COR #92/087

   Catherine Sloan, for Commission Staff.

DECISION OF THE COMMISSION:-- This hearing was initiated by a notice of hearing issued by the Superintendent of Brokers on June 7, 1991.

      The notice advised that the Commission would be asked to determine whether it is in the public interest to make orders under sections 144 and 154.2 of the Securities Act, S.B.C. 1985, c. 83, against Irving S. Lindzon.  Commission staff alleged that Lindzon had filed insider reports that did not accurately reflect his trading in the shares of International Sterling Holdings Inc. ("Sterling").

      Lindzon did not appear at the hearing.  Commission staff introduced an affidavit to show that the notice had been served upon Lindzon.  We are satisfied that notice of the hearing was given to Lindzon.

      Commissioner McCall's term of appointment to the Commission expired on September 16, 1991.  He took no part in this decision.

BACKGROUND

      Sterling was incorporated under the Company Act, R.S.B.C. 1979, c. 59, on January 24, 1980.  It is a reporting issuer under the Act, whose shares are listed on the Vancouver Stock Exchange.

      Lindzon is a retired lawyer who lives in Toronto and Arizona.  He became a director of Sterling on May 21, 1985. He filed an initial insider report dated June 21, 1985, disclosing holdings of 250,500 Sterling shares.  Of these, 250,000 were reported to be held indirectly through a private company named Camelback Resources Corporation.  He filed further insider reports disclosing changes in his holdings until October 2, 1988, when his last report was filed. Lindzon ceased to be a director of Sterling on April 19, 1989.

      During the period November 1986, December 1986 and January 1987 (the "Material Period"), Sterling shares were purchased and sold on the instructions of Lindzon through six accounts at the Toronto office of Yorkton Securities Inc. These accounts were in the names of Camelback, Lindzon, Lindzon in trust for each of his three children, and Eagle American Diversified Holdings Inc., a private company of which Lindzon was president and a major shareholder.

      Yorkton had documentation on file for Lindzon's account and the Camelback and Eagle American accounts, including client application forms and resolutions giving trading authority to Lindzon for the corporate accounts.  Yorkton had a client application form on file for only one of the three trust accounts.  Yorkton had no documents evidencing the existence of the trusts or giving Lindzon trading authority for these accounts.

      For the Material Period, Lindzon filed three insider reports, which disclosed purchases totalling 12,200 Sterling shares and sales totalling 42,900 Sterling shares.  These transactions were all done in the name of Camelback.  No insider reports were filed by Lindzon's three children.

      Purchases of 400 Sterling shares, at $3.50 per share, and sales of 105,500 Sterling shares, at prices ranging from $4.25 to $5.00 per share, were not disclosed in Lindzon's insider reports.  The purchases were made through Lindzon's account. The sales were made through Lindzon's account (6,500 shares), the trust accounts (9,000 shares) and the Eagle American account (90,000 shares).  The gross proceeds from these sales were about $520,000.

      Lindzon's last insider report, for the month of September 1988, disclosed holdings of 27,200 shares.

      Proxies provided to Sterling's transfer agent by Lindzon for the June 8, 1989, annual general meeting of Sterling represented a total of 670,467 shares.  These shares were registered in the names of Lindzon (70,051 shares), his wife and children (195,354 shares), Camelback (80,000 shares), three other companies for which Lindzon signed as president (165,970 shares), Sandralin Investments Inc., for which his wife signed (159,092 shares), and the Canadian Depository for Securities, in respect of shares held through Yorkton Securities, (145,100 shares).

      In August 1989, Commission staff began to correspond with Lindzon concerning his insider reports. Barbara Watson, an investigator, sent a letter dated August 18, 1989, to Lindzon calling his attention to the legislative requirements and asking him to file reports on all of his trading.  She received a reply dated October 26, 1989, from Lindzon's solicitor, Jeffrey B. Simpson of Lang Michener Lawrence & Shaw in Toronto, requesting copies of the insider reports that had been filed by Lindzon in respect of Sterling. Watson replied, enclosing the copies, the same day.

      Watson subsequently left the staff of the Commission and Linda Newell took over the file.  She wrote a letter to Simpson, dated January 7, 1991, requesting the immediate filing of appropriate insider reports.  In a letter dated January 10, 1991, Simpson acknowledged Newell's letter and advised that he was seeking instructions.  On January 28, 1991, Newell wrote to Lindzon.  Her letter stated that she had spoken with Simpson and had been advised that the correspondence had been passed to Lindzon for reply.  She warned:  "Unless we receive your properly completed insider reports within 10 days of the date of this letter, sanctions will be taken against you including the possibility of a cease trade order."

