COR #91/146

Catherine Sloan and Mary Beck, for the Superintendent of Brokers.

DECISION AND REASONS OF THE COMMISSION:-- This hearing was initiated by the Superintendent of Brokers with a Notice of Hearing issued on August 14, 1990. The Notice advised that the Commission would be asked to consider whether it is in the public interest to make orders under section 144(1)(c) and (d) of the Securities Act S.B.C. 1985, c. 83 that the trading exemptions under the Act available to Errol Hemingson ("Hemingson") and his wife Margaret Alexa Hemingson do not apply and that they be prohibited from being directors or officers of reporting issuers, and any other orders that may be appropriate in the circumstances. In addition, the Superintendent sought an order for payment of costs of the hearing under section 154.2 of the Act.

Hemingson and Alexa did not appear. The evidence confirmed that Hemingson and Alexa had received by double registered mail a copy of the Notice on August 29, 1990. Ms. Sloan, counsel for the Superintendent, also entered two letters she had received from counsel for Hemingson, wherein he advised that neither he nor Hemingson would be attending at the hearing. The panel made a finding that both Hemingson and Alexa received notice of the hearing in accordance with section 179 of the Securities Regulation, B.C. Reg. 270/86. The hearing proceeded in their absence.

FACTS

Toodoggone Gold Inc. ("TDG"), incorporated under the Company Act R.S.B.C. 1979, c. 59., is a reporting issuer and an exchange issuer under the Act. On September 7, 1988 TDG entered into a listing agreement with the Vancouver Stock Exchange and its common shares were listed on September 19, 1988. By prospectus dated August 25, 1988, TDG issued to the public 600,000 common shares at 55 cents per share resulting in net proceeds of $300,000. The prospectus disclosed that TDG was organized to explore and develop natural resource properties. Substantially all of the assets of TDG consisted of an option to acquire six blocks of claims located in the Toodoggone River area (the "Properties"). TDG's audited financial statements for the year ended April 30, 1988 showed total assets of approximately $221,000 which included $217,000 for the Properties. The $217,000 was made up of $40,000 for acquisition costs and $177,000 for exploration costs. The statements also showed TDG had a working capital deficit of approximately $23,000 and accumulated losses of $86,000. Approximately two-thirds of the net proceeds of the offering, $190,000, had been allocated to the Properties for resource property payments and exploration.

Directors and officers signing the prospectus were Hemingson as president and chief executive officer, Howard Andersen as chief financial officer, secretary and treasurer, and Gordon Steblin and Hemingson's son Vincent on behalf of the board of directors. The prospectus disclosed information about the directors and officers. Hemingson had for the past twelve years provided administration and exploration management services to a number of public exploration companies, both as a member of the board of directors and through Aggressive. Aggressive is a private company wholly owned by Hemingson. Hemingson was the president and a director of Algo Resources Limited and Butler Mountain Minerals Corp., exploration companies whose shares were listed on the Exchange. Andersen was described as a management consultant, operating under the name of Howard Andersen and Associates. He was also a director and officer of three other Exchange listed companies. Steblin, a member of the audit committee with Hemingson and Vincent, was a certified general accountant. Vincent was involved with other Exchange listed companies and was vice president of Aggressive.

These persons had been directors of TDG since April 22, 1987, with the exception of Vincent who became a director in May 1988. From the time they were directors to the date of the prospectus, August 25, 1988, both Hemingson and Andersen, as chief executive officer and chief financial officer respectively, managed the affairs and business of TDG. Hemingson was acknowledged by Andersen and Steblin to be the driving force behind TDG. Andersen had a management and administrative services contract with TDG and conducted the day-to-day affairs of TDG. This included preparing all paperwork, gathering material for the prospectus, attending to filings; liaising with professionals and signing, with Steblin, all cheques.

The prospectus disclosed that Andersen's contract for management and administrative services was the only material contract or transaction in which directors or senior officers participated or intended to participate. The prospectus stated that Andersen's contract remained in full force and effect.

