Telynx (fka TLYN)

[DueDillinger]

j- These docs may fill in some of the blanks, but for every question answered, a dozen more come to mind.

Document No.: 92/02
Subject: Securities Commission Releases Greenwell/Supreme Decision
Amendments:
Published Date: 02/21/1992
Effective Date:
_____________________________
Released: February 14, 1992 Contact: Ron Messent
660-4800

The British Columbia Securities Commission today released a decision
on several applications regarding investigations into trading in the
shares of Greenwell Resources Corporation and Supreme Resources Inc.

Temporary cease trade orders were issued against the shares of Greenwell
and Supreme in 1987. Those orders were extended and remain outstanding.

In July 1990, a member of the Commission ordered an investigation into
the affairs of Greenwell, Supreme and others, based on allegations that
certain persons had traded shares of Greenwell and Supreme in the United
States subsequent to the cease trade orders.

Four of those under investigation, Advance Capital Services Corporation,
Jason Dallas, Robert Palm and Michael Doherty, applied to have the investigation
order revoked. They argued that the cease trade orders were invalid,
the investigation order had not been properly issued and the investigation
was beyond the Commission's jurisdiction.

The Commission dismissed these applications.

In October 1990, a member of the Commission ordered an investigation
into the affairs of Greenwell and David Lyon, who was alleged to have
traded shares of Greenwell subsequent to the cease trade order.

Lyon requested a hearing and review, and asked that the investigation
order be revoked, making similar arguments to those by the other applicants.
He argued in the alternative that the investigation order was too broad
and vague.

The Commission decided to vary the October 1990 investigation order to
provide a more appropriate specification of the scope of the investigation.

Copies of the Commission's decision (18 pages) may be obtained in person
at 1100 - 865 Hornby Street, Vancouver, British Columbia.
---------------------------------




British Columbia Securities Commission

Chapter 2 - Hearing Decisions

Weekly Summary, Edition 89:125
Indexed as:

Greenwell Resources Corp. (Re)

IN THE MATTER OF the Securities Act, S.B.C. 1985, c. 83
AND IN THE MATTER OF Greenwell Resources Corporation
AND IN THE MATTER OF Harold Dale Baker and Thomas Rodney
Irving

Decision and Reasons

D.M. Hyndman, E.L. Lien, J.P.H. McCall

Heard: November 22, 1988
Decision: June 19, 1989

COUNSEL:

Boris W. Tyzuk, for the Superintendent of Brokers.

Kenneth W. Ball, for Harold Dale Baker.

Douglas R. Garrod, for Thomas Rodney Irving.

DECISION AND REASONS:-- The matters that were the subject of this
hearing were first set out in a Notice of Hearing dated July 29, 1988.
In this notice the Superintendent of Brokers sought an order under section
145 of the Securities Act (the "Act") to remove the trading exemptions
of Harold Dale Baker ("Baker"), the corporate secretary of Greenwell
Resources Corporation ("Greenwell"), and Thomas Rodney Irving ("Irving"),
a director of Greenwell. The Commission was asked to determine whether,
in connection with purchases of Greenwell's shares, Baker and Irving
had breached section 68(1) of the Act, which prohibits a person in a
special relationship with a reporting issuer from purchasing or selling
securities of the issuer with knowledge of a material fact or material
change in its affairs that he knows or ought reasonably to know has not
been generally disclosed.

In an Amended Notice of Hearing dated October 26, 1988, the Commission
was asked to consider whether a sale of Greenwell shares by Baker was
also in breach of section 68(1). The Superintendent also sought additional
orders in the Amended Notice, firstly, that Baker and Irving be prohibited
from acting as directors or officers of an issuer under section 145.1
of the Act and, secondly, that they pay the costs of the hearing under
section 154.2 of the Act. Sections 145.1 and 154.2 were added to the
Act by an amendment which came into force in August 1988.

BACKGROUND

Greenwell was a reporting issuer listed on the Vancouver Stock Exchange
("the Exchange") throughout the period when the critical events took
place between October 1986 and August 1987. Greenwell had completed a
public financing in September 1986 to raise $194,000, of which $75,000
was spent on a Nevada gold property. Greenwell had three employees at
that time.

