareholders. Completion of this transaction is subject to certain conditions, including regulatory approval. George Poulos has been appointed as an additional director of the Company. It is anticipated that there will be further changes in the Board of Directors upon completion of this transaction.

Upon signing of the agreement, the vendors were committed to :

*		deliver to a trustee (Mr. Robin Blues, a Vancouver securities lawyer) the free trading shares and stock powers of attorney for the transfer of the escrow shares;
*		cause the appointment of George Poulos, then a business associate of Pinchin, as a director of Keywest;
*		obtain and deliver to the trustee signed, undated resignations for Keywests four directors;
*		terminate any outstanding management agreements with Keywest; and
*		change Keywests bank signing officers to include Pinchin or his nominee.

The agreement directed the trustee to release to Pinchin 425,000 of the free trading shares in several blocks, on receipt of instalment payments toward the purchase price. One share was to be released for each $2 paid. The first payment of $100,000 was due on May 5, 1993. Further payments were due on May 30 ($400,000) and August 31 ($350,000). The payment dates could be accelerated at the option of Pinchin. While regulatory approval was a term of the agreement, the failure to obtain approval did not void the agreement, it merely stopped the further transfer of shares not already released.

The agreement provided that the remaining 276,150 free trading shares, the powers of attorney for the escrow shares and the signed resignations of the directors were to be delivered to Pinchin by the trustee "on closing". The agreement refers to the "Closing Date" as the date on which the last instalment is to be paid. The trustee, Blues, called Chamberlain on each occasion that he received an instalment payment under the agreement. Blues called Chamberlain on June 15, 1993, to advise that he had received the last instalment and was releasing the remaining free trading shares and documents. He confirmed this by a letter to Chamberlain dated June 22, 1993. Chamberlain did not object at that time.

The Agreement contemplated that Pinchin would immediately begin to incur expenses on behalf of Keywest "to achieve the Companys corporate objective, including inter alia, payment of regulatory fees and such other fees as may be required to carry out the intent of this agreement and in particular to obtain regulatory authorities and such other approvals as may be required." These expenses were to be repaid following regulatory approval of the agreement.

The agreement provided that options were to be granted to a person named by Pinchin, who turned out to be Poulos. It also provided that these options would be held by the trustee until the purchase was completed and that they would be cancelled if the purchase was not completed.

Even before the first instalment was paid, Keywest began issuing news releases from Pinchins office. According to Poulos, Pinchin was essentially running Keywest, although Roeder was still kept informed and signed the news releases. Thompson and Stang were not kept informed about Pinchins activities. No application had been made to the Exchange for approval of the change in control and no steps had been taken to obtain shareholder approval of the transfer of escrow shares.

On May 3, 1993, Keywest issued a news release announcing negotiations to acquire Atlantic Telcom. The news release was signed by Roeder but was drafted by Don Lyons, a lawyer acting for Pinchin on the acquisition of Keywest, and the address shown for Keywest on the news release was that of Pinchins office.

Prior to the share purchase agreement and Pinchins involvement, Keywest shares had been trading very low volumes. The price had been in the range of $1.25 to $1.50 from September through December 1992 and then had moved into the range of $1.50 to $1.75 from January through April 1993. Keywest had 2.1 million shares outstanding in early 1993, meaning the market capitalization was in the order of $3 million ($1.5 million excluding the escrow shares). At that time, Keywest had no business interest and its only asset was about $400,000 in cash.

Under the share purchase agreement, Pinchin was to pay $850,000 for 85 per cent of Keywests shares, implying that Keywest had a value of $1 million. Immediately after the share purchase agreement was signed, the trading volume in Keywest shares increased sharply and the price increased to the range of $2.50 to $3.00 per share. This resulted in a market capitalization in excess of $5 million ($2.5 million excluding the escrow shares).

On May 5, 1993, Buchanan bought 5,000 Keywest shares in the market at $2.30 per share. He sold them on June 23, 1993, at $2.65 per share. He filed no insider report for the month of May 1993. He did file an insider report for June 1993, but it disclosed only the disposition of 192,500 shares at $1.10 in a private sale, presumably under the share purchase agreement. He disclosed the purchase and sale of 5,000 shares in an amended insider report filed on March 4, 1994, after the trades had been brought to the attention of Chamberlain by Commission staff.

A news release on May 5, 1993, announcing the granting of options to Poulos, was issued from Roeders office. This news release was drafted by Chamberlain. It made no reference to the share purchase agreement or its provisions that the options were to be held by the trustee and cancelled if the agreement was not completed.