      On February 13, 1991, the Superintendent issued an order under section 146 of the Act that Lindzon cease trading in the securities of Sterling until he has filed adequate, complete and satisfactory information with respect to his trading in the shares of Sterling.  Newell sent the order to Lindzon.  Her covering letter contained the following warning: "Accordingly, unless we receive properly completed insider reports acceptable for filing pursuant to the provisions of the [Act] within two weeks from the date of service upon you of this Cease Trade Order, further sanctions will be taken against you, including a possibility of a notice of hearing and general cease trade order."

FINDINGS

      Lindzon's trading during the Material Period was subject to the Securities Act, R.S.B.C. 1979, c. 380 (the "Old Act"). The following portions of sections 1, 107 and 108 of the Old Act are the relevant statutory provisions:

      1.(1) In this Act

      ...

"associate", when used to indicate a relationship with any person or company, means ...

(c)

a spouse, son or daughter of that person ...

(6)		For the purposes of this Act, shares are held for the benefit of a person or company if they are beneficially owned by a company controlled by him or by an affiliate of that company.
107.(1)		In this Part

"capital security" means any share of any class of shares of a company ...

"corporation" means a person or company

(b)

any of whose securities are listed and posted for trading on any stock exchange in the Province recognized by the superintendent;

      "insider" or "insider of a corporation" means

(a)

any director or senior officer of a corporation; or

(c)

any associate of the person or company mentioned in paragraph (a) ...

108.(2) A person or company who or that ... becomes an insider of a corporation shall, within 10 days after the end of the month in which he became an insider, file with the superintendent a report, as of the day on which he became an insider, of his direct or indirect beneficial ownership of capital securities of the corporation.

(4)

A person or company who or that has filed or is required to file a report under subsection (1), (2) or (3) and whose direct or indirect beneficial ownership of capital securities of the corporation changes from that shown or required to be shown in the report or in the last report filed by him under this subsection shall, within 10 days following the end of the month in which the change takes place, if he was an insider of the corporation at any time during the month, file with the superintendent a report of his direct or indirect beneficial ownership of capital securities of the corporation at the end of that month and the change or changes in it that occurred during the month and giving whatever details of each transaction may be required by the regulations.

      As an insider, Lindzon was required to file reports under section 108 of the Old Act for any month in which there was a change in his direct or indirect beneficial ownership of Sterling shares.  The insider reports filed by Lindzon during the Material Period made no disclosure of the holdings, or changes in holdings, of Sterling shares in his account, the Eagle American account or the trust accounts.

      Lindzon was aware of the obligation to file insider reports and did file them during the Material Period.  He knew or ought to have known that those reports must disclose all of his holdings and trading.  However, he disclosed purchases of 12,200 and sales of 42,900 Sterling shares through Camelback during the Material Period, while failing to disclose purchases of 400 and sales of 105,500 Sterling shares through his account, the Eagle American account and the trust accounts. We find that Lindzon filed false insider reports during the Material Period and therefore contravened section 108 of the Old Act.

      From February 1, 1987, the Act was in force.  The Act made two changes to the insider reporting requirements that are of significance here.  First, an associate of a director is no longer an insider.  Second, section 70 of the Act now requires an insider of a reporting issuer to disclose "any direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer" and any changes in it.

      Lindzon's final insider report, for September 1988, disclosed holdings of 27,200 Sterling shares.  Lindzon was a director of Sterling until April 19, 1989.  In June 1989, he appeared to have control and direction over as many as 670,000 Sterling shares.  This evidence appears to show that Lindzon did not comply with section 70 of the Act.

      When it was brought to Lindzon's attention that he had not complied with section 108 of the Old Act and section 70 of the Act, he did not comply and he failed even to respond to inquiries from Commission staff.  Even after repeated warnings and the imposition of a cease trading order, Lindzon did not comply.  We find that Lindzon has deliberately disregarded the insider reporting requirements of the Old Act.

      Disclosure of trading by insiders is a key element of the system of continuous disclosure concerning the affairs of reporting issuers. Contravention of the insider reporting requirement is serious.  It is particularly serious when, as in this case, the insider trades significant volumes of shares, files false insider reports, and deliberately disregards regulatory requirements.

      We find Lindzon's conduct to have fallen below the standard expected of a director of a reporting issuer.  We consider it to be in the public interest to remove Lindzon from the market and from involvement with reporting issuers for a reasonable period and to order him to file insider reports as required by the Act.

We order:

1.		under section 144(1)(a) of the Act, that Lindzon comply with or cease contravening section 70 of the Act;
2.		under section 144(1)(c) of the Act, that the exemptions described in sections 30 to 32, 55, 58, 80 and 81 do not apply to Lindzon until two years from the date upon which he has filed insider reports satisfactory to the Commission;
3.		under section 144(1)(d) of the Act, that Lindzon is prohibited from becoming or acting as a director or officer of any reporting issuer until two years from the date upon which he has filed insider reports satisfactory to the Commission; and
4.		under section 154.2 of the Act that Lindzon pay prescribed fees or charges for the costs of or related to the hearing that have been incurred by the Commission, the amount to be determined following submissions from the parties.