COR #94/077

	Heard:	July 8, 9, 19 - 21 and 23 and November 9, 10 and 23, 1993
	Decision:	April 21, 1995

Ace Henderson and Keith Mitchell, For Commission Staff. Francis D. Balfour, on his own behalf. Leonard E. Tinkler, on his own behalf. Peter Cox, on his own behalf.

      This is a hearing under Section 144(1) of the Securities Act, S.B.C. 1985, c 83. A notice of hearing was issued on October 28, 1991. Following several adjournments and an amendment to the notice dated October 1, 1992, the matter was heard over the period July 8 to November 23, 1993.

      Commissioner Adrienne Wanstall sat on the panel during the hearing dates in July. The hearing was then interrupted after a stay by the Court of Appeal and when the hearing resumed in November she was unavailable. Commissioner Ravi Hira sat on the panel but his term of appointment to the Commission expired on April 23, 1994. Neither of them participated in this decision.

      The notice sets out allegations concerning the conduct of the respondents in relation to the affairs of Metaxa Resources Ltd. and Bu-Max Gold Corp. Commission staff allege that the respondents were responsible for disclosure and trading violations and for misappropriating the proceeds of initial public offerings.

      On the basis of these allegations, we are asked to determine whether it is in the public interest to make orders under section 144(1) of the Act removing the exemptions of the respondents or prohibiting them from becoming or acting as directors or officers of any issuer. We are also asked to consider making orders under section 154.2 of the Act that the respondents pay prescribed fees or charges for the costs of or related to the hearing.

      Gordon Cormack, Denise Spitz, Bradley J. Orloski, G. Brent Pierce and Venessa L. Ellwyn were originally named as respondents in the notice. They entered into settlement agreements with Commission staff prior to the hearing and proceedings were discontinued against them.

      The remaining respondents are Francis D. Balfour, Leonard E. Tinkler and Peter Cox. Tinkler and Cox appeared personally at the hearing. Balfour attended to give oral evidence but otherwise did not participate.

      On June 23, 1993, the Commission made temporary orders under section 144(2) and (3) of the Act prohibiting Balfour from becoming or acting as a director of any reporting issuer and placing restrictions on his rights to trade securities in the province.

2.   BACKGROUND

      Metaxa was incorporated under the Company Act, R.S.B.C. 1979, c. 59 on May 26, 1987. It became a reporting issuer under the Act upon receiving a receipt for an amended prospectus dated February 27, 1989, and its common shares were listed on the Vancouver Stock Exchange on May 29, 1989.

      Bu-Max was incorporated under the Company Act on May 26, 1987. It became a reporting issuer upon receiving a receipt for an amended prospectus dated April 25, 1989, and its common shares were listed on the Exchange on July 17, 1989.

      Trading in the shares of Metaxa and Bu-Max was halted by the Exchange on July 21, 1989, less than two months after Metaxa was listed and only four days after Bu-Max was listed. Both companies were delisted on March 4, 1991.

      Metaxa and Bu-Max were created by Peter Cox and two of his associates, John Dupuis and John Archibald. Cox is a British citizen, who has degrees in chemical engineering from Manchester University and the University of Alberta. From 1979 to 1985 he was employed as a registered representative by a member firm of the Exchange. He then became involved in managing reporting issuers and was a director and officer of several Exchange listed companies prior to Metaxa and Bu-Max. Through his private company, Bristol Capital Corporation, he provided management services to listed companies, including Metaxa and Bu-Max. He arranged for prospectuses to be prepared and attempted to arrange for initial public offerings for both companies.

Metaxa

      Metaxa filed a prospectus dated February 6, 1989, and amended February 27, 1989, under which it offered 600,000 common shares to the public at $.40 per share. Its principal business was described as the "acquisition, exploration and development of natural resource properties". The proceeds of the distribution were to be used to finance further exploration and development of its mineral property, known as the Ideal Property, located in the Alberni Mining Division of Vancouver Island.

      The Ideal Property comprised two adjacent sets of claims, the Ideal claims and the Tux claims, in which Metaxa acquired interests in 1987. The agreements under which Metaxa acquired the interests were similar. Only the Tux agreement is relevant for these proceedings.

      The Tux agreement was entered into with Geo P.C. Services Inc., a company controlled by Dupuis, and provided for Metaxa to acquire the Tux claims, subject to a 5 per cent net smelter royalty retained by Geo PC. To earn this interest, Metaxa was required to:

(a)		issue to Geo PC 10,000 shares within five business days of the date on which Metaxas securities became listed for trading on the Exchange;
(b)		pay to Geo PC:

(I)

$7,500 within five business days of Metaxa becoming a listed company on the Exchange;

  (iii) $20,000 on or before January 16, 1990; and

(iv)

$30,000 on or before June 16, 1990.

(c)

incur exploration expenditures on the Tux claims and issue shares to Geo PC as follows:

(I)		$30,000 in exploration expenditures and 20,000 shares to Geo PC on or before June 30, 1989;
(ii)		$40,000 in exploration expenditures and 40,000 shares to Geo PC on or before December 31, 1989;

(iii)		$80,000 in exploration expenditures and 80,000 shares to Geo PC on or before June 30, 1990; and
(iv)		$100,000 in exploration expenditures and 50,000 shares to Geo PC on or before December 31, 1990.