On August 25, 1988, the directors of TDG and corporate counsel convened to review and sign the prospectus. Andersen and Steblin testified that there was a heated exchange between Hemingson and Andersen at that meeting regarding $10,000 Andersen said was owing to him under his contract. Hemingson, apparently upset at the amounts accruing to Andersen for managing TDG, announced he wanted to provide the management and administrative services Andersen had been providing under his contract. At the meeting and before the prospectus was signed, they resolved to settle the outstanding account for $5,000 and Andersen's contract was terminated effective August 31, 1988. No changes were made to the prospectus to reflect the fact that Anderson's contract was terminated and that Hemingson would be entering into a management and administrative services contract with TDG.

Shortly after the prospectus meeting, Hemingson moved TDG's offices from Andersen's office to Aggressive's offices. On September 2, 1988 the distribution under the prospectus was completed.

On September 15, 1988 Hemingson opened a new account for TDG with another bank. Hemingson provided the bank with a certificate dated September 15, 1988, in which he certified that TDG's directors passed a resolution on September 15, 1988 appointing either Hemingson or Vincent as the authorized signatories for the account. Hemingson had not advised Andersen or Steblin that the account was being opened and that he or his son were the account signatories. The director's resolution dated September 15, 1988 was consented to in writing by only Hemingson and Vincent. On September 15, 1988 Hemingson deposited the net proceeds of $300,000 into the account. On September 16, 1988 Hemingson issued three cheques on the account, signed only by himself and payable to Aggressive. Two cheques in the amounts of $11,250 and $3,750 related to invoices for administration services performed prior to August 25, 1988 and one was for $65,000 for which there was no invoice.

On September 28, 1988, Hemingson replaced the September 15 certificate with another in which he certified that the directors of TDG on September 15, 1988 passed a resolution appointing both Hemingson and Alexa as the authorized signatories for the account. No directors' resolution was passed and Hemingson had no discussions with Andersen or Steblin.

Steblin testified that at the August 25, 1988 meeting, Hemingson made it clear that he wanted to run TDG without the advice of Andersen and Steblin as directors. Consequently, both Andersen and Steblin believed they would be replaced soon after that meeting. However, they continued to be directors until December 12, 1988. Andersen said he still perceived himself to be and would continue to act as a director and the chief financial officer of TDG until replaced. Andersen testified that he first became aware of the account Hemingson opened when another reporting issuer, of which he was a director, received a cheque late in September, 1988 from TDG. Although Andersen testified he always assumed Hemingson would want to open a new account he became concerned that there was no "proper" banking resolution authorizing the account. Andersen said he initiated three meetings between late September and December 1988 to discuss the banking resolution. Andersen said that Hemingson always assured him the matter was being looked after either by himself or corporate counsel. At one of these meetings Hemingson indicated he would like to acquire a natural resource property in Nevada but there were no further discussions with Andersen and Steblin nor did Hemingson obtain their approval.

Once the prospectus was signed, Anderson and Steblin said they were not consulted on changes to TDG's exploration program on the Properties or whether TDG should acquire interests in other natural resource properties. The evidence showed decisions in this regard were made by Hemingson alone. Anderson confirmed there were no directors meetings between September and December of 1988. Finally, in letters to Hemingson dated December 12, 1988, Andersen resigned as an officer and director of TDG and Steblin resigned as a director of TDG, both citing their lack of involvement as directors. Andersen specifically noted his concern that the change of bank and signing authorities had not been properly documented. On December 19, 1988 TDG issued a news release announcing the resignations of Andersen and Steblin and the appointment on December 12, 1988 of James Regan and Alexa to the board of directors. The news release stated that Alexa was the president of a company specializing in corporate services and that she had several years of business management experience. As of December 12, 1989 Alexa became the secretary of TDG. Alexa was also a director of Algo and became a director of Aggressive on March 18, 1989.

Glen White, an original seed shareholder of TDG and member of the group which vended in the Properties, became aware of Andersen's concerns and was also concerned that TDG would be delisted. He approached Hemingson in May of 1989 and discussed taking over TDC. White said Hemingson assured him there was approximately $10,000 left in the account and he agreed to buy Hemingson's escrow position in TDG for $5,000. On May 11, 1989, White, Andersen and Steblin were appointed to TDG's board of directors and Hemingson, Alexa, Vincent and James Regan resigned. At the time of White's appointment, Steblin testified there was no money in the treasury. As it turned out, there was $1,166 left in the account. Without the knowledge of the directors, on July 5, 1988 Hemingson and Alexa, signing on behalf of TDG, issued a cheque for $1,166 payable to Hemingson.

