Decisions

Timothy James Pinchin, et al. [Decision]

BCSECCOM #:
Document Type:
Decision
Published Date:
1996-10-18
Effective Date:
1996-10-11
Details:

COR#96/222
IN THE MATTER OF The Securities Act, S.B.C. 1985, c. 83
AND IN THE MATTER OF Timothy James Pinchin, N.C.G. Capital
Group Ltd. and N.C.G. Asset Management Ltd.
Decision
D.M. Hyndman, H.D. Browne, E.L. Lien
Heard:September 19-22 and November 21, 1996
   Decision: October 11, 1996
Appearing:

Robert S. Fleming, for Commission staff.
Richard P. Hamilton, for Timothy James Pinchin, N.C.G. Capital Group Ltd. and N.C.G. Asset Management Ltd.
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 on September 3, 1993, setting out certain allegations against Timothy James Pinchin and two companies he owned and controlled. The notice was amended on June 17, 1994, to add further allegations against the respondents. After several adjournments, the hearing began on September 19, 1995. The notice of hearing was accompanied by temporary orders, made by the Superintendent of Brokers (now called the Executive Director), that the respondents cease all trading in securities, that the exemptions under the Act do not apply to the respondents, and that Pinchin is prohibited from becoming or acting as a director or officer of a reporting issuer. The temporary orders have been extended pending this decision.

The allegations fall into three distinct groups.

First, Commission staff allege that Pinchin, personally or through his two companies, N.C.G. Capital Group Ltd. and N.C.G. Asset Management Ltd., conducted undisclosed take over bids of Consolidated Brightwork Resources Inc. and Keywest Resources Ltd., two reporting issuers listed on the Vancouver Stock Exchange, and in doing so engaged in fraudulent schemes related to trading in securities. Commission staff further allege that Pinchin conducted illegal distributions of Brightwork and Keywest shares, failed to file insider reports, failed to cause Brightwork and Keywest to disclose material changes, traded with knowledge of undisclosed material facts or material changes, caused or permitted Keywest to deliver to shareholders a misleading information circular and breached his duties as a de facto director and officer of Brightwork and Keywest.

Second, Commission staff allege that Pinchin violated the temporary orders by trading two debentures of National Applied Computer Technologies. (Another allegation that Pinchin violated the temporary orders, by acting as a director or officer of a reporting issuer, was dropped by Commission staff at the conclusion of the hearing).

Third, Commission staff allege that Pinchin acted as an adviser without being registered.

Pinchin did not attend the hearing in person or give oral evidence. His counsel appeared briefly at the outset to request an adjournment and then, after that was denied, withdrew until the last day when he attended to make submissions.

2.   BACKGROUND

2.1  Tim Pinchin

Pinchin was registered under section 20 of the Act as a mutual fund salesman with Stenner Financial Services during 1987. From 1989 to 1992, he was involved in promotion and fund raising with several reporting issuers.

Pinchin owned and controlled several private companies during the period relevant in this matter. N.C.G. Asset Management Ltd., incorporated November 13, 1987, was formed for the purpose of investment management for Pinchin's "clients", mainly friends and associates. Pinchin also planned to use N.C.G. Asset to manage the daily operations of reporting issuers he controlled. N.C.G. Capital Group Ltd., incorporated October 14, 1988, was formed for the purpose of raising funds for investments.  Tel-Net Systems Inc. was incorporated in Delaware on February 23, 1993. Its business was, according to Pinchin, "providing switching equipment to telecommunications companies on a shared revenue basis." In 1993, these companies all operated from Pinchin's office in Vancouver. Pinchin had two associates, Sandra Bevanda and George Poulos, working in his office to assist him.

2.2  Brightwork

In the fall of 1992, Pinchin became interested in a Utah-based company called National Applied Computer Technologies, or NACT, which required financing to develop and market its telephone switching technology. He developed a plan to finance NACT through a shell company listed on the Exchange.

In October 1992, Pinchin made contact, through a "shell broker" named Don Byers, with Larry Lund, who was president and a director of Brightwork, to see if Brightwork's principals were interested in selling control. Brightwork had conducted an initial public offering a few years earlier for the purpose of doing exploration work on a mineral property in the Okanagan region. The principals and many of the investors were residents of Penticton. Most of the offering proceeds were spent and exploration results were marginal, so the directors chose not to pursue the project at that time. By the fall of 1992, Brightwork had become a shell and the directors were interested in pursuing another business opportunity that would make Brightwork successful. Ultimately Lund, Ron Bell and Barry Wilson, Brightwork's controlling shareholders, agreed to sell their shares to Pinchin for $332,000. A share purchase agreement was signed on or about December 24, 1992, although Pinchin began to manage Brightwork's affairs several weeks earlier.

The share purchase agreement provided that Lund, on behalf of the principals of Brightwork, would deliver to Robin Blues, a lawyer with Morton & Company, as trustee, 490,000 free trading shares, referred to as "working shares", and would deliver to Devlin Jensen, as trustee, 690,000 free trading and restricted shares, 200,000 share purchase warrants, stock powers of attorney for the transfer of all of the 375,000 escrow shares, and undated directors' resignations. Blues was to deliver blocks of the working shares to Pinchin at various dates upon payment of installments toward the purchase price. Five installments were due over a 120 day period beginning December 29, 1992, although Pinchin was permitted to accelerate the installments. Once Blues had received the full purchase price of $332,000, he was to advise Devlin Jensen, who would then release the remaining shares and documents to Pinchin.

In purchasing 1,555,000 shares for $332,000, Pinchin paid 21 cents per share, which was below the price of Brightwork shares on the Exchange at the time.

Other terms of the agreement, effective upon signing, provided for the appointment of Pinchin or his nominee as a director, the termination of any management agreements and the changing of signing authority over bank accounts to include Pinchin. The agreement included a number of conditions, including regulatory and shareholder approval, and events of termination. The termination clause provided that, if the agreement terminated, any shares still held by the trustees would be returned to the Lund group. Shares already paid for and released to Pinchin would not be returned.

At the time of the share purchase agreement, Brightwork had just over 2 million shares outstanding. Exercise of the 200,000 share purchase warrants would increase the outstanding shares to 2.2 million. The 1,755,000 shares covered by the agreement represented more than 79 per cent of Brightwork's outstanding shares. Neither the share purchase agreement nor the fact that Pinchin was acquiring control of Brightwork was ever disclosed. No application was made to the Exchange for a change of control or transfer of escrow shares. In April 1993, Brightwork submitted a draft filing statement to the Exchange with regard to the proposed acquisition of NACT, but it was never approved.

Meanwhile, Pinchin was negotiating financing arrangements with NACT's president, Thomas Sawyer of Orem, Utah. Pinchin was introduced to Sawyer as a person of substantial means who could assist NACT in raising the US$450,000 it needed for development and marketing of its products. Pinchin traveled to Orem, Utah in October or November of 1992 and explained to NACT his proposal to provide US$450,000 in interim financing and then to acquire NACT through Brightwork. Following this discussion, a letter of understanding was reached between NACT and N.C.G. Capital, dated November 17, 1992. The letter stated that N.C.G. Capital would provide bridge financing, under a convertible debenture, to NACT. A first advance of US$300,000 was to be provided on December 1, upon signing of a definitive agreement, and a further US$150,000 was to be provided by December 18. After a delay, NACT received US$100,000 under a debenture, from N.C.G. Asset rather than N.C.G. Capital, on December 9. N.C.G. Asset assigned this debenture to Brightwork on December 30. Under a term of the share purchase agreement between Pinchin and Lund, Brightwork was to issue 533,333 shares and an equal number of warrants in consideration for the debenture. It appears these shares were never issued. The remaining bridge financing under the November 17 letter was never provided, although a further US$220,000 was provided under a later arrangement.

On December 29, 1992, Blues delivered the first 50,000 Brightwork shares under the share purchase agreement, in exchange for a $25,000 payment by N.C.G. Capital. The $25,000 was paid to Lund, Bell and Wilson.

On December 30, 1992, at Pinchin's request, Sandra Bevanda was appointed as a fourth director of Brightwork. At about the same time, Pinchin was appointed general manager of Brightwork. The directors approved the issuance of director's incentive options to acquire 100,000 shares to Bevanda and employee incentive options to acquire 50,000 shares each to Pinchin and George Poulos.

On January 28, 1993, the directors approved a management agreement with N.C.G. Asset, under which Pinchin was to be responsible for the "supervision, direction, control and operations" of Brightwork, and an administrative services agreement with N.C.G. Capital, which was to be responsible for providing office services to Brightwork. It is unclear whether a written agreement was ever executed but, from this time on, Brightwork was managed from Pinchin's office. A bank account was established with Pinchin, described as general manager, and any one director as signing officers. Neither these agreements nor the fact that Pinchin was managing Brightwork was ever disclosed.

Blues delivered a further 108,000 shares on February 22, and received a cheque for $64,800 from Lyons Cawkell, a law firm representing Pinchin.