      Balfour had been a stock promoter since 1980. He had previously been a registered representative employed by a member firm of the Exchange during 1979 and 1980.

      Balfour and Cox met to discuss Metaxa. Cox says that he understood Balfour to be acting as an agent for potential purchasers. Balfour says he told Cox that Metaxa "looked like a real good shell" and that "wed be interested in doing something with it". After checking with Shane Ivancoe, a registered representative at C.M. Oliver, to see if he would underwrite an initial public offering, Balfour acquired control of Metaxa by purchasing 700,000 of the 750,000 escrow shares from Cox for $20,000. There was also a discussion about the possibility of Balfours acquiring the outstanding seed shares. Cox says that no agreement was reached because an option he had held to acquire these shares from the holders had expired. Balfour says that an agreement was reached under which Cox gave him an option to acquire the seed shares.

      On February 27, 1989, a meeting was held at the office of Metaxas solicitor, Brad Orloski, to formalize the change of control and complete the documents for the initial public offering. In addition to Orloski, Balfour and Cox, the meeting was attended by Gordon Cormack and Denise Spitz, who joined Cox as directors of Metaxa.

      Cox remained as a director because he felt responsible to protect the interests of the persons to whom he had sold Metaxas seed shares and because Bristol continued to have a management contract. He did not expect to play an active role, because of his commitments to other issuers, but Bristols management contract was not terminated. The prospectus showed him, variously, as president, chief executive officer and chief financial officer. Cox says that these references were errors caused by the rush to complete the offering and that he did not notice them.

      Spitz was a sales representative and former bar tender. She had met Balfour through her acquaintance with Sheree Palmer, who had recently married Balfour and taken the name Sheree Balfour. Spitz became a director of Metaxa after being invited by Sheree Balfour to do a favour for Balfour and make some extra money.

      Cormack was a copier salesman and ex-husband of Spitz. He became a director of Metaxa after Spitz contacted him and said her friends husband needed some people to help him.

      Neither Cormack nor Spitz had any experience with reporting issuers or the securities market. They said they were just doing a favour for Balfour, who told them he could not be a director because he was an undischarged bankrupt. They thought their role was to be no more than signing some documents. Indeed, Spitz testified that "[Balfour] never wanted us involved ... we were getting paid to use our signatures." Balfour met with Cormack and Spitz and says he "sized them up and slid them in".  Neither Cormack nor Spitz invested any money in Metaxa, although the 700,000 escrow shares purchased by Balfour were put into their names.

      The financing documents signed at the February 27 meeting included Metaxas prospectus and an agency agreement for the offering with C.M. Oliver. The prospectus certificate, stating that the prospectus constituted full, true and plain disclosure of all material facts relating to the securities offered, was signed by Cox as chief executive officer and Cormack as chief financial officer, and by Cox, Cormack and Spitz as directors and promoters.

      The prospectus disclosed that Metaxa was wholly engaged in the acquisition, exploration and development of natural resource properties. It stated that the net proceeds of $210,000 from the sale of shares would be used for:

	(a)	the remaining estimated costs of
		the offering	$  10,000
	(b)	Metaxas working capital
		deficiency	$  45,674
	(c)	the first installment payment on
		the Tux claims	$   7,500
	(d)	a Phase I program on the Ideal
		Vein recommended by Metaxas
		consulting geologist	$  93,800
	(e)	unallocated working capital	$  53,026
			---------
		TOTAL	$ 210,000

Phase I - Ideal Vein

A program of blasting, sampling and diamond drilling to test the potential ore shoots that have been indicated is recommended. The blasting, sampling and drilling to be done should be performed in order to determine the extent of the presence of anomalous mineralization over an extended length of the Ideal Vein. The estimated cost of Phase I is $93,800.00.

Phase II - Anomaly Prospecting

This phase sets out a comprehensive program of silt sampling and prospecting along the Tux II Creek. All silt and soil anomalies will be prospected, and, where applicable, hand-trenched. A minor blasting and sampling program has been recommended in respect of the Junction and Tux Veins that are evident. The estimated cost of Phase II is $32,210.00

Phase III - Anomaly Trenching

The linear anomalies indicated on the Ideal Properties will be trenched as and where required. The estimated cost of this program is $18,990.00.

Phase IV - Diamond Drilling

Based on the results obtained from Phases I and II above, a program of diamond drilling estimated to cost $45,490.00 will be conducted by Metaxa.

The proceeds from the sales of Shares offered by this Prospectus are intended to be used for the purposes set forth above and in carrying out the above program of work, and the Issuer will not discontinue or depart from the recommended program of work unless advised in writing by its consulting engineer to do so. Should the Issuer contemplate any such changes or departures, notice thereof will be given to all shareholders and an amendment to this Prospectus will be filed.

      With the steps having been taken to qualify Metaxa for listing by March 1, prior to the change in regulatory requirements, Metaxas affairs were relatively inactive for the next two months.