Steblin testified he found TDG's financial records in a box. He noted that there were no financial statements, no synoptics and no general ledger. He testified that he attempted to reconstruct TDG's financial statements from the time it became an exchange issuer on the basis of its cheques and invoices.

Peter Bayerthal, a certified general accountant and staff member of the Commission, testified that TDG had not filed its quarterly reports for the periods ending October 31, 1988 and January 31, 1989. Eventually, satisfactory audited financial statements for the year ended April 30, 1989, were prepared and filed with the Commission.

The prospectus had disclosed that the net proceeds to TDG on completion of the distribution would be $300,000, to be spent as follows:

1.		To pay for the costs of the issue estimated
		at	$ 20,000
2.		To pay for outstanding deficit	$ 35,799
3.		To pay for the first stage of a recommended
		work program on three of the issuer's six
		Toodoggone River Properties	$165,000
4.		To pay property payments due (six months)	$ 25,000
5.		Reserve for general corporate purposes	$ 54,201
			--------
		Total	$300,000

Hemingson, in a letter dated November 27, 1989 to a staff member of the Commission characterized these non invoiced payments as "advances". The evidence confirmed that no provision had been made for security on, interest for or repayment of these "advances".

Hemingson told White that a considerable amount of TDG's funds paid to Aggressive had been used to keep Algo alive and that he was contemplating assigning Algo shares to TDG to settle the $69,000 Hemingson suggested was owing by Aggressive to TDG. No debt Settlement with TDG ever took place. However, a resolution of the directors of Algo and Exchange correspondence showed that on October 24, 1989, Algo settled its debt of $87,000 with Aggressive by issuing 582,561 shares to Aggressive.

In the December 19 news release, TDC announced that following the exploration program on the Properties only one block had been recommended for further detailed work, that TDG had renegotiated the terms of its purchase of the Properties and would continue to hold only one block, and that a property in Nevada had been purchased. The bank statement revealed that there was only $23,000 left in the account at this time. No material change report was filed with the Commission.

Although $190,000 was allocated in the prospectus for the Properties, in fact only $66,000 was spent on the Properties, and $8,000 was spent on a natural resource property in Nevada. The prospectus stated that TDG's directors could elect to redirect funds allocated for the Properties to other natural resource properties in light of additional information and a recommendation from a qualified geologist to do so. The decisions to spend only $66,000 on the Properties and $8,000 on the property in Nevada were made without the directors' approval.

A review of the invoices revealed that either Hemingson or Aggressive had charged TDG for promotional fees, consulting fees, management fees and a 15% surcharge on disbursements. There were no written contracts with TDG supporting any of these payments. Both Andersen and Steblin testified that during the prospectus signing meeting they agreed Hemingson would enter into a management and administrative services contract. However, at no time did Hemingson discuss with them a consulting or promotional contract with TDG or a 15% surcharge to TDG's disbursements. They were not aware of the "advances" made to Hemingson or Aggressive. Indeed both categorically denied Hemingson's assertion, made in his letter dated November 27, 1989, and through his counsel's letter to Ms. Sloan dated November 30, 1990, that all of his actions were conducted with the full knowledge and consent of the directors.

Invoices received after August 25, 1988 aggregating $23,250, indicated that Hemingson and Aggressive had charged TDG for expenses incurred before August 25, 1988. Aggressive invoiced for administration and office expenses from June 1987 to August 1988 for $11,250, and administration expenses prior to September 1, 1988 for $3,750. Hemingson invoiced for promotional services for June, July and August of 1988 for $6,000 and consulting services from December 1987 through August 1988 for $2,250. There was no disclosure in the prospectus regarding these additional expenses.

Stuart Lockwood, a listings officer with the Exchange, testified that he reviewed TDG's files at the Exchange and the only management contract filed was Andersen's management contract disclosed in the prospectus. Lockwood said that, although required under the listing agreement to do so, TDG did not give the Exchange notice of, nor had the Exchange accepted the documentation for, the promotional fees, consulting fees, management fees and 15% surcharge on disbursements and "advances". Lockwood confirmed that no news releases regarding these matters were issued by TDG in accordance with the Exchange's Corporate Disclosure Policy.