On March 25, Pinchin sold 50,000 shares through N.C.G. Capital's account at Canaccord Capital Corporation for proceeds, before commissions, of $65,000. The shares were purchased by accounts controlled by Pinchin's brokers at Canaccord. On the same day, as directed by Pinchin, Blues delivered 67,000 shares to Canaccord and received a cheque for payment of $64,000 from Canaccord and $2,000 from Pinchin. The 67,000 shares were put into the N.C.G. Capital account.

The share purchase agreement was subsequently extended several times but the remaining shares were never paid for by or delivered to Pinchin. Blues returned the remaining shares to Lund in September 1993.

From September through December 1992, Brightwork shares had traded sporadically on the Exchange at very low volumes. On most days there was no trading. Prices ranged between about 25 cents and 40 cents per share. On December 30, 1992, market activity and prices began to increase and Pinchin began active trading. For the period from December 30, 1992, to April 5, 1993, 745,058 Brightwork shares were traded in 403 trades. Accounts controlled by Pinchin were involved in 187, or 46 per cent, of the trades. Pinchin accounted for 183,600, or 24 per cent, of the shares purchased and 250,200, or 33 per cent, of the shares sold. On 13 trades for a total of 63,500 shares, accounts controlled by Pinchin were on both sides.  Of the 92 upticks in the price of Brightwork shares during this period 20, or 22 per cent, were on purchases by Pinchin and an additional 24, or 26 per cent, were on purchases by accounts controlled by Pinchin's brokers.  The closing price of Brightwork shares rose from 40 cents to $3 over the period.

Pinchin never filed any insider reports, acquisition reports or notices of intention to sell with respect to his trading in Brightwork shares.

After announcing the acquisition of the $100,000 NACT debenture on December 30, 1992, Brightwork made several more announcements related to NACT and Tel-Net.

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On January 7, 1993, Brightwork announced negotiations to create a joint venture with NACT.
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On January 28, Brightwork announced negotiations to acquire a Delaware company and provided further details of proposed arrangements with NACT. The Delaware company was not identified but it was Tel-Net. No disclosure was provided that Pinchin owned Tel-Net.
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On March 3, by which time the share price had risen to $1.10, Brightwork announced that there were no undisclosed material changes that would explain the price increase. The news release summarized the January 28 announcements.
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On March 30, by which time the share price had increased to $1.80, Brightwork announced a private placement, subject to regulatory approval, of 300,000 units (each consisting of a share and a warrant) at a price of $1.50 per unit. The purchaser, whose identity was not disclosed, was to be Poulos. In the next three trading days, March 31 and April 1 and 2, Brightwork's share price shot up, closing at $1.85, $2.10 and $2.40.
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On April 5, Brightwork announced it had reached an option agreement to acquire Tel-Net and described various contracts among Brightwork, Tel-Net and NACT. There was no disclosure that Pinchin owned Tel-Net.
Following the April 5 news release, the price of Brightwork shares increased to $3 in active trading. The news release was brought to the attention of Alfred Stewart, then manager of trading surveillance of the Exchange. Stewart was concerned that the disclosure of the Tel-Net acquisition was inadequate and he halted trading in Brightwork shares. The Exchange notice said the halt was at the request of Brightwork pending an announcement, although Brightwork was not contacted before the halt. On April 6, Kenneth Cawkell, of Lyons Cawkell, met with the Exchange, saying that he represented Pinchin. Following the meeting, the Exchange issued a notice on April 7 continuing the halt of trading in Brightwork shares pending determination of whether the transaction announced on April 5 constituted a reverse take over.  During the period relevant in this matter, trading in Brightwork shares never resumed and none of Brightwork's directors of record ever contacted the Exchange with regard to the halt.

Pinchin continued his efforts to raise the financing needed for NACT. In early March, he had met a private venture capitalist named Ken Fahlman. Pinchin told Fahlman that he planned to acquire NACT through Brightwork. Fahlman thought NACT looked interesting. He reviewed its prospects and met with Sawyer. He then arranged for a client named David Wallace to buy 100,000 Brightwork shares from Pinchin for $3 per share. Pinchin was to use the $300,000 to purchase newly issued Brightwork shares in a private placement. Brightwork, in turn, was to use the proceeds to provide bridge financing to NACT.

On May 10, Brightwork's directors approved an advance of US$220,000 to NACT under a debenture. It appears that Pinchin (through N.C.G. Capital) actually advanced the US$220,000 (Cdn$280,000) directly to NACT and retained the remaining $20,000 received from Wallace to cover expenses. NACT issued a debenture to Brightwork. Documentation for Brightwork's private placement to Pinchin was never completed.

Later in May, Pinchin organized a fishing trip in the Queen Charlotte Islands for the purpose of raising financing for Brightwork and NACT. Along with Pinchin, Sawyer, Fahlman and Don Lyons of Lyons Cawkell, the attendees were representatives of Canaccord, Marleau Lemire and other dealers and venture capital groups. Pinchin talked to the group about the business prospects of investing in NACT through Brightwork. Marleau Lemire agreed to arrange financing for Brightwork. Fahlman did not invest in Brightwork but expected to receive a finders fee for his efforts.

2.3  Keywest

At some point in early 1993, Pinchin concluded that he needed a second reporting issuer to participate in the NACT transactions. He made contact through Byers with the principals of Keywest, another shell company whose shares were listed on the Exchange. Keywest had completed an initial public offering in 1992, purportedly to fund exploration of an oil and gas property. By early 1993 the property had been disposed of and Keywest's sole asset was about $400,000 in cash. Pinchin was negotiating the acquisition of Keywest when trading in Brightwork shares was halted.

On April 29, Pinchin entered into a share purchase agreement with the principals of Keywest, under which he agreed to acquire 1.79 million (85 per cent) of Keywest's 2.1 million outstanding shares for $850,000. This agreement was similar to the one for Brightwork. Robin Blues again acted as trustee, this time for all of the shares and documents. Keywest's principals, John Roeder, Gordon Buchanan, and Larry and James Mashburn, delivered to Blues all of their free trading Keywest shares, stock powers of attorney for their escrow shares and undated resignations for Keywest's directors, who were Roeder, Buchanan, Veryan Thompson and Bernard Stang.

The 1.79 million Keywest shares consisted of 701,150 free trading shares and 1,088,850 escrowed shares. The agreement identified 425,000 of the free trading shares as "working shares". Blues was to deliver blocks of the working shares to Pinchin at various dates upon payment of installments toward the $850,000 purchase price. Three installments were due, on May 5, May 30 and August 31, 1993, although Pinchin was permitted to accelerate the installments. Once Blues had received the full purchase price he was to release the remaining shares and documents to Pinchin. Between May 3 and June 15, 1993, Pinchin paid for and took delivery of all of the shares and documents.

Other terms of the agreement, effective upon signing, provided for the appointment of Poulos as a director, the termination of any management agreements and the changing of signing authority over bank accounts to include Pinchin or his nominee. The agreement included a number of conditions, including regulatory and shareholder approval, and events of termination. The termination clause provided that, if the agreement terminated, any shares still held by the trustees would be returned to the Roeder group. Shares already paid for and released to Pinchin would not be returned.

Upon the signing of the agreement, Poulos was appointed a director. Management of Keywest's affairs moved to Pinchin's office. It is unclear whether a signed management agreement was in place but it is clear that Pinchin took primary control of Keywest's affairs from this time.

A news release issued by Keywest on April 29 announced 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." Pinchin was actually the only purchaser, but he included the reference to being "agent for others" to keep open the possibility of bringing in other purchasers. There was no disclosure that Pinchin would begin to acquire shares under the agreement before Keywest obtained regulatory approval for the transaction. Keywest never applied for or obtained regulatory approval.

On May 3, 1993, Keywest issued a news release announcing negotiations to acquire a company that operated pay telephones in the eastern United States. The news release was signed by Roeder but was drafted by Lyons and the address shown for Keywest on the news release was that of Pinchin's office.

From January through April 1993, Keywest shares traded sporadically on low volumes and at prices around $1.70. At the beginning of May, just after Pinchin's share purchase agreement was announced, the price ticked up to $2.10 on low volume.

On May 3, trading volume exploded to 162,000 shares and the price moved up to $2.45. Pinchin accounted for most of the volume, selling 137,000 shares into the market through the account of N.C.G. Capital at Canaccord. The remaining sales were nine clients of Canaccord (20,000 shares) and one client of Yorkton Securities (5,000 shares). Canaccord accounted for 74,500 shares of the purchases, of which 16,500 were by inventory accounts, and 40,000 shares were by accounts of Pinchin's brokers, Jock McDermid and Crichy Clarke, and their wives. Another 44,000 shares were purchased through Yorkton. Geoff Rutledge, Pinchin's broker at Golden Capital Securities, purchased 5,000 shares in an inventory account.