On May 26, 1993, Keywest issued another news release from Pinchins office. This news release was drafted by Lyons and signed by Roeder. It announced that Keywest was "continuing to negotiate the acquisition of a Washington, D.C., based independent Pay-Telephone Operating Company", referring to Atlantic Telcom, and said that Keywest "anticipates negotiations to be completed for this acquisition by the third week of June, 1993." The release also said that Keywest was "negotiating for the acquisition of an interest in a Seattle based company involved in the resale of long distance telephone minutes." The latter reference was to a company called Comm-Tech.

In early June, Pinchin was added as a signing authority on Keywests bank account at the Bank of Montreal, along with Poulos, Roeder and Thompson. (Any two could sign cheques.) According to Roeder, this was to permit Pinchin and Poulos to sign cheques for expenses. However, most of Keywests money was held in an account at Yorkton Securities, over which Roeder had sole signing authority. Poulos asked Roeder for money to pay his and Pinchins rent and travel expenses. On June 22, 1993, Roeder transferred $26,750 from the Yorkton account to the Bank of Montreal account.

Roeder says he had a telephone conversation with Pinchin in early to mid June, and described the conversation as follows. The discussion concerned a proposed deal involving Tel-Net Systems Inc., a Delaware company based in Utah, and Comm-Tech. Roeder understood that Pinchin controlled Tel-Net. Pinchin said he needed $150,000 U.S. to prepurchase long distance phone time from Comm-Tech as a down payment and he wanted to get the money from Keywest. Roeder told Pinchin he could not use Keywests money without regulatory approval. Instead Roeder agreed to personally advance Pinchin the money and to recover it from Keywest following regulatory approval. Subsequent to the conversation, Roeder paid $192,500 (Canadian) to Pinchin on June 15, 1993.

Also on June 15, 1993, Pinchin paid the final installment under the share purchase agreement and received all of the remaining free trading shares, the powers of attorney for the escrow shares and the signed and undated directors resignations. Thompson delivered all of Keywests books to Poulos around this time. In late June or early July, Pinchin and Poulos became the sole signing authorities over Keywests bank account. Roeder continued to have sole signing authority over the account at Yorkton.

On June 18, 1993, Keywest issued a notice and information circular for an annual and special meeting of shareholders scheduled for July 21. The circular was certified by Roeder and Thompson. Apart from routine business, the meeting was to consider a special resolution to approve the sale of the fourth lease and the wells and equipment on the property, as required by section 150 of the Company Act, and to consider a resolution to approve the transfer of escrow shares to Pinchin.

The circular provided no disclosure about the circumstances that led to the loss of the first three leases; about the basis used to determine the sale price for the fourth lease and the wells and equipment; or about Keywests future business plans following the disposition of its undertaking. Nor did the circular disclose the terms of the share purchase agreement; the free trading shares that Pinchin had already purchased under that agreement; the signed resignations of the directors, which were then held by Pinchin; the role that Pinchin was already playing in Keywests management; or the $192,500 that Roeder had advanced to Pinchin for the Tel-Net deal, which Roeder expected to have repaid by Keywest.

Also on June 18, 1993, Keywest filed its quarterly report for the year ended January 31, 1993. The report was signed by Roeder and Buchanan. The management discussion section of the report mentioned Keywests failure to reacquire the three leases and the sale of the fourth lease. The share purchase agreement and related events were not disclosed.

On June 23, 1993, Keywest issued a news release from Pinchins office, signed by Poulos, announcing that it had entered into and completed negotiations with Tel-Net to acquire a license for the Canadian marketing rights to certain telephone services. Keywest projected sales of $5 million from these services over the next twelve months. The news release did not disclose the $192,500 that Roeder had advanced to Pinchin for the Tel-Net deal.  Nor did it disclose that Pinchin controlled Tel-Net.

On June 30, 1993, trading in Keywest shares was halted at the request of Lyons. Exchange records show that the halt was requested pending an announcement by Keywest of a possible reverse take-over and that a news release was expected that day.

According to Poulos, the halt was requested on the direction of Pinchin, who wanted to prevent Canaccord Capital Corporation from selling out a block of 125,000 Keywest shares that he had failed to pay for.

Roeder testified that he returned to Edmonton from Cassiar at the end of June and learned at that time from Chamberlain that the undated resignations and the powers of attorney for the escrow shares had been given to Pinchin. He says he was not concerned because the deal had not closed and regulatory approval was still required. He also learned at this time about the June 23, 1993, news release on the Tel-Net deal and about the trading halt.

Roeder says that he was concerned about the halt because he did not know the reason for it. He says he called Lyons and Pinchin about the halt but never got a satisfactory answer about the reason for it. He took no steps to have the Exchange remove the halt.