      In about April 1989, Leonard Tinkler came to work in Balfours office, where he performed day to day office duties and did banking for Metaxa and for Balfour. Tinkler had met Balfour a few years earlier when both were in a detoxification centre for alcoholics. Tinkler had a high school education and a background in sales. He first became involved with an exchange listed company when, at Balfours request, he became an officer and director of North West Shroom Industries Ltd. and Rough River Petroleum Corporation in 1987. Balfour was involved in both these companies.

      In early May, Balfour, Cox and Cormack met with John Hajek, who had replaced Henneberry as Metaxas geologist in April. Hajek told them the Tux claims were of doubtful value and had been added to the Ideal Property by Geo PC for promotional purposes. Consideration was given to acquiring another property.

      On May 26, 1989, Cox, Cormack and Spitz signed sworn declarations that "no material changes have taken place to the business, affairs or status" of Metaxa since the date of the prospectus. Cox signed this declaration in his capacity as president and chief financial officer.

      On May 29, 1989, Metaxa completed its initial public offering and its common shares were posted and called for trading on the Exchange.

      The Exchange requires that a company becoming listed have at least a minimum number of public shareholders. The evidence showed that a number of the accounts through which Metaxa shares were purchased on the initial public offering were "bogus", in that some or all of the client information supplied to the brokers was false. The bogus accounts fell into two categories: those opened in the names of real persons and those opened in the names of fictitious persons. In both cases some of the information supplied was false. In some cases personal details were fabricated; in others the Social Insurance Numbers were false; wrong and concocted addresses were given and incorrect credit details were supplied. The evidence clearly indicated that the bogus accounts were opened by or on behalf of Balfour.

      After the shares were purchased from Metaxas offering, the brokers attempted to contact the purported holders of many of the bogus accounts to obtain payment for the shares. When they were unable to locate the clients, the brokers sold the shares and delivered the cheques for the balances of the accounts to Balfours office.

      By letter dated May 29, 1989, the same day Metaxa was listed on the Exchange, Orloski notified Geo P.C. that Metaxa was terminating the Tux agreement and that consequently the Tux Claims were no longer under option. On May 30, 1989, Metaxa issued a news release, signed by Cox.

      The May 30 release stated that the mineral claim option agreement (the Tux agreement) was terminated and that "The Board of Directors of the Company determined that work on the Claims could not proceed in the immediate future and that it was in the best interests of the Company to therefore terminate the Option Agreement." It also stated that "The decision of the Company to drop its interest in the claims does not constitute a material change in the Companys operations" and that "The companys prospectus dated February 6 1989 and amended February 27 1989 disclosed that there were no current plans to undertake a work program on the claims."

      In a letter dated July 18, 1989, addressed to Geo P.C., Henneberry noted the decision by Metaxa to "radically alter the exploration program as laid out in my qualifying report" and expressed the opinion that: "Dropping the Tux claims prior to completing the recommended exploration program (as the directors of Metaxa have indicated they plan to do) seriously undermines the potential of the Metaxa property as a whole."

      Metaxas offering raised $210,000 after payment of commission. C.M. Oliver paid this amount to Royal Trust, the trustee for the offering proceeds, on June 5, 1989. On the same date, Royal Trust disbursed the proceeds as follows:

--		$22,100 was paid out for legal and accounting fees, under letters of direction signed by Cormack and Cox;
--		$16,900 was paid to Cox and his company Bristol for a loan repayment ($1,900) and deferred management fees ($15,000), under letters of direction signed by Cox;
--		$19,200 was paid to four individuals for loan repayments, under letters of direction signed by Cox;

--

the balance of $151,800 was paid to Metaxa.

      During the period June 5, 1989, to June 30, 1989, all but approximately $150.00 was withdrawn from the account on cheques signed by Spitz or Cormack. They signed most of the cheques in blank and gave them to Balfour. Although Tinkler had no official position with Metaxa, he made the deposits to Metaxas bank account and wrote out the cheques. He also kept a list of all the Metaxa cheques issued and a running balance of moneys in the account.

      Most of the payments from Metaxas bank account were made between June 5 and June 22. Many of them were channelled through other accounts controlled or directed by Balfour before reaching the ultimate payees. The money went primarily to Balfour and to the purchase, by Balfour and various associates, of Metaxa shares from the offering. The major payments by Metaxa were as follows:

--		On June 5, $5,000 was paid to Brent Pierce as a down payment for a proposed purchase by Balfour of an interest in Pierces company Valet Video and Pizza Services Inc. A further $3,000 was paid to Valet on June 13.
--		On June 6, $18,000 was paid to Paul Ng, a business associate of Balfour. A further $2,000 that had been paid by Tinkler to Ng on June 1 was also recovered from Metaxa. The payments were designated as loan repayments, although Balfour admitted he was unaware of any loan made by Ng to Metaxa. No loan from Ng was disclosed in prospectus.