Pinchin again had an arrangement with Canaccord for Blues to deliver shares under the share purchase agreement against payment by Canaccord for Pinchin's account. This arrangement allowed Pinchin to pay for the shares by selling them into the market. Pinchin would instruct Canaccord to short sell the shares and then Canaccord would call Blues and advise him how many shares to deliver. After Pinchin sold the 137,000 shares on May 3, Blues delivered to Canaccord 143,060 shares under the share purchase agreement and received a cheque for $286,120.

On May 4, the market opened at $2.60 on two trades of 1,000 shares. The sellers were clients at Canaccord. The purchaser on both trades was Rutledge's inventory account. Pinchin then started selling again through the N.C.G. Capital account at Canaccord. Trading volume for the day dropped to 96,300 shares and the price rose to $2.85. Pinchin sold 39,300 shares through Canaccord, which also sold another 22,500 shares for client and inventory accounts. However, Pinchin also purchased 14,500 shares, including 13,000 through Canaccord. Rutledge purchased 9,000 shares but also sold 3,000 shares on jitney trades through another firm. The market was high closed at $2.85 on a purchase by Pinchin from a Canaccord client.

After Pinchin sold a net 24,800 shares on May 4, Blues delivered 25,000 shares to Canaccord and received a cheque for $50,000.

The trading volume in Keywest shares declined further on May 5, to 43,000 shares and the price moved in a narrow range around $2.80. Pinchin sold 1,000 shares and purchased 29,000 shares. From May 6 through June 3, trading volume was generally much lower, exceeding 25,000 shares on only three days and being as low as 1,000 to 4,000 shares on six days. The price moved in the range of $2.50 to $3.00. Pinchin was on one or both sides of the market on 18 of the 22 trading days during this period.

On May 26, 1993, Keywest issued another news release from Pinchin's 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 Keywest's bank account at the Bank of Montreal, along with Poulos, Roeder and Thompson (any two could sign cheques). However, most of Keywest's money was held in an account at Yorkton, over which Roeder had sole signing authority.

On June 4, volume increased to 126,000 shares, accounted for almost entirely by a single trade, crossed by Canaccord, of 120,000 shares from N.C.G. Capital to an account controlled by Jock McDermid. The 120,000 shares were delivered to Canaccord by Blues in exchange for a cheque for $240,000. According to Pinchin, McDermid took them into his account to "bankroll" the payment for them.

Volume declined again for the next four trading days, from June 7 to 10. A total of 20,000 shares were traded for the four days. All of these shares were purchased by Pinchin.

On June 11, trading increased to 158,100 shares. Pinchin sold 52,000 shares through Canaccord and 70,000 through Yorkton. He also purchased 5,000 through Canaccord, 30,000 through Yorkton (in a wash trade from his account at Canaccord), and 25,000 through Pacific International Securities (of which 20,000 were purchased in a wash trade from his account at Canaccord).

On June 11, Blues delivered 70,000 shares to Canaccord in exchange for a cheque for $140,000. On June 16, Blues delivered 65,000 shares to Yorkton, in exchange for a cheque for $130,000, apparently to settle the sales through Yorkton on June 11. Also on June 16, Blues delivered 1,940 shares to Pinchin in exchange for a cheque for $3,880. These represented the last of the 425,000 working shares and the final payment of the $850,000 under the share purchase agreement. Following this payment, Blues released the remaining free trading shares and the other documents to Pinchin.

On June 15, Roeder personally advanced $192,500 to Pinchin. The funds were to be used by Tel-Net to prepurchase long distance telephone time from Comm-Tech.  Roeder intended to recover the money from Keywest following regulatory approval.

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 related to the disposition of Keywest's oil and gas property and a resolution to approve the transfer of escrow shares to Pinchin.

The circular provided no disclosure concerning Keywest's 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 Keywest's management; or the $192,500 that Roeder had advanced to Pinchin for the Tel-Net deal, which Roeder expected to have repaid by Keywest.

On June 23, 1993, Keywest issued a news release from Pinchin's 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.

For the nine trading days, from June 14 to 24, volume ranged between 1,000 and 30,000 shares. On eight of the nine days, Pinchin was involved on one or both sides of the market.

On June 25, volume was 124,100 shares, accounted for almost entirely by a trade of 120,000 shares from McDermid's account to N.C.G. Capital's account at Canaccord. This trade represented the return of the 120,000 shares parked in McDermid's account three weeks earlier, on June 4. Pinchin presented to Canaccord a cheque for $360,000, dated June 28 and drawn on N.C.G. Capital's bank account, to cover the resulting debit in his brokerage account.  N.C.G. Capital's bank account balance at the time was about $4,000. Pinchin asked McDermid to hold the cheque for a few days while he arranged financing. However, the cheque was negotiated and, on June 30, returned NSF by the bank. Pinchin also provided a personal cheque for $81,800 to Pacific International Securities, which was returned NSF on June 25. He also provided an NSF cheque to Yorkton, but it does not appear to be in the evidence. McDermid was instructed by Canaccord to sell out the shares in Pinchin's account but, before the market opened on June 30, Lyons called the Exchange on Pinchin's instructions and asked for a halt in trading of Keywest shares pending an announcement. No announcement was made but Keywest shares never resumed trading.

For the full period from May 3 to June 29, 1993, there were 472 trades in Keywest shares through the Exchange. Pinchin was involved as buyer or seller or both in 248, or 53 per cent, of the trades. A total of 1,123,500 shares were traded. Pinchin accounted for 386,200, or 34 per cent, of the shares purchased and 530,500, or 47 per cent, of the shares sold. Pinchin was on both sides of 10 trades for a total of 62,200 shares. On numerous other occasions, Pinchin was both buying and selling at the same price on the same day.  Of the 84 upticks in the price of Keywest shares during this period 28, or 33 per cent, were on purchases by Pinchin and an additional 16, or 19 per cent, were on purchases by accounts controlled by Pinchin's brokers.  Pinchin's net proceeds from the purchases and sales (before commissions) totalled $324,504. At the end of the period he had debits in his brokerage accounts at four firms totalling about $500,000. The debits and the net sales financed almost all of the $850,000 purchase price he paid for Keywest under the share purchase agreement.

Pinchin never filed any acquisition reports or notices of intention to sell with respect to his trading in Keywest shares. He did not file any insider reports until August 18, and those reports related to his trading only from June 15 to 30.

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, 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 Andrew Chamberlain, Keywest's counsel in Edmonton who was associated with the Roeder group, 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.

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

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.

2.4  The NACT Debentures

In September 1993, after the Superintendent imposed temporary orders against Pinchin, Canaccord began taking steps to resolve the large debit in his accounts. Canaccord advised Commission staff that it was negotiating with Pinchin to have the NACT debentures held by Brightwork used to settle Pinchin's debits. Staff were concerned that the debentures were Brightwork's major assets and should be used to benefit Brightwork, not Pinchin. Lyons sent a letter to staff saying that the debentures belonged to Pinchin, not Brightwork. Staff asked Lyons to have Brightwork's counsel confirm this view.

On October 19, 1993, Brightwork's directors, Lund, Bell and Wilson (Bevanda had resigned in August), came to Vancouver and met with Lyons. Pinchin had not completed the acquisition of the Brightwork shares under the share purchase agreement. Trading in Brightwork shares had been halted on April 5 and suspended on August 18. No steps had been taken to have trading reinstated.

In Lyons' office, Lund, Bell and Wilson signed two directors' resolutions and related agreements presented to them by Lyons. The documents were dated August 17, 1993, although the signatories had never seen them, or considered the matters contained in them, prior to October 19. The first agreement terminated the December 30, 1992, agreement, by which the U.S.$100,000 NACT debenture had been assigned by N.C.G. Asset to Brightwork, and reassigned the debenture to N.C.G. Asset. The second agreement was a Settlement agreement with N.C.G. Capital, under which Brightwork assigned the U.S.$220,000 NACT debenture, which it had agreed to purchase on May 10, 1993, to N.C.G. Capital. Brightwork appears to have received no consideration for assigning the debentures. Lund appeared not to understand the significance of the transaction. He testified that Brightwork had not paid anything for the debentures and that the agreements simply represented Brightwork's "parting ways" with Pinchin. He said he was happy to get rid of Pinchin without Brightwork's incurring any additional liability.

On October 20, 1993, Lyons submitted an application to the Commission for partial revocation of the temporary orders against Pinchin to allow him to trade the two NACT debentures in order to settle some of his debits. The application represented that the debentures had been assigned to Pinchin by Brightwork and included the two agreements dated August 17, 1993, as evidence of this. On December 10, 1993, the Commission refused the application.

Nevertheless, Pinchin proceeded to negotiate an arrangement under which NACT redeemed the two debentures held by Pinchin by issuing 340,000 NACT shares to a third party, Greenstar Telecommunications, on February 10, 1994. Greenstar then made arrangements with Canaccord to settle Pinchin's debits.