On October 1, 1986 Greenwell issued a news release stating that a
letter of intent had been signed for the acquisition of $100 million
of assets in exchange for the issuance of convertible preferred shares
(the "Acquisition"), subject to shareholder and regulatory approval.
Further news releases confirming the Acquisition were issued on November
17, 1986 and February 12, 1987. These were followed up with a President's
Message to Shareholders, dated March 2, 1987, issued in connection with
Greenwell's annual meeting. This document provided no more detailed information
about the Acquisition than the previous releases, other than to describe
the assets as U.S. real estate.

Michael Gilley ("Gilley"), a listings officer at the Exchange, testified
that on April 21, 1987 he advised Greenwell verbally that it was in breach
of its listing agreement because it had failed to provide a Reverse Takeover
Information Statement and back-up documentation in the required 30 days
from the date of the letter of intent. This advice was confirmed in a
letter from the Exchange dated May 12. Greenwell provided the required
documentation to the Exchange on June 12.

The Acquisition contemplated the purchase of U.S. real estate assets,
including a large ranch in Texas. Gilley reviewed the proposed transaction
and was concerned about the value shown for the ranch. With Greenwell's
agreement, the Exchange retained a consultant to review the appraisal
reports. A report was received from the consultant on July 27,

In a letter dated July 28 Gilley posed to Greenwell a number of questions
regarding the deficiencies he had identified in the Acquisition disclosure
documents. Specifically he was concerned because the ranch had been appraised
at a value which appeared to be excessive, it was not owned by Advance
Capital ("Advance"), the proposed vendor, and it was encumbered with
debt approximately equivalent to the appraised value.

Following further communications between Gilley and counsel for Greenwell,
Gilley presented the Acquisition to the Exchange's Listings Committee
on August 19. In a letter dated August 20 to Sobolewski Anfield, counsel
for Greenwell, Don Gordon ("Gordon"), Manager of Policy and Planning
for the Exchange, conveyed the Listings Committee's unanimous decision
that the submission "be withdrawn from further review as the extent of
the deficiencies that remain unresolved is so grave that it is impractical
for further detailed comments to be issued by the Vancouver Stock Exchange."
It was the Committee's opinion that Greenwell had failed to provide "full
true and plain disclosure" of the Acquisition. Greenwell was instructed
in the August 20 letter to immediately submit a news release disclosing
that the Exchange had withdrawn the Acquisition and setting out Greenwell's
plans to either proceed with or withdraw from the Acquisition. This decision
is described as "the Initial VSE Position".

Gordon testified that it was the practice of Exchange personnel to
phone when letters such as the August 20 letter were available for pick-
up. He stated that Sobolewski - Anfield had offices two floors above
the Exchange and had two pick-ups each day.

The price of Greenwell's common shares had remained close to $0.30
prior to March 1987. In March, when the annual meeting was held, there
was a significant increase in volume and the price rose as high as $2.25.
After increasing to $2.60 in May, it declined to $1.11 in June. However,
by early August it had increased again to $2.80, dropping back to $2.40
when the Listings Committee held its meeting on August 19.

On August 21, by way of tickets time-stamped between 6:53 a.m. and
9:14 a.m., Baker sold 4,500 shares of Greenwell through his account at
Levesque Beaubien Inc. at a price of $2.20 in four trades. According
to Baker's August insider report filed with the Commission and dated
September 15, these were the first shares he had sold since August 12
and were the last of some 7,500 shares he had owned at the end of July.


After the August 20 letter was issued, officers of Greenwell and Advance
did not submit or issue the news release requested by the Exchange but
instead contacted the Exchange to register their objection to the Initial
VSE Position. As a result Gordon, who was then acting in the temporary
capacity of Vice President, Listings, agreed to meet with Greenwell representatives
to hear new information that he was told had become available.