--

Other payments on June 6 were:

--		$15,000 drawn out in cash and given to Balfour;
--		$5,000 paid to Tinkler;

--		$9,000 paid to Haywood Securities to cover the cost of Metaxa shares purchased from the offering by Tinkler on the direction of Balfour;
--		$5,800 paid to Jefferson Securities to cover the cost of Metaxa shares purchased by Balfour from the offering;
--		$1,500 paid to each of Cormack and Spitz for their directors fees.
--		On June 7, $22,000 was paid to Balfour, who says this was his standard remuneration of 10 percent of the net offering proceeds for promoting Metaxa shares. The prospectus did not disclose that this payment would be made.
--		Also on June 7, $3,400 was drawn out in cash and paid by Balfour to Orloski. On June 15, a further $2,500 was drawn out in cash and paid by Balfour to Orloski. Balfour made these payments to repay a loan and to pay off a bet.
--		On June 8, $20,000 was paid to Haywood to cover the cost of purchasing Metaxa shares from the offering in the accounts of Sheree Balfour ($8,000), Dianne Waters ($6,000) and Brenda Thompkins ($6,000). These were all nominee accounts for Balfour.
--		On June 13, $30,000 was paid out, run through two or more accounts, and paid back to Metaxa. The purpose of these transactions remains a mystery.
--		On June 14, $6,000 was paid to Balfour and $1,500 was drawn out in cash and given to Balfour.
--		On June 16, $500 was paid to Balfour and $1,100 was drawn out in cash and paid to Ivancoe.
--		On June 19, $1,000 was paid to Balfour. Also on June 19, $1,500 was paid to Paul Ng from funds taken from Metaxas account on June 16.
--		On June 22, $1,000 was paid to Tinkler from funds taken from Metaxas account on June 16.

      From June 14 to 16, 1989, Balfour sold about 120,000 Metaxa shares through the account of Balmer Marketing Ltd. at Jefferson. Balmer was a company controlled by Balfour and his wife. On June 20, Balfour transferred $80,000 from this account, representing the approximate proceeds of the sales, to Balmers bank account. Most of this money was paid out in the next ten days as follows:

--

On June 20, $30,000 was paid to Cox and, on June 21, $36,000 was paid to Coxs company Bristol. These amounts were to pay for Metaxa shares, which Cox had arranged for Balfour to purchase from the seed shareholders at a price of 30 cents per share.

--

On June 22, $6,000 was paid to Sheree Balfour.

--

On June 20 and 30, a total of $7,200 was paid to Cormack.

Bu-Max

      Meanwhile, Balfour and Cox arranged in mid April 1989 for a change in control of Bu-Max.

      Bu-Max filed a prospectus dated August 19, 1988, and amended April 25, 1989, under which it offered 700,000 common shares to the public at $.35 per share. Its principal business was described as the acquisition, exploration and development of natural resource properties. The proceeds of the distribution were to be used to finance development of a set of five mineral claims, known as the Deadman property, in the Kamloops Mining Division of British Columbia.

      Cox says he dealt primarily with Balfour but understood that Balfour was acting as an agent for Cormack and Tinkler. Cox remained as a director, to help complete the initial public offering and was joined by Cormack and Tinkler. Balfour says Cormack was his nominee but Tinkler was not. However, Tinkler says he was asked by Balfour to become president and a director of Bu-Max and he expected to operate under Balfours direction.

      Balfour arranged for Cox to meet with Gary Burnie, a registered representative at Wolverton Securities with whom Balfour had previously dealt. Cox and Burnie arranged for Wolverton to underwrite Bu-Maxs initial public offering. Wolverton and Bu-Max entered into an agency agreement dated March 14, 1989.

      Bu-Max filed an amended preliminary prospectus dated April 25, 1989, disclosing the new directors and disclosing that Cox had sold 700,000 of the 750,000 outstanding escrow shares to Cormack (600,000) and Tinkler (100,000). A final prospectus was filed on May 1 and was given an effective date of May 5, 1989. Bu-Max entered a conditional listing agreement with the Exchange on May 4, 1989.

      The prospectus disclosed that Bu-Max was in the resource exploration business and that no part of the proceeds of the offering would be invested in securities other than those that qualify as investments for trust funds. There was no disclosure of Balfours involvement in the affairs of Bu-Max. Tinkler signed the prospectus certificate as chief executive officer and chief financial officer. Cormack and Cox signed as directors. Cox also signed as promoter. The certificate declared that the prospectus constituted full, true and plain disclosure of all material facts relating to the securities offered.

      Balfour then worked on lining up buyers for the Bu-Max offering. He based his sales pitch on the fact that Bu-Max was promoted by the same group as Metaxa, whose shares by then were trading at twice their initial public offering price. Tinkler, on June 30, 1989, and Cox and Cormack, on July 4, 1989, signed declarations that there had been no material changes that would make untrue or misleading any statement of material fact contained in the Bu-Max prospectus. The offering was then completed and Bu-Max was listed on the Exchange at the opening on July 17, 1989.

      The offering raised net proceeds of $205,930.10, after payment of commissions. This amount was paid by Wolverton to Royal Trust, the trustee for the offering proceeds, on July 17, 1989. On July 18, Royal Trust disbursed the proceeds as follows:

--		$36,550.30 was paid out for legal fees and $21,812 was paid out for loan repayments under letters of direction that had previously been provided to Royal Trust by Bu-Maxs solicitor.
--		$40,000 was paid to a lawyer named Philip Nerland "In Trust", under a letter of direction dated June 27, 1989, signed by Tinkler.