Roeder also says that he was upset about the news release because he had not been consulted. and because Keywests directors had not approved the Tel-Net deal. However, he took no steps to issue a correcting news release.

In the week following the trading halt, the Exchange received enquiries from brokerage firms about the halt and discovered that Pinchin had debits in accounts at four different member firms totalling about $500,000 to $600,000. Shelley James then called Chamberlain and was ultimately put in touch with Roeder on July 9.

James recollection, supported by her notes taken at the time, was that Roeder told her that Pinchin had "made final closing" of the share purchase agreement and could act on the undated directors resignations at any time. Roeder now says that he believed at the time that the change in control, including the exercising of the resignations, could not take place until regulatory approval had been obtained.

On July 12, the Exchange issued a notice that the halt would remain in place "pending clarification of company affairs, effective control and involvement of Tim Pinchin". On the same date, the Vice Chair of the Commission issued a freeze order on the account at Yorkton. On July 19, the Superintendent issued a cease trading order against Keywest shares.

In a letter to Shelley James of the Exchange on July 13, 1993, Lyons suggested the freeze order was unnecessary because "new management is fully aware that prospectus proceeds cannot be used without all required approvals". The letter made a number of other representations on behalf of Keywest, while indicating that Chamberlain would deal with the Exchange on the earlier issues related to the disposition of the oil and gas property.

The shareholder meeting on July 21 dealt only with the receipt of financial statements and the appointment of the auditors and then was adjourned to September 15. At the request of Commission staff, Keywest prepared a revised information circular to rectify disclosure deficiencies, although Roeder maintains that these changes were not necessary.

In the ensuing weeks, Roeder reassumed control over Keywests affairs in order to deal with the regulatory problems.

On August 5, 1993, Chamberlain sent a letter to Blues suggesting that Blues should not have released to Pinchin the powers of attorney for the escrow shares or the directors resignations because shareholder and regulatory approval had not been received. Blues responded that he did not agree with this interpretation of the agreement. He took the position that Pinchin had effectively waived those conditions and assumed the risk of failing to obtain approval.

Poulos subsequently resigned as a director and the four other directors were re-elected at the September 15 shareholders meeting. On March 4, 1994, Keywest was delisted by the Exchange. The cease trading and freeze orders remain in effect.

3.  FINDINGS

Commission staff allege a series of disclosure violations by Keywest and breaches by the individual respondents of their duties as directors and officers of Keywest. The allegations focus on the loss and disposition of Keywests oil and gas properties, the payment of part of the proceeds of the public offering to Roeder and the circumstances surrounding the share purchase agreement.

3.1  The Loss of the Leases

Roeder purchased an interest in the oil and gas property for $192,500. He had Keywest incorporated and transferred the property to Keywest. He ultimately took Keywest shares for his $192,500 and retained a shareholder loan for the $22,330 in interest that had accrued in the meantime. He advanced further amounts to pay expenses on Keywests behalf so that, by the time of Keywests prospectus, he was owed $76,099. By October 30, 1992, the $12,000 of this that was owed to Interex had been paid off but the balance of the loan had increased again to about $72,000. The prospectus had stated that the proceeds of the offering were to be used primarily to develop the C-88-I well and that Roeders loan would be repaid only if Saba paid its share of the development costs. However, by the fall of 1992, Saba had clearly lost interest in the property.

Roeder was thus faced with a decision as to how best to realize maximum value from his investment in Keywest. He could proceed with the work on the C-88-I well. Given the significant economic risk of developing the property, which was described in the prospectus and further accentuated by the difficulties encountered by Monahan in July 1992, the probable result of proceeding would be that Keywest would spend most of the proceeds of the public offering and ultimately have to abandon the property. If that had occurred, Roeder would be unable to receive payment of his shareholder loan.

A more attractive option for Roeder would be to avoid spending the money on the property, use some of it to repay his shareholder loan, and then have a clean shell with money in the bank, which he could use to repeat his only previous business successes, selling listed shells to companies seeking listings. In these circumstances, the "loss" of the three leases was very convenient.

Roeder blames the loss of the three leases on Murray Robertson, a landman in Vancouver who Roeder says was responsible for maintaining the leases. Roeder claimed that he hired Robertson sometime between April and June 1992 to look after the leases. He said that Robertson did work on novation agreements and property taxes but neglected, despite several reminders, to renew the leases. He said Robertson finally discovered in late September that the leases had expired. Despite the key role Robertson was said to have played in protecting Keywests sole business assets, the only documents that were produced to show that Robertson even existed, much less had any real role in Keywests affairs, were a bare bones invoice and a cheque for $500, both dated November 23, 1992, purportedly for Robertsons services.

