Decisions
OWEN D. RICHMAN, et. al. [Decision]
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BCSECCOM #:
2000 BCSECCOM 76
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Document Type:
Decision
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Published Date:
2000-09-28
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Effective Date:
2000-09-28
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Details:
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2000 BCSECCOM 76
COR#00/205
IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, c. 418
AND
IN THE MATTER OF OWEN D. RICHMAN
AND
IN THE MATTER OF THE CANADIAN VENTURE EXCHANGE INC.
HEARING and review
PANEL
Brent W. Aitken, Member
Joan L. Brockman, Member
Diane K. Wolch, Member
DATE OF HEARING
September 14, 2000
DATE OF DECISION
September 28, 2000
APPEARING FOR OWEN D. RICHMAN
Trevor Fowler
APPEARING FOR THE CANADIAN VENTURE EXCHANGE INC.
Gordon R. Johnson
APPEARING FOR COMMISSION STAFF
Lorne Herlin
DECISION OF THE COMMISSION
[para 1]
This is a hearing and review under section 28 of the Securities Act, R.S.B.C. 1996, c. 418. Owen D. Richman is asking that we set aside a decision of the Vancouver Stock Exchange1The Vancouver Stock Exchange and the Alberta Stock Exchange merged November 26, 1999 to form the Canadian Venture Exchange Inc., which carries on business as CDNX.:
· that Richman’s acceptability to the Exchange as a director or officer of any Exchange listed company is in question and that any listed company proposing the appointment of Richman file a submission with the Exchange in accordance with its Listings Policy 25, and
· requiring that Richman resign as a director of Consolidated Gulfside Resources Ltd.
[para 2]
Richman argues that the Exchange did not meet the required standard of procedural fairness because it failed to provide Richman with the opportunity to submit third party evidence in support of his position. Richman also argues the Exchange’s decision is not supported by the evidence before it.
BACKGROUND
[para 3]
The Exchange’s decision is based on Richman’s conduct while a director of U. S. Oil and Gas Resources Inc. (USR).
[para 4]
USR is a British Columbia corporation resulting from the amalgamation in 1997 of U.S. Oil and Gas Inc. (USOG) and Zeus Energy Corp. Richman was a director of USR and had been a director of USOG since its incorporation in 1977.
[para 5]
In 1998 Gil Gauthier, an Exchange surveillance officer, was contacted by Glen Skidmore, the former controller of USOG, Zeus and USR. Skidmore made a number of allegations about the companies. The only one material to these proceedings was his allegation that certain payments booked in the companies’ accounts in 1997 as fees for “public relations services” were actually finder’s fees paid for raising capital.
[para 6]
The payments in question were made to Michele Lavimodiere, the wife of Vaughn Barbon. Barbon was an employee of Dr. Al-Kuyaser, who invested at least $315,000 in shares of some or all of USOG, Zeus or USR. Skidmore alleged that Lavimodiere never performed any services for the companies and that the amounts paid to her were in fact finder’s fees paid to Barbon for inducing Al-Kuyaser to invest.
[para 7]
This allegation was of interest to Exchange staff because Exchange Listings Policy 16 requires listed companies to give prior written notice to the exchange of any proposed private placement, including the details of any finder’s fees paid. The Exchange had received no notice or other disclosure of any finder’s fees.
[para 8]
In October 1998 Gauthier wrote USR to the attention of Richman about the Skidmore allegations. He asked USR to clarify “the exact nature of the services that were provided”by Lavimodiere. USR’s counsel responded in November as follows:
“The Company is of the view that your letter was instigated by a disgruntled former employee who was terminated by the Company.
. . .
“The Company has advised that [the fees] were not paid for public relations services. This sum was paid for services related to internet set-up, project write-ups and related matters. The Company is of the view it received exceptional value for the services rendered and is satisfied with the invoices paid which were internal corporate decisions.”
[para 9]
In December Skidmore sent Gauthier a letter setting forth his allegations in detail and enclosed copies of the invoices in question, which totalled $31,625. All of the invoices but one stated that they were “For Public Relations Services”. The exception was “For Preperation [sic] of Brochures, Business cards and all new related materials”.