The meeting took place during the afternoon of August 25 at the Exchange
and was attended by Robert Palm of Advance, Alec Lenec, Baker and Irving
from Greenwell and David Anfield of Sobolewski Anfield. Gordon was the
only executive officer attending for the Exchange and was accompanied
by a secretary to record the proceedings. At the meeting major problems
were reviewed but no new information was presented, according to Gordon,
who said a tense atmosphere developed and the Greenwell representatives
threatened to delist Greenwell from the Exchange. Gordon then suggested
an alternate approach which, if adopted, would permit the Exchange to
give its approval. He suggested converting the deficiencies identified
by the Exchange into risk factors to be included in the disclosure documents.
This approach would have had the effect of reversing the decision of
the Listings Committee but required the approval of the President of
the Exchange. Gordon testified that he had said he would recommend this
approach. The immediate response from those present, according to Gordon,
was "an audible sigh of relief" and a reduction in tension. The effect
of the August 25 meeting was to keep the file open and to breathe new
life into the Acquisition. Gordon's alternate approach is described as
"the Revised VSE Position."

On August 24 and 25, Greenwell's shares traded at prices between $2.21
and $2.50, closing at $2.30 on August 25. On August 26 the shares traded
as high as $3.05 before trading was halted at 8:13 a.m. The last trade
was at $2.95, an increase of $0.65 on the day, and 93,400 shares were
traded during the short period before the stock was halted. This halt
remained in effect until September 8.

One third of the trading on August 26 was accounted for by Baker and
Irving. Levesque Beaubien Inc. entered a market buy order for Baker's
account for 10,000 Greenwell shares at 6:25 a.m. The order was filled
at prices between $2.40 and $2.60. At 6:58 a.m. West Coast Securities
Ltd. entered a market buy order for Irving's account for 20,000 Greenwell
shares. It was filled at prices ranging from $2.60 to $2.90. Baker reported
the purchase of the 10,000 shares in his August insider report. Irving
did not include his purchase of 20,000 shares in his August insider report
filed September 23, nor in the September report filed on October 28,
nor the October report filed on November 16.

Gordon documented the Revised VSE Position in a letter dated August
27 to Sobolewski Anfield. Greenwell subsequently prepared a draft news
release dated August 31, which incorporated the elements of the Revised
VSE Position. This draft news release was never issued.

When Gordon consulted the President of the Exchange about the Greenwell
matter, the President advised him that he was not prepared to accept
Gordon's recommendation and that the decision of the Listings Committee
should stand. On September 8, 1987 Greenwell issued a news release stating
that it had made application to have its shares voluntarily delisted
from the Exchange and that it intended to proceed with the Acquisition.
Greenwell also said that it was making application to list its shares
on the Alberta Stock Exchange.

Trading in Greenwell's shares resumed at the market open on September
8, following the issue of the news release. During the four days of trading
which remained in the week, trading volume was higher than it had been
since the week ending July 31, 1987 and the closing price was $2.43,
a decline of $0.52 from the pre-halt price. The price declined further
over the following two weeks and closed at $1.85 on September 25.

DECISION

We have been asked to determine whether Baker and Irving have breached
section 68(1) of the Act, which reads in part as follows:
"68(1)

No person in a special relationship with a reporting issuer shall

(a)

purchase or sell securities of the reporting issuer with knowledge of
a material fact or material change in the affairs of the reporting issuer
that he knows or ought reasonably to know has not been generally disclosed
.."

We must first determine whether Baker and Irving were in a special
relationship with Greenwell.

Section 3(1) of the Act states:

"a person is in a special relationship with a reporting issuer where
he ...

(b)

is a director, officer or employee of

(i) the reporting issuer ..."

We find that Baker and Irving were in a special relationship with Greenwell,
Baker as corporate secretary and Irving as a director.

We will next consider whether the Initial VSE Position was a material
fact or material change and, if so, whether Baker contravened section
68(1) when he sold Greenwell securities on August 21. Material change
and material fact are defined in section 1 of the Act as follows:

"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 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;


"material fact" means, where used in relation to securities issued or
proposed to be issued, a fact that significantly affects, or could be
reasonably expected to significantly affect, the market price or value
of those securities;

Mr. Tyzuk, counsel for the Superintendent, argued that the Initial
VSE Position was a material change. Greenwell's listing agreement with
the Exchange requires, in paragraph 6:

"That the Company shall give to the Exchange prompt notice of each proposed
material change in the general character or nature or organization of
its business, property or affairs, and, without limiting the generality
of the foregoing, this shall include:

..

(c)

every proposed acquisition or disposition (by one transaction or a series
of transactions) of real or personal property at (i) a cost or for a
price exceeding $50,000 where the cost or price requires payment in shares
..