Veryan Thompson, who was a director and was handling Keywests books in Vancouver, never met Robertson and did not know what he was doing. Apart from Roeders claims about Robertson, the only evidence that Robertson played any role in Keywests affairs arose after the leases were lost. The grace period on the leases expired in early September 1992.

Shortly after the leases expired, Keywest announced the Rex Furs and Gordon Buchanan Enterprises proposal. This was essentially a plan to create two more shell companies with public share distributions. The Exchange took a dim view of the transactions and declined to approve them. In addition, following a heated discussion between Roeder and Shaun Wylde of the Exchange, Wylde warned in writing that any move by Roeder to delist Keywest would call into question his suitability as a director of other issuers listed on the Exchange.

On September 30, 1992, two days after the Exchange halted trading of Keywest shares pending review of the Rex Furs and Gordon Buchanan Enterprises deals, Roeder began his purported efforts to recover Keywests leases. Given that Roeder caused Keywest to repay his shareholder loan on October 31, leaving insufficient funds for the development of the C-88-I well, it is clear that Roeder did not really intend to recover the leases. He consulted neither an expert in bidding on oil and gas leases nor any of the other directors on the amount of the bid and he bid only $18,000 for the lease containing the C-88-I well, Keywests only business prospect. After the bids were unsuccessful in January 1993, Roeder quickly disposed of the remaining lease, leaving himself with a clean shell to sell. By early February, Keywest was on the market.

Roeder attempts to isolate and explain each of the steps Keywest went through in becoming a shell. While the explanations may seem plausible individually, they are not credible when viewed as a whole. Given the strong motive Roeder had to dispose of the leases, have his shareholder loan repaid and create a clean shell that he could sell, we reject his evidence. In our view, Roeder used the bidding process in an attempt to create a paper trial to defend his loss of the leases. He began this only after the Exchange took an interest in Keywest and halted trading in its shares pending review of the Rex Furs and Gordon Buchanan Enterprises deals.

We find, on a balance of probabilities, that Roeder deliberately caused Keywest to lose the three leases and thereby disposed of the assets that were the sole focus of Keywests business plan as described in the prospectus for its public offering. In doing so, he redirected the proceeds of Keywests public offering without the written approval of Keywests consulting engineer, contrary to the representation made in the prospectus.

3.2  Financial Management

Commission staff allege that Roeder received part of the proceeds from Keywests public offering for purposes not disclosed in the prospectus. The evidence appears to show that the payments to Roeder and Interex were for amounts owing to them. However, these were related party payments that were made with no scrutiny by directors other than Roeder, who had a direct interest in the payments. Thompson processed the payments on Roeders instructions and gave no consideration to their validity or reasonableness. The payments were handled in a very casual manner that was inappropriate for a reporting issuer. In addition, as noted above, the circumstances under which Roeders shareholder loan was repaid suggest a motive for his deliberately losing Keywests leases.

3.3  The Change in Control

Roeder and the other directors received a stern warning from the Exchange in February. Keywest was told to obtain the comments of Commission staff before "any proposed change in control; or change in the business undertaking; or disposition of any funds remaining in the Companys treasury prior to proceeding with; or filing for Exchange approval in regard to any proposed changes." Despite the awkward punctuation of that sentence, the message was crystal clear. If the severity of the warning was in doubt, the next paragraph should have provided the necessary jolt. Each of the directors was warned that his or her suitability as a director was in question and was required to provide prior notice to the Exchange before becoming a director of any other listed company.

Roeder ignored this warning and set out to sell Keywest. He found Pinchin through a shell broker and negotiated an attractive arrangement to sell Keywest for $850,000 (of which Roeder was to get $400,000 to $500,000) and to place the onus on Pinchin to get regulatory approval for the transaction (despite the requirement in Local Policy 3-07 for Roeder, as the holder of the escrow shares, to apply for approval for their transfer). As soon as the deal was struck, Pinchin began managing Keywest, although Roeder continued to sign the news releases.

On June 15 Pinchin made the final payment. On the same date Roeder lent Pinchin $192,500 for the Tel-Net deal. Given that Roeder expected to recover the money from Keywest, the only purpose of the loan was to evade the requirement to obtain Exchange approval prior to Keywest paying any money for Tel-Net.  The loan was never disclosed by Keywest.

After June 15, Roeder and his group moved right out of the picture. Veryan Thompson delivered the books to Poulos. Pinchin and Poulos became the sole signing authorities on Keywests bank account. The only continuing role of the Roeder group was to hold a shareholders meeting to approve the transfer of the escrow shares and tidy up the disposition of the final lease. In addition, Roeder kept control of most of Keywests cash in the account at Yorkton. Roeder, of course, had a continuing interest in this money because it was needed to repay the loan he made to Pinchin to secure the Tel-Net deal.