TDG's new management ultimately disallowed $39,197 of the $124,087 invoiced expenses as they were not authorized by the directors, not in accordance with its listing agreement and not in accordance with the prospectus. These disallowed expenses included the consulting and promotional fees and 15% surcharge. In the disallowed promotional invoices, which totalled $22,000 and represented approximately 55% of the expenses disallowed, the only description of the services provided was "promotion fees" for a specified time period. Even though there was no written management contract between Aggressive and TDG, new management allowed the standard $2,000 a month management fee permitted by Exchange policy.

TDG commenced a law suit against Hemingson, Alexa, Vincent, Aggressive and Algo in an attempt to recover $109,000 TDG alleged was owing. At the date of the hearing that lawsuit was still outstanding and no funds had been repaid.

The evidence showed that on March 23, 1988 Hemingson was granted 175,000 employee incentive stock options to purchase shares of Algo. Bayerthal testified he conducted a search of the insider reporting files at the Commission and confirmed that Hemingson did not file an insider report with respect to these options and that his last insider report for Algo was filed on June 10, 1987. On October 24, 1989, Algo issued 582,561 shares to Aggressive further to a debt Settlement. Bayerthal testified that no insider report with respect to this debt Settlement was filed by Hemingson. On August 30, 1989 Alexa was granted 144,000 directors options to purchase shares of Algo. Bayerthal testified that Alexa had never filed any insider reports with respect to the securities of Algo.

FINDINGS AND REASONS

It is our function and duty to determine whether it is in the public interest to make orders under section 144(1)(c) and (d) of the Act that the trading exemptions available to Hemingson and Alexa under the Act do not apply and that they be prohibited from being directors and officers of reporting issuers and any other orders under section 144(1) of the Act that may be appropriate in the circumstances.

Section 144(1)(c) and (d) reads as follows:

"Where the commission or the superintendent considers it to be in the public interest, the commission or the superintendent, after a hearing, may order ...

(c)		that any or all of the exemptions described in any of sections 30 to 32, 55, 58, 80 or 81 do not apply to a person,
(d)		that a person

(i)		resign any position that the person holds as a director or officer of an issuer, and
(ii)		is prohibited from becoming or acting as a director or officer of any issuer,"

In discussing the jurisdiction and role of our Court of Appeal in a case such as this, Mr. Justice Hollinrake of our Court of Appeal in Four Star Management Ltd. v. British Columbia Securities Commission, (1990), 46 B.C.L.R.(2d) at 209 adopted what was said by Laidlaw, J.A., of the Ontario Court of Appeal in Re The Securities Commission and Mitchell, [1957] O.W.N. 595 (Ont. C.A.), at 599

"The Chairman and other members of the Commission are selected and appointed by the Lieutenant-Governor in Council for their high qualifications, ability and experience. It is the function and duty of the Commission under s. 8 of the Securities Act to form an opinion whether or not it is in the public interest to suspend or cancel the registration of any person. It is intended by the legislation that the Commission shall have extremely wide powers of discretion in forming its opinion (our emphasis)."

Section 144(1), like section 8 referred to in Mitchell, on its face makes no reference to any breach of the Act, Regulation or policy statements being required. The discretion granted to the Commission is not, by anything found in section 144(1), confined to circumstances in which a breach occurs.

There are many provisions in the Act conferring discretion on the Commission. Some are expressly confined to breaches of the Act or Regulation. Section 96(1) of the Act is an example. The Commission may make an order where it considers that a person has not complied or is not complying with Part 11 of the Act or the Regulation relating to Part 11.

In C.T.C. Dealer Holdings Ltd. v. Ontario Securities Commission (1987), 35 B.L.R. 117, Mr. Justice Reid for the Ontario Divisional Court, in reviewing the Ontario Securities Commission's discretion with respect to similar legislative provisions stated at page 138:

"I accept the difference in wording as intentional. It is too obvious to ignore. When the Legislature intended a discretion to be exercised only where a breach had occurred it has said so. When it has not said so, the inference appears compelling, that no such limitation is implied, and none should be inferred."