--

The balance of $107,567.80 was paid to Bu-Max.

      Tinkler testified that Balfour forced him to sign the letter of direction to pay $40,000 to Nerland. Tinkler said that Nerland was not Bu-Maxs solicitor and that he gave no instructions to Nerland as to the application of the $40,000. Neither Cox nor Orloski knew of any reason for the payment or of any legal work done for Bu-Max by Nerland. Balfour testified that he assumed Nerland, who had been Balfours ex-wifes divorce lawyer, got the $40,000 for legal work done for Bu-Max. Balfour said he did not know why Nerland paid $30,000 to Diane Burnie. Diane Burnie testified that she got the $30,000 for work she did for Balfour in promoting Bu-Max and used the money to buy Bu-Max shares.

      Tinkler and Cormack received the cheque from Royal Trust for the $107,567.80 balance of the offering proceeds on the morning of July 18. At this time Balfour was away from Vancouver on a fishing trip. Tinkler and Cormack opened a new bank account for Bu-Max at the National Bank and deposited the cheque. They immediately drew a certified cheque on the account for $100,000 payable to Valet Video and Pizza Service Inc., a private company whose president and sole signing officer was Tinklers daughter, Venessa Ellwyn. Valet, in turn paid out virtually all of the $100,000 as follows:

--

On July 18, Valet paid $25,000 to Tinkler.

--		On July 18, Valet paid $20,000 for the purchase of a 1978 Lincoln Continental, which was then registered in Tinklers name.
--		On July 18, Valet paid $20,000 to Brent Pierce, who was Ellwyns consort and controlled Valet through Ellwyn as his nominee.
--		On July 18, Valet paid $28,288 to a car dealer for the lease of a 1988 Mercedes Benz, which was then registered in Pierces name.

--

On July 20, Valet paid $6,700 to Ellwyn.

      Tinkler testified that Balfour had arranged to move to California and to have Cormack drive a new Jeep there for him. He said Balfours plan was to take the proceeds of the Bu-Max offering with him.

      Cormack testified that, prior to the receipt of the Bu-Max offering proceeds, he was in Balfours office when Balfour told Pierce that he intended to take the funds from Bu-Max "and throw back Cox an empty shell." Cormack said that, after Balfour left the office, Pierce explained that Cormack and the other directors would be responsible for the missing funds. Pierce suggested that the money be transferred to Valet.

      After some discussions among Pierce, Cormack and Tinkler, it was agreed that Bu-Max would invest all of its cash in Valet. Neither Cormack nor Tinkler advised or consulted Bu-Maxs third director, Cox, of this transaction. At the same time they were discussing the investment by Bu-Max in Valet, Cormack and Tinkler also discussed with Pierce the possibility of their personally purchasing Valet franchises.

      Tinkler testified that the intention was to purchase from Pierce a 40 per cent interest in Valet and that the money should really have been paid to Pierce, not to Valet. He described the $25,000 paid to himself by Valet on July 18 as a personal loan from Pierce. He claimed to have signed a promissory note but did not produce it. The loan has not been repaid. Tinkler said the Lincoln Continental was purchased by Pierce for Ellwyn but was registered in his name because both Pierce and Ellwyn were involved in divorce proceedings and wanted to avoid their spouses finding out about the car. He said he subsequently drove the car for a few months, after Ellwyn found it too large and would not drive it. Tinkler later gave it to Pierce, who sold it.

      Cormack testified that he understood the money was to go into Valet, not to Pierce, and was to be used both for Valets business and to pursue Bu-Maxs mineral exploration business. He said the purpose of paying the money into Valet was to protect it from Balfour.

      When the arrangements were made to pay the Bu-Max funds to Valet, Cormack also arranged with Pierce to pay $150,000 from Gatrow to Valet. This payment was purportedly to acquire the other 60 per cent of Valet. Gatrow had just completed an initial public offering and received the proceeds on July 20. The directors of Gatrow included Cormack and Paul Ng. Cox, at the request of Balfour, had become Gatrows corporate secretary but had little involvement in its affairs.

      A cheque for $130,000 payable to Valet was drawn on Gatrows account and signed by Cormack and Ng. It was deposited in Valets account on July 20 but, apparently as a result of some action taken by Cox and Orloski, who was Gatrows solicitor, the bank reversed the transaction. Pierce then returned the cheque to Cormack. Cormack and Tinkler went to see David Schwartz, a securities lawyer. Schwartz called the Commissions Compliance and Enforcement Division to advise them of the funds that had been removed from Metaxa, Bu-Max and Gatrow, thereby initiating the investigation that led to these proceedings.

3.

FINDINGS

Commission staff make the following allegations.