Roeder now claims that he was still in charge and was supposed to be consulted on all news releases.  We do not find Roeders evidence on this matter to be credible.  Roeder himself had provided the loan that allowed Pinchin to secure the Tel-Net deal.  He took no steps to retract or correct the June 23 news release, even though he says the directors had not approved the Tel-Net deal and even though he knew that the release failed to disclose his understanding that Tel-Net was controlled by Pinchin. Similarly, Roeder took no steps to have the Exchange resume trading in Keywest shares after it was halted by Lyons. The evidence of James on her July 9, 1993, discussion with Roeder makes clear that Roeder regarded the share purchase by Pinchin to have closed. It was only later that Roeder, through Chamberlain, began to question the interpretation of the agreement and to insist that it could not close without regulatory approval.

Whether Blues was correct in interpreting the share purchase agreement is, for our purposes, immaterial. What is important is that Roeder acted as if it had closed. Roeder had sold the shell and had his money. Pinchin had the shares and the signed director resignations. Shareholder approval would be a mere formality, as the parties to the agreement held 85 per cent of the shares. The ball was in Pinchins court to get regulatory approval. In the meantime, Roeder had control over most of Keywests money to secure his loan to Pinchin. For all intents and purposes, Roeder had sold control of Keywest and left its management and its fate in Pinchins hands.

This was all brought to a crashing halt when Pinchin ran into problems paying for the shares held for him by brokerage firms, but that is a story to be explored in another hearing.

Commission staff submit that we ought to find that the share purchase agreement was fundamentally contrary to the public interest because they say it clearly encouraged both an illegal distribution and a market manipulation. Although Roeder and Buchanan, both respondents in this proceeding, were parties to the agreement, it is Pinchin who is alleged to have structured the agreement and to have conducted the illegal distribution and manipulation. In light of the fact that Pinchin is the subject of a separate proceeding that is yet to be heard, we do not consider it appropriate to reach a conclusion on this aspect of the staffs case in the present proceeding.

3.4  Disclosure

Commission staff allege a number of disclosure violations by Keywest. Specifically, staff allege: that Keywests information circular dated June 18, 1993, was not in the required form in that it omitted required information and contained inaccurate information relating to the changes in the affairs of Keywest that shareholders were being asked to approve; and that the respondents failed to cause Keywest to disclose on a timely basis material changes, material facts or material information related to the loss of the property and the sale of control to Pinchin. The relevant disclosure requirements are set out in the legislation as follows.

Section 67 (1)of the Act requires that:

Where a material change occurs in the affairs of a reporting issuer, the reporting issuer shall

(a)		as soon as practicable issue and file a press release that is authorized by a senior officer and that discloses the nature and substance of the change, and
(b)		file a required report, as soon as practicable, but in any event no later than 10 days after the date on which the change occurs.

	Material change is defined in section 1 of the Act:
	"material change" means, where used in relation to the affairs of an issuer, a change in the business, operations, assets or ownership of the issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the issuer ...

Oil and Gas Property

Keywests only business prospect when it conducted its initial public offering in 1992 was its oil and gas property and, specifically, the C-88-I well.

Keywest made no disclosure of the result of the test by Monahan in July, which failed to produce any gas flow because of water in the C-88-I well. This information would have been important to any investor considering an investment in Keywest at that time.  However, there is insufficient evidence for us to determine whether it was a material change.

The expiry of the leases in September 1992, including the one containing the C-88-I well, was a change in the assets of Keywest that would reasonably have been expected to have a significant effect on the market price or value of Keywest shares. Keywest was therefore required to disclose this event as soon as practicable. Even on Roeders evidence, Keywest was aware of the expiry on September 29. A news release disclosing this critical event in Keywests affairs was not released until 10 days later. Furthermore, Keywests disclosure on October 9 was less than forthright. The news release said simply that the leases had not been renewed and that Keywest would be assessing the mineral potential of the leases to determine which would be suitable for reacquisition. This was inconsistent with Roeders account of how the leases were lost, although it may well have been closer to the truth. More significantly, it gave no indication of the significance to Keywest of the loss of the lease containing the C-88-I well, its only development prospect. The news release also said development would continue, which did not happen and would have made no sense given that Keywest did not own the leases at that time. We find that the October 9 news release was false and misleading and was not released as soon as practicable.