2.5  Investment Advice

In the spring of 1992, Pinchin was contacted by Alec Watling, a resident of Mission, British Columbia, who had been referred by Pinchin's father. Watling had told the senior Pinchin, whom he described as his financial advisor, that he was retiring and needed an investment that would provide him an income for two years until his pension would begin under the Canada Pension Plan. The senior Pinchin suggested Watling mortgage his property and invest the amount borrowed with Pinchin.

After the initial contact, Pinchin wrote to Watling and described a proposed investment that Pinchin said would provide a return of 3 per cent per month, payable quarterly. On Pinchin's advice, Watling borrowed $20,000, secured by a mortgage on his residence, and invested it with Pinchin by December 28, 1992.

Watling expected to receive quarterly payments of $1,800 from the investment. The first payment arrived on time. The second and third payments were late. Watling phoned Pinchin each time the payments were delayed and was assured they would come. After the fourth payment was missed, Watling made "constant" phone calls. Pinchin always said payment would be forthcoming but it never arrived. Watling ultimately demanded repayment of his investment and sent a letter to Pinchin dated March 2, 1994. He never received any further payment from Pinchin and chose not to sue because he considered it impractical and expensive. As a result of this loss, Watling was forced to borrow, at first using credit cards and then taking out a second mortgage on his residence, to meet living expenses.

3. FINDINGS

Commission staff make three sets of allegations against Pinchin. The first, and major, set of allegations relates to Pinchin's involvement in Brightwork and Keywest from the fall of 1992 to the summer of 1993. These allegations are:

-
Pinchin conducted undisclosed take over bids for Brightwork and Keywest, and in so doing: -    failed to file required press releases and reports under section 93(1) of the Act in connection with his acquisition of shares of Brightwork and Keywest; and -    failed to cause Brightwork or Keywest to obtain Exchange approval or shareholder approval for the change of control or for the transfer of shares within escrow.
-
During the period from December 1992 to June 1993, Pinchin, while a control person, distributed shares of Brightwork and Keywest in contravention of section 42 of the Act.
-
Pinchin failed to file insider reports with respect to his transactions in the shares of Brightwork, and failed to file accurate or timely insider reports with respect to his transactions in the shares of Keywest, in contravention of section 70 of the Act.
-
Pinchin, as a de facto director and officer of Brightwork and Keywest, failed to cause Brightwork and Keywest to disclose material changes relating to their affairs, as required by section 67 of the Act.
-
Pinchin knew or ought to have known that the information circular delivered to the shareholders of Keywest for the July 21, 1993, annual general meeting was not in the required form, contained inaccurate information and omitted material information relating to the changes in the affairs of Keywest which the shareholders were being asked to approve.
-
The Respondents, while in a special relationship with Brightwork and Keywest and with knowledge of material facts or material changes relating to the affairs of Brightwork and Keywest that had not been generally disclosed, purchased and sold securities of Brightwork and Keywest in contravention of section 68 of the Act.
-
As a result of his trading in the shares of Brightwork and Keywest, Pinchin, on his own behalf and on behalf of N.C.G. Capital, created large debit positions in certain brokerage accounts of Pinchin and N.C.G. Capital. Pinchin tendered cheques, on his behalf and on behalf of N.C.G. Capital, in the total amount of $441,800 to settle certain of the debits when he knew or ought to have known that there were insufficient funds available in the accounts upon which the cheques were drawn.
-
Pinchin engaged in transactions relating to trading in, or the acquisition of, the shares of Brightwork and Keywest when he knew, or ought reasonably to have known, that the transactions would create or result in a misleading appearance of trading activity in, or an artificial price for, the shares.
-
Pinchin engaged in a scheme related to Brightwork and Keywest, and to trading in their securities, that was contrary to the public interest and perpetrated a fraud on the market. (This allegation was not articulated in the notice of hearing but was described in Commission staff's opening statement and spelled out in some detail in staff's closing submissions.)
-
Pinchin, in exercising the powers and in performing the functions of a director and officer of Brightwork and Keywest, failed to act honestly and in good faith and in the best interest of Brightwork and Keywest and failed to exercise the care, diligence and skill of a reasonably prudent person, in contravention of sections 142 and 159 of the Company Act.
An allegation that, during May 1993, Pinchin placed one or more orders to sell shares of Keywest but failed to disclose to the registered dealer at the time that he did not own the shares, contrary to section 41 of the Act, was dropped at the hearing.

The second general allegation is that Pinchin contravened the temporary orders. Commission staff allege that between October 1993 and February 1994, one or all of the Respondents traded in the NACT debentures in violation of the temporary orders. A further allegation, that from October to December 1993, Pinchin acted in the capacity of an officer of O-Tech Ventures Corporation, a reporting issuer, in violation of the temporary orders, was dropped at the conclusion of the hearing.

The third general allegation is that, during 1992 and 1993, Pinchin acted as an adviser without registration, in contravention of section 20 of the Act.

3.1  Brightwork and Keywest

In the fall of 1992, Pinchin came into contact with Sawyer of NACT and developed a scheme to provide financing for expansion of NACT's business through an Exchange listed company. In the ensuing months, he acquired control of Brightwork and then Keywest for this purpose, but he was unable to raise significant financing and, ultimately, his scheme and the two companies came crashing down.

Commission staff set out a litany of securities violations that Pinchin is alleged to have committed during this period. We will deal with them in sequence.

Undisclosed Take Over Bids

Part 11 of the Act regulates take over bids. The following provisions of Part 11 are relevant here:

74.(1)
In this Part ...
"offer to acquire" includes
      (a)  an offer to purchase, or a solicitation of an offer to sell, securities, or (b)  an acceptance of an offer to sell securities, whether or not such offer to sell has been solicited,
or any combination thereof, and the person accepting an
offer to sell shall be deemed to be making an offer to
acquire to the person that made the offer to sell;
"offeree issuer" means an issuer whose securities are the subject of a take over bid, an issuer bid or an offer to acquire;
"offeror" means a person who makes a take over bid, issuer bid or offer to acquire and, for the purposes of section 93, includes a person who acquires a security, whether or not by way of a take over bid, issuer bid or offer to acquire;
"offeror's securities" means securities of an offeree issuer beneficially owned, or over which control or direction is exercised, on the date of an offer to acquire, by an offeror or any person acting jointly or in concert with the offeror; ...
"take over bid" means an offer to acquire outstanding voting or equity securities of a class made to any person who is in the Province or to any holder in the Province of securities subject to the offer to acquire, where the securities subject to the offer to acquire, together with the offeror's securities, constitute in the aggregate 20% or more of the outstanding securities of that class of securities at the date of the offer to acquire. ...
77.(1) For the purposes of this Part, in determining the beneficial ownership of securities of an offeror or of any person acting jointly or in concert with the offeror, at any given date, the offeror or the person shall be deemed to have acquired and be the beneficial owner of a security, including an unissued security, if the offeror or the person
      (a)  is the beneficial owner of any security convertible within 60 days following such date into the security, or
      (b)  has the right or obligation, whether or not on conditions, to acquire within 60 days following such date beneficial ownership of the security whether through the exercise of an option, warrant, right or subscription privilege or otherwise.
93. (1) Every offeror that, except pursuant to a formal bid, acquires beneficial ownership of, or the power to exercise control or direction over, or securities convertible into, voting or equity securities of any class of a reporting issuer that, together with such offeror's securities of that class, would constitute 10% or more of the outstanding securities of that class,
      (a)  shall issue and file forthwith a press release containing the information prescribed by the regulations, and
      (b)  within 2 business days, shall file a report containing the same information as is contained in the press release issued under paragraph (a).
The regulations related to section 93(1) were, at the relevant time, contained in section 163.1 of the Securities Regulation, B.C. Reg. 270/86 (now section 173 of the Securities Rules, B.C. Reg. 479/95).

163.1 (1) A press release required under section 93 of the Act shall be authorized by a senior officer of the offeror and shall set out
      (a)  the name of the offeror,
      (b)  the number of securities of the offeree issuer that were acquired in the acquisition that gave rise to the requirement under section 93 (1) (a) or (2) (a) of the Act to issue the press release,
      (c)  the beneficial ownership of, and the control and direction over, any of the securities of the offeree issuer, by the offeror and all persons acting jointly or in concert with the offeror, immediately after the acquisition described in paragraph (b),
      (d)  the name of the market in which the acquisition described in paragraph (b) took place,
      (e)  the purpose of the offeror and all persons acting jointly or in concert with the offeror in making the acquisition described in paragraph (b), including any intention of the offeror and all persons acting jointly or in concert with the offeror to increase the beneficial ownership of, or control or direction over, any of the securities of the offeree issuer,
      (f)  where applicable, a description of any change in a material fact set out in a previous press release issued under section 93(1)(a) or (2)(a) of the Act, and
      (g)  the names of all persons acting jointly or in concert with the offeror in connection with the securities of the offeree issuer.
(2)
A report required under section 93(1)(b) or (2)(b) of the Act shall be signed by the offeror and shall include the information required by subsection (1).
Pinchin's share purchase agreement with the Lund group was an offer to acquire 79 per cent of the shares of Brightwork. As such, it constituted a take over bid for the shares of Brightwork. The bid was exempt from the formal take over bid requirements of Part 11 because it was made to five or fewer persons (the three members of the Lund group) and was at a price not in excess of 115 per cent of the market price. However, Pinchin was still required to file a press release and an acquisition report under section 93(1) and he did not do so.