The Company shall not proceed with any of the foregoing transactions
without the prior acceptance of the Exchange."

The Acquisition certainly required Greenwell to give notice to the
Exchange and it did so. Mr. Tyzuk submitted that the Exchange's acceptance
or rejection of the Acquisition would affect the assets, operations,
business or perhaps the ownership of the issuer and would reasonably
be expected to have a significant effect on the market price of Greenwell's
shares.

Mr. Tyzuk further submitted that the price of Greenwell's shares,
since it began climbing from $0.30 in February to the $2.20 level prevailing
in August, had become primarily a function of investor expectations of
Greenwell's prospects after the Exchange's approval of the Acquisition.
He argued that a rejection of the Acquisition would reasonably be expected
to have a significant effect on price.

Mr. Garrod, counsel for Irving, argued that the Initial VSE Position
was neither an acceptance nor a rejection of the Acquisition, since the
Exchange simply requested Greenwell to withdraw its submission, nor was
it a withdrawal on the part of the Exchange. We disagree, and find the
meaning of the Exchange's letter of August 20 to be quite clear: "...it
was unanimously decided... that the Company's submission be withdrawn
from further review..." Although the wording does not accord with that
used in Greenwell's listing agreement, which requires that Greenwell
shall not proceed with a transaction of this type without the prior acceptance
of the Exchange, the Initial VSE Position was clearly a decision not
to accept the Acquisition.

Mr. Garrod further argued that the Initial VSE Position was not a
material change since it did not result in the issuance of an Exchange
notice nor did the Exchange halt trading in Greenwell's shares. No evidence
was placed before us that an event such as the Exchange's decision to
withdraw the Acquisition from review requires a notice to members. The
Exchange's position on halting trading is set out in Greenwell's listing
agreement in paragraph 12, which states that at any time and without
notice the Exchange may suspend or halt trading in Greenwell's shares.
It is evident that the Exchange chose not to exercise its discretion
in this case and instead elected to order Greenwell to issue a news release.
We do not consider the fact that the Exchange did not issue a notice
or halt trading relevant to whether the Initial VSE Position was a material
change in the affairs of Greenwell.

The Initial VSE Position was a decision of the Exchange to deny the
required regulatory approval for a proposed transaction that was the
major business interest of Greenwell. There can be no doubt that the
Initial VSE position was a change in the business, operations and assets
of Greenwell that would reasonably have been expected to have a significant
effect on the market price of Greenwell's securities. We therefore find
that the Initial VSE Position was a material change in the affairs of
Greenwell.

The Initial VSE Position was communicated to Greenwell's solicitors,
Sobolewski Anfield, by a letter dated August 20. By normal practice,
the Exchange telephones to advise that such letters are available for
pick up by the solicitors. Sobolewski Anfield has offices in the Exchange
Tower and normally makes two pick-ups per day. On the morning of August
21, Baker sold all of his remaining shares of Greenwell.

Based on this evidence, we find, on a balance of probabilities that
Sobolewski Anfield received the August 20 letter on August 20, that Baker
learned of the Initial VSE Position from Sobolewski Anfield on August
20 and that Baker knew, or ought reasonably to have known, that the Initial
VSE Position had not been generally disclosed.

We therefore find that, in selling Greenwell shares on the morning
of August 21, while he was in a special relationship with Greenwell,
Baker breached section 68(1).

Next, we will consider whether Baker and Irving breached section 68(1)
when they purchased Greenwell shares on August 26.

The Revised VSE Position was developed by Gordon during the August
25 meeting to provide an alternative approach for dealing with the concerns
raised by the Listings Committee. Unlike the Initial VSE Position it
was not a decision of the Exchange. To become a decision, it would require
the approval of the President of the Exchange.