Keywest provided only cursory disclosure after it was outbid in the auction for the leases on January 13, 1993, and sold its fourth lease. The news release of January 21, 1993, did not make plain that Keywest had lost its only business interest nor did it explain how and why this happened. Again, we find that this news release was false and misleading.

Share Purchase Agreement

The share purchase agreement between the Roeder group and Pinchin was a proposed change in the ownership of Keywest that would reasonably have been expected to have a significant effect on the market price or value of Keywest shares. It was disclosed in a news release of April 29, 1993. Few details of the agreement were provided and regulatory approval was said to be a condition of the completion of the agreement. There was no indication that, immediately upon signing of the agreement and before Keywest sought or received shareholder or regulatory approval for the change in control, Pinchin would begin acquiring shares of Keywest from the vendors, the existing management contract would be cancelled, and Pinchin would begin managing the affairs of Keywest with no real involvement from Roeder or the other directors.  We find that the April 29 news release was false and misleading.

On June 15, 1993, Pinchin made the final instalment payment under the share purchase agreement and received from the trustee all of the remaining free trading shares under the agreement, together with the powers of attorney for all of the escrow shares and the undated directors resignations. Chamberlain suggested in August 1993, and Roeder argued at the hearing, that the correct interpretation of the share purchase agreement is that the acquisition could not be closed until shareholder and regulatory approval had been obtained. Whether or not that is a correct reading of the text of the agreement, Roeders conduct after June 15, 1993, and his comments to Shelley James on July 9, 1993, indicate that he regarded the agreement as closed.

Effective June 15, Pinchin had paid the full purchase price and received all of the shares and documents. Obtaining regulatory approval was (under the agreement) Pinchins responsibility. Shareholder approval was a foregone conclusion given that the parties to the agreement held 85 per cent of Keywests shares. Shortly after this date, Keywests books were moved to Pinchins office and Pinchin and Poulos became sole signing authorities on Keywests bank account. Roeder was still, of record, president and a director but his only remaining involvement in Keywest was that he retained sole signing authority over the Yorkton account, where most of Keywests money was held. This provided his security for the $192,500 loan he made to Pinchin on June 15 for the Tel-Net deal.

Keywest did not disclose the change in management that occurred in early May, the change in control that occurred on June 15, or the $192,500 advance for the Tel-Net deal, which Roeder expected to recover from Keywest.  Each of these events constituted a material change in Keywests affairs and ought to have been disclosed by news release.  We find that, in failing to disclose these material changes in its affairs, Keywest contravened section 67 of the Act.

Furthermore, Keywest failed to disclose them in its quarterly report for the year ended January 31, 1993, signed by Roeder and Buchanan and filed on June 18. Form 61, the specified form of quarterly report, requires under management discussion a "Review of operations in the quarter under review and up to the date of this report, including brief details of any significant event or transaction which occurred during the period." [emphasis added] Keywests quarterly report failed even to mention the share purchase agreement, much less to disclose the change in management and control or the $192,500 potential liability. We find that, in omitting to disclose these material changes in Keywests affairs, the quarterly report was false and misleading and did not comply with section 145 of the Regulation.

Information Circular

Keywest filed an information circular dated June 18, 1993, for its annual shareholders meeting. The meeting was to consider routine matters, including the election of directors. It was also to consider a special resolution to approve the sale of Keywests last property and to consider a resolution to approve the transfer of escrow shares to Pinchin. Section 101(2) of the Act requires a reporting issuer to file and provide to its shareholders an information circular in the required form. The required form, Form 30, provides that "If action is to be taken on any matter to be submitted to the meeting of security holders, other than the approval of financial statements, the substance of the matter or related groups of matters should be briefly described ... in sufficient detail to permit security holders to form a reasoned judgment concerning the matter."

Keywests information circular provided no disclosure about the circumstances that led to the loss of the first three leases; about the basis used to determine the sale price for the fourth lease and the wells and equipment; or about Keywests future business plans following the disposition of its undertaking. No disclosure was provided of the terms of the share purchase agreement; of the free trading shares that Pinchin had already purchased under that agreement; of the signed resignations of the directors, which were then held by Pinchin; of the role that Pinchin was already playing in Keywests management; or of the $192,500 that Roeder had advanced to Pinchin for the Tel-Net deal, which Roeder expected to have repaid by Keywest. Given these obvious and serious deficiencies in the disclosure, it would have been impossible for shareholders to make an informed decision on the resolutions they were being asked to approve. We find that the information circular did not comply with section 101(2) of the Act, in that it did not comply with the required form, and that it was false and misleading.