There is of course a limitation on the scope of our discretion in forming our opinion of the public interest under section 144(1) of the Act. That limitation is determined only by the general purpose of the Act. The courts have commented extensively on the general purpose of securities legislation and the role of securities commissions in administering that legislation.

Madame Justice L'Heureux-Dube of the Supreme Court of Canada in Brosseau v. Alberta Securities Commission , [1989] 57 D.L.R. (4th) at 467 stated that "Securities Acts in general can be said to be aimed at regulating the market and protecting the general public."

In Bennett et al v. British Columbia Securities Commission Unreported, B.C.S.C. Vancouver Registry No. A906331, May 3, 1991, Mr. Justice Melnick at page 89 stated:

"The legislature has chosen to set up a regulatory scheme under the Securities Act whereby the Securities Commission, acting in an independent sense, oversees the regulation of securities trading in the Province.

"The general legislative purpose of the Act and the OSC's [Ontario Securities Commission's] role thereunder is to preserve the integrity of the capital markets of Ontario and protect the investing public."

A review of the evidence is necessary in order that we may form an opinion of the public interest in this case, before determining whether we should make orders under section 144(1) against Hemingson and Alexa.

The Prospectus

Section 44(1) of the Act requires that "a prospectus shall provide full, true and plain disclosure of all material facts relating to the securities issued or proposed to be distributed." Section 49 of the Act requires that the prospectus contain a certificate of the issuer to this effect.

Section 1 of the Act defines material fact as ... "a fact that significantly affects, or could reasonably be expected to significantly affect, the market price or value of [the] securities". It further defines misrepresentation as:

"(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."

We find that the following are material facts that TDG should have stated in the prospectus:

	- the decision made by the directors on August 25 that Andersen's management and administrative services contract, for $2,000 a month plus expenses, was to be terminated effective August 31, 1988 and that Hemingson would be entering into a management and administrative services contract with TDG; and
	- the services performed by Aggressive and Hemingson prior to August 25, 1988, but invoiced after August 25, 1988, for administrative, promotional, and consulting services aggregating $23,250.

The amount of the undisclosed expenses which were incurred before the prospectus but invoiced after the prospectus came to $23,250. This increased the working capital deficit in the use of proceeds from $35,799 to $59,049. Considering that TDG had no cash and Properties that were still in the exploration stage, these expenses should have been disclosed as material transactions and the changes should have been reflected in the use of proceeds.

In the circumstances, these facts could reasonably be expected to significantly affect the market price or value of the securities issued by TDG.

The omission by TDG to state these material facts made the statements disclosing material contracts and transactions with directors and officers and the use of proceeds false and misleading in the circumstances in which they were made and therefore, the statements were misrepresentations within the meaning of the Act. Consequently the prospectus filed by TDG did not contain full, true and plain disclosure of all material facts in accordance with section 44 of the Act.

We find that Hemingson, as chief executive officer and a director of TDG, was responsible for TDG making the misrepresentations. Further we find that the certificate, which Hemingson as chief executive officer of TDG signed, was false and that he knew or ought to have known the certificate was false at the time he signed it.

Continuous Disclosure

Continuous disclosure is a cornerstone principle of securities regulation. Section 67 of the Act reflects this principle by requiring that, upon a material change occurring in the affairs of a reporting issuer, a press release shall be issued and a material change report shall be filed as soon as practicable, disclosing the nature and substance of the change. Material change is defined in section 1 of the Act to mean:

"...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."

TDG was a junior resource issuer. Substantially all of its assets consisted of an option to acquire six blocks of claims in the Properties. Of the $300,000 raised in the offering, two thirds, $190,000, was to be spent on the Properties, an amount almost equal to all the money spent on the Properties by TDG prior to the date of the prospectus. The spending of only $74,000 of the allocated $190,000 on natural resource properties was a change in the business, operations and assets of TDG that would reasonably be expected to have a significant effect on the market price on the value of the securities of TDG. Consequently, we find that it was a material change in the affairs of TDG.

The disclosure in the December 19 news release perhaps could be considered an attempt by TDG to disclose the material change. But it did not meet the requirements of section 67 of the Act that there be disclosure of the nature and substance of the change in a report filed with the Commission and in the press release. Within four months of its prospectus, after having spent only about one third of the $190,000 allocated for exploration work on the Properties, TDG was announcing it was only going to continue work on one of the six blocks. There was no disclosure of TDG's plans for spending the remaining $124,000, apart from its purchase of the Nevada property. The prospectus stated the money would be spent on natural resource properties. In fact, by December 19 the $116,000 left for exploration had been paid to Hemingson and Aggressive and only $23,000 was left in the treasury.

