News Release

Vancouver – The B.C. Securities Commission has ruled that the two directors of a Burns Lake company defrauded investors when they failed to disclose the company’s true state of affairs in selling the securities and wrongly used new investors’ money to pay off existing investors.

Carl Glenn Anderson and Douglas Victor Montaldi were the directors and sole shareholders of 439288 B.C. Ltd., a company that made loans to individuals and small businesses primarily in the Burns Lake area. The company raised the capital necessary for its lending activities by selling promissory notes to investors.

In a decision released today, the panel found that Anderson and Montaldi also made a misrepresentation by not telling new investors that their money may be used to pay interest and capital due to existing investors.

The panel concluded that the pair perpetrated a fraud on investors when they did not disclose the true risks of investing in the company and used investors’ funds for purposes outside of the company’s business plan.

“Investors were told essentially nothing about the state of [the company’s] affairs,” said the panel in its decision.

The true state of the company was that:
· Its liabilities exceeded its assets, it was unprofitable, and it was incurring losses on a cash basis
· It was making loans in significant amounts to Anderson and Montaldi and related parties, most of these loans were not generating cash returns, and in fact substantial amounts of interest were being forgiven. (Included in the interest forgiven was over $1.7-million of interest payments on loans due from Anderson and Montaldi.)
· It was investing in other assets that did not generate cash returns (in fact the cash flow from these assets was negative). The assets included items that had no apparent relevance to the company’s business purpose, such as coins, silver and gold bullion, artwork and a racehorse. (Illiquid assets are those considered difficult to sell quickly.)
· Its loan portfolio contained a large number of non-performing loans and no adequate system in place to track the portfolio’s performance

The panel found that the pair made loans to themselves and related parties that generally did not produce significant payments of principal and interest. On some of these loans the interest was forgiven. They also purchased illiquid assets that produced no cashflow and did not serve the primary business of the company – to lend money to borrowers at a higher rate of interest than that paid to investors.

Anderson and Montaldi admitted that in issuing promissory notes to investors they traded and distributed securities without being registered, contrary to the Securities Act.

The panel concluded that in breaching the Act, Anderson and Montaldi acted contrary to the public interest.

The BCSC temporary order remains in effect. A hearing for the appropriate sanctions has been set for Feb. 26.

The B.C. Securities Commission is the independent provincial government agency responsible for regulating trading in securities and exchange contracts within the province. Copies of the decision can be viewed in the documents database of the commission’s website www.bcsc.bc.ca or by contacting Andrew Poon, Media Relations, 604-899-6880.

Backgrounder
In October 2002, BCSC staff issued a temporary order for Anderson and Montaldi to resign any positions that they hold as directors or officers of any company. Under the temporary order, they are also prohibited from becoming or acting as directors or officers of any company or engaging in any investor relations activities.

On April 30, 2002, the Financial Institutions Commission (FICOM), a government agency that regulates provincially-chartered financial institutions, obtained a financial freeze order and issued a cease-and-desist order against the numbered company which effectively banned any further conduct of the company’s business.

FICOM subsequently investigated allegations that the company operated as an unregulated deposit-taking institution and owed $41-million to creditors. PricewaterhouseCoopers Inc. was appointed trustee after the company acknowledged on May 9, 2002 that it was insolvent.

The FICOM freeze order was lifted upon the appointment of the trustee. Since then, creditors (who consist primary of the company’s investors) have accepted a company proposal to reorganize its operations into two units including the numbered company.