3.5  Conduct of Directors

Commission staff submit that, as a result of their participation in the matters described above, the respondents, in exercising the powers and in performing the functions of directors and officers of Keywest, failed to act honestly and in good faith and in the best interest of Keywest and failed to exercise the care, diligence and skill of a reasonably prudent person, contrary to sections 142 and 159 of the Company Act. These sections read as follows:

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 ...
159.		The provisions of sections 142 and 148 apply, with the necessary changes and so far as are applicable, to every officer of a company.

Roeder was the president and a director of Keywest and was the person responsible for acquiring the property, creating Keywest, taking it public, disposing of the property, and selling Keywest to Pinchin. Prior to selling it, Roeder managed Keywest as his own company and casually shuffled payments back and forth among his personal accounts and those of Keywest and Interex.

Roeder was responsible for Keywests news releases during a period when Keywest failed to disclose material changes and issued news releases that were false and misleading. Roeder also signed a false and misleading information circular and quarterly report in June 1993.

Roeder caused Keywest to disclose in its prospectus that the proceeds would be used to bring the C-88-I well into production and that his shareholder loan would not be paid from the proceeds unless Saba contributed to the development of the property. He then caused Keywest to lose three of its four leases, including the one containing the C-88-I well, and to sell its fourth lease as well as the equipment and wells on the property. After the loss of the three leases, and while he was purporting to attempt to reacquire them, Roeder caused Keywest to repay his shareholder loan.

Despite a clear warning that the Exchange and Commission should be consulted before any proposed change in control, Roeder put Keywest up for sale almost immediately after he disposed of the remainder of the property. Within a few months he consummated a deal with Pinchin to sell Keywest. Roeders concern in negotiating the sale was to get his money up front so that he could keep it even if the deal did not get approval.

Once Roeder had his money, and despite the fact that he was still president and a director of Keywest, Roeder effectively abandoned Keywest. He turned signing authority on its bank account over to Pinchin and Poulos and blithely signed an information circular that contained totally inadequate disclosure about the fundamental changes in Keywests affairs, which shareholders were being asked to approve.

Roeder advanced money to Pinchin to assist him in securing the Tel-Net deal for Keywest. In doing so, he facilitated a change in Keywests business, despite the warning of the Exchange and contrary to the representations in the prospectus that Keywest would continue in the oil and gas business. His loan also permitted Keywest to evade the requirement for prior Exchange approval of the Tel-Net deal.

We find that Roeders conduct throughout this period breached his duties to act honestly and in good faith and in the best interest of Keywest and to exercise the care, diligence and skill of a reasonably prudent person.

Thompson, Stang and Buchanan

Thompson was a director and officer of Keywest. She worked in Roeders office and kept Keywests books. She never met Stang before the hearing and never attended a directors meeting. She relied completely on Roeder and Chamberlain to direct Keywests affairs. She accepted without question Roeders instructions on financial transactions and signed cheques with no knowledge or understanding of the purpose of the payments. She willingly signed an undated resignation when asked to do so by Roeder.

Stang was a director of Keywest. Although he was in regular contact with Roeder, he appeared to have little real involvement in Keywests affairs. He also relied completely on Roeder and Chamberlain. He willingly signed an undated resignation when asked to do so by Roeder.

Buchanan was a director and shareholder of Keywest. His company was involved in the aborted dividend in specie transaction in September 1992. He was a party to the share purchase agreement. He appeared to play little other role in the affairs of Keywest. Buchanan bought and sold 5,000 Keywest shares in May and June 1993, making a profit before commissions of $1,750. He failed to report these trades in insider reports, as required by section 70 of the Act, until nine months later, when Commission staff found the trades and advised Chamberlain that they had not been reported.

Buchanan submits through counsel that his failure to report the trades was inadvertent. We do not accept this. We find that Buchanan deliberately failed to report the trades in order to conceal the fact that he was profiting from the rising market in Keywest shares that followed the share purchase agreement.

Thompson, Stang and Buchanan submit that it was reasonable for them to rely on Roeder and Chamberlain. They say they resolved any concerns they had about Roeders management of Keywest (such as when they received the February 19, 1993, letter from Shelley James) by talking to Chamberlain. They submit that Keywests listing agreement permitted them to rely on a lawyer who had not been found unacceptable by the Exchange.

Thompson, Stang and Buchanan, as directors of Keywest, each had a duty to act honestly and in good faith and in the best interest of Keywest and to exercise the care, diligence and skill of a reasonably prudent person. Although directors may place reasonable reliance on others, blind reliance on another director or on counsel is no excuse for dereliction of this duty. The paragraph of the listing agreement relied on by Thompson, Stang and Buchanan says nothing about any right of directors to rely on counsel. It says Keywest must ensure that any lawyer it wishes the Exchange to rely on must not have been found unacceptable.