1.		Balfour was a promoter and de facto director of Metaxa and Bu-Max. Balfour, Cox and, with respect to Bu-Max, Tinkler knew or ought reasonably to have known that Balfours role as promoter and de facto director was not disclosed in either Metaxas or Bu-Maxs prospectus.
2.		Balfour and Cox discontinued work on Metaxas Tux claims without the advice or concurrence of Metaxas consulting engineer. The discontinuance was a material change in the affairs of Metaxa made without disclosure to the public on a timely basis.
3.		Balfour, with the assistance of Tinkler, misapplied the proceeds of Metaxas offering. Balfour knew or ought reasonably to have known that the payments made from the proceeds were material changes in the affairs of Metaxa made without disclosure to the public.
4.		Balfour and Tinkler, using funds from Metaxas proceeds purchased, through nominees, shares of Metaxa and created a false and misleading appearance of public ownership of the shares of Metaxa.
5.		Balfour was an insider and control person of Metaxa and failed to file insider reports.
6.		Balfour and Tinkler misapplied $140,000 of the proceeds of Bu-Maxs offering. Balfour and Tinkler knew or ought reasonably to have known that the payments from the proceeds were material changes in the affairs of Bu-Max made without disclosure to the public on a timely basis and contrary to the representations made in Bu-Maxs prospectus.
7.		Balfour, in exercising the powers and performing the functions of a director of Metaxa, failed to act honestly, in good faith and in the best interests of Metaxa or to exercise the care, diligence and skill of a reasonably prudent person in conducting the affairs of Metaxa. Balfour and Tinkler in exercising the powers and performing the functions of directors of Bu-Max failed to act honestly, in good faith and in the best interests of Bu-Max or to exercise the care, diligence and skill of a reasonably prudent person in conducting the affairs of Bu-Max.

      Before addressing the allegations, we repeat several definitions from section 1(1) of the Act:

	"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;
	"insider" means, where used in relation to an issuer, (a)  a director or senior officer of the issuer, ...
	"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 ...
	"material fact" means, where used in relation to securities issued or proposed to be issued, a fact that significantly affects, or could reasonably be expected to significantly affect, the market price or value of those securities;
	"misrepresentation" means       (a)  an untrue statement of a material fact, or       (b)  an omission to state a material fact that is (i)  required to be stated, or (ii) necessary to prevent a statement that is made from being false or misleading in the circumstances in which it was made;
	"promoter" means, where used in relation to an issuer, a person who       (a)  acting alone or in concert with one or more other persons, directly or indirectly, takes the initiative in founding, organizing or substantially reorganizing the business of the issuer, ...
	We will now deal with the allegations in order.

      The evidence is overwhelming that Balfour acquired control of Metaxa and Bu-Max from Cox, installed his nominees (Cormack, Spitz and Tinkler) as directors, and managed the affairs of both companies. Balfour directed the arrangements for the initial public offering and, until Cormack and Tinkler fell under the influence of Pierce, he directed the disposition of the proceeds. On the basis of this evidence, we find that Balfour was a de facto director of Metaxa and Bu-Max.

      The question of whether Balfour was a promoter of Metaxa and Bu-Max depends on whether he took the initiative in founding, organizing or substantially reorganizing the business of the issuers. Clearly Balfour was not involved in founding Metaxa and Bu-Max. Nor was there a substantial reorganization of their business when he became involved. This issue therefore turns on whether Balfour took the initiative in organizing the businesses of Metaxa and Bu-Max. In our view, the word "organizing" must imply more than "founding", since both words are used in the definition of promoter. Metaxa and Bu-Max were founded by Cox and Dupuis for the purpose of raising public funds to finance exploration programs. They had options to acquire mineral properties but had not yet completed their initial public offerings, which were necessary for them to secure their interests in the mineral properties and to finance exploration programs. In our view, Metaxa and Bu-Max were still in the process of being organized when Balfour acquired control of them. Balfour then, in concert with Cox, continued the process of organizing Metaxa and Bu-Max by installing new directors and arranging the initial public offerings. The evidence is clear that Balfours initiative was responsible for the completion of the offerings. On this basis, we find that Balfour was a promoter of Metaxa and Bu-Max.

      For a junior resource issuer doing an initial public offering of its securities, the identity of the person promoting and managing the issuer is critical information for investors, which could reasonably be expected to affect the price or value of the securities. Balfours role as a promoter and de facto director was therefore a material fact. Omission to state a material fact that is required to be stated is a misrepresentation. The form of prospectus that was filed by Metaxa and Bu-Max under section 42(2) of the Act requires the disclosure of all promoters and directors of the issuer. Metaxas and Bu-Maxs prospectuses each failed to disclose Balfours role as a promoter and director and therefore they contained misrepresentations as defined in the Act.

      Balfour is experienced in the promotion of reporting issuers and is a former registered salesman under the Act. He must have known that he was a promoter and de facto director of Metaxa and that he was not disclosed as such in the prospectus.