The principle of continuous disclosure is also reflected in the requirement for an exchange issuer to file with the Commission and the Exchange quarterly reports under section 145 of the Regulation. TDG failed to file its quarterly reports for the periods ending October 31, 1988 and January 31, 1989.

We find Hemingson, as the chief executive officer and a director of TDG, was responsible for TDG breaching its continuous disclosure obligations under section 67 of the Act, National Policy 40 and section 145 of the Regulation.

Exchange Rules and Listing Agreement

Paragraph 2 of the listing agreement provides that TDG must give the Exchange prompt written notice of any proposed material changes in its business, property or affairs. This paragraph goes on to state that TDG shall not proceed with any of the changes unless the Exchange has accepted the documentation disclosing the change. It sets out what matters shall be considered a material change, which include:

"(d)		any management contract and any non arms length transaction; and ....
(h)		any loan or advance of funds to another person or company that is not wholly owned."

Paragraph 14 of the listing agreement requires that there shall be a minimum of two signatures on all cheques issued by TDG. TDG issued three cheques under only Hemingson's signature. We find in doing so TDG breached its listing agreement.

Paragraph 1 of TDG's listing agreement states that TDG shall be bound by and comply with all applicable by-laws, rules and policies of the Exchange. The Corporate Disclosure Policy of the Exchange reinforces the principle of continuous disclosure for exchange issuers. It requires that any material changes as listed in paragraph 2 of the listing agreement be disclosed in a news release as soon as the decision is made to proceed with the transaction. TDG failed to disclose by news release the management fees, promotional fees, consulting fees, 15% surcharge on disbursements and "advances". Consequently we find that TDG breached its listing agreement.

Under Rule B1.08 of the Exchange, TDG is required to comply with the terms of its listing agreement. We find in breaching paragraphs 1, 2, and 14 of its listing agreement, TDG breached Rule B1.08.

We find that Hemingson, as chief executive officer and a director of TDG, was responsible for TDG breaching the Rules of the Exchange and TDG's listing agreement.

Insider Reports

Section 70(2) of the Act requires that "a person who is an insider of a reporting issuer shall, within 10 days of becoming an insider, file an insider report 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." Under section 70(4) of the Act an insider "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 during that month."

Duties of Directors and Officers

Section 142(1) of the Company Act requires that "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."

Hemingson was the president and chief executive officer and a director of TDG for a period that commenced before TDG became a reporting issuer and ended when he resigned on May 11, 1989.

We have found that Hemingson was responsible for TDG:

	- making the misrepresentations in the prospectus,
	- breaching its continuous disclosure obligations under section 67 of the Act, National Policy 40 and section 145 of the Regulation, and
	- breaching the rules of the Exchange and TDG's listing agreement.

Under sections 132 and 141 of the Company Act, every reporting issuer shall have at least three directors whose function is to manage or supervise the management of the affairs and business of the company. Under paragraph 12 of the listing agreement, TDG shall at all times have a minimum of three directors. For the period commencing prior to the date TDG became a reporting issuer and ending on December 12, 1988, Hemingson, Andersen, Steblin and Vincent were the directors of TDG.

Andersen and Steblin testified that on August 25 just prior to the signing of the prospectus, the directors agreed that Andersen's contract would be terminated at the end of August and Hemingson would enter into a management and administrative services contract. No contract was ever prepared and placed before the directors for their approval.

Following August 25, 1988, Hemingson managed the affairs and business of TDG without the knowledge of Andersen and Steblin and without receiving directors' approval on any matters, including the following:

	- the decision on September 15, 1988 to open the bank account and to give either Hemingson or Vincent signing authority over it;
	- the decision on September 28, 1988 to give both Hemingson and Alexa signing authority for the account;
	- the decision to spend only $66,000 on the Properties rather than $190,000 as stated in the prospectus;
	- the decision to spend $8,000 on a natural resource property in Nevada rather than on the Properties;
	- the decision to have TDG pay, promotional fees, consulting fees and a 15% surcharge on disbursements to Hemingson or Aggressive; and
	- the decision to "advance" significant amounts of the net proceeds to Aggressive and Hemingson;

We find that all these matters required the approval of the directors and that therefore in making decisions regarding them, Hemingson acted without authority.