[para 10]
Skidmore also enclosed a copy of handwritten notes prepared by Richman that the Exchange concluded were calculations of amounts owed to Barbon. The notes show a total of $31,625 next to which is the notation ”Do total invoices”. The lower part of the document then describes invoice dates and amounts totalling $31,625. The documents provided by Skidmore include invoices purportedly from Lavimodiere corresponding precisely with the dates and amounts of the invoices referred to in the handwritten notes. According to Skidmore, the invoices were not actually received from Lavimodiere but were prepared by Skidmore on Richman’s instructions.
The handwritten notes also appear to record the intended transfer to Barbon of 26,500 shares valued at about $13,200 and refer to Barbon’s brokerage account number. The documents provided by Skidmore also showed evidence of the transfer of 25,000 shares of Zeus and 1,000 of USOG from Richman to Barbon. Skidmore also provided a copy of a cheque signed by Richman from USOG to Lavimodiere in the amount of $18,000.
[para 11]
On December 16, 1998 the Exchange wrote Richman asking to meet with him to clarify matters and advised him that it was assessing his suitability as a director of Exchange listed companies. By this time Richman was no longer a director of USR but had become a director of Consolidated Gulfside.
[para 12]
On December 21 Richman met with Gauthier and Angela Huxham, Director of Surveillance at the Exchange. According to Gauthier’s notes of the meeting, Richman denied that the payments were a finder’s fee. He said that the payments were for services provided by Barbon for the preparation of brochures and business cards and website content. He said the fees were made payable to Lavimodiere because she worked with Barbon. Richman claimed not to know whether he had made the handwritten notes and claimed to have no knowledge of the stock transfer to Barbon.
[para 13]
At the end of the meeting Richman apparently agreed to provide documents in support of his assertions and to investigate the page of handwritten notes. On January 15, 1999 the Exchange wrote Richman asking him if he intended to provide any further information. Richman replied January 18, saying he would be submitting “further clarification in respect to this matter as soon as I am provided information that I have requested from various parties”.
[para 14]
On January 26 Richman wrote the Exchange advising as follows:
“In regards to your questions as to an explanation of the work sheet headed “Vannie”. . . Mr. Barbon and Michele Lavimodiere were performing a number of consulting functions for the Company. In early December of 1997 Mr. Barbon and I met to review what monies were owed that had not been paid to Mr. Barbon and Michele Lavimodiere for their work.”
[para 15]
The letter went on to say that Barbon had “accepted payment in the form of $18,000 cash and 26,000 common shares of the company at a deemed value of $13,625.00”.
[para 16]
On February 4, 1999 Gauthier contacted Lavimodiere and asked her what services she had performed for the companies. She said (in contradiction to what the company had said) that the services were for preparing “marketing plans and business plans” and for public relations services. After Gauthier advised her that the company had said she had provided internet services, she said that was true.
[para 17]
On February 5, 1999 Gauthier reported his findings to Huxham and on February 9 Huxham wrote Richman, saying:
“ . . . we wish to inform you of our conclusions regarding payments made by the Company . . . to Vaughn Barbon . . .
“We considered the explanations that you provided in the December 21, 1998 meeting and in your January 26, 1999 letter however we do not find your explanations to be credible.
“Based on our review, we believe that the payments made to Barbon and Lavimodiere were in fact commissions or finder’s fees in consideration of private placements made by Dr. Al-Kuyaser or companies associated with him. These fees were paid without the required disclosure or Exchange acceptance as required in the Exchange’s Policy 16.
“We also believe that you caused the Company to create invoices totaling $31,000 in the name of Michele Lavimodiere, purportedly for public relations services from August to December, 1997 ($26,000) and for the preparation of brochures, business cards and related materials ($5,000). It appears that these invoices do not reflect the services actually rendered.
“In view of the foregoing, we are now taking the position that your acceptability as a director or officer of Exchange listed companies is in question. Our records show that you are a director of Consolidated Gulfside Resources Ltd. We will be requiring, pursuant to the Listing Agreement that Consolidated Gulfside Resources Ltd. obtains your resignation. In future, any listed company proposing your involvement will be required to file a submission for acceptance by the Exchange, in accordance with Listings Policy 25.”