      Cox is also experienced in the promotion of reporting issuers and is also a former registered salesman under the Act. He says that Balfour was merely a "street promoter", not a promoter of Metaxa or Bu-Max as that term is defined in the Act. He says that he understood Balfour to be an agent for others who were acquiring and managing Metaxa and Bu-Max. He claims that he had no knowledge that Cormack, Spitz and Tinkler were Balfours nominees or that Balfour was running the issuers. He also says he was too busy with other issuers to pay much attention to what was going on with Metaxa and Bu-Max. However, with his experience, Cox would have quickly realized upon meeting Cormack and Spitz that they lacked the knowledge or expertise required to manage a reporting issuer. Even if he had been fooled with respect to Metaxa, he must certainly have been aware by the time of the Bu-Max offering that Balfour was running the show. At about this time, Cox agreed to Balfours request that he become corporate secretary of Gatrow, a company with which Cox had had no previous association. This indicates that Cox had, to some extent, thrown his lot in with Balfour and that he recognized Balfour as the driving force behind all of these issuers.

      We find that, at least in respect of Bu-Max, Cox knew that Balfour was a promoter and de facto director and that this role was not disclosed in the prospectus.

Tux claims

      On May 29, 1989, the very day that Metaxas shares began trading on the Exchange, Metaxa sent a letter to Geo PC advising that it was dropping the Tux claims. Metaxa issued a news release announcing this decision the next day.

      Cox insists that this timing was inadvertent. He says it simply resulted from the delay in completing the offering and an oversight concerning the short time that would be available after the proceeds were received for Metaxa to complete the required exploration on the Tux claims. He says it would have been foolish for Metaxa to pay the required installment on the claims to Geo PC because Metaxa could not possibly raise sufficient additional funds to complete the required exploration work in time to comply with the option agreement for the claims. All of this seems reasonable.

      Cox also says that, because the work on the Tux claims recommended in Henneberrys report was not included in the use of proceeds as described in the prospectus, it was not part of the "recommended program of work" referred to in the prospectus. Therefore, he says, there was no departure from the recommended program of work that would require the advice of Metaxas consulting geologist, notice to be given to all shareholders and an amendment to the prospectus to be filed. Furthermore, Cox says that the dropping of the Tux claims was not a material change in Metaxas affairs because the claims were of doubtful value and were not important to the exploration program on the Ideal claims.

      In our view, the wording in Metaxas prospectus, while not crystal clear, does indicate that the work on the Tux claims is part of the recommended program of work, although this portion of the program was not to be funded from the offering proceeds. More important is the discrepancy between Coxs description of the value of the Tux claims and their characterization in the prospectus. Cox cannot have it both ways. He signed on May 26, 1989, a declaration that there had been no material changes in the business, affairs or status of Metaxa since the prospectus was signed on February 27. The prospectus clearly suggested that the Tux claims were an integral and important part of Metaxas business. It was preposterous to suggest on May 30 that dropping these claims was not a material change. In the context of Metaxas business plan, the dropping of the Tux claims was a change in the business and assets of Metaxa that would reasonably have been expected to significantly affect the price or value of Metaxas shares, and was, therefore, a material change.

      In the circumstances, dropping the Tux claims may well have been a good business decision. Cox caused Metaxa to announce the decision by news release, as is required for a material change, but the news release claimed that the decision was not a material change. This appears to have been an effort to avoid any requirement to file an amendment to the prospectus. Issuing a news release to say an event is not a material change does not make it so. However, in our view, an amendment to the prospectus would not have been required by the Act, since the distribution was complete. Furthermore, the prospectus is ambiguous as to whether Metaxa would file an amendment in these circumstances, given that none of the offering proceeds were to be spent on the Tux claims.

      Commission staff argue that the dropping of the Tux claims was a material change that was not disclosed on a timely basis. However, it was disclosed almost immediately. In our view, there is a more serious question as to whether Metaxa had, prior to the completion of the offering, any real intention to proceed with exploring the Ideal property as disclosed in the prospectus. However the evidence on this point was vague and unreliable. Accordingly, we make no finding with respect to the disclosure concerning the mineral claims.

Misapplication of Metaxa proceeds

      Metaxa raised $210,000 from the initial public offering of its shares for the stated purpose of financing an exploration program. After its outstanding liabilities were paid, Metaxa received $151,800 on June 5, 1989. Virtually all of this money was paid out in the ensuing 25 days, on Balfours direction, mostly for purposes unrelated to the business of Metaxa. About $60,000 of the money was paid to Balfour or for his personal benefit. Another $20,000 was paid to Balfours associate Paul Ng, purportedly for a loan repayment, although no such loan was disclosed in the prospectus. About $35,000 was paid out by Metaxa and deposited in various brokerage accounts to pay for the purchase of shares from the offering.

      This series of payments was simply a misappropriation, or less politely a theft, of the proceeds of Metaxas public offering. Needless to say it was a material change in Metaxas affairs and was not disclosed as required by section 67 of the Act.

False and misleading appearance of trading

      Metaxas prospectus disclosed that Metaxa would be offering its shares to the public to raise funds for an exploration program. There was no disclosure that proceeds of the offering would be used to purchase shares from the offering. In fact, $35,000 was paid from the proceeds to purchase shares from the offering. The payments and purchases were made through a number of different accounts to disguise the source of the funds. As a result of this activity, the public was left with the impression that all of these shares had been sold to the public to raise funds when in fact no funds were raised and the shares were, in effect, issued to Balfour and his nominees for no consideration. In addition, Balfour orchestrated purchases of a number of shares from the offering by bogus accounts, creating an impression that there were more purchasers of the offering than there really were.