Hemingson provided the bank with certificates on two separate occasions; certificates which he knew were false as he knew he had not obtained the approval of the directors. Andersen testified that he arranged several meetings with Hemingson during this period. These were clear opportunities for Hemingson to discuss these matters with Andersen and yet he chose not to do so. He put Andersen off regarding the banking by telling him it was being looked after. Although Anderson acknowledged that Hemingson indicated he would like to acquire a property in Nevada, the discussions went no further. We find that Hemingson deliberately did not obtain the approval of the directors on these matters.

We do not accept as credible Hemingson's statement in his letter to the staff of the Commission and subsequently reiterated through his counsel's letter, that "All of his actions were conducted with the full knowledge and approval of the directors". Instead we accept Andersen and Steblin's sworn testimony in this regard and find that Hemingson made false statements to the staff of the Commission in his letter of November 27, 1989.

The false banking certificates allowed Hemingson, initially and subsequently with Alexa, to sign cheques on TDG's account. As a consequence he had TDG pay to himself and Aggressive promotional fees, consulting fees and a 15% surcharge on disbursements in the total amount of $39,197 all of which were subsequently disallowed by TDG. The promotional invoices for $22,000, representing 55% of the disallowed expenses, contained no description of the services rendered. In addition to the reasons management had for disallowing these payments, we find that there was no factual basis to support the payment of the promotional fees. Hemingson also had TDG pay to Aggressive what he termed "advances" in an amount he said was $69,000 and for which there was no documentation. To describe these payments as "advances" lends an air of legitimacy which in the circumstances is simply not warranted. In making these non-arm's-length payments Hemingson deliberately did not obtain the approval of the directors and acted without authority. Hemingson had been involved with public companies for 12 years and knew or ought to have known what requirements listed companies were to meet. Nevertheless he made no attempt to have TDG meet them regarding these non-arm's-length transactions.

Hemingson's conduct in opening the account and in making these non-arm's-length payments to Aggressive was deceitful. We find he misappropriated for his own benefit over one third of TDG's offering proceeds. In our view it is irrelevant that some of the "advances" may have been used by Aggressive to assist Algo. Equally irrelevant is any belief Hemingson may have held that the money would be repaid.

We find Hemingson did not act honestly, in good faith and in the best interests of TDG when he opened the account, and when he caused TDG to make the non-arm's-length payments contrary to the duty of conduct required of him in sections 142(1)(a) and 159 of the Company Act.

We find Hemingson did not exercise the care, diligence and skill of a reasonably prudent person when he acted without authority and made decisions regarding the Properties and the property in Nevada contrary to the duty of care required of him in sections 142(1)(b) and 159 of the Company Act.

Alexa

From September 28, 1988, Alexa along with her husband signed all the cheques for TDG. Notwithstanding that she was president of a company specializing in corporate services and had several years of business management experience, Alexa signed cheques to Aggressive and Hemingson where there were no invoices or completely inadequate invoices. Alexa assisted Hemingson in misappropriating TDG's funds and it appears to us that she was willing to do so.

Alexa did not become a director and officer of TDG until December 12, 1988 by which time most of the offering proceeds were spent. Her becoming a director did not change her conduct in assisting Hemingson. She continued to sign cheques for which there were no invoices. In so doing she breached the duty of care required of her in section 142 and 159 of the Company Act.

The $1,166 cheque

On July 5, 1989 when Hemingson and Alexa were no longer directors of TDG, they without any authority issued a cheque drawn on the account of TDG payable to Hemingson for the balance in the account of $1,166. We find that in withdrawing this money Hemingson, with the assistance of his wife Alexa, deliberately and without any right converted it to his own use.

DECISION

The Commission's mandate under the Act is to regulate trading in securities in the Province.

The Commission administers a broad range of disclosure rules in the Act, the Regulation and its policies, so that market participants receive material information on a timely and continuous basis permitting them to make informed investment decisions and so that all market participants will be able to trade with equal knowledge.