[para 18]
It is the decision set forth in this letter that is the subject of this hearing and review.
ARGUMENTS AND ISSUES
[para 19]
Richman challenges the Exchange’s decision on two grounds:
2. The Exchange erred in relying on the evidence of Skidmore and did not have sufficient evidence other than Skidmore’s upon which to make its decision.
[para 20]
Richman is asking that the Exchange’s decision be set aside.
[para 21]
In response, the Exchange says:
1. Richman was given adequate opportunity to provide evidence and the standard of procedural fairness was met.
2. The decision of the Exchange is supported by the evidence before it.
[para 22]
The Exchange asks that the Exchange’s decision be confirmed.
[para 23]
Commission staff supports the position of the Exchange.
DISCUSSION
[para 24]
The Commission has established in previous decisions that it will generally confirm a decision of the Exchange unless:
(a) the Exchange has proceeded on an incorrect principle,
(b) the Exchange has erred in law,
(c) the Exchange has overlooked some material evidence,
(d) new and compelling evidence is presented to the Commission that was not presented to the Exchange, or
(e) the Commission’s view of the public interest is different from the view of the Exchange.
[para 25]
The basis for Richman’s request that we set aside the Exchange’s decision appears to be that the Exchange erred in law.
Procedural Fairness
[para 26]
The Commission’s decision In the Matter of Michael J. Hordo, [2000] 26 BCSC Weekly Summary 45 applied the test contained in Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817 to determine the level of procedural fairness required of the Exchange in making director acceptability decisions. The Commission concluded that the Exchange need provide only a relatively low level of procedural fairness in making such decisions.
[para 27]
Richman argues that even if the standard for procedural fairness is low, the Exchange failed to meet that standard. In particular, Richman argues that he was not given an adequate opportunity to present evidence, in particular third party evidence, in support of his position.
[para 28]
We do not agree. Richman was given three opportunities to respond to the allegations. First, upon hearing Skidmore’s allegations, Gauthier wrote USR (to Richman’s attention) advising it of the allegations and asking for its response. USR responded through its counsel.
[para 29]
Second, when questions remained the Exchange asked Richman to attend a meeting to provide further clarification. At this point Richman was advised that the Exchange was assessing his suitability as a director of Exchange listed companies. Richman attended the meeting, presented his explanations and advised that he would provide further information. He was given ample time to do so. At no time during this process did Richman seek to submit third party evidence or suggest that it was his intention to do so.
[para 30]
Lastly, Richman provided follow-up information.
[para 31]
In Huxham’s decision it is clear that she considered Richman’s explanations at the meeting and in his follow-up letter.
[para 32]
We therefore find that the Exchange met the standard of procedural fairness required in reaching its decision.
Evidence in Support of the Decision
[para 33]
The evidence before the Exchange consisted of
· Skidmore’s allegations,
· the invoices in question,
· Richman’s handwritten notes,
· the $18,000 cheque to Lavimodiere
· brokerage records showing the transfer of 26,000 shares from Richman to Barbon,
· USR’s response to the allegations,
· the interview with Richman,
· Richman’s subsequent letter, and
· interviews with Lavimodiere and others.
[para 34]
Whether or not Skidmore had an axe to grind, as alleged by USR, the documentary evidence corroborates his allegations. On the other hand, there were inconsistencies among the explanations of USR, Richman and Lavimodiere. Richman’s explanations are generally non-responsive and weak. The Exchange, which had the opportunity to meet with Richman and assess his demeanour in presenting his explanations, did not find his explanations credible.
[para 35]
We find that there is nothing in the record which would lead us to conclude that the decision of the Exchange was not supported by the evidence.
DECISION
[para 36]
We therefore find that the Exchange did not err in law. We confirm the Exchange’s decision:
· that Richman’s acceptability to the Exchange as a director or officer of any Exchange listed company is in question and that any listed company proposing the appointment of Richman file a submission with the Exchange in accordance with its Listings Policy 25, and
· requiring that Richman resign as a director of Consolidated Gulfside Resources Ltd.
DATED September 28, 2000.
[para 37]
FOR THE COMMISSION
Brent W. Aitken, Member
Joan L. Brockman, Member
Diane K. Wolch, Member