      We find that these transactions constituted an improper issuance of shares by Metaxa and created a misleading appearance of trading activity in Metaxas shares.

Insider reports

      As a de facto director of Metaxa, Balfour was an insider and was required to file reports disclosing all Metaxa shares that he held, directly or indirectly, or had control or direction over and disclosing his trading. The evidence shows that he held or had control or direction over a significant number of shares and that he traded actively. He filed no insider reports. We find that in failing to file insider reports, Balfour contravened section 70 of the Act.

Misapplication of Bu-Max proceeds

      The proceeds of Bu-Maxs offering disappeared more quickly than those of Metaxa. Balfour caused $40,000 of the proceeds to be paid to Nerland, for no apparent business purpose, of which $28,125, was used to pay for the purchase of shares from the offering. Then, on the day the remaining proceeds of some $107,000 were received by Bu-Max, Tinkler and Cormack conspired with Pierce to take $100,000, virtually all of the remaining proceeds, and apply it to the personal benefit of Tinkler, Pierce and Ellwyn.

      Balfour had no explanation for the $40,000 payment to Nerland. Tinkler tried to justify taking the $100,000 as a plan to prevent Balfour from misappropriating the money and to preserve the money for Bu-Max. However, the money was not preserved, it was simply taken and applied to the personal benefit of Tinkler, his daughter and her fiancé.

      We find that Balfour misappropriated $40,000 and Tinkler misappropriated $100,000 from the public offering proceeds of Bu-Max. The misappropriation of substantially all of Bu-Maxs funds was undoubtedly a material change in Bu-Maxs affairs, which was not disclosed as required under section 67 of the Act.

Breach of directors duties

      Section 142 of the Company Act sets out the duties of directors as follows:

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 (i) a reasonably prudent person ...

4.   DECISION

      This case involves the plundering of two reporting issuers upon the completion of their initial public offerings. It is a particularly bad example of the type of conduct that brings the public securities markets, and particularly the Exchange, into disrepute.

Frank Balfour

      Balfour was the main player in this drama. He orchestrated the offerings, concealing his involvement through the appointment of nominees. He misappropriated the proceeds of Metaxas offering and used part of them to manipulate the market in Metaxa shares. He misappropriated $40,000 of the proceeds of Bu-Maxs offering, before he was beaten to the rest of the money by Tinkler. Balfour has demonstrated by his conduct a complete disregard for the rules of the market. We consider it to be in the public interest to remove Balfour from participation in the market or with issuers for a very long period.

      We order

1.		under section 144(1)(c) of the Act, that the exemptions described in sections 30 to 32, 55, 58, 80 and 81 of the Act do not apply to Balfour for a period of 25 years from the date of this order;
2.		under section 144(1)(d) of the Act, that Balfour is prohibited from becoming or acting as a director or an officer of any issuer for a period of 25 years from the date of this order;
3.		under section 154.2 of the Act, that Balfour pay prescribed fees or charges for the costs of or related to the hearing incurred by the Commission and the Superintendent, the amount to be determined following further submissions from the parties.

      Tinkler stumbled into this picture and acted as a nominee for Balfour. However, when presented with the opportunity, he showed himself to be a quick learner in the art of plundering an issuer. We consider it to be in the public interest to remove Tinkler from participation in the market or with issuers for a long period.

      We order

1.		under section 144(1)(c) of the Act, that the exemptions described in sections 30 to 32, 55, 58, 80 and 81 of the Act do not apply to Tinkler for a period of 15 years from the date of this order;
2.		under section 144(1)(d) of the Act, that Tinkler is prohibited from becoming or acting as a director or an officer of any issuer for a period of 15 years from the date of this order;
3.		under section 154.2 of the Act, that Tinkler pay prescribed fees or charges for the costs of or related to the hearing incurred by the Commission and the Superintendent, the amount to be determined following further submissions from the parties.

      Cox is in a different position. He had no involvement in the misappropriation or the manipulation. The findings against Cox relate to the failure to disclose Balfour as a promoter and de facto director in the two prospectuses. Cox presented himself as a victim of Balfour and Tinkler and pointed out that he alone had attempted to co-operate with regulators and salvage the two issuers. In our view he does deserve some credit for his conduct after the events. Nevertheless, Cox did facilitate Balfours exploits by providing him the clean shells and allowing him to remain in the shadows by conducting the offerings through nominees. We consider it to be in the public interest to remove Cox for a period from the market and from involvement with reporting issuers. In the circumstances of this case, we do not consider it appropriate to require Cox to pay any costs of the hearing.

      We order

1.		under section 144(1)(c) of the Act, that the exemptions described in sections 30 to 32, 55, 58, 80 and 81 of the Act do not apply to Cox for a period of 4 years from the date of this order;
2.		under section 144(1)(d) of the Act, that Cox is prohibited from becoming or acting as a director or an officer of any reporting issuer for a period of 4 years from the date of this order.