The Exchange through its listing agreement has additional requirements for Exchange listed companies which supplement the disclosure requirements under the Act, the Regulation and Commission policies. The issuer is required to give the Exchange prompt written notice of any non-arm's-length transaction and shall not proceed with the transaction unless the Exchange has accepted the documentation disclosing the transaction. These requirements allow the Exchange to ensure the appropriateness of non-arm's-length transactions proposed by Exchange issuers.

All of these requirements work together to preserve the integrity of the capital markets in British Columbia and to protect the investing public.

We have found that TDG's prospectus, did not provide full, true and plain disclosure of all material facts relating to its securities. $300,000 was raised from the public on the basis of TDG's prospectus which contained misrepresentations of material facts.

Following the issuance of securities under the prospectus, TDG failed to make timely disclosure of all material information regarding its business and affairs. TDG did not comply with the requirements of section 67 of the Act and National Policy 40 when it failed to disclose that only $74,000 was being spent on natural resource properties rather than the $190,000 as stated in the prospectus. The failure to file quarterly reports for October 31, 1988 and January 31, 1989 and the failure to meet listing agreement requirements deprived the investing public of important information regarding TDG's business, operations and assets.

The failure to notify and file acceptable documentation with the Exchange for Hemingson's management contract, promotional fees, consulting fees, 15% surcharge and "advances" prevented the Exchange from ensuring the appropriateness of these non-arm's-length transactions. Had there been compliance with the listing agreement requirements, Hemingson would not have been able to misappropriate TDG's funds.

We have found Hemingson was responsible for TDG not complying with its regulatory requirements and that he did so deliberately.

We have also found that Hemingson did not fulfil his duties of conduct and care as a director and officer of TDG when he acted without authority and deliberately disregarded regulatory requirements. Hemingson's deceitful conduct enabled him to misappropriate for his own benefit over one third of the net proceeds of the offering. This conduct was detrimental to TDG and its shareholders. After leaving TDC, Hemingson's dishonest conduct continued when, without authority and any right, he took the $1,166 in July 1989 and when he made false statements to Commission staff that he had directors' approval for all his actions.

Hemingson's failure to file insider reports with respect to the securities of Algo is a further reflection of his lack of regard for meeting regulatory requirements.

The public interest requires that Hemingson be prevented from being involved in any way in the business and affairs of reporting issuers for a considerable period of time.

Alexa's conduct in signing cheques for TDG with her husband, where there was no documentation or clearly inadequate supporting documentation enabled Hemingson to misappropriate TDG's funds. As with Hemingson, we find Alexa's egregious conduct continued when she, without any authority, signed the $1,166 cheque to her husband. Similarly her failure to file insider reports for the securities of Algo is unacceptable. This conduct was clearly prejudicial to the public interest and like her husband, Alexa should be prevented from being involved in the business and affairs of any reporting issuer for a considerable period of time.

Public confidence in the integrity of the capital markets in British Columbia has been substantially eroded and the investing public has been seriously harmed by the conduct of Hemingson and Alexa.

We order in the public interest:

(a)		under s. 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 Hemingson for a period of 20 years from the date of this order;
(b)		under section 144(1)(d) of the Act that Hemingson resign any position that he holds as a director or officer of a reporting issuer forthwith and is prohibited from becoming or acting as a director or officer of a reporting issuer for a period of 20 years from the date of this order;
(c)		under section 144(1)(d) of the Act that Hemingson is prohibited from becoming or acting as a director or officer of any issuer that provides management and administrative, promotional or consulting services to a reporting issuer for a period of 20 years from the date of this order;
(d)		under s. 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 Alexa for a period of 10 years from the date of this order;
(e)		under section 144(1)(d) of the Act that Alexa resign any position that she holds as a director or officer of a reporting issuer forthwith and is prohibited from becoming or acting as a director or officer of a reporting issuer for a period of 10 years from the date of this order; and
(f)		under section 144(1)(d) of the Act that Alexa is prohibited from becoming or acting as a director or officer of any issuer that provides management and administrative, promotional or consulting services to a reporting issuer for a period of 10 years from the date of this order.

J.C. MAYKUT
Vice Chairman
H.D. BROWNE
Member
J.P.H. McCALL
Member