Pinchin's share purchase agreement with the Roeder group was an offer to acquire 85 per cent of the shares of Keywest. It may not have been a take over bid, because the four individuals in the Roeder group all reside outside of British Columbia. In any case, it would have been exempt from the formal take over bid requirements of Part 11 because it was made to five or fewer persons and was at a price not in excess of 115 per cent of the market price. Again, however, Pinchin was required to file a press release and an acquisition report under section 93(1) and he did not do so.

We find that, in failing to file press releases or acquisition reports containing the prescribed information in respect of his share purchase agreements for Brightwork and Keywest, Pinchin contravened section 93(1) of the Act.

There are also a number of Exchange requirements applicable to these transactions. The listing agreements between the Exchange and Brightwork and Keywest varied in form but were the same in substance. They required the companies to comply with all relevant Exchange by-laws, rules, policies and procedural requirements and to provide to the Exchange "prompt written notice of any proposed material change in its business, property or affairs." Exchange policies set out requirements for obtaining Exchange approval of various types of transactions and material changes. In particular, the Exchange requires shareholder approval of a change in control of a listed company as a condition of accepting the transaction. A listed company is not permitted to proceed with a transaction involving a change of control until the documentation for the transaction has been accepted by the Exchange. Under Exchange policy and the escrow agreement, a transfer of shares within escrow requires the holder to obtain prior consent of the Exchange.

The share purchase agreements Pinchin entered into with respect to the Brightwork and Keywest shares each involved a change of control and a transfer of shares within escrow. Each agreement contained a clause making it conditional on shareholder and regulatory approval but was structured in a way that gave effective control to Pinchin immediately upon signing. In each case, as we find below, Pinchin became a de facto director and officer, which placed on him a duty to ensure that the issuers complied with regulatory requirements. Neither Brightwork nor Keywest, nor their principals, gave notice to the Exchange of the respective share purchase agreements. No application was made for Exchange approval, in either case, of the change of control or transfer within escrow. For Brightwork, shareholder approval was never sought or obtained. For Keywest, shareholder approval was sought after Pinchin had completed the purchase, but it was never obtained because the arrangement collapsed and control moved back to the Roeder group before the shareholder meeting was ultimately held.

Pinchin entered into two share purchase agreements that were conditional on shareholder and regulatory approval, took control of both companies, and failed to take the steps required to obtain shareholder and regulatory approval. Therefore, we find that Pinchin caused Brightwork and Keywest to contravene the requirements of their listing agreements with the Exchange.

Illegal Distributions

Section 42(1) of the Act requires that, in the absence of an exemption, a prospectus be filed with, and a receipt obtained from, the Executive Director in respect of every distribution of securities.  The definition of "distribution" is contained in section 1(1) of the Act and includes a trade from the holdings of a control person.  The definition of "trade" is found in section 1(1) of the Act and includes a disposition of a security for valuable consideration.

A "control person" is defined in section 1(1) of the Act.

1(1)
"control person" means
(a)  a person who holds a sufficient number of the voting rights attached to all outstanding voting securities of an issuer, or
(b)  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, and, where a person
or combination of persons holds more than 20% of the
voting rights attached to all outstanding voting
securities of an issuer, the person or combination of
persons shall, in the absence of evidence to the
contrary, be deemed to hold a sufficient number of the
voting rights to affect materially the control of the
issuer.
It is a question of fact as to whether Pinchin, alone or in concert with others, held sufficient voting rights in Brightwork to affect materially the control of the company. In December 1992, the principals of Brightwork held over 70 per cent of Brightwork's shares. The evidence is clear that they agreed to sell their shares to Pinchin and to immediately turn over to him complete control over the affairs of the company. He began to manage Brightwork's affairs in December 1992. Pursuant to the Brightwork share purchase agreement, Pinchin's nominee, Bevanda, was appointed a director of Brightwork on December 30, 1992.  The management agreement of January 28, 1993, with N.C.G. Asset provided that Pinchin was to be responsible for the "supervision, direction, control and operation" of Brightwork.  Under an administrative services agreement, N.C.G. Capital provided office services to Brightwork, which was managed from Pinchin's office.  Pinchin and Bevanda had signing authority over Brightwork's bank account.  Pinchin undertook all negotiations on behalf of Brightwork with regard to the NACT transactions.  Pinchin was the only representative from Brightwork at the May 1993 fishing trip he organized for the purpose of raising funds for Brightwork and NACT.  After the Exchange halted trading in Brightwork shares on April 5, 1993, it was Pinchin's lawyer that met with the Exchange on behalf of Brightwork; none of Brightwork's directors of record contacted the Exchange with regard to the halt.  On the basis of this, we find that Pinchin, acting in concert with the Brightwork principals, was a control person of Brightwork from December 24, 1992, to at least the summer of 1993.

As a control person of Brightwork, Pinchin distributed shares of Brightwork between December 30, 1992, and April 5, 1993. He did not file a prospectus with regard to these distributions.  However, there were two exemptions from the prospectus requirements specifically directed to control persons of exchange issuers available under the former Regulation.

The first, contained in section 117(d) of the former Regulation (now found in section 128(d) of the Rules), allowed a control person to distribute shares if certain conditions were met.  One of the conditions was that the control person file a Form 23, Notice of Intention to Sell and Declaration. Pinchin did not file any notices of intention to sell with regard to Brightwork and was therefore unable to rely on this exemption.  The second exemption was contained in section 117(e) of the former Regulation, since repealed.  This exemption was available for a distribution of shares acquired through the facilities of the Exchange, where the distribution was made through the facilities of the Exchange and where the number of shares distributed, combined with the number of shares distributed pursuant to the exemption during the prior 90 days, did not exceed five per cent of the shares outstanding at the date of the distribution.  While Pinchin was able to rely on this exemption for some of his distributions of Brightwork shares during this period, it would not have been available for the vast majority of them.

Therefore, we find that, between December 30, 1992, and April 5, 1993, Pinchin distributed shares of Brightwork without filing a prospectus with, and obtaining a receipt from, the Executive Director, in contravention of section 42(1) of the Act.

Pinchin has admitted that he was a control person of Keywest. We find that he was a control person of Keywest from April 29 to at least early July 1993.  As a control person of Keywest, Pinchin distributed shares of Keywest between May 3 and June 28, 1993.  He did not file a prospectus with regard to these distributions.  Nor did he file any notices of intention to sell with regard to Keywest during this period.  He was therefore unable to rely on the exemption provided in section 117(d) of the former Regulation.  He was able to rely on the exemption provided in section 117(e) of the former Regulation for some of his distributions of Keywest shares during this period, but it would not have been available for the vast majority of them.

Therefore, we find that, between May 3 and June 29, 1993, Pinchin distributed shares of Keywest without filing a prospectus with, and obtaining a receipt from, the Executive Director, in contravention of section 42(1) of the Act.

Failure to File Insider Reports

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, ...
"director" means a director of a corporation or an individual occupying or performing, with respect to a corporation or any other person, a similar position or similar functions;
"senior officer" means
(a)
the chair or a vice chair of the board of directors, the president, a vice president, the secretary, the treasurer or the general manager of a corporation,
(b)
any individual who performs functions for a person similar to those normally performed by an individual occupying any office specified in paragraph (a), and
(c)
the 5 highest paid employees of an issuer, including any individual referred to in paragraph (a) or (b) and excluding a commissioned salesperson who does not act in a managerial capacity;
    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. ...
      (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.
The definitions of "director" and "senior officer" include persons acting in a similar capacity or performing similar functions.  On the basis of the same evidence that we found Pinchin to be a control person of Brightwork, we also find that he was a director and senior officer of Brightwork from December 24, 1992.  Pinchin has admitted that he acted as a director and officer of Keywest.  Therefore, we find that Pinchin was a director and senior officer of Keywest from April 29, 1993.  On the basis of this, we find that Pinchin was an insider of Brightwork from December 24, 1992, and an insider of Keywest from April 29, 1993.

Pinchin did not file the initial insider report required under section 70(2) in respect of either Brightwork or Keywest. Though he actively traded the shares of Brightwork between December 30, 1992 and April 5, 1993, Pinchin did not file any of the insider reports required under section 70(4).  Though he actively traded the shares of Keywest between May 3 and June 30, 1993, Pinchin filed insider reports under section 70(4) only for the period between June 15 and 30, 1993, and those reports were filed only on August 18, 1993.  Therefore, we find that Pinchin failed to file initial insider reports disclosing his direct or indirect ownership of, or control or direction over, securities of Brightwork and Keywest, and subsequent insider reports disclosing changes in his ownership, or control or direction over those securities, in contravention of sections 70(2) and (4) of the Act.