Thompson and Stang each failed to exercise the care, diligence and skill of a reasonably prudent person. They each acted simply as a nominee for Roeder and exercised no independent judgment in directing Keywests affairs. As a result of their failure to perform their duties, Roeder had a free hand in directing Keywests affairs and led Keywest into the many problems described above and ultimately into disaster.

Buchanans involvement as a director is less clear, although he was a shareholder and was involved in the effort to create another shell through the proposed dividend in specie transaction. As a director, he had responsibility for overseeing Keywests affairs. At best, he neglected his duties as a director. At worst, he was complicit in Roeders conduct. We give Buchanan the benefit of the doubt in finding that he failed to exercise the care, diligence and skill of a reasonably prudent person.

4.  DECISION

The events in this matter were of the type that damage the integrity of the securities market and weaken public confidence in the markets fairness and efficiency. Keywest went public on the basis of an oil and gas property and raised money from investors to fund a very specific development project. Within four months it failed to renew its oil and gas leases and within nine months it had disposed of its entire property without carrying out the project described in the prospectus. Part of the proceeds of the public offering were used instead to pay off a shareholder loan from the chief executive officer of Keywest. None of this was properly disclosed to investors. It then embarked on a change of control and change of business, structured to evade regulatory approval requirements, and again failed to make proper disclosure. We find these activities to be highly prejudicial to the public interest.

The conduct of the respondents as directors and officers of Keywest failed to meet the standards required of those who participate in reporting issuers. Roeder orchestrated the affairs of Keywest and treated it as his own company. Thompson performed administrative functions for Keywest but acted totally under Roeders direction. Stang played little if any meaningful role in Keywests affairs and relied entirely on Roeder. Buchanan played a somewhat larger role, as he was a shareholder and party to the share purchase agreement, but he also deferred to Roeder in managing Keywests affairs. Buchanan also made a small profit through some trading in Keywest shares, which he concealed by failing to report it in his insider reports.

Roeder was primarily responsible for Keywests affairs. He must be held accountable for Keywests serious violations of disclosure requirements; for disposing of Keywests assets in order to recover his shareholder loan and create a marketable shell company; for managing Keywests financial affairs in a cavalier fashion; and for abandoning Keywest without taking the appropriate steps to effect a change in control. We consider it to be in the public interest to remove Roeder from participating in the securities market or reporting issuers for a substantial period.

Commission staff have submitted that we ought to impose an administrative penalty against Roeder under section 144.1 of the Act in respect of the disclosure violations of Keywest. Section 144.1 reads as follows:

Where the commission, after a hearing,

(a)

determines that a person has contravened

(i)		a provision of this Act or of the regulations, or
(ii)		a decision, whether or not the decision has been filed under section 144.2, and

(b)

considers it to be in the public interest to make the order

the commission may order the person to pay the commission an administrative penalty of not more than $100,000.

We order

1.		under section 144(1)(c) of the Act, that the exemptions described in sections 30 to 32, 55, 58, 80 and 81 of the Act do not apply to Roeder for a period of 17 years from the date of this order;
2.		under section 144(1)(d) of the Act, that Roeder is prohibited from becoming or acting as a director or an officer of any reporting issuer for a period of 17 years from the date of this order;
3.		under section 154.2 of the Act, that Roeder pay prescribed fees or charges for the costs of or related to the hearing incurred by the Commission and the Superintendent, the amount to be determined following further submissions from the parties.

We order

1.		under section 144(1)(d) of the Act, that each of Thompson and Stang is prohibited from becoming or acting as a director or an officer of any reporting issuer for a period of 3 years from the date of this order;
2.		under section 154.2 of the Act, that Thompson and Stang pay prescribed fees or charges for the costs of or related to the hearing incurred by the Commission and the Superintendent, the amount to be determined following further submissions from the parties.

We order

1.		under section 144(1)(c) of the Act, that the exemptions described in sections 30 to 32, 55, 58, 80 and 81 of the Act do not apply to Buchanan for a period of 3 years from the date of this order;
2.		under section 144(1)(d) of the Act, that Buchanan is prohibited from becoming or acting as a director or an officer of any reporting issuer for a period of 3 years from the date of this order;
3.		under section 154.2 of the Act, that Buchanan pay prescribed fees or charges for the costs of or related to the hearing incurred by the Commission and the Superintendent, the amount to be determined following further submissions from the parties.

We order, under section 144(1)(b) of the Act, that all persons cease trading in the securities of Keywest until the Commission orders otherwise.

D.M. HYNDMAN, Chair
H.D. BROWNE, Member
E. LIEN, Member