COR#96/022

John H. Frank, for Commission staff.

DECISION OF THE COMMISSION

1.   INTRODUCTION

This is a hearing under sections 144(1)  and 144.1 of the Securities Act, S.B.C. 1985, c. 83.  A Notice of Hearing was issued by the Superintendent of Brokers on July 17, 1995.  The Notice of Hearing alleged that Arthur M. Hetzer failed to file insider reports disclosing his direct or indirect beneficial ownership of, or control or direction over, the securities of Score Athletic Products Inc., as required under section 70 of the Act.  The hearing was held on August 22, 1995.

The Notice of Hearing was sent by courier on July 19, 1995, to Hetzer at his last known address.  In a telephone conversation with Commission staff on August 17, 1995, Hetzer acknowledged that he had received the Notice of Hearing and that he would not appear at the hearing.  We find that Hetzer received notice of the hearing in accordance with section 156 of the Act.

2.   BACKGROUND

Score became a reporting issuer on October 28, 1986, and Score's shares were listed and posted for trading on the Vancouver Stock Exchange.  Hetzer became a director of Score on June 24, 1994, and remained a director until sometime prior to the hearing.

In a Report of Exempt Distribution dated March 14, 1994, Score disclosed that the company had issued to Hetzer on January 4, 1993 (with Exchange approval on March 9, 1994) an option to purchase 100,000 shares of Score at a price of $.39 per share up to January 4, 1996.  In a Quarterly Report for the quarter ended June 30, 1994, Score disclosed the outstanding options to purchase Score shares.  One of those was an option to purchase 100,000 shares at $.39 per share up to January 4, 1996.  Commission staff submits that this is the option held by Hetzer and, therefore, that Hetzer had not yet exercised, and continued to hold, the option by June 30, 1994 when he became a director of Score.  No insider report had been filed by Hetzer under section 70(2) of the Act.

On the basis of this, the Superintendent issued an order under section 146 of the Act on November 28, 1994, that Hetzer cease trading in the securities of Score until he files the insider report required under section 70(2) of the Act in a form satisfactory to the Superintendent.

In a conversation with Commission staff shortly before the hearing, Hetzer said that it was difficult to file his insider reports because the communication channels in Score were quite confusing.  He also said that he had resigned from Score and that his insider reports and a copy of his resignation would be provided before the hearing.  Neither had been received by Commission staff by the date of the hearing.

3.

DECISION

The relevant provisions of the Act are as follows:

1(1)		"insider" means, where used in relation to an issuer, (a)  a director or senior officer of the issuer.
70(2)		A person who is an insider of a reporting issuer shall, within 10 days of becoming an insider, file an insider report in the required form effective the date on which he became an insider, disclosing any direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer.
70(4)		Where a person (a)  has filed or is required to file an insider report under subsection (2) or under a former enactment, and (b)  whose direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer changes from that shown or required to be shown in the latest insider report filed by him, he shall, within 10 days after the end of the month in which the change takes place, file an insider report in the required form disclosing (c)  his direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer at the end of that month, and (d)  the change or changes in his ownership in securities of the reporting issuer that occurred during the month so long as he was an insider of the reporting issuer at any time that month.

On the basis of the March 14, 1994 Report of Exempt Distribution and the June 30, 1994 Quarterly Report, we find that Hetzer held an option to purchase shares of Score when he became a director and insider of Score on June 24, 1994.  We also find that Hetzer failed to file an initial insider report disclosing that he owned the option within 10 days of becoming an insider, contrary to section 70(2) of the Act.

The Commission has noted in several decisions, including In the Matter of Robert Theodore Slavik, (1990) BCSC Weekly Summary, Vol. 90:28, and  In the Matter of Seven Mile High Group Inc. [1991] 47 BCSC Weekly Summary 7, that disclosure of trading by insiders is a key element in the continuous disclosure regime for reporting issuers.  As the Commission stated in the  Seven Mile High decision at page 36:

The information provided by insider reports is important market information, as it discloses to market participants the trading activities of the persons most closely connected to, and therefore in a position to be most knowledgeable about, a reporting issuer.  Timely reporting is particularly important where, as in this case, the insider is an active trader.

Until Hetzer's insider report filings are up to date, we are unable to assess the seriousness of his failure to comply with section 70 of the Act.  Once the report, or reports, have been filed, Commission staff will be able to review the disclosure and take appropriate action.  At this time, however, we consider it to be in the public interest to order:

1.		under section 144(1)(a) of the Act that Hetzer comply with section 70(2) and (4) of the Act;
2.		under section 144(1)(c) of the Act that the exemptions described in sections 30 to 32.1, 55, 58, 80 and 81 of the Act do not apply to Hetzer until he files all the reports required to be filed by him under section 70(2) and (4) of the Act and the reports are found to be acceptable by the Executive Director;
3.		under section 144(1)(d) of the Act that Hetzer is prohibited from becoming or acting as a director or officer of a reporting issuer until he files all the reports required to be filed by him under section 70(2) and (4) of the Act and the reports are found to be acceptable by the Executive Director; and
4.		under section 154.2 of the Act that Hetzer pay prescribed fees and charges for the costs of or related to the hearing incurred by the Commission and the Executive Director, the amounts to be determined following further submissions from the parties.