Failure to Disclose Material Changes

Section 67(1) of the Act requires disclosure of material changes.

      67(1) 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(1) of the Act.

      1(1) "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 and includes a decision to implement that change made by
      (a)  senior management of the issuer who believe that confirmation of the decision by the directors is probable, or
      (b)  the directors of the issuer;
By the fall of 1992, Brightwork had become a shell.  We are of the view that any change suggesting the imminent revival of the company would reasonably have been expected to have a significant effect on the price of Brightwork's shares and thus constitute a material change in its affairs.  Pinchin entered into the share purchase agreement with the intention of acquiring control of Brightwork as a vehicle to finance NACT and he immediately assumed complete control over the affairs of the company.  This was undoubtedly a material change in Brightwork's affairs.  We are also of the view that the issuance of the second NACT debenture to Brightwork in May 1993, and the assignment of the two NACT debentures to Pinchin on October 19, 1993, constituted material changes in Brightwork's affairs.  We find that Brightwork failed to issue or file either a press release or a material change report with respect to any of these material changes, in contravention of section 67(1) of the Act.

We are of the view that the assignment of the first NACT debenture to Brightwork was also a material change in Brightwork's affairs.  It was announced in a news release dated December 30, 1992, but that news release failed to disclose that the transaction was not at arm's length and that regulatory approval was required.  We are also of the view that the negotiations and agreement with Tel-Net were material changes in Brightwork's affairs.  The negotiations were announced in a news release dated January 28, 1993, and the agreement was announced in a news release dated April 5, 1993. However, neither news release disclosed that Pinchin owned Tel-Net.  We are of the view that all three news releases failed to disclose the nature and substance of the changes they purported to disclose and were false and misleading. Also, no material change reports were filed in respect of these changes.  Therefore, we find that, in respect of these material changes, Brightwork again contravened section 67(1) of the Act.

Like Brightwork, Keywest had become a shell by January 1993. We are of the view that 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 price of Keywest shares. It was disclosed in a news release dated April 29, 1993. However, 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 other directors.  We find that the April 29 news release failed to disclose the nature and substance of the changes it purported to disclose, that it was false and misleading and that, in issuing it, Keywest contravened section 67(1) of the Act.

We are of the view that the negotiations and agreement with Tel-Net were also material changes in Keywest's affairs. Keywest disclosed the negotiations and agreement in a news release dated June 23, 1993.  However, the news release did not disclose the $192,500 that Roeder had advanced to Pinchin, and which Roeder expected to have repaid by Keywest, or that Pinchin controlled Tel-Net.  We are of the view that this news release failed to disclose the nature and substance of the Tel-Net transaction, that it was false and misleading and that, in issuing it, Keywest contravened section 67(1) of the Act.

We also find that, both as a director and senior officer, and as the person managing the affairs of Brightwork and Keywest, Pinchin was responsible for the failure of the companies to disclose these material changes in the manner required under the Act.

Misleading Information Circular

Section 101 of the Act requires the management of a reporting issuer to send an information circular in the required form to each security holder whose proxy is solicited in connection with a meeting of the issuer.  The required form is Form 30.

Keywest filed an information circular dated June 18, 1993, in connection with its annual shareholders meeting.  Item 3 of Form 30 requires disclosure of each of the issuer's directors and senior officers.  Keywest's information circular did not disclose that Pinchin was a director and senior officer of Keywest.  Item 4 requires disclosure respecting each person who beneficially owns, directly or indirectly, or exercises control or direction over, securities carrying more than 10 per cent of the voting rights attached to the issuer's securities.  Keywest's information circular did not adequately set out Pinchin's current holdings.  Item 11 provides that any matter submitted to the meeting, other than the approval of financial statements, should be described in sufficient detail to permit security holders to form a reasoned judgment concerning the matter.  Keywest's information circular did not provide sufficient detail concerning the escrow transfer shareholders were being asked to approve, including details respecting the share purchase agreement pursuant to which the escrow transfer was being made.  Therefore, we find that the information circular did not comply with the required form, that it omitted material information relating to changes in Keywest's affairs that the shareholders were being asked to approve, and that it was false and misleading.  We also find that, both as a director and senior officer, and as the person managing the affairs of Keywest, Pinchin was responsible for the failure of Keywest's management to comply with section 101 of the Act.

Insider Trading

Section 68(1) of the Act prohibits insider trading.

              68(1)     No person that
              (a)  is in a special relationship with a reporting issuer, and
              (b)  knows of a material fact or material change with respect to that reporting issuer, which material fact or material change has not been generally disclosed,
      shall purchase or sell
              (c)  securities of that reporting issuer,
              (d)  a put, a call, an option or another right or obligation to purchase or sell securities of the reporting issuer, or
              (e)  a security, the market price of which varies materially with the market price of any securities of the reporting issuer. Section 3 of the Act provides that a person in a special relationship with a reporting issuer includes an insider of the issuer.

We have determined that Pinchin was an insider of both Brightwork and Keywest.  We have found that there were undisclosed material changes in Brightwork's affairs between December 1992 and April 1993, and that Pinchin was purchasing and selling Brightwork shares during that period.  We have also found that there were undisclosed material changes in Keywest's affairs between May and June 1993, and that Pinchin was purchasing and selling Keywest shares during that period. All of these material changes, and the fact that they had not been generally disclosed, were within Pinchin's knowledge. Therefore, we find that Pinchin, while in a special relationship with Brightwork and Keywest, both directly and through N.C.G. Capital, purchased and sold shares of Brightwork and Keywest with knowledge of material changes with respect to those companies that had not been generally disclosed, in contravention of section 68(1) of the Act.

Failure to Settle Account Debits

During the course of his trading in the shares of Brightwork and Keywest, Pinchin created large debit positions in accounts at several brokerage firms.  These debits totalled over $500,000.  On June 25, 1993, Pinchin issued a cheque to Pacific International in the amount of $81,800.  On June 28, Pinchin issued a cheque to Canaccord in the amount of $360,000.  Both cheques were returned NSF.  The accounts upon which these cheques were written did not contain an amount anywhere near $441,800.  We find that Pinchin tendered these cheques to settle account debits when he knew that there were insufficient funds available in the accounts upon which the cheques were written.

It is clearly contrary to the public interest for a person to build up a large debit position in an account which he or she is unable to settle.  It puts the liquidity of the dealer at risk and results in market activity that is essentially fictitious, thus undermining public confidence in both the market intermediary and the market itself.

Misleading Appearance of Trading Activity in, and an Artificial Price for Shares

Section 41.1 of the Act provides as follows:

      41.1 No person, directly or indirectly, shall engage in or participate in a transaction or scheme relating to a trade in or acquisition of a security or a trade in an exchange contract if the person knows or ought reasonably to know that the transaction or scheme
      (a)  creates or results in an misleading appearance of trading activity in, or an artificial price for, any security listed, or exchange contract traded, on an exchange in the Province,
      (b)  perpetrates a fraud on any person in the Province, or
      (c)  perpetrates a fraud on any person anywhere in connection with
               (i) the securities of a reporting issuer, or (ii) trading in exchange contracts on an exchange in the Province.
Section 41.1(a) of the Act prohibits behaviour that damages the transparency, efficiency and credibility of the capital markets.  As the United States Securities and Exchange Commission observed in its decision In the Matter of Thornton and Company, 28 S.E.C. 4 (1948) 208 at page 218:

Investors reading reports of stock exchange transactions on ticker tapes and in newspapers ordinarily assume that the reports reflect legitimate transactions.  If the transactions instead reflect fictitious activity, such investors are deceived as to the market in the security. They are falsely led to believe that bona fide transactions have occurred at a certain price and they may be induced by the volume or price changes to purchase or sell the securities as the case may be.
A review of Pinchin's trading in the shares of both Brightwork and Keywest reveals several instances of the type of fictitious activity prohibited by section 41.1(a).

From September through December 1992, Brightwork shares traded sporadically on the Exchange at very low volumes; on most days there was no trading at all.  During this period, prices ranged from approximately 25 cents to 40 cents per share.

Between December 30, 1992, and April 5, 1993, a total of 745,058 Brightwork shares were traded on the Exchange in 403 trades and the closing price for the shares rose from 40 cents to $3.00.  Accounts controlled by Pinchin were involved in 187, or 46 per cent, of these trades.  Pinchin's trades accounted for 183,600, or 24 per cent, of the shares purchased and 250,200, or 33 per cent, of the shares sold.  On 13 trades, involving a total of 63,500 shares, Pinchin was on both sides of the trade.  Of the 92 upticks in the price of Brightwork shares during this period 20, or 22 per cent, were on purchases by Pinchin and an additional 24, or 26 per cent, were on purchases by accounts controlled by Pinchin's brokers. Pinchin filed no insider reports, acquisition reports or notices of intention to sell with respect to any of these trades.  As well, there was no disclosure of the share purchase agreement or that Pinchin had taken over management of Brightwork's affairs.

