2002 BCSECCOM 909

It is the responsibility of the directors to ensure that a company complies with applicable legislation and its listing agreement. Directors exercising the care, diligence and skill of a reasonably prudent person may delegate this responsibility to management of the company, but, if they do so, must also set up adequate systems to satisfy themselves that compliance is in fact taking place and, if matters arise that should put them on notice, take the steps necessary to resolve the concern. …

¶ 10 Steinart was a founder of Specialized Surgical and bore primary responsibility for managing the company’s only asset – its property in Coquitlam. As well, despite circumstances that should have put him on notice that it would be prudent for him to inquire more closely into Specialized Surgical’s compliance with its regulatory obligations, Steinart did not take the necessary steps to resolve those concerns.

¶ 11 Steinart failed to fulfil his duties as a director under the Company Act. As a director of Specialized Surgical, he was responsible for ensuring that Specialized Surgical’s August and November offering memorandums did not contain misrepresentations. He failed and his failure harmed investors, impaired the integrity of our capital markets and was prejudicial to the public interest. Consequently, considering it to be in the public interest, we order:

under section 161(1)(c) of the Act that the exemptions described in sections 44 to 47, 74, 75, 98 and 99 of the Act do not apply to Steinart until October 30, 2005, except that Steinart may rely on section 45(2)(7) of the Act to trade in securities for his own account;

1. under section 161(1)(d)(i) of the Act that Steinart resign any position he holds as a director or officer of any issuer, other than the real estate development company of which he is sole shareholder;

2. under section 161(1)(d)(ii) of the Act that Steinart is prohibited from becoming or acting as a director or officer of any issuer, other than the real estate development company of which he is sole shareholder, until the later of

(a) October 30, 2005, and
(b) the date Steinart successfully completes a course of study satisfactory to the Executive Director concerning the duties and responsibilities of directors and officers; and
3. under section 161(1)(d)(iii) of the Act that Steinart be prohibited from engaging in investor relations activities until October 30, 2005.

Swanney
¶ 12 We found that Swanney

1. by permitting Specialized Surgical to make misrepresentations in the August and November offering memorandums, failed as a director to “act honestly and in good faith and in the best interests of the company, and exercise the care, diligence and skill of a reasonably prudent person”, contrary to section 118(1) of the Company Act; and

2. through his participation in the transfer of shares from Steinart to Collins, perpetrated a fraud on Collins, contrary to section 57(b) of the Act.

¶ 13 Swanney was a founder of Specialized Surgical and ran the company throughout the distribution periods under both offering memorandums; he was Specialized Surgical’s president and chief executive officer and signed both offering memorandums. Swanney should have been the first to recognize that the offering memorandums omitted to state material facts. Like Steinart, however, Swanney failed to put in place adequate compliance systems. Like Steinart, despite circumstances that should have put Swanney on notice that it would be prudent for him to inquire more closely into Specialized Surgical’s compliance with its regulatory obligations, he did not take the necessary steps to resolve those concerns.

¶ 14 We also found that Swanney perpetrated a fraud on one of Specialized Surgical’s investors. He was a key participant in the transactions that resulted in Collins paying $50,000 for shares that were worth only $7,500 at the time.

¶ 15 Swanney failed to fulfil his duties as a director under the Company Act. As a director and chief executive officer of Specialized Surgical, he was responsible for ensuring that Specialized Surgical’s offering memorandums did not contain misrepresentations. He also perpetrated a fraud, one of the most serious contraventions of the Act. Swanney harmed investors, Collins in particular, and seriously impaired the integrity of our capital markets and the public interest. We consider it to be in the public interest to remove Swanney from the market, and from involvement with issuers, for a significant period. Therefore, we order:

3. under section 161(1)(c) of the Act that the exemptions described in sections 44 to 47, 74, 75 , 98 and 99 of the Act do not apply to Swanney until October 30, 2017;

4. under section 161(1)(d)(i) of the Act that Swanney resign any position he holds as a director or officer of any issuer;

5. under section 161(1)(d)(ii) of the Act that Swanney is prohibited from becoming or acting as a director or officer of any issuer until the later of

(a) October 30, 2017; and
(b) the date Swanney successfully completes a course of study satisfactory to the Executive Director concerning the duties and responsibilities of directors and officers;
6. under section 161(1)(d)(iii) of the Act that Swanney be prohibited from engaging in investor relations activities until October 30, 2017;

7. under section 162 of the Act that Swanney pay an administrative penalty of $35,000; and

8. under section 174 of the Act that Swanney pay the costs of or related to the hearing incurred by the Commission and the Executive Director, the amount to be determined following further submissions from the parties.

¶ 16 October 30, 2002

¶ 17 For the Commission




Adrienne Salvail-Lopez
Vice Chair




John K. Graf
Commissioner




Roy Wares
Commissioner