The importance and potential impact of the Revised VSE Position is
clear. Had it been subsequently approved as an Exchange decision it would
have allowed Greenwell to proceed with the Acquisition, its major business
interest, and would undoubtedly have had a significant effect on the
price or value of Greenwell's shares. It is also important to note that
Gordon's intention to recommend the Revised VSE Position to the appropriate
levels of authority at the Exchange was perceived very positively by
those attending the August 25 meeting. We have Gordon's evidence that
there was a relaxation of the tension that had been present when the
meeting began and a general air of relief. It was evident that the company
representatives, Baker and Irving among them, perceived it to be a reversal
of their misfortune or, as Gordon put it, as breathing new life into
the Acquisition. That the Greenwell representatives saw it as a credible
proposal is further evidenced by the draft news release which they proceeded
to prepare. This was dated August 31 and contained full disclosure of
the matters which Gordon had proposed should be dealt with as risk factors.


Gordon's decision to recommend the Revised VSE Position is critical
to our determination. Even though the Revised VSE Position could not
be implemented without further approval, the fact that it would be recommended
by Gordon, a senior official of the Exchange, would undoubtedly be perceived
by the market as a positive development in the attempt to get approval
for the Acquisition. It was therefore a fact that could reasonably be
expected to significantly affect the market price or value of Greenwell's
shares. Accordingly, we find that Gordon's decision to recommend the
Revised VSE Position, was a material fact in the affairs of Greenwell.


That Baker and Irving had knowledge of Gordon's decision there can
be no doubt. They were in the room and it was the focus of the meeting.
Nor can there be any doubt that they knew it had not been generally disclosed
when they purchased Greenwell shares during the first hour of trading
the very next day.

We therefore find that Baker and Irving, while in a special relationship
with Greenwell, purchased its securities with knowledge of a material
fact in the affairs of Greenwell which they knew had not been generally
disclosed. As a result they breached section 68(1) on August 26.

The Superintendent of Brokers has requested that the Commission issue
an order under section 145 of the Act to remove the trading exemptions
of Baker and Irving for a period of between two and five years. The Superintendent
has also requested that Baker and Irving be removed as officers and directors
of all issuers and be prohibited from so acting for a similar period
by way of an order under section 145.1 of the Act. In addition the Superintendent
sought an order for costs under section 154.2 of the Act.

Counsel for the respondents argued against the imposition of orders
under section 145.1 and 154.2 on the ground that the sections came into
force after the events that were the subject of the hearing and after
the original notice of hearing and, therefore, that the requested orders
would be retrospective in effect. The Commission has previously addressed
this question in a decision in the matter of Marathon Minerals et al.
(British Columbia Securities Commission, Weekly Summary, March 17, 1989,
pages 24 to 26). The panel in that hearing decided in similar circumstances
to impose orders under section 145.1 on the basis that the purpose of
such orders is to protect the public interest, not to penalize past actions.
The panel did not impose orders under section 154.2, because it determined
that such orders would be unfair in view of the fact that the hearing
began before the enactment and coming into force of the new section.
There is no such concern in this case, as the hearing began after the
amendments came into force and the amended notice of hearing stated that
orders would be sought under sections 145.1 and 154.2.

Section 68(1) is one of the key provisions of the Act. It is intended
to make the market operate more fairly by prohibiting trading in securities
by certain persons having possession of certain information that has
not been disclosed to the public. We have found that there were two breaches
of section 68(1) by Baker and one by Irving. Although their trading did
not involve large sums of money, the violation of this fundamental prohibition
requires that the Commission make appropriate orders to protect the public
interest in a fair trading market. These orders should serve as a clear
message to other participants in the marketplace about the activities
the legislation is intended to prevent.

We order, under section 145(1), that the exemptions described in sections
30 to 32, 55, 58, 81 and 82 of the Act do not apply for a period of two
years from the date of this decision to Baker or Irving, provided that,
for a period of 30 days from the date of this order, Baker or Irving
may trade, through a registered dealer, securities that they hold at
the date of this order, for the sole purpose of liquidating their holdings,
and all such trades shall be reported to the Secretary of the Commission.


We order, under section 145.1(1), that Baker and Irving resign any
positions that they hold as directors and officers of reporting issuers
and that they are prohibited from becoming or acting as directors or
officers of any reporting issuers for a period of two years from the
date of this decision.

We order, under section 154.2, that Baker and Irving pay prescribed
fees or charges for the costs of or related to the hearing, the amounts
to be determined following further submissions by the parties to be made
within thirty days of the date of this decision.

D.M. HYNDMAN, Chairman
E.L. LIEN, Member
J.P.H. McCALL, Member