Similar activity was evident with regard to Keywest.  From January through April 1993, Keywest shares traded sporadically on the Exchange, at low volumes.  During this period, prices were around $1.70.  After announcement of the Keywest share purchase agreement on April 29, the price rose to $2.10, on low volume.

Between May 3 and June 29, 1993, there were 472 trades in Keywest shares through the Exchange at prices ranging from $2.50 to $3.10.  Pinchin was involved as buyer or seller or both in 248, or 54 per cent, of the trades.  Of the total 1,123,500 shares traded, Pinchin accounted for 386,200, or 34 per cent, of the shares purchased and 530,500, or 47 per cent, of the shares sold.  On ten trades, involving 62,200 shares, Pinchin was on both sides of the trade.  On numerous other occasions, Pinchin was both buying and selling at the same price on the same day.  Of the 84 upticks in the price of Keywest shares during this period 28, or 33 per cent, were on purchases by Pinchin and an additional 16, or 19 per cent, were on purchases by accounts controlled by Pinchin's brokers. By the end of the period, Pinchin's net proceeds from his trades totalled $324,504, while the outstanding debits in his brokerage accounts, which he attempted to settle with NSF cheques, totalled about $500,000.  Thus, the profits he derived from trading the shares, plus his brokerage account debits, financed almost all of the $850,000 purchase price for the Keywest shares.  Pinchin filed no insider reports (until August 1993), acquisition reports or notices of intention to sell with respect to any of these trades.  Though the share purchase agreement had been disclosed, the disclosure was false and misleading in that it failed to disclose, among other things, that Pinchin had taken over management of Keywest's affairs.

As noted earlier, we are of the view that the trading activity outlined above reveals several instances of the type of fictitious activity prohibited by section 41.1(a):

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Pinchin's trading was a major factor in the market for both Brightwork and Keywest shares.  During the relevant periods, Pinchin was involved in 46 per cent of the trades in Brightwork shares and 54 per cent of the trades in Keywest shares.
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On several trades in the shares of both companies, Pinchin was on both sides of the trade.  On numerous other trades in Keywest shares, Pinchin was both buying and selling at the same price on the same day.
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Pinchin high closed the market for Keywest shares on at least one occasion.
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Pinchin, or accounts controlled by Pinchin's brokers, purchased on 48 per cent of the upticks in the price of Brightwork shares and 52 per cent of the upticks in the price of Keywest shares.
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Pinchin carried out these trades through at least eight accounts under several names at four brokerage houses. This allowed Pinchin to allocate trades among the accounts in order to give an impression of active public trading and to hide his beneficial ownership of and control over the securities traded.  It also allowed Pinchin to transfer debits between the various accounts and thereby delay paying for the securities he purchased.
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Pinchin ultimately tried to settle the debits in his accounts arising from his trading in Keywest shares by tendering cheques that he knew would be returned NSF.
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The increases in market activity in the shares of both companies correspond more closely to the releases of shares to Pinchin under the share purchase agreements than to any material changes in or announcements by the companies.
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The price of both Brightwork and Keywest shares rose dramatically during the relevant periods, Brightwork's from 40 cents to $3.00, and Keywest's from $1.70 to $3.10.  There was little in the way of material changes or announcements to account for these increases.
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The market had no knowledge of Pinchin's involvement in these trades.  He filed no insider reports (until August 1993), acquisition reports or notices of intention to sell, as required under the Act.
Commission staff submit that Pinchin carried out specific transactions, namely those trades on which Pinchin was on both sides, that contravened section 41.1(a).  We agree with their submission in this regard.  However, staff also submit that there was "insufficient evidence to find that Pinchin manipulated the market as a whole."  We are not sure what is meant by the phrase "manipulated the market as a whole" but, in our view, the evidence shows clearly that Pinchin engaged in schemes to create a misleading appearance of trading activity in, and an artificial price for, the shares of both Brightwork and Keywest.

Pinchin had a strong incentive to create a misleading appearance of trading activity in, and an artificial price for, the Brightwork and Keywest shares.  We are of the view that Pinchin was financing his purchases under the two share purchase agreements largely by selling the shares into the market.  The higher the prices he received for the shares, the more quickly he was able to acquire the remaining shares and the greater his ultimate profit.

Pinchin was a former registrant and had been involved in promotion and fund raising for several public companies.  We are of the view that, on the basis of his experience, Pinchin must have known the effect his trading activity would have on the market for Brightwork and Keywest shares.

We find that Pinchin engaged in transactions and a scheme involving purchases and sales of Brightwork shares, and transactions and a scheme involving purchases and sales of Keywest shares, when he knew that these transactions and schemes created or resulted in a misleading appearance of trading activity in Brightwork and Keywest shares and an artificial price for Brightwork and Keywest shares, contrary to section 41.1(a) of the Act.

Scheme to Perpetrate a Fraud

Commission staff allege that Pinchin implemented a scheme that was reflected in the structure of the Brightwork and Keywest share purchase agreements and that involved a series of activities that contravened the Act.  They say that this scheme was contrary to the public interest and therefore constituted a scheme to perpetrate a fraud on the market, contrary, presumably, to section 41.1(c)(i) of the Act.  They also allege that the agreements themselves were contrary to the public interest because they encouraged Pinchin to illegally distribute shares from a control position and to manipulate the market, at least to the extent of maintaining the price at a level required to finance his share purchases.

We are not convinced that the share purchase agreements were inherently contrary to the public interest.  However, we agree that it is necessary to look at the share purchase agreements in conjunction with the activity that flowed from them and to consider their cumulative effect on the market and, consequently, on the investors in Brightwork and Keywest shares.

Pinchin's goal was to obtain control of an Exchange listed company as a vehicle for NACT and Tel-Net.  We are of the view that all of the activities we have reviewed so far were carried out in pursuit of that goal.  He entered into a share purchase agreement that allowed him to finance his purchase of Brightwork shares through selling those shares into the market.  As he was a control person of Brightwork, those sales constituted illegal distributions of Brightwork shares.  In order to maintain the share price at a high enough level so that his sales into the market would finance his purchases under the share purchase agreement, he purchased and sold shares in a manner that created a misleading appearance of trading activity in and an artificial price for Brightwork shares.  In support of this market activity, Pinchin carefully orchestrated the disclosure, or lack of disclosure, by both himself and Brightwork.  Neither the share purchase agreement nor the fact that Pinchin was acquiring control of Brightwork was ever disclosed and Exchange approval was never sought. Pinchin filed no insider reports, acquisition reports or notices of intention to sell with respect to his trading in Brightwork shares.  He was never a director or senior officer of record of Brightwork.  Nevertheless, as a de facto director and senior officer, he was responsible for Brightwork's failure to disclose a number of material changes in its affairs.  Pinchin continued to trade in Brightwork shares with knowledge of these undisclosed material changes.

When trading in Brightwork was halted by the Exchange due to inadequate disclosure by the company, Pinchin turned his attention to Keywest and implemented essentially the same scheme with regard to that company as he had with regard to Brightwork.  There were some differences: Keywest did disclose that Pinchin had entered into the share purchase agreement, though the disclosure was false and misleading; Pinchin was responsible for the distribution of a false and misleading information circular as well as for causing the company to make false and misleading disclosure of a number of material changes in its affairs; Pinchin actually acquired all the shares pursuant to the Keywest share purchase agreement; and Pinchin created large debit positions in brokerage accounts that he ostensibly attempted to settle with NSF cheques. Otherwise, Pinchin committed the same contraventions in respect of Keywest as he had in respect of Brightwork.

Pinchin's scheme created an illusory market for Brightwork and Keywest shares, a market with artificially inflated volumes and prices.  This damaged not only the credibility of the market, but the interests of investors who were purchasing in the market during the illusory periods.

