Securities Commission Imposes Orders in Bennett/Doman Matter
Released: August 29, 1996 Contact: Ron Messent 660-4800 or (BC only) 1-800-373-6393
The British Columbia Securities Commission has imposed a ten-year prohibition from trading securities and from being a director or officer of a public company on William R. Bennett and Russell J. Bennett for insider trading in the shares of Doman Industries Ltd.
The Commission has imposed similar prohibitions on Harbanse S. (Herb) Doman for tipping the Bennetts about a take over bid for Doman Industries and the subsequent withdrawal of the bid by Louisiana Pacific Inc. of Portland, Oregon. The order against Doman permits him to return as a director or officer of Doman Industries after one year, provided certain conditions related to the corporate governance of Doman Industries are met.
The specific conditions include appointment of independent directors to chair the board of Doman Industries and its committees, the adoption of a governance policy consistent with The Toronto Stock Exchange recommendations on governance, and the establishment of a committee of independent directors to review all trading in Doman shares by employees, officers and directors.
The Bennetts and Doman were also ordered to pay costs of the Commission hearing.
The penalties were announced today in a decision by a Securities Commission panel following a hearing held between August 1994 and April 1996. The panel was comprised of Commission members H. Dunstan Browne, Gordon M. Clark, Stanley M. Davison and Edward L. Lien.
The events reviewed in the hearing took place in 1987 and 1988. They were followed by an investigation by Securities Commission staff and an extended series of legal proceedings.
Doman Industries is a forest products company based in Duncan, British Columbia. Its shares are listed on The Toronto Stock Exchange and the Vancouver Stock Exchange. Herb Doman is the chief executive officer and controlling shareholder of Doman Industries. He is a close friend of, and partner in a horse racing business with, Russell Bennett. Russell Bennett and his brother William Bennett, a former Premier of British Columbia, are residents of Kelowna, British Columbia.
During 1987 and 1988, Louisiana Pacific engaged in discussions with Doman and, on October 6, 1988, made a take over bid for Doman Industries. During the same period, William and Russell Bennett purchased a large volume of shares of Doman Industries. The Commission found that "the purchases made by each of the Bennetts must have been made on information received from Doman about his decision to sell Doman Industries that had not been generally disclosed."
On November 4, 1988, Louisiana Pacific decided to withdraw the take over bid. Louisiana Pacific's chief executive officer, Harry Merlo, called Doman and advised him that the bid was being withdrawn. Doman immediately called Russell Bennett and, the Commission found, informed the Bennetts of the withdrawal. The Bennetts immediately sold all of their holdings, about 518,000 shares, through The Toronto Stock Exchange for total proceeds of $5.9 million. Doman Industries then called the TSE to halt trading and announced the withdrawal of the take over bid by Louisiana Pacific. The share price fell significantly when trading resumed.
On November 8, 1988, the Commission issued directions to the Bennetts' brokerage firms to freeze the proceeds from their sales of Doman Industries shares. The freeze orders were intended to preserve the profits from the trading for the benefit of any purchasers of the shares who might successfully sue the Bennetts for damages. In October 1991, after the Bennetts settled civil suits by two purchasers and after the Commission notified the agents for all other purchasers who had not taken legal action, the Commission revoked the freeze orders and released the funds. One of the purchasers that settled with the Bennetts was the CBC Pension Fund, which had purchased about 350,000 of the 518,000 shares they sold.
On January 27, 1989, charges of illegal insider trading were laid under section 138 of the Securities Act against the Bennetts and Doman. Doman was also charged with illegally tipping the Bennetts. A trial was held in B.C. Provincial Court in April 1989. The defendants did not testify. On May 12, 1989, B.C. Provincial Court Judge Wallace Craig acquitted all three defendants.
Also on January 27, 1989, the Securities Commission issued temporary orders removing the rights of the Bennetts to trade in securities pending a hearing. On October 26, 1990, Securities Commission staff issued an amended notice of hearing to set out detailed allegations of misconduct and set down the administrative hearing under section 144 of the Securities Act against the Bennetts and Doman. The respondents petitioned the Supreme Court of B.C. to prohibit the hearing. The Court dismissed the petitions in May 1991. An appeal was dismissed by the Court of Appeal in July 1992. In September 1992, the Supreme Court of Canada refused leave to appeal.
The Commission hearing began on January 11, 1993. The respondents made a series of preliminary motions to stop the proceedings. The motions were dismissed by the Commission panel. The respondents appealed to the Court of Appeal a panel ruling that a directorship held by a Commission panel member in a forest company said to be in competition with Doman Industries did not create a reasonable apprehension of bias.
The appeal was heard in November 1993. The respondents sought orders disqualifying all three panel members, on the basis of an alleged reasonable apprehension of bias, and an order staying the proceedings, on the basis of an alleged abuse of process. In December 1993, the Court disqualified the one panel member because of an appearance of potential bias, but declined to stay the proceedings or disqualify the other panel members. The respondents applied to the Supreme Court of Canada for leave to appeal the decision of the Court of Appeal. Leave was refused in June 1994.
The Commission hearing began again in August 1994, under a new panel comprised of two of the original three panel members and two new members. The respondents applied to the panel to have the two continuing members disqualified on the basis that they had previously ruled against a number of motions to be made to the new panel. The panel dismissed the application. In September 1994, a Court of Appeal judge refused to grant leave to appeal the ruling. The refusal was later confirmed by a three judge review panel.
The Commission hearing resumed in September 1994 and the panel heard a series of preliminary motions by the respondents. The hearing was then adjourned to January 1995 because counsel was unavailable. On January 23, the previously heard motions were dismissed by the panel. After several more motions were heard and dismissed, Commission staff was able to begin presenting its case and the three respondents were compelled to attend and give evidence. Presentation of evidence concluded on August 30, 1995. Written submissions were filed in late 1995 and oral submissions were presented to the panel in April 1996.
The hearing lasted 67 days over a period of 20 months. The panel heard 35 witnesses and received 116 documentary exhibits and extensive volumes of submissions. After an exhaustive review of the evidence and submissions, the Commission panel concluded that Herb Doman, Russell Bennett and William Bennett contravened section 68(1) of the Securities Act. Section 68(1) prohibits tipping about, and trading on the basis of, undisclosed material information about a publicly traded company.
The Commission said:
Copies of the Commission's decision (186 pages) may be obtained in person at 1100 - 865 Hornby Street, Vancouver, British Columbia. The text of the decision is also available on the Commission's internet site at www.bcsc.bc.ca.