Did Pinchin's scheme perpetrate a fraud on those investors? The leading case in Canada on the issue of fraud is R. v. Olan, Hudson and Hartnett (1978) 41 C.C.C. (2d) 145, in which Dickson J, delivering the judgment of the Supreme Court of Canada, stated at page 150:

Courts, for good reason, have been loath to attempt anything in the nature of an exhaustive definition of "defraud" but one may safely say, upon the authorities, that two elements are essential, "dishonesty" and "deprivation."  To succeed, the Crown must establish dishonest deprivation.
There can be no doubt that Pinchin's activities in respect of Brightwork and Keywest were dishonest.  We have already found that he committed, or caused the companies to commit, a myriad of contraventions of the Act, as well as tendering NSF cheques in order to settle large account debits.  With regard to the element of deprivation, Dickson J. observed at page 150 of Olan that:

The element of deprivation is satisfied on proof of detriment, prejudice, or risk of prejudice to the economic interests of the victim.  It is not essential that there be  actual economic loss as the outcome of the fraud.  The following passages from the English Court of Appeal judgment in R. v. Allsop (1976), 64 Cr. App. R. 29, in my view correctly state the law on the role of economic loss in fraud, pp. 31-2:
Generally the primary objective of fraudsmen is to advantage themselves.  The detriment that results to their victims is secondary to that purpose and incidental.  It is "intended" only in the sense that it is a contemplated outcome of the fraud that is perpetrated.  If the deceit which is employed imperils the economic interest of the person deceived, this is sufficient to constitute fraud even though in the event no actual loss is suffered and notwithstanding that the deceiver did not desire to bring about an actual loss.
      We see nothing in Lord Diplock's speech [in Scott] to suggest a different view.  "Economic loss" may be ephemeral and not lasting, or potential and not actual; but even a threat of financial prejudice while it exists it may be measured in terms of money.
. . . . .
      Interests which are imperilled are less valuable in terms of money than those same interests when they are secure and protected.  Where a person intends by deceit to induce a course of conduct in another which puts that other's economic interest in jeopardy he is guilty of fraud even though he does not intend or desire that actual loss should ultimately be suffered by that other in this context.
The cumulative effect of Pinchin's scheme was to make the market for Brightwork and Keywest shares appear more liquid, and the shares themselves more valuable, than they really were.  Pinchin's scheme therefore put all of the purchasers of Brightwork and Keywest shares at risk of prejudice to their economic interests and resulted in actual detriment to the economic interests of those purchasers who were still holding the shares when trading was halted.  As the perpetrator of the scheme, Pinchin must have known that his activities were dishonest and that he was putting at risk the economic interests of the purchasers of Brightwork and Keywest shares.

On the basis of this, we find that Pinchin engaged in a scheme relating to purchases and sales of Brightwork and Keywest shares, when he knew or ought reasonably to have known that the scheme perpetrated a fraud on persons in connection with the shares of Brightwork and Keywest, contrary to section 41.1(c)(i) of the Act.

Breach of Duty of a Director and Officer

The general duties of directors and officers are set out in sections 142(1) and 159 of the Company Act, R.S.B.C. 1979, c.59.

      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.
We have found that Pinchin was a director and senior officer of both Brightwork and Keywest.  We are also of the view that he was the only person performing these roles, as the directors of record in each company, other than Bevanda and Poulos, had effectively disappeared from the picture and left the management of the companies in Pinchin's hands.

During the relevant period, both Brightwork and Keywest failed to disclose material changes in their affairs, issued false and misleading disclosure documents, and failed to obtain Exchange approval for changes in control and transfers of escrow shares. We have found that Pinchin must bear primary responsibility for these contraventions of the Act by the companies.

During the same period, Pinchin failed to file insider reports, acquisition reports and notices of intention to sell, illegally distributed shares, traded on the basis of undisclosed material information, engaged in transactions and schemes that created a misleading appearance of trading activity in and an artificial price for the companies' shares, and engaged in a scheme that perpetrated a fraud on investors.

When his scheme collapsed, the companies were left floundering, with no business interests and trading in their shares halted.

We find that Pinchin, as a director and senior officer of Brightwork and Keywest, acted dishonestly, in bad faith and contrary to the best interests of Brightwork and Keywest and that he failed to exercise the care, diligence and skill of a reasonably prudent person, contrary to sections 142(1) and 159 of the Company Act.

3.2  Contravention of the Temporary Orders

On September 3, 1993, the Executive Director issued temporary orders pursuant to section 144(2) of the Act that Pinchin cease all trading in securities and that the exemptions under the Act do not apply to Pinchin.  The temporary orders have been extended pending this decision.

On October 19, 1993, the directors of Brightwork signed directors' resolutions and related agreements assigning the US$100,000 NACT debenture to N.C.G. Asset  and the US$220,000 NACT debenture to N.C.G. Capital.

On December 10, 1993, the Commission refused an application by Pinchin for partial revocation of the temporary orders to allow Pinchin to trade the two debentures in order to settle some of his debts.  Despite this refusal, Pinchin negotiated an arrangement under which NACT redeemed the two debentures held by Pinchin through his two companies by issuing 340,000 NACT shares to a third party, Greenstar Telecommunications, on February 10, 1994.  Greenstar then arranged with Canaccord to settle Pinchin's debts.

Commission staff allege that Pinchin traded in securities in contravention of the temporary orders in respect of both the October 1993 assignment of the debentures by Brightwork to Pinchin's companies and the February 1994 redemption of the debentures by NACT.

"Trade" is defined in section 1(1) of the Act to include:

(a)
a disposition of a security for valuable consideration whether the terms of payment be on margin, instalment or otherwise, but does not include a purchase of a security or transfer, pledge, mortgage or other encumbrance of a security for the purpose of giving collateral for a debt.
We have some difficulty accepting Commission staff's characterization of the October 1993 assignment of the debentures as a trade by Pinchin.  Even assuming that there was consideration for the assignment, it is clear that Brightwork was disposing of the debentures while Pinchin's companies were purchasing them.  Paragraph (a) of the definition of trade specifically excludes the purchase of a security.  Therefore, we find that the October 1993 assignment of the debentures did not constitute a trade by Pinchin.

Pinchin argued that the redemption of the debentures by NACT in February 1994 was not a trade as defined in the Act.  We do not accept this argument.  In connection with the redemption, Pinchin's companies disposed of the two debentures to NACT. In consideration for the debentures, NACT issued shares to Greenstar, which in turn paid Pinchin's debts at Canaccord. The consideration to Pinchin was indirect, but nevertheless constituted valid consideration for the purposes of the definition of trade in the Act.  We find that the redemption of the debentures by NACT in February 1994 constituted a trade by Pinchin.  A trade to an issuer pursuant to the redemption of a security would normally be done in reliance on the exemptions in sections 31(2)(29) and 55(2)(28) of the Act. However, as a result of the temporary orders, those exemptions were not available to Pinchin.  Furthermore, Pinchin was prohibited by the temporary orders from all trading in securities.  We therefore find that Pinchin contravened the temporary orders.

3.3  Unregistered Advising

Section 20(1) of the Act provides that a person must not act as an adviser unless the person is registered as an adviser. An adviser is defined in section 1(1) of the Act as "a person engaging in, or holding himself out as engaging in, the business of advising another with respect to investment in or the purchase or sale of securities or exchange contracts."

The evidence is clear that, during 1992, Pinchin advised Watling with respect to the purchase of a security.   On Pinchin's advice, Watling borrowed $20,000 secured by a mortgage on his residence, invested it with Pinchin, and lost the entire amount.  Pinchin admits, and we find, that he acted as an adviser without registration, in contravention of section 20(1) of the Act.

4.  DECISION

Pinchin implemented a scheme to obtain control of two Exchange listed companies, Brightwork and Keywest, that perpetrated a fraud on investors in those companies.  He used his two private companies, N.C.G. Capital and N.C.G. Asset, as vehicles to assist him in carrying out this purpose.  In connection with his scheme, Pinchin:

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acquired control of Brightwork and Keywest, but failed to file the required disclosure and to obtain the necessary Exchange approvals;
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as a control person of each company, distributed shares without a prospectus;
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failed to file insider reports in respect of the companies;
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caused the companies to fail to disclose, and to make false and misleading disclosure of, material changes in their affairs;
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was responsible for the issuance of a false and misleading information circular in respect of Keywest;
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traded on the basis of undisclosed material information about the companies;
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created large debit positions in his brokerage accounts, which he attempted to settle with NSF cheques;
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engaged in transactions and schemes that created a misleading appearance of trading activity in and an artificial price for the shares of the companies; and
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breached his Company Act duties as a director and senior officer of the companies.
He also contravened Commission orders that prohibited him from trading and acted as an unregistered adviser.

Pinchin's conduct represented an abuse of the capital market and was extremely prejudicial to the public interest.  His fraudulent scheme violated almost every basic tenet of a fair and efficient market and caused incalculable damage, both to investors in Brightwork and Keywest and to investor confidence in the market.  We consider it to be in the public interest to remove Pinchin and his companies from the market, and Pinchin from involvement with issuers, for a substantial period, and to impose on Pinchin a significant administrative penalty.

We order:

1.
under section 144(1)(c) of the Act that the exemptions described in sections 30 to 32.1, 55, 58, 80 and 81 do not apply to Pinchin, N.C.G. Capital and N.C.G. Asset for a period of 25 years from the date of this decision;
2.
under section 144(1)(d) of the Act that Pinchin resign any position he holds as a director or officer of an issuer and is prohibited from becoming or acting as a director or officer of any issuer until a)   he has successfully completed a course of study satisfactory to the Executive Director concerning the duties and responsibilities of directors and officers, and b)   a period of 25 years has elapsed from the date of this decision;
3.
under section 144.1 of the Act, that Pinchin pay the Commission an administrative penalty in the amount of $50,000 on or before January 31, 1997; and
4.
under section 154.2 of the Act, that Pinchin, N.C.G. Capital and N.C.G. Asset, jointly and severally, 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.
D.M. HYNDMAN, Chair
H.D. Browne, Member
E.L. Lien, Member